Aubie Baltin, "Do You Feel Lucky?"
"Do You Feel Lucky?"by Aubie Baltin CFA, CTA, CFP, PhD.
"In all macro economics, one of the single most important factors that must be taken into consideration is human nature. Is the overall level of confidence rising or falling? This is probably more important than any other numbers, manipulated or otherwise, that will determine the success of a projection. Let's take last week's unemployment numbers as an example. At first glance, they seemed highly positive. That is until the numbers were examined and they turned out to be highly negative. The same is true for the 2nd quarter earnings. In many cases, they were positive until we looked beneath the surface to see how they were arrived at. Slackening sales, major cost cutting and the biggest GDP drop in 75 years is not normally conducive to raising equity prices.
The Great Bank Robbery: Let's examine the recent bank information that has been released to the public. We have absolutely no idea how much money was either given or loaned to the banks nor do we know how much of their worthless paper has been taken on to the Fed's balance sheet at face value. Timothy and company couldn't stop crowing about the $40 billion in profit that the Government made from Goldman Sachs repaying its TARP money. Oh, really? How come he wasn't specific about the $3 - $5 trillion in Fed funds loaned to Goldman Sachs who then promptly used the money to buy 4% Treasury Bonds? That's a 3 ¾% spread X $3 trillion which amounts to $111 billion per year. After 3 years, that's $333 billion - not a bad deal. Of course not one cent of that went into the hands of the public. Perhaps if it did, we wouldn't be talking about taking out a new Stimulus Package.
Political Acrimony: If you thought that the political atmosphere in Washington was bad before the election, it's was like playing "patty cakes" compared to what it is now. Between Cap and Trade and Healthcare Reform, the Senators and Congressmen are afraid to go back to their districts as more and more town hall meetings are being canceled. There doesn't seem to be any strong leadership from the Republican Party. Sarah Palin seems to be the best they have to offer, yet they are afraid to do so. The Democrats, on the other hand, are still in full campaign mode as they continue to blame even the smallest problems on the Republicans and get riled up on the least bit of criticism. All this is not good for the country as slowly but surely, the Media gets back to doing its proper role of being the "great questioner".
Last week's polls showed that the public support for the Government's Healthcare Plan is dropping below 35% from a high of 65%. If there ever was a time that this country and for that matter, the rest of the world, needs to pull together to get us out of the rat hole we have managed to dig ourselves into, this is it.
For me to attempt to go into any in depth economic analysis at this moment and time would be as fruitless as Bernanke's and Paulson's analysis as I do not have any numbers or data that is more reliable than theirs.
The Good, the Bad, and the Ugly: Let's start with the ugly because we know all about that. The back stabbing, acrimoniousness and lack of cooperation in Washington is not worth talking about, however hopefully things can't get any worse which means they can only get better.
The bad is that there don't seem to be any economists worth their salt out there (from Nobel Laureate Grubman on down) who seem to be able to come up with anything but tax and spend solutions, which have been proven time and again not to work.
Now let's go to the good. As I mentioned in my last letter, if you believe in God, something will happen that will get us out of this morass without the world coming to an end. I think I see signs of that on the horizon. What signs might that be? There seems to have come about a halt to the massive Left Wing Marxist steamroller effect that was about to overrun Washington. Somehow the so-called most oft-ignored stupid tea parties made up of individuals from all political persuasions have begun to ask questions as to who is going to pay and how is it going to work. The public has made it abundantly clear that passing 1,000 page bills in the middle of the night that have not been read will not be tolerated and will be remembered at the polls in 2010. Like it or not, both parties will have to work together if they all don't want to be thrown out in the next election. Cracks are forming in the solid wall of tax and spend, anti-business, central planning consortium that initially looked like it was running rough shawed over the entire world as a few economists are beginning to find their voice. The power of the people is what created the Industrial Revolution and the rapid rise in the living standards throughout the world. And it will be only the realization by more and more of the Central Planners that the only solution is the return of power to the people.
"Things have to get worse before they get better" is probably a truer saying than we ever thought. We may have already reached that point, but that does not mean that we are out of the woods yet and it certainly does not mean that we have started a new Bull Market. For the next month or two, we will probably be witnessing the development of the biggest "Bull Trap" in market history."
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