A Bitter Pill

Over at Investment Watch Blog, a sobering article was presented regarding the state of the economy with an emphasis on inventories, particularly versus sales.

First, a pie chart presented some dire data regarding Americans savings accounts, which shows any meaningful recovery, particularly for the lower income families, is fiction.

“It’s worrisome that such a large percentage of Americans have so little set aside in a savings account,” said Cameron Huddleston, a personal finance expert and columnist for GOBankingRates. “It suggests that they likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends, and family, or even their retirement accounts to cover unexpected expenses.”

In addition to these findings, along with restaurant and retail getting crushed, we find a hideous divergence between year over year wholesale sales and inventories.

With the administration working every angle for "working families", we find “the poorest Americans have stopped shopping, except for necessities,” said Britt Beemer, chairman of ARG.

As IWB notes, "inventories-to-sales at recessionary peaks…"

Imagine that!

The entire recovery has been a fraud.

Sadly, with a genesis to the current debacle found in the last months of the Bush administration, the Obama administration has used the crisis to increase government control over the segment of society making the engine turn, most notably through actions like Dodd-Frank.

Additionally, the banks have been bailed out, and wealth has been stolen from the citizenry.  While rates are low, borrowing restrictions have escalated, and seniors on fixed income have been crushed.

Ironically, with the DOW reaching news highs, folks will point to the stock market as success. However, the money supply has been increased five fold, indicating losses on purchasing power versus a 300 percent increase in the market.

And about the stability of the market, Zero Hedge reports infiltration by central banks, propping up the indexes. Those in the know recognize the jig is about up, as evidenced by the short squeeze witnessed over the last few days.

Via Zero Hedge

Something will have to give, and make no mistake, the end result ramifications will be a bitter pill for the American economy to swallow. When it occurs, please remember who has been in charge for the last eight or so years; a group aiming to curtail economic freedom and increase dependency on government.

We recommend you visit ZeroHedge.com and InvestmentWatchBlog.com frequently to keep up to speed!

The Coming Storm

By a slew of market data, a crash in the capital markets appears imminent. The market is extremely toppy, and as Doug Ross notes in analysis of John Hussman's weekly letter, "When weak participation, rich valuations and scarce bearish sentiment accompanied a record high in the same week, the handful of instances diminish to surround the precise market highs of 1973, 2000, and 2007, as well as 1929 on imputed sentiment data – and the week ended July 17, 2015".

From earlier instances of The Hindenburg Omen, to a recent death cross formation and an increasing disconnect between the worlds of equity and fixed income, multiple and increasing signals within the capital markets indicate trouble on the horizon.

Interest rates should have been hiked over ten quarters ago, even with the putrid economic status.  The raising of the rates would have had a serious negative ripple effect on the overall economy, but this would have been healthy, an opportunity to cleanse the market of excesses and establish true points of equilibrium.

It will not happen now, as multiple, far more significant issues have arisen that threaten to torpedo the not only the capital markets, but the overall economy as well. Of particular note in this well crafted piece is the collapse in the price of oil, which would not be happening in a healthy environment with normal and reasonably efficient supply and demand levels. Rather, it signals great weakness, which in this case, could be catastrophic.

Historical Oil Chart/InvestmentResearchDynamics.com

The collapse in oil is documentation of a contracting economy. Despite the propaganda and data manipulation, as eloquently stated in the Investment Research Dynamics piece, "It’s hard to hide the truth when there’s still checks and balances around to counter-balance the Orwellian fog that is engulfing our system."

As Jim Quinn, who runs truly outstanding blog The Burning Platform, points out, department store sales are imploding, noting "What is revealed when you look under the hood of this economic recovery is that it is a complete and utter fraud. The recovery is nothing but smoke and mirrors, buoyed by subprime auto debt, really subprime student loan debt, corporate stock buybacks, and Fed financed bubbles in stocks, real estate, and bonds."

Add in the massive expansion of the FED balance sheet increasing inflation, and you indeed have an unsustainable mirage of a recovery.  No doubt; the storm is coming ashore.

In the aftermath of this impending collapse, engulfed with smoldering evidence of failure of a slew of centralized government programs, most notably Dodd-Frank, perhaps it will dawn on the minds of those placed in command of governance to all to unwind the centralized government programs, reduce taxation and regulation, unleash the great entrepreneurial spirit of America and embrace the power of free market capitalism, which in the words of noted economist Larry Kudlow, is the best path to prosperity.

Sorry, Charlie

It seems many good men lose their soul when they become a high powered politician.  Seemingly consumed with power, a sadly large contingency of these individuals relegate any previously subscribed to principles to the recycle bin.

In recent years, I cannot think of anyone who fits this description more than  Charlie Crist, former GOP Governor of Florida.  Crist, a former QB at Wake Forest and a fellow alumni of Florida State University, has made the journey from a product of the Reagan Revolution to a big government socialist standing in opposition to free market principles he once championed.

Crist won election as governor of Florida in 2007 campaigning as a Reagan Republican, which helped him form his political principles.  After serving one term, Crist decided to run as a republican for a Senate seat being vacated by Sen. Mel Martinez.  Crist, facing defeat in the primary to now Sen. Marco Rubio, became an independent and lost in the general election to Rubio, whom I supported.

Riding the wave of Barack Obama, Crist, without advancing a noted pivot point, discarded all of those once beloved principles of Ronald Reagan and became a Democrat.  Crist could often be seen on the campaign trail and at political events with Obama, who is a stated opponent of our founding principles.

One would hope, having been completely discredited on principles and values, Crist would retire to private life and cease in efforts to serve our state politically.  However, after joining one of the states largest defense attorney law firms, John Morgan's Morgan and Morgan, Crist has announced he will challenge sitting Governor Rick Scott in the upcoming gubernatorial race.

It is not hard to recognize that we have a large contingency of, as Rush Limbaugh would descibe, low information voters.  Americans are awash, drowning in, as Aldus Huxley projected, a sea of irrelevance.  Even still, you would think enough voters would see Crist for what he has priven himslef to be; a man without principles.

Therefore, Crist will play to the lowest denominator, advancing issues that are without merit, hoping to not only secure the vote of Obamabots and rock solid Progressive Democrats, but the low information crowd as well.

Evidence of this was vibrantly clear last week when Crist revealed his plan for a "First Day of Fairness" should he be elected.  Action on this day, which would seemingly bypass a heavily weighted GOP legislature, would be done by executive order.  Like his new mentor, Crist would have a pen and a phone.

As quoted in an article by Aaron Deslatte, Tallahassee Bureau Chief or The Orlando Sentinel, On his first day back as governor, Charlie Crist says he wants to raise the minimum wage and stop job discrimination against women and gays.

That rhetoric will no doubt get the attention of the low information crowd, and although demonstrably false, be ignored by those predisposed to vote D regardless of a platform based on falsities.

Florida does not discriminate against women and gays ( Unlike Crist, I would have utilized a different word of description rather than gays ).  It is illegal for public and private sector companies and organizations to do so.  In actual fact, in order to be politically correct, many companies welcome the opportunity to hire these folks. 

For any company or organization I have ever been involved in, it was a goal to hire the person who best represented the key competencies with the appropriate qualifications and skills to match the job description. 

Raising the minimum wage sounds wonderful to those retained on staff, for they will see an increase in pay.  However, the company which employs them will may have to reduce staff to compensate, forcing the employee to potentially increase their workload or hours worked.  Benefits may be reduced as well, given the extra payroll costs the company may incur.

In the marco, raising the minimum wage increases unemployment, as due to increased payroll costs, refrain from adding staff, which is already happening due to several economic influences, from uncertainty to destructive regulatory action such as Dodd-Frank and Obamacare.

We continue to hear that the minimum wage is a living wage; it is not.  An employee should not expect to earn enough to raise a family on minimum wage.  Rather than raise the wage to accommodate incorrect life decisions of these workers, including the lack of education and key competencies which prohibit a worker form securing a better job, the best way to help them is for a growing economy to create additional opportunities for advancement.

Crist knew this at one time, but the principles behind these economic principles, due to the ignorance of the electorate, do not represent the easiest path to elected office.  What works now is claiming to be the representative of the government who is able, ready and willing to help the people, or, steadily increase the entitlements bestowed upon the lower class workers.

As Thomas Jefferson said, “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”- “The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.”

Should we continue to elect politicians without principle, like Charlie Crist, we will bring about what Jefferson feared; a democracy which will cease to exist.

Twisted Tales

I did not know whether to laugh or cry.

That was my reaction to the following headline of a post by Tyler Durden over at ZeroHedge.com:

"With 1 In 3 Homes Unaffordable, Freddie Mac Prepares To Enter The Trailer Home Loan Market"

After fighting through the propaganda presented daily by the Obama administration and their media partners, it is quite obvious that the issues surrounding this headline are illustrative of an anemic and fragile economy, with our country teetering on economic peril few can currently visualize.

With all the failed stimulus, which I was against, we literally have nothing to show for it.  The economy "grew" an a paltry 0.01 percent last quarter, and it culprit is not the much discussed weather.  The culprit remains increasing taxation and regulation, and Obamacare, the biggest job killer we have witnessed in many a moon.

With over 90 million potentially fully employed workers out of work and the lowest labor participation rate since the economically dismal Carter administration, job growth is practically extinct and the annual after tax income for the average worker has decreased approximately 10% since the financial crisis of 2009.

Therefore, although housing prices have significantly retreated, due to a bludgeoned job market, as reported by Zillow, a third of the homes for sale are unaffordable to the average household. In addition, due to Dodd Frank and increased lending requirements, there is increasing difficulty in obtaining financing. 

Housing purchases have been happening over the past year, which have potentially inflated values.
However, it has not been the young family moving up from apartments or starter homes accounting for the sales; it has been Wall Street Hedge Funds and public and private real estate asset management firms, who have been making purchases to rent back to the increasing number of potential buyers unable to make purchases.

It is noted that in recent months these firms have significantly backed off their number of purchases.

Mark Hanson is a top notch real estate analyst, and he recently presented the following chart indicating cash purchases, which were a stunning 63% of residential properties sold in Florida in December:

Mark Hanson/MHanson.com

As the FED seemingly prepares to end qualitative easing, interest rates, which have been been held down and are not a true reflection of the market where economic equilibrium would be measured, without continued FED intervention, are sure to increase.  With the employment landscape stagnant as best, the purchasing of home will become increasingly unaffordable.

Seemingly in anticipation of the negative environment for housing created by the government and their partners, GSE Freddie Mac is now set to begin financing manufactured-housing communities.

Make no mistake, increased financing opportunities are always welcome, although the government should not be involved, as the private sector should be the marketplace for mortgage lending.

But, with this action, is there a story behind the story?

Manufactured housing is typically utilized by lower income families and acreage owners in rural communities.  Are stick built homes to become increasing unaffordable, forcing middle class owners to back step and unitize manufactured housing?

Keep in mind as well, that potentially increasing regulatory actions by the EPA, under the Agenda 21 guidelines, may make transactions on older existing homes much more costly for all involved through having the subject improvement meet EPA guidelines with respect to energy efficiency of appliances, windows, roof cover,etc. before qualifying for financing from GSE's or money center banks the government has interests in.

As a real estate investor, I have not included manufactured housing in my portfolio, primarily due to limited economic life of the improvement in comparison to stick built improvements.  Be advised I am not the only investor aware of this. 

Thanks to the Obama administration and their anti-capitalist policies, the economic conditions in the country are horrendous.  Reminiscent of the climate in the Great Depression, if you are fortunate to have good, stable employment, it has been your neighbor who has been laid off who cannot find adequate employment who is really feeling the brunt of the poor economy.

With employment stagnant at best, and the true future effects of Obamacare unable to be adequately forecasted, the job market remains facing unnecessary head winds with are keeping our economy from reaching high efficiency.

Perhaps Freddie Mac knows something most of you don't, and is looking for another investment opportunity?   The weather is unpredictable; don't get the tales twisted.

Poll Queston Lacks Adequate Answers

An excellent source of information regarding the mortgage industry is found in The MReport. The MReport, self described as the pulse of the mortgage banking industry, covers the always changing components of the industry, directed by both the public and private sectors.

 

In an effort to grab the pulse of the readership, which is mostly comprised of professionals within the mortgage, appraisal and real estate industries, The MReport presents a poll regarding topics of current interest within the industry.

 

One such poll caught my eye recently, and led me down a road which elevated my blood pressure. Please see the following poll of the week, which asks what the "best course of action for the Congress to take to help improve the housing market." 

 

 

I do not know who writes the polling questions for The MReport; however, I would assume it is a member of their staff of writers, reporters or editors.  In review of the potential answers, one of two observations must be noted:

 

Either those comprised of writing the questions are borderline clueless on economic theory, or they are well familiar with economic theory and seek to nudge the readership into the acceptance that governmental interference, or as they apparently see it, helpful interaction, is a requirement in some form or fashion.

 

I find this troubling to say the least.  For those of us who champion free market capitalism, which would include our Founders I might add, there would be a few answer alternatives which we would respectfully submit.  Submitted for your review are the following:

1. Government should, at the earliest possible opportunity, exit participation in the mortgage industry, and allow the free market to find equilibrium and function in full efficiency.
2. Refrain from extensive regulatory action within the industry, eliminating attempts at engineering social justice through shaking down banks.
3. Retract Dodd-Frank, which has had significant negative affects on the banking industry, curtailing loan ability and strongly reduced the quantity demanded of potential buyers.
4. Retract The Home Value Code of Conduct, an anti free market control mechanism cast over the appraisal industry, which has had a historic ripple effect on negativism on the industry.

There is one thing Congress could do to help the housing market, and Ronald Reagan outlined it in his first inaugural address:  "Is it time to reawaken this industrial giant, to get government back within its means, and to lighten our punitive tax burden. And these will be our first priorities, and on these principles, there will be no compromise."

Immediately, several steps could be taken which give rise to employment and consumer confidence, providing a jolt to the anemic current growth levels.  Among those would be the reduction of the corporate tax rate and regulatory actions, both those employed through legislation and those implemented by executive order.  Retract all governmental interaction within the markets employed in the aftermath of the financial crisis, including the newly formed Consumer Protection Bureau.

Actions deemed supportive of a stronger workforce, the raising of the minimum wage and the new ordering of overtime payment, actually are an impediment to employment and negatively affect the marketplace and should be thwarted immediately.

Of all the ill-conceived actions interjected in the marketplace, with or without legislation, without question the most harmful to economic growth and prosperity is the implementation of Obamacare.  It fails in its publicized objective and is nothing short of a job killer, cutting freedom and prosperity off at the pass.

With such common sense applications at the finger tips of of Congress, it is apparent that the objective is not to provide elements for increasing productivity and prosperity of the governed, but in fact to implement through taxation, legislation and sadly coercion increasing control over those for whom the Congress is charged with governing.

Quoting Reagan again, "I hope we have once again reminded people that man is not free unless government is limited. There's a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts."

Our government lacks adequate leadership at this time, with encroachment of freedom joined by mounting financial and geopolitical problems. Under Obama, government is not only far from limited, but is both legally and illegally seizing power over the citizenry, and predictably, liberty, along with prosperity, is contracting.

Sadly, in a nation drowning in a sea of irrelevance, few recognize the dear gift being taken from them right in front of their eyes.  It should be noted that Reagan was right; "Government is not a solution to our problem; government is the problem."

A Measure of Success

While literally in midst of another domestic terrorist attack in Washington, DC at the Naval ship yard, in what can only be described as a classless and appalling action, President Obama took to the podium in front of a staged crowd marking the five year anniversary of the financial crisis to take credit for saving America from a a depression.

The top priority since his tenure in the oval office began, Obama reiterated his intention of focusing like a laser beam in his effort in building our economy so it works for everyone and laying out a new foundation for economic growth and prosperity. Take a listen:



With an adoring mainstream media failing to once again to question the assessment of the president, the extreme lies and misrepresentations of this speech cannot go unchallenged.

Obama, through the passage of Dodd-Frank, has left most banks paralyzed, as he blames the money center banks for creating the housing crisis through unsavory lending and underwriting practices.  Never mind that much of the blame falls on the goings on surrounding the Community Reinvestment Act, which sought to provide loans to lower income individuals and families who under normal established guidelines would fail to qualify.  ACORN, a community activist organization Obama supported and worked with, threatened legal action and public ridicule through protest for those considered racist banks who refused to dismiss best underwriting practices and engage in lending to unqualified applicants.

Dodd-Frank also provides consumer protection for those engaging in commerce with banks, given the deemed incompetence of the consumer derived by the government.  Forget buyer beware, Obama and big brother are here to help, guiding (and restricting) what banking actions of commerce the consumer will be allowed to engage in. Dodd-Frank does nothing but restrict banking opportunities all while increasing costs of the consumers.  It is about nothing but government control, and limits the individual liberty and economic freedom of the citizenry.

In addition, while we are at it, the assault on property rights also adds costs and restricts freedom of property owners through EPA implemented regulatory action, restricted permitting and zoning regulations implemented under Agenda 21.  Has anyone replaced an HVAC system lately?

President Obama spoke of how his efforts jump started the flow of credit.  Through government entitlements, such as HARP, scores of homeowners have refinanced their mortgages at lower interest rates as banks beholden to the government have been directed to provide this opportunity.  The lost money is absorbed by the taxpayers.

Most property owners, due to underwater property values, facing restricted credit and unstable employment, are unable to qualify for loans without government assistance.  Credit for small businesses, and mortgage loans free from governmental intrusion, remain quite difficult to obtain.

Some thirteen trillions dollars have been spent, actually borrowed, to "stabilize the economy" and create jobs, and although Obama has no idea, this has been a colossal failure in large measure to his horrendous economic policies. Remove the FED buying bonds, begin some tapering, and see how stable the economy is.

While the administration trumpets a lowering unemployment rate, it should be noted that figure has been grossly manipulated.  Millions of Americans, unable to find work, have quit looking, and thus have fallen from being counted in the data sample, thus allowing the rate to fall.  The real story can be found by looking at the Labor Force Participation Rate, which tells us that the amount of our citizenry fully employed, not withstanding steady population growth, is at levels not seen since 1978.

 

The real statistics regarding the economy are staggering, and if the workforce was equal to when Obama was sworn in, the unemployment rate would be closer to 14%.  Among the jobs Obama has claimed to create, a mind boggling number have been part time, in large measure due to companies limiting the hours of their employees in preparation of the implementation of Obamacare.  Obama championed the flagship legislation he spearheaded in Obamacare, the current top ranked job killer in America. 

 

In a related statistic, ZeroHedge.com illustrates economic realities even the low information crowd can comprehend; reporting a record number of restaurant workers while restaurant companies report decreasing sales.  Something is wrong with this picture.

 

Obama noted an erosion of the middle class, unaware his policies are the culprit.  Families are working harder than ever for less as median family income is lower than when he took office, coupled with rising costs in health care, food and of course gas, which has been over $3 a gallon, in contrast to a cost of $1.83 upon him taking office, for over 1000 days.

 

In fact, Obama highlighted his efforts to insist on new technologies to end our addiction to foreign oil.  Given that commentary, it is puzzling that this included reducing domestic drilling where possible, with a byproduct of a reduction in jobs, and increasing purchases from foreign countries.  Obama proclaimed we sought to become Brazil's biggest customer for oil.  Cheers!

 

Higher education has been an item Obama has focused on, even having Sallie Mae taken over by the federal government,  Sadly, the cost of higher education has never been higher and issues abound.

 

Much of the stimulus money went to unions organization and green job initiatives, many of whom are now bankrupt. Bridges and roads earmarked for repair remain in need as the money went elsewhere.

 

Obama was thrilled to save Detroit, except he did not.  The city of Detroit has gone bankrupt, and General Motors has been unable to repay Uncle Sam for the bailout.  The famed Pontiac Motor Division fails now to exist, and green energy vehicles Obama forced GM to produce have not produced a profit.  In a brazen derailment from contract law, bond holders had their money stolen while auto unions were padded.  Dealerships that were closed were over 80% owned by GOP donors, a political hit.  Ford, meanwhile, turned down the bailout and is outperforming GM. 

When Obama adds it up, he sees a tremendous success. Given his ambition to fundamentally transform the United States of America, his presiding over our decline may be measured as such.  For those who appreciate free markets, individual liberty and economic freedom, his tenure has been catastrophic.

But the lies and misrepresentation did not end there.  Yet to come was the all too common bitterly partisan and divisive attack on those meddling kids, otherwise known as Republicans.



It is worth noting, again, that for the fist 18 months of the Obama administration, until the election in Massachusetts of Scott Brown, democrats held a super majority. Better stated, the republicans may as well have played golf everyday because they alone could stop no legislative action. Zero.

At this point, the GOP has the house, but the democrats still control the presidency and the senate. Furthermore, against rhetoric to the contrary, a long list of progressive GOP members refrain from contesting Obama on anything, even some having supported much of his plans, inclusive of Obamacare.

The economic chaos Obama speaks of has been caused by his wreckless spending, exploding entitlements and attacks on small business and free markets.  Keep in mind it is Obama and his party are and have been in control presiding in the decline of America.

With respect to those who are offering opposition to Obama and his collective ambitions, I joined millions of others in electing representatives charged with defeating his initiatives.  It is Obama who has tanked the economy, not a handful of GOP members who oppose his socialistic goals.

Obama is emphatic that he will not negotiate with the GOP on the budget issues, which is odd coming from a man who claimed he would negotiate with any terrorist on the planet.  The GOP always get hammered for not compromising, but it is Obama who will not negotiate.

Yes, when you add it up, freedom and prosperity has been lost under Obama's presidency.  Five years after he implemented his strategy, with limited elected opposition, the country is far from economically stable and cannot pay its bills.  Seemingly under control of the administration, the FED is monetizing our bloated debt, crushing savers and decreasing asset wealth in what has to be considered the reaching of Obama's goal of the transformation of wealth.

The media can cheer Obama on, but those of us in the middle class out here working know what the scorecard says.  The economic conditions as a result of the actions taken by Obama have significantly reduced freedom and prosperity, the opportunity to achieve it, and have decreased the standard of living for the greater majority of our citizens.

How is success measured in this case.  For Obama, presiding over the transformation of the United States is considered a rousing success.  I consider those actions unconstitutional, and therefore seek his impeachment.

Tacking Tangible

The market indexes have been on quite some run.

If I could get a handle on all the lines of action going on on Wall Street, not only would I be a ventriloquist, I would be beyond wealthy. I am not.

The FED has increased the money supply by engaging in monetizing the debt, otherwise considered printing money, and that has resulted in excess money chasing too few assets, pushing the asset prices higher.

Due to the abysmal housing market, which cannot gain ground due to a horrendous job market and extensive regulation through Dodd-Frank, real estate investing has not been the avenue of choice for investors.  Gold and the stock market has.

A review of the NASDAQ after the close today shows the index increasing five year highs, and this has been a great run if you have been along for the ride. Take a look, but note the market level variance from the relative strength:



Weekly NASDAQ chart/Investors.com

While markets are forward looking and do not always reflect the current status of the economic realities on the ground, given our economy, it is reasonable to conclude the stock market should not be lurching into a parabolic assault on historical highs.  With an employment participation rate having retracted to levels not seen since the Reagan administration, a manipulated unemployment rate parked at levels not witnessed since The Great Depression, governmental assaults on small business, class warfare on the wealthy and putrid growth in the Gross Domestic Product, one has to wonder why the dichotomy between the capital markets and the reality on the ground.

As the excellent blog Zero Hedge accurately pointed out, many economic measures are breaking down, and while the Case Schiller Housing Index has shown signs of life depending on how you analyze the data, even though a shadow inventory remains, the housing market remains bottoming.

If housing is improving, with the state of the economy, one must conclude rising investor participation as first time home buyers are scarce.  If investors are becoming more interested in real estate, what market has fallen into disfavor and why? The stock market?

Indications are yes.

In fact, as BloombergBusinessweek reported, some $114 billion US Bank deposits have been withdrawn, at the fastest pace since the September 11, 2001 attacks. 

Apparently, few know why.

Paul Miller, a bank analyst with FBR Capital Markets, cautions against reading too much into the Fed’s weekly data. “It’s a noisy database,” he says.  No kidding.  With a media complicit in propaganda, and the FED intervening in market action in unprecedented levels, it is most difficult to accurately value equities.  It is the FED behind the curtain who is crowding banks out of the mortgage origination market and setting unreasonable credit requirements for lending practice, handicapping the housing market even with manipulated easy money.

But is there a correlation between rising housing investment and what looks to be a topping out of the DOW and NASDAQ?  Further, in anticipation of a market collapse, would tangible assets such as real estate become the favored investment?

Without government interaction, even though they have been replenishing their balance sheets borrowing free money from the Fed, banks could not withstand a major economic collapse.  Further, unwinding the hypothecation would be catastrophic.  If the clients of Jon Corzoine at MF Global are any indication, get your money while you can.  Maybe investors are.

No matter what market developments lay in store for us, a few things are certain in my view.  The housing market remains broken and cannot recover without a recovering job market. The market has been compromised and true evaluation is not possible. And, unfortunately and most notably, the rule of law and trust of the marketplace, integral for the survival of a free market capitalist system, has been violated.

As I have previously mentioned, until the rule of law is reestablished with the government becoming a bystander, allowing the FED to resume normal open market operations, the market place will remain compromised and a playground for the crony crowd.

Given the increasing turbulence, while I don't know what I am having for lunch tomorrow, I sense a major storm brewing both port and starboard. Caveat Emptor.

No Participation In System Crash

The top story in the political arena this week is commonly referred to as the fiscal cliff; a collection of negative economic realities encroaching upon America that time cannot stop.

While these realities are incredibly harsh, the issues are sadly, but not unexpectedly, being used as political fisticuffs.  You see, progressives on both sides are arguing about where the money should be spent, rather than responding with fiduciary responsibility in an effort to prohibit Uncle Sam from suffering catastrophic financial injury.

Most of America thinks our elected officials are working diligently in an effort to curb the affects of the approaching storm, enacting policy changes to mitigate the damage and prohibit future economic disasters. Outside of a handful of conservatives, they are sadly mistaken.

Our old friend Larry Kudlow suggests President Obama does not want to see America regress into another recession.  We rarely part company with Kudlow, but since the president has been eagerly implementing policies that punish success while creating a culture of dependency, Obama not only does not care about a second recession during his watch, he is actively enabling it.

In fact, the Democrats, giddy over the election results, are seeking political gain at the expense of the American public.  Any and every opportunity to spend more money in effort to collapse the system into a new socialistic structure is being pursued, and scapegoats in the form of non compliant Republicans are being targeted.


Grover Norquist/Photo/AP 

On cue from the Obama administration, the media has once again brought Americans For Tax Reform President Grover Norquist forward as the boogie man, creating a straw man argument. We thoroughly covered the shenanigans in the targeting of Norquist back in June of 2011.  Norquist gathered signatures of most of the elected republicans to pledge to not raise taxes under any circumstances.

Norquist is under fire, and is not taking the attacks lying down. Sadly, some republicans have announced they will break their pledge, hoping to save their political future. From my perspective, republicans who raise my taxes have no political future.

Contrary to the media, the fiscal cliff is not about Norquist.  Without question, President Bush spent way too much money, but Obama, with control of the House of Representatives and the Senate, ran up the tab exponentially with little to zero return on or of investment.  By design.

Obama has a mindset that America stole from other countries to accumulate its wealth, and that wrong must be righted with the vehicle for correction being the transfer of wealth.  Domestically, Obama holds the same "you didn't build that" philosophy and aims to transfer wealth from those who have it those who do not.

Don't look now, but Obama and his progressive cohorts have been quite effective thus far.  Although Dodd-Frank was quite significant, Obamacare is the central legislative act for wealth transformation.

Given our amount of debt, we are already over the fiscal cliff and arguments to the contrary are mind games. In fact, without government intervention, we are and have been in recession.

The course of action for republicans, and America, is to call Obama on the table.  After Uncle Sam has run up to the max limit every credit card in sight, rather than continue to allow the government to steal our money, they need to walk back all their negative return investments and excessive entitlements.  The GOP should not be party to joining in any balanced objectives, otherwise known as tax increases.

Unfortunately, Obama and the progressives do not share the same objectives sound economic thinkers possess.  Under their direction, we will be driven to bankruptcy as our system collapses into a socialistic big government nanny state with controlling mechanisms keeping the citizenry under thumb; robbed of incentive, dignity and hope.

Free market capitalism remains the best path to prosperity, inclusive of limited government.

Traders Handcuffed By Regulators

Governmental regulation, much of it coming from the horrendous Dodd-Frank bill, is an unwelcome participant in the marketplace, making it much harder for investors and traders to make money.

Forecast are increasingly difficult, as random governmental interaction and artificial interference curtails investment opportunities. Risk is central to an efficient market, and regulations to eliminate risk cause inefficiencies and reduce potential profits for those who can accurately measure risk.

Doug Dachille, CEO of First Principles Capital Management, was the guest host on Squawk Box last week and explains the difficulty traders are facing:

Future Financial Mayhem

You may not recognize it, but you are being lied to.

For an example, which is a full assault on your wallet, look no further than the monetization of the debt, which Fed Chairman Ben Bernanke said would not happen. Well, Investors Business Daily reports that the FED is readying for more stimulus. Perplexing for sure, given the failed results of previous quantitative easing, QE1 and QE2. Printing money decreases asset value, which surely will not be of assistance the millions of homeowners underwater.

Media outlets report that the economy is growing and jobs are being created, as evidenced by the unemployment number presented by the federal government. If that is true, it would not be necessary for the FED to engage in QE3.

Speaking of the FED, something has gone terribly wrong over the last few years. The FED is the lender of last resort and is charged with conducting monetary policy. Historically, Presidents have had little power over the FED, with the FED operating outside of executive branch influence, the exception being appointments to the boards and appointing the Charmian, if necessary.

Although the FED is by far the most powerful governmental agency, there is little regulatory oversight over its activities. Somewhere recently, particularly under President Obama, The FED seems to be carrying water for the administration and assisting in the implementation of policy. This is very troubling, particularly when the leader of the executive branch is not a free market capitalist.

Recent actions by the FED, seeming to begin with TARP, have broken tendencies and are raising concerns on both sides of the aisle. The creation of the conditions that allowed MF Global to take place is a recent example of the now problematic status of the FED, and how you are being lied to.

For a brilliant explanation, please see First Principles Capital Management CEO Doug Dachille at the Yale School of Management last December:



The government, using the FED through regulatory influence and intervention, is now choosing winners and losers. Although Fannie and Freddie are still in operation, it is the FED behind the curtain who is crowding banks out of the mortgage origination market and setting unreasonable credit requirements. As Dachille points, out, life insurance companies are being squeezed, and Sallie Mae has been taken over and private lending has been crowded out.

With MF Global, customer accounts were not protected. They were stolen to pay major players. Again, as Dachille discusses, with the suffocating Dodd-Frank bill, you might think customer accounts might be protected. If the regulators are charged with one thing, it would be to protect the integrity of the system, the trust that customer accounts not participating in risk taking activity are not hypothecated and can be made whole in a timely fashion.

This did not happen at MF Global, and due to the lack of trust in the markets sure to emerge because of this, bad things are on the horizon. If this can happen at MF Global, it can happen at any firm housing investments. A customer obviously has no control over hypothecation by these firms and therefore cannot be guaranteed a return of the investment should the firm be severely compromised or fail.

Beginning with the shafting of the bondholders of the automakers, the rule of law and trust of the marketplace, integral for the survival of a free market capitalist system, has been violated. You are being lied when government officials and the media inform you that everything is fine.

Until the rule of law is reestablished, the government becomes a bystander and the FED resumes normal open market operations, the market place is compromised and for you to be participatory in it, Caveat Emptor.

Regulations Eroding Economic Lifeline: Credit

While many of our citizens remain unaware, a slow creep of regulatory instruments are eroding the lifeline of our economy; credit. If you are working hard to make ends meet and catch bits and pieces of newscasts from national and local news outlets in the mainstream media, you likely have no knowledge of how serious this issue is.

Rahm Emanuel, former Chief of Staff of President Obama said the administration should never let a crisis go to waste. They took advantage of the fear in the aftermath of the banking crisis to power grab much of your liberty when it comes to your finances, likely without your understanding of the "small print."

It has been three years since Lehman Brothers collapsed, and although many of the experts say Uncle Sams balance sheet is improved and the worst is behind us, I don't buy it. Neither does Home Depot founder Bernie Marcus, who joins Mary Thompson, David Faber and Joe Kernen for a frank discussion on CNBC's Sqauwk Box this morning. Take a listen:



The experts are almost always wrong. Discredited economist Paul Krugman and social economic pontificator Jared Bernstein coupled with comments such as "The housing crisis is contained" and "Pass the stimulus and unemployment will not exceed 8%" come to mind.

Bernie Marcus is not wrong, and listening to him will get you more saving, more doing.

With a new wave of foreclosures coming, property owners will be seeking opportunities for refinancing among banks, but the big banks are not able to extend the necessary credit due to strict regulations. These banks can borrow from the FED at zero and lend to the public at 5%, and a banker can have a fine career in banking doing that. But this lending is not taking place, and the alternative option of small banks is being crushed by Dodd-Frank, which quite simply is killing small banks. Regulations have wrecked the residential appraisal industry, spearheaded by The Architect of Ruin, Andrew Cuomo. These regualtions allow the government to pick winners and losers as well, which raises costs and handicaps the entrepreneur.

The markets have been up this week, and given all the horrendous economic news this week, such as an unexpected rise in jobless claims, inflation and sobering news on poverty, you may wonder why. Euro Tarp! You got it, the FED is essentially bailing out Europe, which can be equated to QE3, a new installment of quantitative easing on a global scale. A socialist European dream! Of Course, I am quite sure this will fix the problem with the PIGS? Well, it won't work!

The economy is in crisis, and we are far from out of the woods. Uncle Sam is a major event way from taking a substantial leg down, and the FED is short on tools to fight the problem due the poor crony capitalism decisions made under Obama and Bernanke. Could the crisis in Europe be such an event? If so, will global governance, all for our benefit no doubt, claim more of our liberty in creating a global banking system, which could lead to a dollar collapse?

The big banks continue to get bailed out while the small banks are being killed off by excessive regulation, crippling the credit line for consumers, who are on life support. Collusion between the administration and the FED is extremely alarming, contributing to the unnecessary extension of the economic crisis we are in.

All these goings on are the antithesis of what should be taking place, and strongly appear to be orchestrated. These are critically troubling times, and our country as we know it could hang in the balance. As I pray we make it to November 2012, we must hold our freedoms dear, protect our sovereignty and remember that free market capitalism is indeed the best path to prosperity.