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Quantemonics (37.40)

How to Fix America!



December 01, 2009 – Comments (48)

Many have asked me this year, what can we do to change our economic fate in the United States?  We appear destined for larger crises in the future from historic debt levels, a loss of confidence in our institutions and leaders, negative changes to spending patterns, and out of control money printing by the Federal Reserve bank and Treasury Department.  Here is the blueprint to change our course dramatically for the better, and what I would recommend we implement as a people, united under God and each other, if I served as President of this great nation again.

Raise the Reserve Requirement on Banks immediately.  Reserve requirements on banks are one of the most primal ways of controlling bank lending and credit creation in our economic system.  From a fractional money creation standpoint, the lower required reserves are pegged, the greater the rates of credit and loan generation become, but with the caveat of reduced equity and savings to back up each dollar of new loans.  Reserve requirements and related bank equity as a percentage of loans and liabilities have grown more and more relaxed, with a smaller safety net during a recession or financial panic, starting in the mid-1980s as a way to expand the supply of credit during the savings and loan crisis of that period (which resulted from the sky-high interest rates of the early 1980s to calm inflation; the record inflation resulting from the U.S. leaving the gold standard for money in the early 1970s).  During the last decade, financial institution loans/liabilities to real world, tangible equity ratios reached unconscionable and risky rates of 20 to 1 or greater, versus the typical and conservative lending standards of 10 to 1 or 5 to 1 that existed pre-Federal Reserve Chairman Greenspan, our very own bubble boy.

When the real estate bust became apparent, our remaining equity backstop in the banking system was quickly wiped out between 2007-2009, and is the most important “cause” of the worst recession and financial panic since the 1930s Great Depression era.  The money printing and emergency spending by the government and Ben Bernanke’s FED since mid-2008 has been a massive effort to recapitalize banks and shore up consumer/business confidence that the economy will not get worse.  From October 2008 to November 2009, basic “required” banking reserves have moved from a record deficit (constraining any new loan origination) to the new record high, excess reserve level that has stabilized the economy short-run, and ushered in what seems to be a return to normal for the financial markets.  Nevertheless, main street and small business USA have yet to recover, as banks refuse to write sufficient new loans to grow our economy, from lingering fear and tightened loan standards.

At this stage we have to do a better job at protecting our long-term banking health.  I propose that we sop up the excess reserves in the banking system (now at a record $800 billion beyond required reserves by regulators) that could generate an oversupply of lending in the near future and another crisis by helping to spike annual demand-induced inflation.  If banks do not want to make new loans to businesses and consumers today from record excess reserves, what’s the point of leaving the capital on their books?  It will only lead to trouble down the road, and higher stakes risk-taking that will surely backfire for us all in the not too distant future.  Increasing the reserve requirement now, while plenty of excess reserves are in place, will mandate the banks to retain safer levels of equity and reserves that will benefit us in the long-term.  Strengthened balance sheets for banks, with an increase in shareholder/owner equity to loan/liability ratios would guide investors and consumers globally to positively revalue the safety and long-term viability of the entire financial system.  Difficulty to Accomplish:  Very Easy.  Federal Reserve vote is all that is necessary.

Reduce the size of individual Banks, and the Too Big to Fail conundrum.  One major domino effect of the latest monster financial crisis revolves around a handful of banks and brokerages holding America’s fate under their concentrated control.  The Lehman collapse and bankruptcy may go down as the biggest failure of Federal Reserve and Treasury decision making in the nation’s history.  While allowing a private sector corporation to fail and go into receivership is quite common, letting a company with counterparty financial contracts and obligations with every other large bank in the world to go under, holding liabilities roughly equal to 10% of the entire annual economic output (GDP) of the nation, is beyond comprehension to me.  THE FEDERAL RESERVE WAS INITIALLY ESTABLISHED 100 YEARS AGO TO PREVENT FINANCIAL PANICS AND CASCADING DEFAULTS FROM HAPPENING!  (I will get to the FED later in this article.)  For decades it has become widely held dogma that huge, financially important banks and brokerages would not be permitted to fail, as was allowed to happen to Lehman, and this philosophy was given the name: “Too Big to Fail.”  [Lehman was pushed into bankruptcy and the global financial system thrown into chaos just before, perhaps “the” important national election in modern political history in the U.S!  In the past, major FED decisions like this have also been considered historically forbidden behavior from the summer months into a national November election!  I won’t get into the why, at this stage, but there are explanations for the FED and Bush Administration to swing the election.]  Today, there is no doubt that some of our banks, insurance companies and brokerages have gotten “too big to fail,” and if allowed to unwind in an unexpected and swift manner, like the Lehman example, our economy can be brought to its knees in a hurry.

The smartest way to defuse the long-term and future risk of bank failures on the overall economy is to make each institution smaller, with less weight given to each failure on the entire system.  Sheila Bair, FDIC Chairman, has mentioned the idea of breaking up our largest banks in the past, and it sounds reasonable to me.  Let ‘em fail if they take on too much risk and the economy turns sour.  If asset managers and banking leaders knew their jobs and reputations were at risk with a true bank failure, lending policies would be more prudent and risk-averse, or at least more diversified.  Look at how the failures or near failures of Bear Stearns, Lehman and Merrill Lynch have treated the reputations of their aggressive leaders since late-2008.  Others like GE’s Jack Welch, Citi’s Sandy Weill, and AIG’s Herb Greenberg are examples of CEOs selling their soul to the devil for quick buck decisions that have now gone full circle.

Forget about the quick buck strategy of growing through synergies and cost cutting with ever larger bank mergers, now you will “earn” your keep by writing new loans at a fair interest rate above the acquired risks involved.  You would safeguard the assets of bank savers, generate some economic growth, and NOT put the rest of us spending, saving and borrowing money in a realistic and conservative fashion at risk.  Total Liabilities of $300 billion or 2% of GDP is the new bank and financial lender size limit, no exceptions; this will include insurance companies, brokerages, banks, and lenders of all types.  We can work out the details, including hedges, derivative valuations, proper diversification and off balance sheet risk rules in backdoor committees - Congress will need something constructive to do, won’t they?  Difficulty to Accomplish:  Easy.  Pass a law in Congress, and let private sector business organizations do the rest.

Eliminate the Federal Reserve.  The formation of any central bank was expressly forbidden by our founding fathers.  The first try at such by Alexander Hamilton begun in 1791 was even ruled unconstitutional and closed 20 years later. At the time the Federal Reserve System was initially formed in 1913, its overriding purpose was to “prevent” extreme booms and busts in the economy, largely as a response to a series of financial panics or bank runs, particularly the severe panic of 1907.  Over the decades, the roles and responsibilities of the Federal Reserve have expanded dramatically and its structure has evolved.  Many credible economists and market theorists now believe it is the prime instigator of ever larger booms and busts, as they try to paper over the last economic cycle and commit the transgression of constructing new fanciful ways to lend money.  High economic growth rates, full employment, general price stability, rising stock markets, and now real estate price support are all add on goals, for a FED that cannot even do Job #1 correctly.

In addition, concentrating so much power in the hands of a few Federal Reserve Governors is quite the opposite of the financial system design our founding fathers outlined in the Constitution.  Why should a small group of unelected, unaccountable individuals decide the value of a Dollar, the target rate of inflation and economic growth, plus who gets preferential loan terms?  Separation of powers, free market determinations, lists of historical evidence, and common sense theoretical arguments highlight the FED’s current operating structure as a poorly contrived and less efficient approach to creating long-term prosperity.  In my humble opinion, if the FED knew what was good for America during the second-half of 2009, they would have been raising interest rates and supporting the U.S. Dollar value, to foster confidence in the financial system and encourage overseas capital inflows for financing our huge federal deficit borrowing appetite, regardless of any negative effect on real estate and stock pricing, especially with substantial signs of economic stability and growth appearing again.

Da!  Remember taking away the punchbowl before the party even gets started; anyone take an economics class in high school at the FED?  Slow and steady economic growth, low inflation rates, and time to thoughtfully rebuild are what Americans need to get our house in order.  A stable Dollar is the lynchpin of ANY serious effort to move America in the right direction now.  The FED has printed $16 trillion in funny money for loans to banks, individuals and foreign governments, since its inception according to “officially” reported numbers.  That is more than the roughly $1 trillion of cash in circulation and $12 trillion in total federal debt COMBINED, without any authorization or say by even one accountable elected official.  That doesn’t sound very democratic or conservative in my playbook.  Something like $4 trillion has been electronically generated the last 18 months, or $13,000 per citizen ($35,000 per household), just to shore up the banking system and keep American business from imploding.  [A $13,000 check mailed to every U.S. citizen would have solved more of our ills than papering over past risk taken by a handful of banks!]  Personally, I have been paying off debt like crazy to avoid future financial stress, while the FED has been doing the opposite at an alarming rate to cover its tracks and past failures.

Enough is enough, I cry “Uncle!”  Let us sink or swim on our own, before we are collectively weighed down with soooo much debt and funny money, that we are all fish food!  Confidence in the future value and support mechanisms for the buck are sorely lacking presently, to our long-term detriment.  If one unelected individual, like our current Federal Reserve Chairman position, decided what the most fundamental rate of commercial exchange would be, our Dollar’s worth, we would call him KING.  At its core, the idea of a KING (tyrant) with power over us all was the reason we fought English control of America with the Revolutionary War, for God’s sake! Difficulty to Accomplish:  Extremely difficult to untangle the web of FED involvement in the economy, but crucial for long-term economic growth.  Passing a law abolishing the FED is the first step.

Bring back the Gold Standard for Money in Circulation, as mandated in the U.S. Constitution.  I have been screaming this for decades.  Article 1, Section 10 says: “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;…”  In essence, the state in which you live cannot legally accept your tax money or send you a check (or Federal Reserve Note with the Picture of a President on it) unless it is specifically backed by either gold or silver!  The wisdom of such a gold standard and its effects on long-term economic activity have been proved CONCLUSIVELY, since our deviation from the Constitution in 1971.  President Nixon and cohorts arbitrarily ended the official gold exchange rate as Dollar confidence waned internationally in the late-1960s and early 1970s.  Gold bullion was being sent to overseas governments at an alarming and unsustainable rate as Dollars were fully exchangeable for physical metal, and oversized federal spending for the War in Vietnam combined with the ill budgetary effects of several recessionary shocks.  Looking at the headline results, when using a gold standard as prescribed in the Constitution, the U.S. achieved 5% GNP growth and 1% annual inflation over roughly 200 years of various social and political periods, and generations of worker saving and spending patterns.  Since the early 1970s, our nearly 40 year test of living outside the original guidelines for the value of money has averaged 3% GDP (2% GNP) expansion and 5%+ annual inflation.  For perspective, the first ten generations living under our Constitution enjoyed a doubling in their standard of living every 15 years.  The last two generations have only doubled their real, inflation adjusted income once the last 30-40 years, without a gold standard!!!

Pick a number between $1000 and $2000 an ounce for gold, making the U.S. Dollar convertible to bullion by foreign banks, and America’s currency could again be considered as good as gold.  I propose $1300 per ounce, as it nicely represents the original 13 Colonies, and because 13 is my lucky number.  Given the cost of production is closer to US$600 an ounce today worldwide to mine out of the ground, and gold has traditionally sold at a market-based price 20%-100% above the to the cost of production the last two centuries, a $1300 number should please anyone who has purchased gold in history, as each will have a profit versus the all-time high quote of nearly US$1200 an ounce in November 2009.  There would be no effort from foreign banks to cash in U.S. Dollars for gold bullion above a boom induced high quote, and I believe enough of a cushion beyond production costs will mean this $1300 fix will last for decades if not longer, under the low inflation environment that will be the net consequence of such a decision. 

As a ratio of printed and coined currency in circulation, a $1300 fix price also makes tremendous sense.  When we left the gold standard in 1971, there existed approximately $0.28 in gold for every $1.00 in circulation, at market based prices times the official gold holdings reported by the Federal Reserve bank, divided by Dollars reported in circulation.  The modern high of over $2.00 in gold backing per $1.00 in implied hard currency was achieved with the $800+ gold price of January 1980.  It’s easy to understand why the Dollar’s value versus other currencies exploded between 1980 and 1985, from both the strong implied gold backing of this period and high interest rates engineered by the Federal Reserve to stop the declining currency and rising inflation problem of the 1970s, that directly resulted from leaving the gold standard.  High real, inflation-adjusted interest rates and holdings of gold encouraged substantial capital inflows from all over the world into U.S. Dollar assets during the 1980s.  At the all-time low, implied gold backing in April 2001, a $250 gold price per ounce produced just $0.15 in gold holdings for every $1.00 in circulation.  In comparison today, at $1300 an ounce we would again construct a decent, although not spectacular gold backing of nearly $0.44 per $1.00 in printed money, much better than the late-1960s and early 1970s number, when we left an official gold peg for money.  One last mention, without a legitimate audit of the Federal Reserve, we will have to assume the gold holdings are real and not already sold forward, plus the Dollars in circulation data, etc. are accurately counted!  The universal fear from past and current FED employees about an honest audit should have us all a little worried and upset.

Harking back to the early Depression years, President Franklin Roosevelt and the Treasury moved the official gold peg from near $20 to $35 an ounce in 1933-1934.  This effort of devaluing the currency and increasing its supply to offset the velocity of money spending collapse and add capital reserves into the banking system was one crucial factor thoughtful economists credit with easing the worst financial crisis in American history.  Considering our present economic situation is somewhat analogous to the early 1930s span in history, moving from US$250 an ounce gold prices during 2001 to a $1300 peg now should be quite satisfactory for reflating the base money stock and restoring confidence in the “value” of each Dollar in circulation, as required by the intelligently written Constitution.

No more money printing - everyone inside and outside the U.S. will know exactly what $1 represents in underlying value.  If the bond market was confident inflation was truly a dead issue (as prescribed with a long-term gold peg), we could count on and bank on low interest rates to stimulate the economy for years to come.  Greenspan and other FED leaders the past four decades have railed against a gold standard since it would severely limit their ability to continually print money when the economy turns sour.  Exactly my point, and proof of the brilliance of the learned philosophers who wrote the central guidelines for the strongest, most productive and prosperous society in the history of mankind.  Let’s get back on track and follow the original design for our economy, before each Dollar’s underlying worth is the same as toilet paper!  This change may be the most significant to our long-term future as leader of the free world.  As a consequence of holding a gold standard, the federal government will be obligated to address our fiscal deficit spending and trading imbalances with other nations to “defend” the currency and keep the market price of gold under $1300 per ounce.  The only avenue for the government to print new money, would be through purchasing an equal quantity of gold on world markets to maintain the arranged peg ratio.  Difficulty to Accomplish:  Moderately difficult, but doable.  Passing a law is the start.

Get my American brothers and sisters out of the Middle East.  Let the different power centers in the Middle East: Israel, Egypt, Iraq, Iran, Saudi Arabia, UAE, Dubai and Pakistan figure out how to coexist on their own.  We will never Americanize or democratize the Islamic countries through military occupation.  In the end they can fight between themselves and we can work on alternative energy resources produced in America, through our own invention and ingenuity with the $200-$300 billion saved annually arming and feeding our kids to wait around and get shot in the God forsaken deserts of Islamaland.  If the nations of this region want American-style societies, they will create them from the inside out, not from outside pressure.  Unless you expect the U.S. to keep spending hoards of capital we don’t have (money borrowed from China), to occupy several deserts for another 40-50 years, like our occupation of Europe and Japan after WWII, there exists NO CHANCE of success under current U.S. policies and reasoning.  We will have to spend an estimated $5 trillion (at current rates) the next several generations to guarantee a stable, America-friendly Middle East.  Is the American interest of cheap oil worth that much in the end?

Why not just bring back horses, for local transportation?  They are incredibly cheap to run per mile, more fun to own, American made, and environmentally friendly.  Plus they make great security systems if burglars are in the area.  Screw the electric lightbulb while we are at it [Thomas Edison may have been the craziest, outside the box, American thinker ever!]; candles cost pennies per day to enlighten things!  If it saved your son’s life, you might think twice on this one.  And if you understood that alternative energies are within our grasp, you would be irate at the direction our military spending is headed.  [Fond memories of the late-1700s may be clouding my judgment here.  Nostalgia can have a wicked hold!]

The entire world (including our enemies) knows “the king has no clothes;” we cannot afford military adventures to nowhere.  Looking at history, the Egyptians could not, the Greeks could not, the Romans could not, the Spanish could not, the French could not, the British could not, the Germans could not, the Russians could not, but trust me America can?  Whether you accept this fact or not, expansive and expensive military occupations supported and supplied with a money system lacking a gold standard have directly led to the destruction or dismantling of every other empire attempting such a juggling act in HISTORY, and we are trying to do it on a scale never before imagined for a good 40 years running.  At this stage, withdrawing all our troops from overseas areas and slashing the defense budget to minimal levels similar to pre-WWI totals of economic output [which would be crazy and counterproductive in my view] would still only halve the annual “structural” deficit of spending the government has today.  Our structural deficit situation (recurring and projected to remain) and its related consequences are getting hard to fathom, much less “afford.”  Difficulty to Accomplish:  Easy on paper, but next to impossible in the real world for a host of reasons.  Presidential decision is first step.

Find the two or three mountains, Osama bin Laden is most likely hiding under, and NUKE THEM.  Leave the cowardly bastard terrorists and the governments that support them, with the idea that any attack on America in the future will be dealt with, through all means necessary.  This action would keep innocent civilian casualties to a minimum with our parting blow, while inflicting plenty of chaos and fear on the ground as a haunting “eye for an eye” image for future dimwits harboring terrorist losers (i.e. Afghanistan, Pakistan, North Korea, Syria, Sudan, Iran, etc., etc., the list goes on and on).  Anyone remember: Don’t Tread on Me?  Difficulty to Accomplish:  Press a button, but deal with the morality issues forever. 

Sell Alaska to China.  China needs natural resources - Alaska has them.  After Seward’s Folly purchase of Alaska from Russia for $7.2 million in 1867, exchanging this lightly populated, cold, far away land to China in exchange for the roughly $2 trillion in federal Treasury debt owned, would be a win, win for both sides.  [Heck, even Sarah Palin ran when she had the chance.]  I cannot dream up another legitimate way to cover the money we owe China.  Alaska has lumber, a large fishing industry, huge metal and oil reserves and production, basically all needed ingredients for China’s economic growth aspirations.  They have already purchased chunks of Africa in an effort to secure the raw materials to fuel expansion.  [I thought about throwing Hawaii in the mix; it may be closer to China.  However, Hawaii doesn’t hold the valuable and vast natural resources of Alaska, or a revenue stream big enough from pineapples and tourism to get close to the $2 trillion price tag we require.  I am also partial to keeping Hawaii, as I honeymooned in Maui during the present lifetime.]

Perhaps selling Alaska (which is almost entirely federal and state owned land) is a little drastic; we could use it as tangible collateral instead for China, in case we cannot or do not wish to pay them back in gold-based Dollar bills in the future.  While this may sound far fetched and off the wall, consider the alternatives.  In 2009, China now owns a greater sum of U.S. assets than any country has owned of another, in all of human history!  Most Americans do not yet realize our foreign debt size, but many of us send our first week or two of taxed income to the federal government each year to pay for the “interest” on the debt we already owe China, and the situation gets worse each year.  Basically, we are starting to work for them!  Trade wars with China appear all but inevitable as friction mounts over the direction of short-term monetary/Dollar value policies, rising rates of credit creation in the U.S., unmanageable deficit spending inherent in U.S.’s current economic course, and the near universal odds of high inflation rates destroying the purchasing power of China’s bond investments the next 5-10 years.  In fact, it is not hard to imagine an actual military conflict between the U.S. and China to erupt in the next decade over related frustrations about the debt on both sides of the Pacific, if America does not change course drastically and support China’s investment here.  If you were given a black and white choice of giving up Alaska now, or having your children (and perhaps tens of millions of Americans) perish in a military conflict over Taiwan or Japan in 5 years, which choice would an honest, practical individual make?  [After we sell Alaska, we can finally allow Puerto Rico to become an official state also, as Florida is getting full of people.  We could use their resort landscape for commercial development and build political bridges to the rest of our natural sphere of influence in the Caribbean region.  Plus, we could all keep the existing American flags with 50 stars, instead of having China sew new ones with 49!]  Congress can work on the details, like how we repatriate Alaskans back home to the contiguous states, and properly appraise their private property sold to China!  Difficulty to Accomplish:  Logistics headache, but much easier than you might think possible to negotiate.  Passing a law to authorize required.

Forget about Health Care Reform in 2009-2010 until we get our fiscal house in order.  We cannot afford the budget as is.  ADDING new health care expenditures and more troops to the Middle East is beyond comprehension to me.  It’s kind of like going after Saddam and Iraq, because 20 screwballs with razor blades attacked us from Afghanistan.  Keep your eye on the ball, and quit trying to change the subject/focus from the real problem at hand.  Osama bin Laden and friends are still out there, as will our huge deficit spending and structural trade problems if not addressed pronto.  President Obama can run his re-election campaign in 2012 on the platform of creating a single payer, basic government health program AFTER we have tackled the real debt and banking issues FIRST.  By the way, I am all for the ultraistic goal of basic national health care for everyone, however supporting enormous military spending in the Middle East in “combination” with skyrocketing government expenditures domestically WILL BANKRUPT OUR COUNTRY, NO DOUBT ABOUT IT!

We must demand a massive change in our current economic course to our leaders before it is too late!  Just look at how the stock market has peaked, gold has exploded higher and the U.S. Dollar’s international standing has tanked since Health Care Reform and an expanded troop role in Afghanistan were brought to the fore in September 2009.  In essence, the proposed “fixes” for the Middle East and universal health care coverage will kill the patient!  The existing level of military and entitlement (wealth transfer and safety net) spending is today well beyond a sustainable level.  We must look at ways TO CUT HEALTH CARE SPENDING by the government before the great American experiment of democracy and capitalism becomes only a line in a history book!  We won’t have government help for health care, any say in the Middle East or another geopolitical region of tension, any hope of full employment, a sound currency of exchange, much “wealth” leftover when the markets adjust for reality, or even many of the freedoms we now consider undeniable in a few short years, as the powers that be try to shut down free speech criticism.  How is this sound long-term policy?  Difficulty to Accomplish:  Very Easy.  Do nothing.  (Or better yet, slash existing entitlements, including Health Care expenditures by Uncle Sam, which would be Moderately Difficult.)

Reinstate the Uptick Rule for Short Selling!  In no other legal and ethical commercial endeavor in this country can you sell something you do not own.  Such a design is usually punishable in criminal court as fraud, but for some reason Wall Street acts like this a God given right, and is today business as usual.  Having an uptick rule from the late-1930s Depression period until the all-time stock market highs of July 2007 didn’t exactly hurt America.  [The new short sale, uptick rule that served America so well for 70 years was championed and implemented (when he served in government later in life) by one of the biggest short sellers in history, Joseph Kennedy, who largely earned his fortune betting “correctly” against America during the stock market crash of the early Great Depression years. Ironically he used his power and fortune derived from selling America down the river to put his son, President John Kennedy, in the White House in 1960.  I wonder if his unregulated short selling helped to usher in the Depression, and he felt guilty about it later in life?]  Having a “limit” or regulation on greedy pinhead sellers of an equally serious buyer on the other side of every new short sale is logically a fairer way to allow such deviant behavior, for those wanting to benefit (and only benefiting) from driving companies into receivership, zapping legitimate stock wealth, slashing employment for hard working Americans, destroying tax receipts for the government, and crushing confidence/optimism about life generally.  Aggressive short sellers rank just beneath Osama, in my book, in terms of being upstanding members of the human race.  But heck, paybacks are hell, and for short sellers that’s where they are headed after this life.  True Americans that desire fairness and honest wealth creation, from the Democratic leaning Warren Buffett to the one-time Presidential contender and staunch fiscal conservative Republican Steve Forbes, believe the old uptick rule is a necessity for Wall Street expansion and are advocates of such today!

Exhibit #1 for bringing back the uptick rule: La-Z-Boy (LZB).  The master manipulators on Wall Street scream that free market philosophies are all that matter, and their selling has no lasting effect on a stock.  Are they serious?  [Be careful not to buy into this malarkey as an investor; the Brooklyn Bridge is for sale from the same characters no doubt!]  Here is a stock example I have traded the last several years, and witnessed short selling volumes and trickery day after day in late-2008 and early 2009.  LZB was heavily shorted both legally and illegally as it fell from over $10 per share in September 2008 to $0.53 in March 2009!  Then it rocketed back to $10 a share in September 2009 just as fast as it fell, when the short sellers retreated in force.  All the while, the underlying “value” of the business changed very little, some 20% by my calculations based on models I have shaped over decades of trading and investing.  No rational or experienced individual can argue with a straight face, that a 95% decline and reciprocal 1,800% gain over less than a one year period are either “efficient” or not manipulated.  I can list hundreds of other examples in the smaller companies I watch, where the absence of an uptick rule allowed outside forces to sell tons of stock they did not own each day, when no buyers existed.  Simple logic really.  This type of destructive decline has never before happened in my decades of market investing experience, and considering LZB is a brand name, long-lived, NYSE listed security, every short seller argument against bringing the uptick rule back is NONSENSE when compared to the empirical evidence.

Why would a reasonable investor put money into any small company today, when short sellers with big pocketbooks can swing your stock’s price down close to zero if they so desire?  Physically, if an equal volume buyer is willing to pay an uptick in price for the new stock volume wanting to be sold by a short seller, you CANNOT drive a stock price into the ground without “cause,” readily and publicly available to all existing stock owners.  When it comes to the uptick rule’s abolishment in mid-2007, “if ain’t broken, don’t fix it!”  Bring it back before we undergo another destructive selling wave in the markets in 2010!  Manipulation of stock prices and wild swings are a given in the future without the old and successfully designed uptick rule, and will only hurt investor returns, consumer confidence and foreign interest in placing capital in America.  If you want to fix this country, the uptick rule is a crucial component of getting us back on the growth track.  Free markets entail honest dealings, and everyone who owns an asset should be “free” to do as they wish when selling.  If you sell something you do not own, by definition you are manipulating reality, and this manipulation of a “free” and fair market MUST be regulated, plain and simple.

Given the ease of controlling thinly traded smaller companies, the truth of the situation can be found when the smaller capitalization indexes, like the Russell 2000, peaked within hours of the elimination of the uptick rule in early July 2007, and bottomed in March 2009, again within hours of Rep. Barney Frank, Chairman of the House Financial Services Committee, widely distributed media announcement that Congress was working on bringing back the uptick rule as part of new regulations on Wall Street!  Statistically, this sobering fact cannot be written off merely as coincidence, but is actual, undeniable, concrete proof of the outsized control short sellers now have on America’s future, without an uptick rule on destructive, blind stock selling.  Difficulty to Accomplish:  Very Easy.  Either pass a law, or tell the SEC to re-issue the old rule.

In Conclusion: I think I should have pissed off about every person reading this, from Short Sellers, to Muslim and Jewish readers, to Military families (whom I cannot thank enough for their sacrifices), to Alaskans, Wall Streeters, Bankers, Health Care workers and users, Seniors on Social Security and Medicare, mainstream Economic thinkers, Bond traders, Federal Reserve employees and beneficiaries, the Kennedy’s, Afghan nationals, Middle East experts, Defense suppliers and contractors, foreign policy backseat second guessers, and perhaps Osama himself (for being compared to low-life short sellers).  But if you want to change America, and point us in the right direction, it’s going to take some balls, insight and a real kick-ass attitude.  Are we up for it?  Doubtful.

If we accomplish all the above, we could drastically pay down our national debt, stabilize the value of our currency and basic mode of economic exchange, foster greater long-term economic growth, renew confidence in each other and the financial system, and put our enemies on notice that we will do whatever is necessary to find future bastards that attack America, without the grandstanding, endless speech giving or mindless jaw-boning, devoid of common sense logic and real military punch.  (I hate our foreign policy of talking big and never picking fights with anyone but enemies hitting us with knives and rocks!)  Whatever happened to talking softly and carrying a big stick regarding foreign policy actions?  Ahh, the good old days and golden years of past American glory, my friend President Teddy Roosevelt.

Reality Check!  Sadly, I doubt any of these serious and necessary changes to America’s course are on the agenda for our leaders in Washington or New York.  If you think fighting the Health Care lobby and revamping this important sector of our economy is difficult, try fighting the entrenched Wall Street lobby, or standing up to the military-industrial complex that President Eisenhower feared, or taking on the Federal Reserve that has printed/loaned more money outside the Constitution than the freely elected, legal and accountable Congress of the United States.  I am afraid wild swings on Wall Street are now the new “normal” and America’s way of life will be under attack, both from inside and outside this country for years to come. 

Hating China at this stage would be quite counterproductive to America for a variety of reasons, as will the desire to look inward and protect our economy with tariffs and trade subsidies.  I congratulate China and their astute leaders for creating a more capitalistic society that is helping to feed the mass of humanity living in east Asia.  China’s plan to generate large trade surpluses with the world as they build out manufacturing facilities and new cities is rather admirable, since the United States followed a similar growth path in the 1800s and early 1900s.  Just as Adam Smith’s Wealth of Nations philosophy aptly predicted, net export gains and increases in gold holdings (foreign asset ownership) have left this important nation (and the whole Asia region) both enlightened and enriched for their efforts.  It is not a coincidence that China is now selling more cars inside their borders than the U.S. does today.  In fact, the Chinese are trading in bicycles for cars at an amazing rate the last few years of “high” oil prices, as Americans do the opposite by exchanging their automobiles for bicycles, bus riding and walking.  WE, THE PEOPLE, have ourselves collectively to blame, as the freely elected politicians and leaders of this great land the past several decades have been the used car salesmen, quick buck, and easy out decision makers that we have demanded!

If you have better ideas to fix America, I would love for you to post them here.  Otherwise, leave the silly rebuttals, deep pessimism, and “you can’t do that” at the door!  Call me what you will, but I speak the truth.  If you so desire, send a link to this blog page to President Obama – perhaps he will expose himself to something of value tonight, not just the special interests that lobby him and his advisers daily!  I would advocate doing all the above at the same time, as many will have effects that are compounded in a positive fashion by doing some of the others.  Cherry picking [Please don’t mention the word “cherry” to my good friend, President George Washington; he had issues with such a tree in childhood.] one or two ideas will help, no doubt, but accomplishing all nine points of change in unison, will “fix” America and transform our future in amazing ways for the better.

-Thomas Jefferson


48 Comments – Post Your Own

#1) On December 01, 2009 at 11:04 AM, TigerPackFund (< 20) wrote:

Mr. Jefferson,


I've only read the first few paragraphs of your manifesto, but well thought out so far!  Tell it like it is.  I will try and read the rest sometime today.


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#2) On December 01, 2009 at 11:20 AM, SolarisKing (< 20) wrote:

I can fix all of america's problems with one sentence. One number.


It's just a round number that folks will trigger with. A symbol.

If we want to argue the point, we could make it 500.



   Make a law that no person can make more than 100 times the poverty level in a year.
   And that no person can inherit more than 100 times the poverty level.

Automatically all rich folks would be linked to raising the poverty level.


So if the poverty level is 15k? then the max would be 1.5 million a year. The rest would have to be invested in the company, or taxed, or charity.
   All of those avenues have plenty of ways to cheat, so the rich would still get more than one plane, only they would have to share it with the other folks in the company. 


So if you wanted your kids to inherit lots of cash, you should spend your life setting up foundations to raise the poverty level.


Yes i know, there are plenty of fools who will say 'nay'. But if the only reason you say it can't work is 'because it can't work' then. . . .. . 

well, i was never into the circular logic of losers/quitters. I would rather say a sin is a sin, than to reduce myself to the pitiful state of apathy.


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#3) On December 01, 2009 at 11:24 AM, outoffocus (23.82) wrote:

My only addition would be to encourage more entreprenuership and innovation within our borders (how can we "create job" if you are not creating businesses that need jobs).  Outside of that, great blog.  I'm going to share this one.

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#4) On December 01, 2009 at 11:38 AM, dudemonkey (53.55) wrote:

Some great ideas in this blog and thread.  I'm sure we're going to see more great ideas from the CAPS community!

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#5) On December 01, 2009 at 12:02 PM, HomerJFool (< 20) wrote:

Wow!  Fantastic post.  Easily one of the top three pieces it has been my pleasure to read on this site. +1 rec.

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#6) On December 01, 2009 at 12:48 PM, ocsurf (< 20) wrote:

That made my morning. Great read!

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#7) On December 01, 2009 at 1:01 PM, hhasia (65.14) wrote:

From China: I say thanks Mr. Jefferson. I will lease back the pipeline at cheap rates.

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#8) On December 01, 2009 at 1:09 PM, TheClub55 (< 20) wrote:

Why sell Alaska?????  When we can just default, really China needs us waaaaay more than we need them.  There is zero reason to give them a state we can just tell them they will never get paid.  Oh they will cry and toss fits, but a trade war would hurt them more than us, we'll simply switch to the next lowest provider or change tax incentives to shift production back home, it won't be painless.  But, china will have to deal w/ 100 mln unemployed if that happens and they will likely find torches and pitchforks.  Just like the SNL skit showed - we are going to bend them over and not even give them a kiss.

 Like most of your other points and the level of difficulty was spot on, just our commander and chief is wholly owned by special interest, so don't expect much to change. 

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#9) On December 01, 2009 at 1:18 PM, outoffocus (23.82) wrote:

Why sell Alaska?????  When we can just default, really China needs us waaaaay more than we need them.

RARELY does debtor hold the power over the lender.  If we default, the dollar tanks, commodities skyrocket, and the US becomes the new Zimbabwe.  China doesnt need us, and when they finally figure that out, we're in trouble.

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#10) On December 01, 2009 at 2:07 PM, nottheSEC (79.35) wrote:

 KUDOS, BY JOVE, I'll think about it and politely BOOOOOOO on these ideas> KUDOS bY JOVE on a higher reserve limit absence of loans ,a reinstitution of the gold standard as your inflationary numbers are spot on, and demiltarization of the middle east and yeah bring back horses and others.

I'll think about it! Now on pawning Alaska we have to do a cost benefit analysis. I'm sure close to ANWAR(protect wild life the W in Anwar) or near the arctic circle there are huge reserves of gold and black gold to hold us to better green initiaves. We should perhaps also do a strategic hit on the mountains we think Osama Bin Ladin is occupying but the key is strategic.  

 BOOOO!!!Forget about Health Care Reform in 2009-2010 HECK NO!  People cannot continue to go broke or lose everything because they are sick.Its embarassing enough that we are the only developed nation that allows this. There are better times to do this in a financial equation but this is a HUMAN equation. Some folks hate the public option ok eithier have insurance companies do it or do the public option on a trial basis( 4-10 years) with a sunset clause but GET ER DONE. Some folks have excuses NO good.Present your arguments elected officials compromise and get er done. 

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#11) On December 01, 2009 at 2:09 PM, nottheSEC (79.35) wrote:

TickRTapeKing well written blog and all IMHO....J

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#12) On December 01, 2009 at 3:42 PM, TigerPack1 (33.56) wrote:

Mr. Jefferson,

I wish you could run for President!

We sorely need common sense thinkers to run this country again.  I fear our predicament is nearing a fatal blow, if the U.S. Dollar is allowed to free fall in the coming months.  This is the key to holding everything together right now, and is the exact opposite situation of the super-strong, export surplus Dollar of the Depression years.  Helicopter Ben will not be able to flip the ship upright and let free markets run the economy again, until the fiscal deficit is reduced and interest rates skyrocket.  I don't know how the economy will survive the medicine to properly correct things.  Our current Ponzi scheme of printing more and more Dollars is the only game in town.  Ask Bernie Madoff how well it works, until you get caught with no way out!


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#13) On December 01, 2009 at 4:20 PM, ReadEmAnWeep (88.41) wrote:

How about getting rid of government spending, paying off debt with the surplus, then cutting taxes.


Nah, too hard. Better leave it for the next generation to worry about. 

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#14) On December 01, 2009 at 5:01 PM, nottheSEC (79.35) wrote:

 How about cutting taxes and getting rid of government spending by NOT extending corporate welfare be it locally for stadiums or nationally for banks.? Where is the free hand, bootstrap metally and self -reliance in that? The only trickle down to us is similar to the trickle my pet does when he goes outside. NAH too hard better leave Amercia to corps and not " WE The People."We don't deserve politicians who are not indebted to special interest.  

 IMHO and if I am harsh after TARP I no longer want to here any philosophy that says corps left alone, unregulated and minimal government will suceed. Blame who you will they lost and we the people got the bil.l

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#15) On December 01, 2009 at 8:28 PM, russiangambit (28.70) wrote:

Great post, I had lots of fun reading it.

> The entire world (including our enemies) knows “the king has no clothes;” we cannot afford military adventures to nowhere.  Looking at history, the Egyptians could not, the Greeks could not, the Romans could not, the Spanish could not, the French could not, the British could not, the Germans could not, the Russians could not, but trust me America can?

This is the one point that needs to be repated a million times until it sinks in.

There are just 2 things that i oppose

1. selling Alska - russians are still very yupset about selling it even though they already have more frozen tundra than they know what to do with.  Americans would regret it even more because they will eventually need more land and land is a finite resource. Plust, it would be a good place to move to in case of global warming.

2. gold as the backing for the money supply -  Gold is not flexible enough to support  the  money expansion needed in case of genuine growth. This is , of course, not to be confused with current indisrimante printing of money by the FED  aiming to reinflate the balloon. I think fiat money system is OK as long as the central bank is either non-existent or completely transparent and has CPI change goal is 0%. The problem is that even if you set up the goal at 0% there is always tinkering with statistics for political reasons. For this reason whatever statistic is used it must be very simple so that any tinkering is obvious. Complexity often is used to obscure the truth. When something is so complex, people have hard time understanding it, instead of bowing in awe before the people who say they understand it
(such as FEd officials), we should  be asking - why is it so complex, what is there to hide?  

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#16) On December 02, 2009 at 12:53 AM, Zhubajie (< 20) wrote:

Why in the world would China wanna buy Alaska for $2 trillion?  If China is to spend money to buy land, Mongolia would beat Alaska hands down.  Lots of natural resources, and a population of less than 3 million, with a per capita GDP of $3,500.  A per capita annuity of 30 years, at say $5,000 for every man, woman, and child, would cost less than $200 Billion (present value).  And it is right next doors, and no need to ship ores over the oceans.

Not that anyone would believe that American pride would ever tolerate selling off such a big chunk of land as Alaska.  No doubt most Americans grew up wondering why the Russians (Alaska) and the French (Louisiana Purchase) would be such fools.  But then the other side of the coin was that these "fools" never really owned what they sold - America had bought stolen property in both instances.

If America is truly interested in creating jobs, you'd thunk Washington would just remove all trade barriers, and start exporting all technology (at high prices to boot).  As long as the Chinese do not know how to make spare parts, selling them military gear has no risk to America at all.  Look at the Black Hawks they bought in the '60s - the Chinese really had to struggle to keep the copters flying once America stopped supplying spare parts.  Now that is the honorable way of reducing that debt.

But look at the real numbers.  China ONLY owns $800 Billion in American debts.  Most of the rest is still owed to AMERICANS.  It is much easier to deal with that - just tax the rich and pay for it.  Total worth of American assets is more than $60  Trillion.  Taxing enough to pay down the $10 Trillion is not going to bankrupt anyone.  Question is whether the plebians can or will ever get organized enough to elect politicians brave enough to take on the rich and established.  

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#17) On December 02, 2009 at 9:39 AM, Quantemonics (37.40) wrote:

Let me get this straight - we have spent/borrowed over $1 trillion (so far) in military wars in Iraq and Afghanistan as a response to 20 guys with box knives hitting us with a sucker punch on September 11, 2001!  Does anyone else think this a little overcooked?

Landing two or three well-placed nuclear bombs on Afghanistan would have cost less than $200 million, expended NO American lives, and acted as a better "deterrent," warning our enemies against attacks on this great land, than our nutty course of action involving occupation of Muslim lands (which won't hurt the cause or arguments in recruiting new terrorists, by the way).  We could have purchased Afghanistan 10 times over, and Iraq several times over, for the same $1 trillion sum!

Hundreds of thousands of Unemployed Americans owe their fate DIRECTLY to the outlandish and simply crazy borrowing/interest repayment needs of the government's military spending adventures, as the military-industrial complex, special interests and Presidents friendly to their cause, are determined to hold onto deserts in the Middle East!  What exactly are WE winning again, by staying the course, in this misguided, empire building exercise?  Stepped up spying on Americans and those residing here, increased intelligence activity abroad, and tighter border controls should be sufficient to prevent another 9-11 attack in this country, in my humble opinion!  The FEW near misses the last eight years, have been sniffed out by the FBI and other U.S. intelligence services, with much less funding!

Stop the madness!  Did anyone study the "guns and butter" debate/conundrum in high school or college economics courses?  The more we spend on foreign wars, the weaker the U.S. economy will become at this stage, as we destroy the value of each Dollar, confidence and trust in America, and pile on additional debt we cannot afford and will never pay back.  Is this what America voted for one year ago?

It doesn't matter if we leave our sister colonies in Iraq and Afghanistan in one year, five years or twenty years, the net effect is that we will leave a political and military power vacuum on the ground, that will be filled quickly by the powers that existed for centuries, before our meddling.  The only differences will be the trillions in new debt WE acquire and the toll of additional American lives lost (or put into shambles), before coming to our senses.  Our 9-11 attack and 1990-91 Iraq War "paybacks" have already been completed.  There is nothing for us to gain by staying the course, except a small degree of military PRIDE.

Our founding fathers were dead set AGAINST empire building, as America’s main reason for fighting the Revolutionary War was to break the bonds of English control from far away lands.  We tried to write into the U.S. Constitution, enough hurdles and balances (separation in powers) to make it difficult for us to engage in long, drawn out military occupations overseas.  Now we exert control from far away on every region of the planet; what have we become?

The Vietnam War, from its oversized military spending/borrowing and cultural friction, brought the U.S. economy to its knees in the mid-1970s, and forced our money off the sacred and Constitutional gold standard.  We are currently fighting two Vietnams, one in Iraq and one in Afghanistan, in the midst of historic record money printing and deficit spending to hold up the domestic U.S. economy.

Yes friends and citizens, we may be nearing a breaking point, from which America's finances and societal organization will never be the same.  Gold prices bottomed months before the 9-11 attack, and have undergone a decade long rise in price and stature similar to the 1970s and 1930s decades of historic economic change and instability.  In a few short years, we will look back and ask what we could have done differently.  Is it too late to change our course already?


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#18) On December 02, 2009 at 10:33 AM, nottheSEC (79.35) wrote:

Let me get this straight - we have spent/borrowed over $1 trillion (so far) in military wars in Iraq and Afghanistan as a response to 20 guys with box knives...

No we spent a small fraction to justifuiably weed out you later state. We spent the rest on " Cowboy bravado" and "Weapons of mass distraction", W wished to settle the score for his father. The elder Bush was embarassed by the Gulf War when we left the region just about when Saddam was going to exile and despite our promises to teh indigenous people. I state facts and reiterate your warning on nation building and enjoyed your article.

We will leave a political and military power vacuum on the ground, that will be filled quickly by the powers that existed for centuries

RIGHT especially in Iraq! Lets see hmm. Who would like to be a dictator in a land full of oil?

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#19) On December 02, 2009 at 11:46 AM, Zhubajie (< 20) wrote:

But then we plebeians are not supposed to share the "wisdom" of the ruling elite.  We never were, and we still aren't. 

That's why when you read the Chinese blogs (there are over 2 million, and while they do not blog much about domestic politics, they blog a lot about America and the world), there are theories galore, about how this insistence on inserting tens of thousands of American soldiers in Afpak, and the maintenance of permanent big forward bases, are all part and parcel of some grand American scheme to support a eventual (but inevitable) invasion of China.  These bases are evaluated as the same as those in Korea and Japan. 

Mayhap there is some truth to that. Also, WAR is the perennial favorite for the politicos to try and boost the economy, or at least their own wallets.  IF America is serious about rebuilding countries, you'd think we would spend the trillion dollars on Mexico instead - fixing that south of the border neighbor would eliminate 70% of America's drug problems, and would create a big market for American goods. 

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#20) On December 03, 2009 at 6:18 PM, TigerPackFund (< 20) wrote:

Helicopter Ben Bernanke is a joke being played on all of us.  He says, "Trust Me," the Fed will know when to raise rates, AFTER we see better economic growth!  What happens if we don't see better economic growth for years, and the Dollar goes into collapse mode with higher rates of inflation?  Will he raise rates then?  No, he will not.  Ben has never advocated serious rate increases his entire career, to my knowledge.  The Dollar is tanking and gold is soaring now, because he has refused to raise rates in late-2009, much less some indeterminable time in the future!

He should have been fired serveral weeks after allowing Lehman to collapse in October 2008!  I would be willing to bet confidence in the U.S. Dollar would return overnight, if he just resigned and stepped aside.  Why do we want to keep the same people that created this mess, running things?  If we want to hold bank executives responsible for this mess, why not the highest ranking banker over them all?  I don't get it, not one bit....How dense is Congress for even talking to him in the same room, much less voting to keep him for another term?  If we want to "fix" things, first we have to clean the slate and bring in new ideas and leaders.  If Congress renews his term of failed leadership from the past, they will be directly to blame for failures in the future, especially next year. 


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#21) On December 05, 2009 at 10:12 AM, TigerPack1 (33.56) wrote:

What is particularly worrisome for me is the fact that the Fed is only beginning to tighten and withdraw the record money printing and stimulus the past 14 months, and I cannot honestly figure out how their lack of bond securities buying or outright selling will affect interest rates and confidence in the economy.  The longer they wait to make major adjustments to money policy the bigger the problems will be, in my estimation, as the gold price spike and loss of confidence in the Dollar starting to appear are direct results of the Fed failing "tighten" since September.  Already based on past interest rate spreads and inherent risks in the current economic cycle, I believe the Fed Funds rate should be ABOVE 2% right now, not 0-0.25%, if the "powers that be" wanted to control inflation and defend each Dollar's value in currency markets!

I don't know how Bernanke can retain his job, much less be asking for reappointment, with his straight face suggestion that he knows when to raise rates (sometime far in the future from his testimony in Congress and official Fed statements) when the "markets" are already saying his actions are running way behind schedule today!

I had been expecting a major withdrawal of stimulus and credit to begin late-summer, as did the markets, to defend the Dollar, destroy the gold price boom, and ignite confidence in financial assets.  My disillusionment with the Fed's inaction is on a par with the total lack of an economic plan when president Obama's administration was sworn into office in January.  After the disappointment of January, the stock market dove in price, and a similar event could be about to happen in December 2009 and early 2010.

From a basic technical analysis of the stock market's current level, I don't know where new buyers, in large numbers, can come from to hold up the general price of stocks after early December 2009.  With investor surveys in the 80%-90% bullish range the past several weeks, "adviser" bullishness of 50% vs. only 16% bears in the Investors Intelligence survey, option call/put trading activity highlighting the greatest bull sentiment since the October 2007 top, and cash levels reported at brokerage houses at the same low point as the market peaks of July and October 2007, there is not much buying fuel left in the tank to hold onto current quotes if a reason to sell stocks materializes soon.  Everyone that is going to put money back into stocks, intermediate-term, has already done so, after taking money out during the massive bear slide of 2007-2009!

Putting it all together, either a better economy or weaker economy scenario (catch 22) will lead to increasing sell volumes as interest rate adjustments higher appear likely, and the corporate profit picture becomes more murky to predict.  The only way I can dream up a higher stock market level in 6 months, is from a "best of all worlds" 1990s-like scenario with a rising U.S. Dollar, falling interest rates and climbing corporate profitability and worker productivity.  However, I can argue more logically that we are entering the opposite situation in 2010, a "worst of all worlds" position, economically speaking.  Rising interest and inflation rates, a volatile currency market for the Dollar, falling confidence from consumers and foreign investors in the economy (from where we stand in December 2009), and another difficult year for corporate profitablity could create a backdrop that forces stock quotes 10%-20% lower into the spring or summer months of 2010.


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#22) On December 08, 2009 at 1:19 PM, TigerPack1 (33.56) wrote:

Who do you believe as an investor?  Little Ben says the economy sucks and free money will last forever.  Or, FedEx saying business has been improving markedly each of the last 4 months, and will report considerable profits (being likely the best bell-weather global integrated shipper) in the latest quarter, at rates very close to pre-recession levels.  I choose to believe the one that is audited and paid by investors to tell the truth!!!!  Ben needs to shut up and defend the Dollar before it is too late.  He wants to eat his cake and have it too, but those days are long gone.

More signs of accelerating economic growth--besides the strong rises in gold, commodities, oil, the BDI (shipping rates), shipping volumes (reported by FedEx today), in real estate related stocks, in long-bond interest rates, in employment trends, etc. etc. the past 2-3 months....The highly leveraged media and newspaper stocks have exploded higher the past 5-6 days of trading, as the advertising market is snapping back more strongly than expected!  What in the hell is the Fed waiting for, raise rates now before we create a new crisis next year of skyrocketing long-term borrowing costs and exploding rates of inflation for goods and services!!!  On top of all the nutty money printing the past year, Obama wants to i-n-c-r-e-a-s-e spending on health care, i-n-c-r-e-a-s-e spending on the wars to nowhere in the Middle East, i-n-c-r-e-a-s-e spending with another announcement today that we need MORE STIMULUS?????  Stop the madness before the Dollar's value collapses.  Please I am begging for some common sense NOW.

For those wanting to do some real eye-opening research, look at nominal GDP growth vs. short-term interest rates. I am projecting 3% GDP growth (adjusted for inflation) and 3% CPI inflation for the full year of 2010, bringing a total of 6% in nominal GDP.  Interest rates of zero on the short end during such a period of economic advance, HAVE NEVER BEFORE BEEN ATTEMPTED IN THIS NATION.  IT IS A RECIPE FOR DISASTER IN THE FINANCIAL MARKETS, IN MY MIND!  The Fed Funds Rate should be priced above 2% today, and headed to 3%-4% by mid-2010, if a normal free market backdrop and a Fed desire for a stable currency existed!

Raising the Fed Funds Rate unexpectedly, say by 0.25% or 0.50%, with a headline that the economy is accelerating faster than anticipated, won't hurt the economic recovery one bit!!!  But it would do wonders for holding back the commodity and gold rise, while entertaining some confidence that they know what they are doing from foreign investors and big cats on Wall Street.  Plus, some interest on savings would help encourage the wealth holders of our society, the retired folk, to spend a little more, with confidence that some sort of investment return was in fact returning.  We need time to rebuild America with stable prices for good and services and regular lending rates for small business and consumers.  If interest rates skyrocket next year, we're all right back in the alphabet soup trying figure out what to do next in our decisions, and the economic outlook could actually get worse than the early 2009 period of uncertainty and fear!!!  The economy is coming back quickly, which is a much different situation than the early 1990s play-book assumptions the Fed is using currently.  When the economic numbers show considerable improvement in the 1st Quarter of next year, interest rates will be monumentally behind schedule, if they are still near zero then. Raise rates now for god's sake and ours!!! 

If we wait for real evidence of an economic upturn later in 2010, the stimulus money will become entrenched on balance sheets and in the credit creation system...The net result will be massive inflation in 2011-2012, as it will be next to politically impossible to take it back.  We need to take back large chunks of stimulus now, with a stabilizing economy, before it is too late!....If we don't the stock market will have to decline dramatically to reprice acceptable investment rates on top of 10% inflation in later-2010, for P/Es of 5-10 on weakening earnings, instead of 15-20 on rising profits today!!!!  Do the math, I will gladly take a 10%-20% hit on the stock market now with the tightening moves necessary, vs. a 40%-50% hit in late-2010 and 2011.  Which would you choose?


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#23) On December 09, 2009 at 9:41 AM, Deacon2004 (< 20) wrote:

1. Dump the FED.  Return issuance of money to the Treasury of USA.

2. Reduce fractional lending to 1 to 1.

3. Implement Social Credit and remove Social Security and all welfare programs including Medicaid from Federal budget.  Look up Social Credit.  It was proposed at the same time Social Security was being discussed. 

4. Eliminate Income Tax for individuals and businesses. Repeal 16th amendment to Constitution.

5. Place a 5% Federal sales tax on consumer goods. 

6.  Repeal 17th Constitutional amendment.  This would return power to the states thus limiting the power of the Federal government.

7. Keep Alaska!  If you have to sell a state let it be Massachusetts.  Being governed by a Communist power would not be a shock to the people of Massachusetts but I fear the people of Alaska would have a big problem.

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#24) On December 29, 2009 at 3:58 PM, colddrink73 (94.27) wrote:

Well... if it were up to me I think we (Texas) should just leave the failed Union of the United States and take 1/50th of the debt with us. Well I guess 1/10th of the debt since we would be taking back New Mexico, Colorado, Oklahoma and Arizona with us when we leave. But I think that has as much chance of happening as Congress has of passing a balanced budget (US not Texas... we do that every year). But here's to 2010 may this year be better than the last and may we learn from at least one of our past mistakes. Pick one of your own.

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#25) On December 31, 2009 at 9:30 PM, wildheartfarm (21.48) wrote:

WOW!  i would vote for you too bad any of us with real sense and balls could never get elected.    now i am trying to decide if i can figure out this investing racket   would you be so kind as to  expound on your investing strategy?   i only ask because you seem to hold a degree of intelligence and the ability to speak plainly   thank you in advance for your thoughts

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#26) On December 31, 2009 at 10:06 PM, goalie37 (88.95) wrote:

Great article.  I don't remember the last time I heard political commentary that wasn't delivered by a rage filled, foaming at the mouth liberal/conservative.  There are intelligent, independent people in this country who have the ability to make us great again.  We just need to stop screaming so we can hear each other.

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#27) On January 12, 2010 at 3:05 PM, Quantemonics (37.40) wrote:

Someone else out there has a brain!,skf,gs,c,spy,dia,bac&sec=topStories&pos=9&asset=&ccode=

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#28) On February 14, 2010 at 12:53 PM, TigerPack1 (33.56) wrote:

I really don't like the market's setup for the next few months.  I have been trying to warn people since November and December of last year, that 2010 will see many obstacles to strong stock market performance.  We seem destined to both face the return of free market based interest rates, and a serious effort to slash deficit spending in calendar 2010.  Without massive tax increases and spending cuts, the U.S. (as in Europe) may face a credit downgrade later in the year that would forever damage the reserve currency status of the Dollar.  Related repercussions of not tackling the lingering and growing deficit problem this year, will almost guarantee the creation of hyperinflation in 2011, in my humble opinion.  Cascading credit ratings and skyrocketing long-term interest rates would likely be met by sky-high money creation by the Federal Reserve later in 2010 and 2011.  Chairman Ben Bernanke has all but promised he would prefer the creation of hyperinflation versus a deflationary depression, most recently highlighted in his Man of the Year, Time Magazine interview.

For the stock market, neither a weaker disinflationary economy that would result from serious deficit and spending reforms at the local, state and federal levels, nor skyrocketing interest rates from a coming U.S. bond downgrade and related hyperinflation reaction by the FED have been factored into the near euphoric investor stock valuations of January 2010.

The market's decline the last four weeks without much of rebound, reminds of the 1990, 20% bear market pattern.  And the potential for military conflict with Iran may add fuel to the decline, similar to the Iraq/Kuwait Gulf War of 1990.

Real economic friction between China and U.S. interests has exploded behind the scenes since late-summer, as China has argued without consequence for real market based interest rates in America (which would be considerably higher across the board without Federal Reserve tampering) and serious deficit borrowing reductions.

Technically speaking, a weak January Indicator period for the calendar year, on top of the historically weak performance in years ending in 0, mid-term election years, and the Chinese year of the Tiger (beginning February 14) argue that a lower than normal weighting in stocks from here is quite reasonable.

All told, the background for the stock market is far from ideal today, and may actually be a worse setup going forward than we saw in early 2008.  Scary stuff for sure.  I have gradually moved my accounts from nearly 100% net long in September to net market neutral or even net short in early January.  There are some stocks I still own, and many more that are getting cheaper, but I am "expecting" another 10% or so of downside before making a larger commitment to stocks.  A real crisis later in the year over Iran, China/U.S. relations, or a credit downgrade of U.S. sovereign debt could lead to real carnage in stocks again, similar to the 2008 situation.  I am keeping my fingers crossed that we can avoid a total repeat.


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#29) On February 14, 2010 at 1:54 PM, dbjella (< 20) wrote:

Chairman Ben Bernanke has all but promised he would prefer the creation of hyperinflation versus a deflationary depression, most recently highlighted in his Man of the Year, Time Magazine interview.

Why does Bernanke get to decide?  I prefer deflation so I can buy a home.  Why is ok for computer prices to go down, but not housing....oh that right, tax revenue for local communities is driven off home prices. Actually, I would prefer we didn't have a Fed Reserve, so the business cycle wouldn't be so exaggerated and consumers would really drive inflation and deflation in prices. Report this comment
#30) On February 26, 2010 at 10:00 AM, TigerPack1 (33.56) wrote:

By the third or fourth quarter of growth in GDP (GNP) after a recession ends, the budget situation usually takes a turn for the better, and the Federal Reserve has begun to tighten or at least sent the "easy money is over" message to the markets.  Neither has taken place as we enter the final month of the third quarter of returning growth.

In fact, Obama’s budget for fiscal 2011 is projecting an increase in deficit spending of 5%-10% despite an estimated GDP growth rate of 3%!!!!  And Ben has promised to keep giving away money and loans at the lowest Fed rate ever of zero, indefinitely no less.  With total federal debt to GDP already at a destructive ratio of 80% of GDP and rising 10%-15% annually, our debt situation is today on a par with Greece's mess, but multiply the dollar amounts by better than 50!  If Greece's society can be thrown into chaos over several months, as the chit hits the fan, what will America look like later this year and 2011?  U.S. bonds may finally be downgraded by credit ratings agencies sometime in the fall, after Congress fails to make drastic cutbacks in 2011 spending over the summer debate.  Total chaos in the markets could ensue, that fulfill Alan Greenspan's remarks this week that we are facing the biggest economic crisis in mankind's history presently.

Even Charles Munger, Warren Buffett's partner at Berkshire for the last 40 years, and one of the top investment minds ever, is rumored to have come out this week saying that America is now in a "game over" financial situation.

Thes current U.S. government actions are not rational or have any basis in sustainable economic activity.  10%+ GDP deficit spending in conjunction within zero for interest rates has never before been attempted by any nation in the history of mankind, for a variety of simple logical reasons.  The only excuse "free" market capitalism has allowed America to try such a folly is based on the nation’s stellar brand name of USA built through the annals of history, with help from Fed purchases of  70% of Treasury issuance the last 12 months on the side.  Confidence in this ponzi scheme is waning quickly, even among Americans in the latest polls.  Yes, current government actions are getting way, way beyond sustainable.

Wall Street investors that stay long and bullish are now gambling on the impossible taking place, massive shenanigans, with NO REPERCUSSIONS.  This situation may turn out to be more destructive to long-term economic growth than even the creation of the technology bubble in the late-1990s or the real estate bubble of the 2002-2007 period.  Another crisis is a mathematically certain outcome…

We can debate on when the debt crisis begins, but not if one will occur.  I believe with China walking away the last few months from playing our money recycle game, and the Euro implosion that has begun, “the” American economic crisis of our lifetimes will begin sooner, rather than later, almost surely in 2010, with early 2011 as the latest date remotely possible.

I weep for my country and what is about to take place.

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#31) On March 01, 2010 at 3:26 PM, TigerPack1 (33.56) wrote:

Please voice your opinion today to Senator Jim Bunnings office, that you do not want a government debt downgrade or default in the next 12-18 months, along with its requisite hyperinflation outcome that will destory America's economic future... Mr. Bunning I believe was also one the astute critics of Ben Bernanke's reconfirmation and insane zero interest rate policy when inflation is running at 5% annually today.

Click on the link to write him directly a show of support:

Waiting for the next Senator Bunning vs. the world update... from AP... Kind of reminds me of the guy who stood in front of the tanks in 1989 in Tiananmen Square, China. His fight for democracy, willing to give up his life, is similar to Bunning throwing his political career out the window trying to stop the money printing madness in Washington, DC...

Related mainstream press write-up today:

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#32) On March 05, 2010 at 4:35 PM, TigerPack1 (33.56) wrote:

I watch or own a large number of heavily shorted stocks for short squeezes... As a group they have had a very strong run the last few weeks, many gaining 3-5 times the 5%-6% percentage gain in the overall "market."  It would appear that the latest upmove since early February is being generated by short covering and a change in sentiment that is eradicating most every weak-hand bear and short holder.

We seem to be moving to a very unbalanced sentiment situation, given the increasing difficulties for governments to tamper with the free market.  Eventually in 2010, the bond markets are going to start charging considerably greater interest on all debt for this intrusion... Real economic dislocations are coming very soon, after this spurt of euphoria has run its course, and the illusion of prosperity starts to hit home.

I sold more longs and bought more ETF index shorts in my mutual fund "practice" and in real world accounts today, because I don't want to smoke what Ben is handing out to everyone.  When the hangover hits home, it will be quite painful for stock owners generally.

Some quick math on the U.S. federal deficit situation.

If the federal budget were balanced today vs. the most "unbalanced" in modern American history, with 40 cents of each dollar spent as deficit borrowing:

I figure that the $14 trillion debt total by year-end 2010, owned by bondholders would take about 50 years to REPAY, given 3% real GDP and 3% inflation.

Given 5% GDP growth (which is now impossible) and 3% inflation, probably 30 years. 

Given 2% GDP and 10% inflation (most likely in the real world and Federal Reserve Chairman Bernanke's stated goal), it would take 25 years.

Given 2% GDP and zero inflation, it would take better than 100 years to be repaid. 


Each $1.5 trillion in annual deficit spending (the current rate, and projected number for 2011 and 2012, assuming a massive and optimistic INCREASE in business profits, and related income taxes), is ADDING BETWEEN 2.5 AND 10 YEARS to the repayment period.  So the bare minimum, under Obama's rosy 10-year projection of a doubling in the national debt to $25 trillion, basically translates into a 50 to 200 year payback period!!!!

That's “assuming” rosy economic growth projections and the absence of new economic shocks the next 10 years.

The easiest way to figure the net effect of the borrowing pace, from my calculations, is the current 10% structural deficit the U.S. now enjoys, basically TAKES AWAY 5 YEARS OF 3% ECONOMIC GROWTH FOR EVERY YEAR OF SPENDING $1.5 TRILLION.  So the 2009-2012 period, will surely GUARANTEE a no or little growth economy for the U.S. the next 15-20 years. 

We are completely boxed in here, after following Ben Bernanke’s “experimental” prescription for better health.  The only way to stop this no growth, long-term outcome is to stop the deficit spending, which of course is now the "foundation" for ANY economic growth or stability in 2009 and 2010, especially in the stock market.  Record low, zero interest rates from the Federal Reserve and the ponzi scheme of buying half the Treasury's bond issuance in 2009 and another $1-$2 trillion in mortgage security support have engendered a real "feeling" of confidence that things are getting back to normal.  But at what cost?

Once these numbers start to sink in, and the economy slows again, a new wave of declining confidence, backward moving consumer spending, employment lay-offs, government funding issues from rising default risk and skyrocketing interest rates will really be devastating... Greece's situation currently of a doubling in interest rates and the beginnings of major civil unrest is all but destined now for U.S. shores in later 2010, or 2011 at the latest. 

Therefore, I am no longer bullish on America.  Hedged portfolios and more liquid ones, appear to be the only rational play from this level of investor over-enthusiasm.

While the late-1990s techology/internet boom was labeled as the "best of all worlds" economically and "irrational exuberance" by others as the stock market's excitement and overvaluation was not based in long-term reality, we may look back at the late-2009 and 2010 period as the "illusion of prosperity."

I wish I could be more optimistic, and this situation pains me to no end... But the math says something far different than you hear from the talking head "experts" on CNBC today, who invariably are trend followers and not forward thinkers.


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#33) On March 24, 2010 at 6:04 PM, TigerPackFund (< 20) wrote:


I hope you can join us tomorrow for the live chat on TMFJake's blogpage:

Many of the Top Fools on CAPS will be there at 6 p.m. Eastern, Thursday March 25th.


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#34) On March 31, 2010 at 11:57 AM, TigerPack1 (33.56) wrote:

The guy in this Yahoo! interview is NOT me, but he is using some of my reasoning and lines about the U.S. debt and deficit situation...

I posted everywhere on the internet and included similar references to Kennedy's book "Profiles in Courage" in all my letter writing last month to leading government officials regarding the health care debate, and the lack of will by our "representatives" to stop spending... I don't know if he came up with the reference at the same time, or if he stole the idea (probably just a similar thinker).

I am still mad at George Soros for stealing my "Humpty Dumpty" analogy I have plastered all over the internet the past year, regarding the U.S. economic and debt situation.

A few other of my creations are floating around the mainstream press now also.

I guess imitation is the ultimate form of flattery.,%5EGSPC,TBT,TLT,TIP,UUP,XLF

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#35) On April 21, 2010 at 9:21 AM, TigerPack1 (33.56) wrote:

Excellent interview, and no this guy isn't me either... But he is using my "eye of the hurricane" analogy also, like I have been touting on the internet for a good six months now.

Bill Gross of Pimco is also freaking out about Treasury yields rising above many AAA corporate issues lately... Very worrisome indeed if you expect U.S. interest rates to stay low much longer...,%5Edji,%5Egspc,tlt,tbt,BRK-B,PG&sec=topStories&pos=9&asset=&ccode=

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#36) On April 22, 2010 at 9:55 AM, TigerPack1 (33.56) wrote:

Producer prices at the wholesale level are now rising by +6.0%, year over year (read paragraph #1 from the linked official BLS webpage out today), and yet the FED still stays at ZERO for short-term interest rates... Completely insane and unbelievable...

According to housing sales data, homes priced under $200,000 are estimated to be have RISEN a good +8% already, versus the real estate bottom of mid-2009.  However the housing component of CPI (where much of the government "revision" to history through game playing in their fictional rent model exists), representing about 40% of the bogus CPI inflation creation, is actually still reporting falling home prices and rental costs!!!  Complete outrage and outright fraud being perpetrated on bank savers today!!!  Nobody else notice the huge January CPI "revision" lower Helicopter Ben ordered, excepting myself I guess?

The conveniently written off and disregarding rises in the "non-core" (whatever the hell that means) measures for everything from energy, food and the basic goods we buy everyday are now rising 4%-6% on a trailing 12-month calculation.  The core inflation numbers, by the way, are the only ones "revised" lower every year since the Clinton Administration (Remember the slick, used car salesman we had running the nation during the Tech Boom?) to make price gains look much smaller for Social Security cost of living adjustments and the totally fraudulent "inflation-adjusted" bonds the Treasury issues.  The constant CPI revisions lower charade is one game the government has been playing to make the budget deficits look small and keep the federal government's ponzi borrowing and spending scheme going strong.

Given past historical instances of +6.0% YOY wholesale inflation, FED Funds should be in the 3%-4% range RIGHT NOW, not zero... And if the FED were "serious" about controlling future inflation the FED Funds rate would be near or ABOVE the +6.0% PPI increase reported today.

I am still waiting for those that believe we are in a deflationary depression to show me the correlated +6.0% PPI data from any 12-month span during either the 1930s Depression in the U.S. or the 1990-2010 Japanese experience????

Problems with Greek debt and the Euro's value will only lead to even more money printing as the "potential" of deflation allows authorities worldwide to kick it up a notch, on the liquidity creation printing presses.  Likewise, a bust in Chinese real estate values later this year would only serve to boost China money printing.

Ben is shooting for HYPERINFLATION according to his Time Magazine "Man of the Year" story in December 2009, and if short-term bank interest rates are allowed to stay at ZERO any longer, that's exactly what we will get in 2011 and 2012!


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#37) On June 22, 2010 at 4:41 PM, TigerPack1 (33.56) wrote:

U.S. Treasury debt bomb compressed and ready to explode in a matter of days or weeks now!!!

Are you ready as an investor?

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#38) On July 05, 2010 at 10:50 AM, TigerPack1 (33.56) wrote:

Nobody really talks about record or near-record personal/consumer debt loads as a percentage of disposable income holding back the economy... "He said that recession often clears out "excesses" of booms such as too much debt.  But a year or so into this recovery, the consumer still owes too much.  Consumer debt stands now at $13.5 trillion, or $44,000 per person -- a fall from its peak but still more than 120 percent of wages and investment income, according to researcher Portales Partners.  That's up from 80 percent a decade ago."

Debt loads get harder to handle by the way, when we enter the double-dip decline in national income.  And that's on top of the Treasury adding 10%-15% of our income yearly in new deficit spending and debt accumulation!!!!  That's why I have been freaking out - as a percentage of income, the double dip recession is going to cause debt loads to fly off the chart the next 12-18 months. The "official" debt load number for mortgage, installment, and your share of the national debt already borrowed with Treasury issuance is around $280,000 per U.S. household on about $60,000 in pretax income.  Based on another year of borrowing in a double-dip, a second larger bank bailout next year, and more large losses from the fully guaranteed Fannie and Freddie loans we could EASILY get to $320,000 in 12-18 months and incomes may actually FALL with rising unemployment for the average household.  Debt totals of roughly 6x income are insane and unsustainable, and this is a rise from a little over 4x in early 2007.  Then you get a Treasury debt downgrade raising interest costs considerably, and all the underfuned/unfunded baby-boomer programs about to witness an explosion in health care and Social Security expenses, creating one sobering long-term picture for economic "growth" in America...  We may see stagnate or lower economic output for a decade or two as we work through the debt, or we will have to completely restructure our debt (bankruptcy).  America's standard of living is definitely in DECLINE now each year, no matter how you slice it.

When you do the simple math of a double-dip recession, you cannot help but figure a Treasury DOWNGRADE is unavoidable the next 6-12 months.

Then interest rates spike, as free market forces forcibly halt the steady rise in deficit spending and borrowing... Then the only to prevent immediate economic collapse is by printing money out of the wazzooo... leading to HYPERINFLATION quite quickly. 

Will the world end? NO

Will America's wealth and political clout and military presence/occupation of the world decline? ABSOLUTELY

The world didn't end when the Roman Empire collapsed; America's demise will just reshuffle the deck of power, prestige and economic importance, similar to the USSR's implosion.  The USSR broke apart into 10 or so separate nations in the 1990s, and the Russian military basically fell back into a national army inside its borders.  The same thing is going to happen to America the next 10-20 years, in my humble opinion.

I am sure Russia and China will fill many of the political and military voids we leave in the world when we can no longer afford to have our troops stationed on all parts of the planet.  I personally do not understand the logic of spending $500+ billion yearly to hold and occupy the deserts of the Middle East if they lead to the economic collapse of America.  How is this effort keeping U.S. safer long-term?  Arrogance, ego, and short-sighted planning by our leaders, I guess.  We have suffered from plenty of that for decades now.

America has been busy playing checkers, while the rest of the world's leaders (especially China) have been playing chess with their economic and political future.  While we worry about policy decisions and their effects 6-12 months into the future and the next election cycle, nations like China have been working hard on planning things 10-20 years down the road.  I guess we have the best leaders and decision makers money can bribe. Good for U.S.

-End Tiger Rant

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#39) On July 12, 2010 at 8:25 AM, TigerPack1 (33.56) wrote:

Anyone owning a U.S. Treasury bond investment beyond one or two-years in maturity is either brain dead, unable to count, or a victim of Wall Street’s current wishful thinking disease.  This guy isn’t me, but he is also able to count numbers on his own without help from WSJ or CNBC or the Federal Reserve…,tbt,%5Edji,%5Egspc,spy,%5Eftse 

***BREAKING NEWS *** Chinese bond rating firm, downgrades U.S. Treasuries... Cracks becoming more apparent now... It has been my contention the last 9 months that foreign credit ratings agencies unaffected by internal U.S. government threats would be the first to express reality in an honest manner…

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#40) On August 04, 2010 at 5:57 PM, TigerPack1 (33.56) wrote:

U.S. debt bomb could easily blow up the next few months!  Several top advisers to the Chinese government have gone on record in the press the last week or two saying they will no longer participate in the U.S. ponzi FED/Treasury deficit spending scheme!  Not widely reported in America, but the endgame for BEN and Geithner is fast approaching now.  Chinese officials are even suggesting they would like to sell Treasuries before the U.S. Dollar value collapses.

Long Treasury bonds had a horrible sell-off today on the charts... With the first daily close below respective 50-day MAs of price in many months, and numerous securities nearly closed at a 7-week low price...  EVERYONE serious about counting trillions of bogus bills on their own is well aware that 20 and 30-year paper issued by the U.S. government can NEVER be paid back in constant dollar terms - the math is unequivocal on this.

Rising interest rates and falling bond prices seem to be the only logical outcome the rest of the year!

TLT is a long bond proxy...

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#41) On October 13, 2010 at 10:17 PM, TigerPack1 (33.56) wrote:

Many of you on CAPS know, I have been adding shares of Yahoo! for over a year now to my various brokerage accounts.  It is by far my largest real world position.  Here is some of the logic for my interest and ownership:

Yahoo! (YHOO) is an internet-based business, using content delivery, web advertising and some subscription services on their expansive worldwide computer network to generate revenues and profits for its owners and stakeholders.   To a degree, an investment in YHOO is also an investment in several high growth, quite valuable internet businesses globally.  Not only do owners control and reap the rewards of Yahoo!’s U.S. and European Media/Content/Search assets, but they own a disproportionately larger stake in Yahoo! Japan and the Chinese-based in Asia.

Yahoo! represents an attractive valuation at today’s sub-$15 share price and $20 billion market capitalization.  The company has a break-up value at, or above, current pricing based almost entirely on its subsidiary and overseas investments.  Yahoo!’s ownership stakes in both of the Asian enterprises are today valued at $15-19 billion by Wall Street and market pricing estimates (pre-tax).  [The Yahoo! Japan investment is valued at $8 billion from the June 2010 SEC 10-Q filing and Alibaba at $7-$11 billion by Wall Street, as represented in many mainstream stories printed the last month.]  Additionally, the company holds another $6-8 billion in cash assets and investments beyond Asia versus just $2.2 billion in TOTAL liabilities on the latest balance sheet (June 2010).  We come up with total assets, based on market pricing and fair value calculations, of $21-$26 billion (pre-tax) versus roughly $2 billion in direct liabilities for Yahoo! owners.  The net break-up value of Yahoo!’s” non-core” U.S. business interests is likely in the $17 to $19 billion range, if Yahoo! was liquidated immediately, after taxes on capital gains are paid, and the money returned to shareholders.  This should provide investors with a strong “margin of safety” under a variety of adverse stock market and economic scenarios.

Earnings and revenues are growing during the slow economic growth period in 2010.  The small uptick in the economy in 2010 is moving directly to Yahoo!’s bottom line.  Cost controls, a focus on increasing the breadth of content and total page views, alongside a small jump in banner ad rates, and new partnerships with the internet’s elite sites (including Ebay, Facebook, Twitter and many others) ARE propelling margins and total profits at Yahoo! to new record heights in 2010.  Despite the turmoil in management ranks the last few years, and changing focus, I believe the company is clearly headed in the right direction, despite what you read in the WSJ or hear on CNBC.  At this stage, the negative view of Yahoo! by investors and advisors is not based on Yahoo!’s business fortunes long-term, but purely on the underperformance of its stock price over many years.

The Microsoft-Yahoo alliance/partnership in Search-related subscriptions and advertising (announced last year) is helping to drive a real increase in GAAP earnings in 2010 also, and lower the necessary capital expenditures by Yahoo! to stay competitive with Google, the Search leader in America.  I am estimating that by this time next year, Yahoo! will surpass Google’s ultrahigh net profit margin on sales, after-tax.   This estimate revolves around the steady decline in Google margins as competition in Search is fierce, and the steady improvement in YHOO’s results in 2010 and projected for 2011.

Yahoo!’s business model of low cost advertising on the web provides perhaps the “best” inflation and hyperinflation hedge available to large dollar, blue-chip investors.  Of all the different companies I review for possible investment, Yahoo!’s super brand name, Media-like assets may provide the best upside to revenues and earnings of all risk-adjusted asset plays during a period of high inflation or hyperinflation.  Yahoo! should be able to keep costs per banner ad, clicks and content page draws quite low on existing computer infrastructure, especially as they acquire new content monthly, integrate them with Yahoo!’s workflow, and synergize/computerize the creation of ad revenue.  Given higher inflation rates, it will be easy for Yahoo! to pass along advertising rate increases in price to end users, as other newer content providers struggle to turn a profit.  I am estimating GAAP, earnings per share growth rates for YHOO will be double the rate of inflation PER YEAR.  For example, if we get 10% inflation in 2011, I would expect GAAP earnings will rise at least +20% over 2010, even if the economy is in mild recession.  At this stage, another recession will likely put most old-time newspapers out of business, further enhancing Yahoo!’s appeal as one of a select few of national advertisers on the web, with both local and national content for readers.  In effect, Yahoo! is becoming THE National LEADER (if not global) in web content, new age Media delivery, and simple, low cost advertising for all businesses!

Yahoo's $13 low price in the summer of 2010 represented its lowest "relative" valuation vs. market multiples and metrics since it became a public company in the mid-1990s.  Over the past 10 years, Yahoo!'s relative multiples versus the market have averaged closer TWICE the metrics of the S&P 500 stocks, as a result of its higher than normal growth, higher than normal profit margin business.  At 2 times "tangible" net book value (with assets recorded near cost value, not market value), 20 times trailing earnings per share and more like 16 times, near future "free" cash flow, YHOO stock has NEVER been cheaper.  In addition, the Yahoo! Japan and Alibaba stakes are worth a good $4 billion more than one year ago (from SEC filings and Wall Street estimates), when the stock was priced around $15-16 a share, after the Microsoft Search deal was announced to little fanfare.

The company is intelligently buying back shares at this low valuation, enabling existing shareholders to capture a greater piece of the long-term pie as revenues and earnings rise in the future.  They have purchased over $1 billion in stock this year, with their huge cash stash of $3-$4 billion entering 2010, and a good $1.2-$1.4 billion in “free” cash flow generation during the year.  They continue to forge new partnerships with existing internet site leaders to increase traffic, and are buying content or display ad firms almost weekly to lay the foundation for revenue growth down the line.

The great Fidelity investor of the 1970s and 1980s, Peter Lynch always advised investors to simply buy the stocks of the businesses they used, liked as a consumer, and felt had real product value and differentiation.   If you use this metric, Yahoo! is a product almost everyone I know uses and appreciates on a daily basis.  Other great long-term investors like Carl Ichan and George Soros have built LARGE stakes in Yahoo! stock the past 12-18 months also.  They believe in the product, the profit margins, the growth potential of the businesses Yahoo! owns, and the utterly cheap valuation Wall Street currently applies to these assets.

Through a number of potential catalysts - a takeover, a break-up, spin-offs, asset sales, smart acquisitions, higher inflation, better economic growth, and others, current shareholders should be rewarded handsomely in 2011 by owning Yahoo! shares.

Microsoft already bid $27 a share for Yahoo! in 2008 and could definitely benefit from owning YHOO’s content infrastructure (eyeballs) and Search assets.  Additionally, Microsoft could gain instant clout and access to China through Alibaba.  Mr. Gates just went to China on a fact finding tour, and Microsoft just raised an extra $6 billion in a bond offering a few weeks ago.  They already have some $36 billion in cash and short-term investments domiciled in various units and nations.   I would not be surprised by a $20+ a share bid by Microsoft in the near future, or a large private equity fund.

Yahoo! is in the process of gaining an additional board seat and de facto management control of Alibaba, the next few months.  They are pushing hard into mobile phone chat applications and content/ad delivery, and rumors abound that a major acquisition of content provider AOL is in the offing.   Merging the Yahoo! and AOL brands would be a brilliant move at the right price, as it would eat up one of the top competitors in content, bring in bright managerial talent, and allow YHOO to own several new promising technologies that AOL holds.  YHOO would stand head and shoulders above everyone for content delivery with such a move, with Microsoft and Google far behind.  Another story out this week, places a large private equity group as showing interest in acquiring AOL and Yahoo!, then selling off non-core assets.  In the end, if another bidder besides Microsoft appears, a bidding war will likely result as Microsoft will not want to let this cheap, one-of-a-kind asset get away.


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#42) On November 13, 2010 at 11:58 AM, TigerPack1 (33.56) wrote:

You can now get a collateralized mortgage loan (original purchase or refinance) with "rotten" credit for a LOWER 30-year interest rate than Uncle Sam's signature loan, called a Treasury bond security. The spread is now 1/4% to 3/8% and growing each week "in favor" of the 600 FICO score as a better risk than Uncle Sam's AAA credit rating?  30-year mortgage rates have NEVER been lower than the comparable 30-year Treasury yield in the nation's economic history.

The credit ratings agencies are a COMPLETE SHAM today, and will "help" small U.S. investors to lose considerable wealth invested in CDs, Treasuries and savings/money market accounts the next few years, as HYPERINFLATION comes knocking on the door.  Buying an investment with near ZERO guaranteed yield, while risking your entire principal is quite irrational and illogical given no fixed value for the Dollar and low odds of repayment over 30 years.  Investors should be looking to own securities that have UNLIMITED upside and low risk given any rational economic environment.  Accepting "any" yield well below today's rising rate of inflation (honestly in the +4% or higher range the last 12-months) is the dumbest move an investor can make today.

BEN is selling QE2 pot now, and trying to convince everyone it will heal all ailments at low cost, while being homegrown hash. We'll see how long he can peddle the stuff before being thrown in jail for high treason.  I hear Madoff and the Enron boyz are warming up a cell for BEN as we speak.

One of Warren Buffett's biggest "black swan" fears has been the odds of an implosion in the municipal bond market.  I will not get into the reasons, but municipal bond prices have been collapsing in early November 2010...

TickRTapeKing's warning last year of increasing trade friction or worse with China appear to be coming true, as American leaders were shunned and laughed at, during the G-20 meeting this week.  The world is FED up with U.S. shenanigans and foot dragging, failing to maintain the value of the one-time reserve currency, almighty Dollar.  China IS pissed at U.S. calls for protective tariffs and revised currency valuations to halt the trade imbalances between the two.  All the while the U.S. is busy printing more money not needed in the economy to devalue our currency artificially, which is destroying the purchasing value of China's significant investments in America (necessary to support an "unsustainable" lifestyle by definition).

Following the current "insane," suicidal economic direction (spend, borrow, inflate in that order) as prescribed by Obama and BEN is about to prove fatal or nearly so for America's economy!  Quite predictable actually - the policy course and eventual outcome highlight incredible arrogance and stupidity.  Good for U.S. 

This is not the 1930s Depression span all over again; we are not Japan 1990-2010; we are not facing Europe's present day financial mess; our current predicament is SUBSTANTIALLY worse.  All "solutions" from here will require significant pain for investors, savers and workers.  BEN has boxed U.S. into one hell of a corner, good patriot that he is.


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#43) On December 01, 2010 at 11:19 PM, johnnydudeTHC (< 20) wrote:

First WOW alot of comments...too much to read lol

I like this site..people can just post ideas on how to make america great

I will admit im canadian but canada's news is borin so i mostly watch usa news 

oh yea the list umm heres my list if anyone cares (proby not thou :(

1. free health care for everyone under 85

reason ppl shouldnt live to 100 years old, just sad since they are so dependent. Also alot of cost of america health care is adminstration health care will get rid of the wasted money insurance companies use to investigate whether to give you health care. and health care should be a right


2. legalize gay marriage..just the right thing to do 

3. repel dont ask dont tell...same as above

4. stop all wars..invest 1/3 of money spent on iraq on border security therefore we are safe from terrorists and the border is world peace :) good thing

5.legalize all more high crime rates. taxes unclaimed from mob boss runned drug business 

reason too is smokes are legal and if you smoke well i dont care its ur body so go do herion if you want idc

6. tax drugs/regulate

7. drinkin age 18 along with all drug ages and gambling

8. tax code is crap..needs reform too big of topic right now

9. tax unhealth foods since the government is payin for health care just makes sense

10. subsidize healthy food--almost pays for it self since less health care costs and generally more productive population

11. subsidize electric cars--global warming and just lower maintaince energy --makes money on the long term

13. do not play for anymore programs until debt is paid off

14...idk umm any suggestions?

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#44) On December 08, 2010 at 9:05 AM, TigerPack1 (33.56) wrote:

BEN incorrectly assumes that the Great Depression resulted form horrible Federal Reserve decision making, namely tight, strong Dollar ones.  How can anyone come to this conclusion without more evidence?  I have argued this with people for more than a year.  The stock market boom/bust cycle that preceded the Great Depression and trade wars that ensued between nations starting a few years later were larger causes, in my mind, of the crushing economic contraction. 

What if the Depression years were not an accident or a self-inflicted wound, but a "best case scenario" that America achieved while the rest of the world burned in HYPERINFLATION, depression and massive unemployment!  We actually survived better than nearly every other country in the 1930s.  Germany got Hitler, we did not for example.  Because deflation and depression coincided with sound monetary policy, does that mean this policy caused the Great Depression? ... I have not found any concrete evidence to support BEN's insanity that he can do the Depression years, one better, by printing endless amounts of money and PONZI buying Treasuries?  Causation vs. correlation argument all over again.

What if BEN is dead wrong? And he is actually CREATING a bigger mess, both economically and politically by boxing U.S. into a HYPERINFLATION corner?  The risks of ever increasing money printing and bailout needs, does not outweigh the benefits of somewhat better economic growth, in my mind.  Why not be honest with America, balance the budget, give U.S. a long period of certainty about policy and pricing, so we can dig ourselves out? 

When will the MADNESS end?  Apparenly NEVER, since Congress and the President have decided to compromise and print increasingly larger deficits in 2011-2012 that are compeletly irrational and childish.  Print more money and deficit spend because we can, not because we should.  Soon the world's investors may actually force U.S. to stop spending, through skyrocketing interest rates like those in Europe presently.

The U.S. bond bubble is bursting at the seams today, because the rest of U.S. can add on our own, and are beginning to wake up to the fact that we are committing suicide for the economy with this "compromise" with no one, excluding the devil himself.  I will compromise by giving out free money to YOUR constituents, if you bail and give some out to MINE?  Demorats and Repooplicans!  This just 4 weeks after a ground breaking election to send a message to Congress and actually CUT the deficit... NOW the idiots in Washington are going to double and triple the deficit rate the next few years.  I am a little confused, as will be the foreign investors we NEED to fund $3 trillion in debt roll-overs and another $1.5-$2 trillion in new deficit spending in 2011.

GOD HELP U.S.  No one else may be able to, at this stage of stupidity.  December 7, 2010 may go down in history as one of greatest days of economic policy "stupidity," versus the usual December remembrance day of "infamy" and mourning usually reserved for the bombing of Pearl Harbor.

I am pushing for Rubio and the Paul boyz to recant their Republican membership tomorrow and start an actual, viable third party (call it the Tea Party if you must) in Congress to stand up to the MADNESS.  Maybe they can recruit a few Democrats and some Republicans to join them, to start a voting block to halt the bailout insanity and redistribution of wealth from poor to rich in early 2011.  But then again, I am a dreamer!

-Tiger Out

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#45) On January 13, 2011 at 7:01 PM, willhickey (< 20) wrote:

Everyone here has great points!

I stumbled upon this blog when I was searching for a book my friend suggested.
It is entitled, “How To Fix America”.

I think everyone here would really enjoy it’s bold points.

Here is the Url for the best price:

GREAT BOOK! Let me know what you think.

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#46) On March 08, 2011 at 12:56 PM, TigerPack1 (33.56) wrote:

Maybe we should sell Alaska and get some real money?  In another year, we will be talking about doing just that.  I am a good year or two ahead of everyone else in my thinking. LOL, Crying actually.  -TigerPack  be-if-washington-doesn%27t-solve-the-deficit-problem-536003.html?tickers=tlt,tbt,%5Etnx,udn,%5Edji,%5Egspc&sec=topStories&pos=9&asset=&ccode=

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#47) On December 11, 2011 at 4:56 AM, GailG3 (< 20) wrote:

I really like most of your suggestions.  There is a problem with one of them.  There is not enough gold in or on the earth to cover existing notes.  We need to find another economic model.

I would also restore the constitution as the law of the land.  The Supreme Court threw it out in McCulloch v. Maryland, so we are now in a position whereby the court says that we cannot get money out of politics without a constitutional amendment, but even if we do that, congress is not required to honor it.  that's because our system of British Common Law trumps the written constitution - by unconstitutional court decree.

I would also put all the politicians who are involved in bribery, extortion, insider trading, and embezzlement (as described in the book "Throw them all out") in jail along along with their co-conspirators.  (A politician can't accept a bribe unless someone is doing the bribing).  This will clean out Wall Street as well as congress.  Keep putting the crooks in jail until we have politicians who are willing to honor their oaths of office to protect and defend the constitution of the united states of america.

 At that point, we can begin with the necessary anti trust laws that the corrupt politicians are not willing to do anything about.  With corporations downsized, we will actually create more jobs.  When we have more jobs, we can bring the troops home. 

Speaking of bring the troops home:  Our economy is war-based, so if we don't keep getting involved in wars, our economy will not grow.  If we were to declare peace, our economy would crash.  This is not only incomprehensibly immoral but it is just plain stupid.  To counter this, when I say that anti-trust laws sould be established and enforced, I mean that business should be mom and pop operations.  

During the constitutional convention, it was decided that government should not have the power to establish national charters (banks, corporations, and the like).  Let's end them. Each states' businesses are independent of any business in any other state.  If one state has a business that is too big to fail, but the state allows it to fail anyhow (as it should),then only one of fifty states goes into crisis.

The constitution was meant to be a treaty organization, not a government for a whole nation.  That's why the constitution failed to be ratified unless a Bill of Rights was included. Putting 330 million people under the tyrannical rule of an oligarchy like the Supreme court and a plutocracy like Wall Street is unreasonable and stupid.  We are living in a Plutarchy (a combination of the two).  That's just dangerous.

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#48) On January 30, 2012 at 7:58 PM, Wyreteck (< 20) wrote:

Correcting a large portion of the U.S. debt could be dealt with simply by starting where it all starts; with Congress and the Senate, i.e., our employees.  As an aside, I'd personally like to see the fictitious office of the Presidency done away with.  After all the office itself holds no true power, is only a scapegoating mechanism for the american public.  And one that pays handsomely for the disrespect and abuse.  However, I digress.

First, let us roll back and cap the Congressional/Senate pay scale.  Let us choose a fair medium-range white-collar salary of say 78K per year.  After spending years of watching the House/Senate on TV I'd say this represents a perfectly acceptable salary based on the televised behaviour.  If you've never; you'll be appalled by the napping, sidebar kvetching, aisle way chatting, newspaper thumbing.  So yes, I'd say 78K for Senior representatives and 32K for Junior would be fair.

Let us do away with their free health-care, free five star cafeteria, free plane/cars, per diem works for others why not for our  employees?  Let them use their own vehicles for transportation, and receive the same "tax benefits" of private auto use as you or me.  They should fly business class, it  works for other executives; if it isn't comfortable, they should pay for an upgrade just as employees do.

The government should buy a housing unit, say something along the lines of the Watergate, and allow them free residency while in session vs paying for their DC home ... if they wish to have staff let them pay for those people just as anyone else vs our paying for house, staff, furniture, refurbish, etc and so forth. 

They should share in their health and life insurance the same as "everyman," as well as having their insurance reduced or removed once they leave their office unless they file for COBRA just as we must.

If they are given gifts/perks/trips/etc from special interest groups, lobbiest, their political parties, etc. those should be taxed the same as it would for the general population, who may receive such items (game show winners, lottery winners, etc.)  This/these taxes should be retroactive to the office holder's taking of their oath.  Payable now.

Once they leave office they should receive no further benefits; just as any other employee; though any respective state voters may "gift" them (maybe a nice gold watch or mug) for their services as that state chooses.  The same goes for any raises.  Employees (as in Senate/Congress) should not be allowed to vote their own raises; I'm sure the average american would enjoy the opportunity to give themselves a pay raise yearly, or even several times a year. IF a representative does well voting a bonus that year is a grand idea; otherwise any raise should be voted on by those who are suppose to be represented vs "got my hand in your pocket" government officials who are also taking those lovely perks from friends with benefits.

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