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March 21, 2009

The Problem With Short-Selling Treasuries

Short-selling makes it more expensive for an entity to raise capital.  It inflates the supply of the debt or equity securities being offered, and, as we all know, when supply goes up, demand cannot keep up and the offering has to be priced more attractively to encourage investors to buy.

What the forward-thinking barons of Wall Street know, is that over the next three years the US Treasury is going to have to place not less than $6-8 trillion of treasury instruments to pay for the budget deficits, the stimulus plans, the bailout plans, and the $2.5 trillion of revolving short-term treasuries that will be maturing within that time frame.  They also know that, if the government's plan works, the stock market will become more attractive to investors and treasuries less so. 

Short-selling into this "treasury bubble" of supply in excess of demand is already being touted on Wall Street and in the media as a way to "play" this difficult market.  But as I have said repeatedly, just because you see an opportunity to grab something for yourself doesn't always mean you should.  Or that you shouldn't try to find alternatives that accomplish the same objectives (such as buying commodities or material stocks - my personal alternative to shorting treasuries)

This time of crisis in our country is not the time or the place to prove how smart you are, or how much money you can make at the expense of our nation's financial security.  We cannot afford to pay an average rate of 6-8% interest on $16-18 trillion of national debt.  We cannot afford for our interest carry to quadruple in part because certain hot shots on Wall Street saw an opportunity to get richer and took it.   



March 20, 2009

Ben Bernanke and President Obama Need to Coordinate Their Game Plans

On Wednesday, Ben Bernanke (the Chairman of the Federal Reserve) announced the Fed's intention to purchase $300 billion in long-term treasuries.  His intention in doing so was ostensibly to drive down interest rates and force investors to move into higher-risk equity investments (homes, stocks).

But for every action there truly is an equal and opposite reaction, as Bernanke and Obama will find out when it comes time for the federal government to try to place the $1.8 trillion of treasuries necessary to fund its proposed 2009 budget deficit.

Or maybe Bernanke did what he did (at least in part) to show Obama and Congress just how fragile the market for treasuries really is - thereby proving that there is not all that much room to run in our government's international Wealth Shiftathon.  We'd like to think we have several trillion of borrowing power left and can actually fund all the stimulus, bailout, and deficit-spending plans that Congress has on its 4-year agenda.  But if the Fed is the purchaser of last resort and its announcement of acquiring a mere $300 billion in treasuries is enough to cause a reflation panic, then maybe a balanced federal budget is closer than we think.   


We Average Joes Are Wealth Shifty, Too

It concerns me that while we are busy villifying the money players on Wall Street we are simultaneously allowing ourselves to get off way too lightly in the public opinion polls.  Even President Obama in his appearance on last night's Tonight Show painted us as the pathetic victims of sophisticated financial products run amok, rather than as the more-than-willing participants in the nation-wide Wealth Shiftathon that we really are.

We Average Joes are not as stupid as we are pretending to be.  And as large as the paychecks on Wall Street have been, they are nothing compared to the aggregate wealth STILL being shifted by Average Joes everywhere.  Allowing Joe to continue to plead ignorance in this case simply doesn't pass the smell test.  And continuing to ignore the problem we have with extending credit to the fiscally unworthy in order to stimulate consumption in the short run is only postponing (and exacerbating) our global day of reckoning with respect to bad consumer loans.  (Let me clue you in...there is a REASON why the interest rates on credit cards have to be so high, and that is because the default rates are, too.) 

Just as our Credit Crisis is not limited to mortgage-backed securities (as much as we would like to pretend that it is), our current Crisis of Character is not limited to the Big Boys.  We are all guilty of one form of Wealth Shift or another (see my chapter entitled How Wealth Shifty Are We?), and we need to stop focusing exclusively on blaming others and start focusing on what it's going to take to fix ourselves in order for our nation to get back on its feet financially.  


March 17, 2009

TARP Recipient Executive Bonuses

TARP funds recipients like AIG, Merrill Lynch, and others are wanting to pay millions of dollars in bonuses to the very people whose actions led to the current financial crisis.  Other TARP fund recipients (like Citibank) are looking for loopholes in the regulations that will allow them to pay their executives whatever they want, despite the compensation guidelines established by their government-taxpayer lenders/shareholders.  (As I have consistently said in my book: erect a roadblock and we clever people see it merely as a challenge to find our way around.) What I say is: LET THEM HANG THEMSELVES

And then sue the bad players as a shareholder/lender for gross negligence and financial misconduct.  We taxpayers will then get back not only the relative pittance of unfairly paid bonuses for 2008, but whatever other assets the bad players squirreled away over their past 20-30 years of doing business badly.  This way the bad players will be punished appropriately and the good players will not be punished inappropriately, which is something that must be done if we are ever going to see a more ethical America.

March 09, 2009

The Land of the Free and the Brave

Yes, we are in difficult times, but this is not "game over" for America.  Go under?  Us?  Not today.  Not ever.  Yes, some of us are cringing.  Some of us are curled up in a fetal postion waiting for the world to end.  But not me.  Not you.  Not us. 

We know who we are.  We know we are descended from the greatest adventurers in the world.  Explorers and pioneers - risk takers all - whose spirit of adventure not only saw them across oceans and plains, but whose willingness to do or die is still deeply ingrained in our hearts and minds today.

It's not merely a coincidence that America leads the world in advancements and innovation.  It is who we are.  It comes as naturally to us as breathing to abandon the safe and easy path for the one less traveled, instead.

Think back to when you were little.  Think about where we are now.  What changes have occurred in your lifetime?  What discoveries. what inventions, what technologies?  I remember carbon paper and adding machines and snail mail.  I remember washing dishes by hand.  I remember black and white TV with only 3 channels.  40 years ago we didn't have calculators, much less computers.  We didn't have copiers and fax machines, much less the internet.  We didn't have push button telephones, much less i-phones.

Although smart innovators are currently "breasting their cards" as I advise them to in the chapter titled "What's Yours is Mine", there are amazing ideas being worked on right now that are going to provide so many new jobs it is inspiring.  Better jobs.  Less menial jobs.  Exciting jobs.

We are working on energy advancements where your house can become a source of energy, not just an energy user through the use of solar roofing and smart grids that not only conserve the energy your home uses, but which sells your excess energy to your neighbor.  Imagine a world in which an investment in smart energy for your home means you end up getting a check from the utility company instead of a bill.

Imagine going to the grocery store and having your cart tell you exactly how much your bill is going to be based on what you've put in your cart.  Little smart chips in packaging and smart carts are being developed right now that we will see rolled out in just a few years.

Imagine energy from landfills (it's happening), or from the abundant blue-green algae in the ocean. 

Want to scoff at Obama for talking about a cure for cancer during his administration?  Imagine a cost effective medical imaging process that can scan your entire body once a year and detect cancer cells and other problems before they become life-threatening?  We have the technology today to make that happen, but right now only the very richest of us can afford it.

I've spoken about change before and I will continue to talk about change in the future.  Because we must embrace change.  We must not be afraid of letting go of one thing (like the spat and hat industries I talk about in my book) and grabbing onto something else.  Survival of the fittest doesn't mean the survival of the company with the strongest balance sheet, the most cash, or the least debt.  It means the survival of the most adaptable.  Why are car companies behind the 8-ball?  Because they didn't adapt.  They kept on with the dumb strategies I talk about in my chapter "Finding the Greater Fool".   

It's tempting to want to stop spending and conserve cash.  It's tempting to curl up and wait for the deep Shift we are in to abate.  But we are not at "game over" and never will be.

Because this is America. The land of the free and the BRAVE.