What!!!!??????

So, for the last little while I have tried to create an argument as to why what is going on within our government makes sense and where it could be beneficial. I have still not agreed with a lot of it, but I have at least tried to look at things from their perspective. You know, tried to see both sides of the argument.

All of that was ruined this morning when I read in the Washington Post and on CNBC that our government is currently considering a VAT tax on top of the current (and proposed increases) income tax. Their reasoning? They need money to cover their spending on this recession and what they want to do with Government Health Care and other future spending. They actually even cited the fact that "many other countries are doing it." Really? Are you kidding me? We have been the number one country in the world for a long time in innovation, economic power and military strength and now suddenly we want to be more like other countries by making our inefficient government bigger?

Why on earth is the discussion not centering around slowing spending and cutting planned projects until we can afford them? Why isn't that even part of the discussion?!! Instead of thinking and operating responsibly and not spending money they don't have, they are spending like crazy and now want to tax everyone more to pay for it.

GGRRRRRRRRRRRRRRRAAAAAAAAAAAAAAAAAAAAHHHH!!!

Please join me in just getting rid of all incumbents this next election. Hopefully those currently in power will not have inflicted too irrepairable damage by then.

Destructive Deficit Spending

You know that when analysts and economists who have always tried to stay away from expressing their political viewpoints start commenting about how change needs to take place or the long-term economy will not be good.

Here is the commentary of one of my favorite CFAs regarding the deficits:

"In our analysis of the current market environment, we believe that the massive budget deficit has place the Fed in a "no win" situation, in which every path it takes leads to higher interest rates and associated with economic problems. Importantly we have only explored the consequences of the Fed simply stopping the printing presses; the Fed will encounter even more unpleasant choices when the time comes to reverse course, sell assets and drain the excess liquidity from the U.S. financial system. If we have not made progress on putting our fiscal house in order before than point, then the upward pressure on interest rates could become overwhelming.

"This does not mean that the U.S. is doomed to experience persistently high interest rate environment of the 1970s and early 1980s. The ultimate long-term solution to these problems, in our view, is for the 2010 mid-term elections to revolve around an intelligent, credible debate about the future course of government spending, taxation and debt levels. The American people could provide the next Congress with a clear mandate to restructure government priorities so as to be less dependent upon deficit financing. A credible deficit reduction plan would take tremendous pressure off the Fed and give it much more flexibility in crafting a monetary policy that boosts current economic growth while keeping long-term inflationary expecations low.

"Cynics who do not believe that Cogressional elections can affect such dramatic changes should remember the 1994 election, when Congress was granted a clear mandate to shift budget priorities and reduce the deficit. The fiscal changes negotiated between Congress and President Clinton after that election ultimately resulted in budget surpluses within a few years. Unfortunately for bond market bulls, this mandate for change was in part spurred by the painfully high mortgage rates experienced by American voter during 1994. The bond market vigilantes may have to return before budgetary change comes to Washington." - Rod Smyth of Riverfront Investment Group.

Yet another reason why I feel we should all push hard to get new people into Congress. No more of the current entrenched representatives.

Great Points from Intel

I am sure that many have seen the European Union's decision to fine Intel rather severely for supposedly forcing out competition. Of course, most have also heard that Obama's team has basically laid down the gauntlet on businesses in the U.S. saying they will prosecute for what they deem unfair competition.

I rather enjoyed the responses Intel's Chairman Craig Barrett gave to Jim Goldman of CNBC regarding this whole deal.

"We are against exclusionary contracts with customers, we don't exclude competition. We compete hard, but for a government to stand up and say Intel you shouldn't compete so hard against AMD, Intel, you shouldn't be competitive, you should be nicer to your competition, I just scratch my head and say, What planet am I on?

"At a time when the world is at great competition for its economic future, at a time when we brought 3 billion new capitalists in India, China, Russia, into the free economic system, to have government regulators say, You shouldn't compete? What are they thinking?"

On America's auto industry: "It's gone. The auto industry is in the United States, it's just not in Detroit. It's in the South Eastern part of the US. More autoworkers there than ever before. They just don't work for Chrysler, Ford and General Motors. The dinosaurs are dead.
"Let's acknowledge that we threw $25, $30, $40 billion at 'em. Total waste of taxpayer money. They're gonna have to get restructured under bankruptcy. Everyone accepts that. Why we didn't do it initially is beyond comprehension. I'm willing to accept that loss in the short term if I get some more money into R&D. R&D is our future. The automotive industry is hardly the future of the 21st century.

"The government says let's bail out the farmers, let's bail out the auto industry, let's do this, let's do that. It's discouraging. I finally rationalized it on the basis that governments are elected in basically two year cycles. They have at max a two-year horizon. All the things I'm talking about: Education, R&D, the right environment to invest in innovation, are on a much longer time cycle than two years, therefore they will never get addressed.

On America's future and the Obama administration's initiatives so far:
"What we're doing to this country today is absolutely in the wrong direction. We have not decided that there is competition. We are sitting there saying, we've always been number 1, we're always gonna be number 1, the American people are resilient and they'll respond to a challenge. And we hope we're gonna be number 1.

"Hope is not a strategy. We've got to earn what [we] want. And you've got to earn it the old fashioned way. You earn it with education, you earn it with hard work, and you earn it with investment. The government has to understand that they have to support hard work, investment and education. That's our only future."

I would add that it is the government's job to protect the freedoms of all people to work hard, invest, and pursue education. The practices that have been implemented ever since the TARP programs came out have hampered these freedoms.

As I have told many, I plan on campaigning to get rid of every current lawmaker and person in the administration by the end of the next presidential election. I think we need to start over with people who truly want to protect these freedoms strictly because that is what is right, not because that will keep them in the limelight and get them paid.

It's Not Over Till It's Over

There are so many things that I have wanted to blog about, but I haven't really had time at home to really sit down and write out my thoughts coherently. That will be coming soon, but for now, here is the most recent article I wrote for work.

Yogi Berra is attributed to having many wonderful quotes, but there a couple that fit particularly well with where I think we stand in this economy. The first is: “It ain’t over till it’s over.”

Of course by saying that the inevitable question becomes, “Well when will it be over?” It is the “million dollar question” as they say, and to tell you the truth, you don’t have to have the exact answer in order to come out on top. There are many indicators, both technical and historical, that we can watch to signify what might happen over the course of the next quarter and beyond and those are what I would like to describe a little in this commentary.

Let’s start with some of the biggest news of the day and those are the results of the so called “Stress Test” of the largest banks. The results were, of course, that of the 19 banks tested 10 need additional capital, but not nearly as much as everyone had previously thought, hence the euphoric rise in bank stock. One of the side results of the test was that each bank that needed to raise capital could do it without the government’s money. That is really what I think the market needed to hear. That being said, I am somewhat skeptical of the overall feeling of “All will be well soon with the banks” that is being passed around with these results. First, the credit markets which were knocked out cold in September of last year are back up but still a little woozy. While it will finally be possible, I don’t believe it will be easy for the banks to raise the desired capital to show and keep their strength, especially if things get worse. Second, the consumer is still not healthy and is not likely to be back to their old ways of borrowing and spending for a while. Remember it is the over-leveraging of businesses and consumers that helped cause the majority of this mess in the first place. It will be a while before banks even think about allowing that kind of leverage (if they are even allowed with the threatened regulation that is coming), and it will be a while before the consumer feels safe enough to spend like they used to.

That leads us right into another thing you have probably heard from the media lately, and that is the theory of “Green Shoots” which are sprouting that will move this economy into the black sooner than expected. Some, including Brian Wesbury of First Trust (who I admire and follow) believe our economy is in for a “super ball” bounce. I am not exactly in the same camp. While the opinion has shifted over the last few months from “Banks will need to be nationalized and we are in for a global economic meltdown” to “Where and when will these ‘green shoots’ turn into trees?”, I’d like to point out that we really need to see the economic news change from being “less bad” to showing strong signs of growth. It is also interesting to note that the bearish have a recent IMF study on their side. In the study released last month the IMF noted that after studying 122 recessions, those which were associated with either a financial crisis or a worldwide slowdown tended to be deeper and last longer (an average of 2 years)*. They also pointed out that the recoveries were weaker (not a V).

There is also a concern over government policy and how that is going to affect these “green shoots.” While I don’t believe the policies that have been implemented, or the ones that have been promised, will make this recession worse over the short run; I am concerned with the monumental spending that some gloss over. As Diane Swonk of Mesirow Financial put it: “Over time…Something has to give: the saving rate for consumers and corporations will have to rise [above and beyond what they have]; exports will have to accelerate; spending will have to be cut; and tax rates will have to be increased.*” Sometimes, while watching the administration announce yet another unnecessary and costly program I feel like they might as well just use our second Yogi quote: “We’re lost, but we’re making good time.”

In all, I would say that now is a time to be investing, especially if your dollar-cost-averaging and thereby somewhat averting the need to call the exact bottom.

*IMF Study
*Diane Swonk Article (Highly Recommended Read)