Thursday, January 31, 2013

Wire Transfer Fraud & Other Sins

This week, I'm in San Diego attending an annual conference of financial advisors.  There are classes and workshops on the economy, the markets, the ever-increasing crush of regulation, and whatever is new.  The biggest surprise so far has been the many discussions about the increasing problem of wire transfer fraud, which is up 100% each year for the last two years.

It works like this:  A hacker breaks into your email account.  Immediately, he routes all incoming email to an account of his, effectively isolating the client from his own incoming email.  The hacker quickly scans your existing emails to find your financial advisor and, copying your writing/spelling/punctuation as much as possible, sends your advisor an email that you have a sudden problem and need to know how much cash is in your account.  The hacker explains he needs it quickly, but is unavailable by phone, as he is at a funeral, wedding, deposition, etc.  Emails from the advisor to the client are re-routed to the hacker, so the client doesn't know what is happening.  Lastly, the hacker provides wiring instructions to a bogus account, where the money is immediately transferred out-of-country as soon as it arrives.  I'm both sad and embarrassed by how many advisors try to help their clients and end up hurting them instead.

This problem of wire transfer fraud is much greater in large firms, where the client is just another account number. Because I accept so few clients, I know each person well and seriously doubt I could ever make such a mistake.  However, in an abundance of caution, I will no longer accept any wiring instructions without also calling my client on the phone number in the file.  Knowing-your-customer well is always the first line of defense!  I don't know how large firms with hundreds of clients can manage this risk.

This is also an example of why it is important to always have a third-party custodian, such as TD Ameritrade.  They are another strong line of defense, as they will not allow advisors to wire funds to any account that is not already on record, with the clients signature.  One of our speakers was the new head of their wire transfer fraud department, where they independently verify the validity of outgoing wires.

A final thought is why is it the good guys have to always be on the defense?  Of course, it is difficult to catch the bad guys, but do we really try?  And, when we catch them, do we really punish them in a public fashion? What is the dis-incentive for the bad guys?

Wednesday, January 30, 2013

Digital Bullets

War is a terrible thing . . . in so many ways!

Several economists have now estimated the combined cost of the Iraqi and Afghan wars as $3 TRILLION or more.  That includes actual funded military expense plus an estimate of the life time healthcare costs for  the sixty thousand wounded veterans.  It does not include the cost of any reconstruction in those countries nor the earnings that our American dead and wounded have lost, as result of their service.

But, at least, we knew we were at war!

I think another war has broken out that worries me -- a currency war.  However, there are no lead bullets, just numbers on a computer screen.  But, trillions of dollars hang in the balance.  And, like all wars, the various combatants are pointing their fingers at somebody else for starting it.

Since September, the Japanese Yen has lost 14% of its value.  That means anything you imported from Japan now costs 14% less than just a few months ago.  Holding the sales price to your customer constant -- that means your profit margin went up, and you'll probably order more from Japan.

My wife believes that -- anytime you get two men together, sooner or later, you'll get a horse-race!  She would expect nations would want a stronger currency, so they could brag about it.  While nations do like to brag about bigger and stronger currencies, they like lower unemployment and happier voters more.

Here's the thing about currencies -- a cheaper currency is good for the economy.  It makes exports cheaper for other nations to buy from you.  This means your nation has to make more stuff to export, and unemployment drops, and voters are happier.  Also, it makes imports more expensive, which improves your balance-of-trade.  (While more expensive imports increase the possibility of "importing inflation," that is not a problem in nations that are more worried about deflation than inflation, like Japan.)

During the global financial crisis of the last few years and especially during the European financial crisis recently, the Swiss franc rose so much that it was crushing their small economy.  Their central banker opened the floodgates of money to keep the franc (CHF) from rising and is now heavily criticized for unleashing inflation.

The Euro has just hit a fourteen month high against the dollar.  It is only a matter-of-time before Mario Draghi, head of the European Central Bank, also becomes fond of inflation in order to drive down the Euro.

Of course, I do believe the U.S. began this war.  Nobody argues that Bernanke's first obligation is not the U.S. economy.  He tried to keep the dollar low (remember when gold was $1,960).  That hurt Japan, who is now fighting back.  Europe is next.

Also, nobody will argue that anytime the world''s economic engine needs to be kick-started, it should not do so. However, it will likely be the Chinese who start the next currency war.  The world's economic engine usually does . . .

Monday, January 28, 2013

Rules-of-Thumb . . . and other Truths

I've been a member of the National Association of Business Economics (NABE) for many years.  The joke is that we are more reality-based and less nerdy than academic economists.  I don't know about that, but the information is certainly more useful.  Today, NABE released their survey of economists about the economy during the fourth quarter.  I'll bet it was stronger than you expected.  Read this excerpt:

 “The economy continues to soldier on. Sales growth was stable, even amid widespread uncertainty surrounding the potential impact of the fiscal cliff, but gains in profit margins slowed. More than one quarter of survey respondents said that their firm postponed at least some hiring and capital spending in the three months leading up to the then-impending fiscal cliff. The broader labor market nevertheless gained momentum in the fourth quarter, but increases in capital spending slowed. While the panel was nearly unanimous in its view that the economy will expand over the next four quarters, it was split as to the degree of growth expected. Half the panel reported that their firms’ internal planning assumes real GDP growth of between 2 and 4 percent, while the other half sees growth coming in below 2 percent. Hiring plans are reportedly picking up, though capital expansion plans are slowing. Still, more firms expect to add jobs and boost capital spending than to cut them in 2013.”

Here is what I find unusual -- the stock market usually telegraphs pending changes in the economy.  The old rule-of-thumb was that the stock market would improve about 5-6 months before the economy turned around.  In this case, the market started improving in December, AFTER the economy picked up strength.  Clearly, this reflects the level of anxiety about our political gridlock and fiscal drama.  It is a rare occasion when investors follow the economy, instead of leading it.  Only politicians could cause that!

So much for rules-of-thumb . . .

Saturday, January 26, 2013

Owning Gold or Digging Gold

Everybody has some gold jewelry laying around the house.  For most people, that is all the gold investing they do.  However, when a person does decide to invest in gold, they usually buy it like they normally buy stock, i.e., in shares of a company that mines gold.  That has not been a good investment over the last few years.  Take a look at this graph:

Gold Production Growth vs. Per Share Gold Growth

While the amount of gold taken out of the ground has actually increased 14% over the last four years on a cumulative basis, the amount of gold mined on a per share basis has decreased 9%.  

More gold produced partially explains the recent weakness in gold prices, as increased supply of most anything weakens the price.

To finance greater production of gold, which is expensive, gold mining companies issued many new shares of stock, which has diluted the value of shares of stock, just as increased supply of gold stock weakens the price of gold stock.

The same supply & demand relationship works for the price of the raw gold and the number of dollars.  If the supply of dollars increases faster than the supply of gold increases, the price of gold will normally increase.  Monetarist economists like to say "too many dollars chasing too few goods chases up the price of those goods."

It is a real historical anomaly that quantitative easing by the Fed has not increased the money supply enough to drive gold prices through the ceiling.  It has not, because consumers have not been spending the newly-created money.  (That is called the "velocity of money" and measures how often a dollar is spent.)  As people lose the investment fear they've acquired since 2008, I expect money supply to increase significantly, and the price of gold to increase.

If the recent flood of money back into stock mutual funds (which is driving the market up right now) continues, then I expect the velocity of money to increase as well.  That would be a good time to be owning gold -- the metal and probably even the stock of companies digging it up.

Wednesday, January 23, 2013

Big Enough Pasture ?

Much has been written about the folly of trying to out-smart the market by market-timing, i.e., selling all stocks when the market is the highest and buying all stocks when the market is the lowest.  Of course, while that is a quaint idea, nobody has ever been able to do that on a consistent basis.

But, there is a nugget of wisdom to it  When risk rises, the percentage of the portfolio allocated to cash should also increase.  (Being 100% cash is not prudent.)  The nugget of wisdom is that we are looking at risk - not returns.

Does a person significantly reduce their upside potential if they shift heavily into stocks when the level of risk decreases?  Sometimes, they do, because the market has gotten ahead of them!  Sometimes, they don't!  Take a look at this chart:

Chart of the Day

In the past 112 years, the Dow has dropped a whopping 30% thirteen different times and been followed by a bull market each time.  Today, we're enjoying another bull market, but it is still a weak and short rally compared to averages (the gray diagonal line).  That tells me the bull probably still has lots of pasture to run in.

The economy still enjoys greater underlying strength than the market does.  Both are just waiting for the politicians to get out of the pasture . . . 


Tuesday, January 22, 2013

Drying Out . . .

Last year, I often wrote the U.S. economy was stronger than most people realized but was weighted down by three "wet blankets."  They were (1) the Presidential election, (2) the Fiscal Cliff/Crisis, and (3) the European financial crisis.

The first wet blanket created uncertainty, and the stock market hates uncertainty.  Historically, the market rises in November and December following a Presidential election, and it certainly did last year as well.  Since 2008, investors have taken out almost $587 billion from stock mutual funds.  That shifted after the election, and it is estimated that over $50 billion has flowed back since then.  That is a very bullish sign!

The other two wet blankets were more important, as they posed systemic risks, i.e., an actual risk of collapsing or seriously damaging world financial markets.  But, even those wet blankets are beginning to dry somewhat.  Just as you cannot yell "wolf" too many times before losing credulity, investors have seen the fiscal can kicked-down-the-road so many times that they are losing their fear.  Last week's wise decision by the Republicans to kick the Debt Ceiling can another three months down-the-road is an example.  The market was expecting that!  I am more optimistic that this impasse will be broken.  The market will rally stronger, no matter whether the Republicans or Democrats "win" the struggle.

However, I'm still worried about the European financial crisis - but less worried - for now.  The European Union  (EU) has been held together valiantly by Angela Merkel and Mario Draghi, head of the European Central Bank.  His job is safe.  Her job depends on her re-election in September.  For that reason, she cannot do much more to re-build the Union until the fourth quarter.  Until the budgetary authority is taken from individual nations and centralized into the EU, we are "wallpapering over the hole in the wall," but that acceptance by each nation, in some face-saving format, is coming.

Historically, the U.S. stock market sells about 15 times the earnings estimates for the next 12 months.  Today, it is selling for only 13 times, which suggests substantial upside . . . for awhile.  We may be seeing the backside of the Bear . . . for awhile.

Sunday, January 20, 2013

Big Reminders From Small Books

It is the best $1.95 you'll ever spend -- buying America:  The Pocket Guide published by Colonial Williamsburg.  You're forced to remember that "America" is as much an idea as a place.  America-the-place is where America-the-idea happened.  And that, it is meant to be a place of  tensions and conflicts -- such as, between Laws vs Ethics . . . or between Unity vs Diversity . . . or between Common Wealth vs Private Wealth . . . or between Freedom vs Equality.

These tensions don't co-exist easily, but they have co-existed for centuries because "Democratic minds do not see the world in terms of 'either-or.'  The democratic mind is more sophisticated, constantly seeking a way to balance and reconcile values that seem to be at odds with other."  In other words, the inevitable conflicts are resolved in a reasonable fashion among reasonable people.

I hope that is still true, but my faith is being tested . . . my faith that America-the-place still deserves America-the-idea.

In addition, I recall an old professor during my freshman year of college saying you cannot understand America without understanding two things.  The first is the tension between Majority Rule vs Minority Rights.  As an example, just because Democrats won the last Presidential election, they cannot limit the rights of Republicans.  Likewise, just because the majority of Americans want improved control over gun usage, they cannot limit the rights of either gun-owners or even gun-nuts.  (Of course, different people perceive threats differently.)

The second thing my professor emphasized as essential to understanding America is our peaceful transfer of power.   As in 2009, it is a time when one set of leaders voluntarily hands power to another set of leaders.  While the majority of voters authorized the same set of leaders to retain power this year, I'm confident that the magic moment of America-the-democracy will happen again 2017.

Privately, I am more than slightly worried that one of my fellow gun-lovers will use the majesty of a Presidential inauguration to "re-claim" some perceived loss of his rights.  I'm worried that "1776 will commence again" as the noted far-right-wing radio personality, Alex Jones, recently threatened.  All I can say is . . . God bless the Secret Service!

If America-the-idea is to survive, the diversity of opinion cannot devolve into a polarity of right vs wrong.  Colonial Williamsburg did us a favor by writing such a splendid little booklet.  They also provide a civilized forum to debate in a civil, non-polarized, fashion at www.icitizenforum.com .  Let your inner-intellectual out for awhile . . . use it!

And, thank you, Chuck Redding, for reminding me of the gift that is Williamsburg!

Friday, January 18, 2013

$1,000,000,000,000 Coins ?

William Buckler is a brilliant libertarian from Australia.  Like most libertarians, he embraces Austrian economics and a return to the gold standard.  He is also required reading.  Fortunately, a good friend of mine is always kind enough to share his copy . . . Thank you!

The most recent issue discusses the heavy emphasis that politicians place on "laws."  They think they can solve any problem by merely passing some new law or interpreting some old law differently.  As an example, he cites the idea of the U.S. minting a platinum coin which would be legal tender for $1 TRILLION.

A politician can also pass a law suspending the law of gravity, which is great until he steps off a cliff.  Buckler is correctly highlighting the fact that physical laws cannot be over-ridden by man-made laws.  Sure, we can issue $1 TRILLION coins to "dress-up" our national balance sheet . . . but just wait until we try to pay a foreign creditor with a coin worth only about $2 THOUSAND in platinum.

Sometimes, it is tiresome to read Buckler, as the sky-is-always-falling.  But, we are indeed watching a slow-motion train wreck in our fiscal policy, and there is plenty of time for the sky to fall.  I had hopes he suspected Obama would surprise the world and become a truly "transitional" President by curbing the growth in entitlements, but I see no evidence of that.

Separately, he takes the New York Times to task for a column suggesting we have outgrown the U.S. Constitution, calling it "flagrant contempt for the knowledge and reasoning power of the American people" or maybe the leaders of the American people anyway.  (The irony of an Australian lecturing the U.S. on the U.S. Constitution was not lost.)  And, I have often wondered in this space if we need Representative Democracy 2.0 and don't feel bad about questioning our current operating model for governing.  If we can improve upon our version of government, then we should.  Isn't that why the founding fathers permitted the Constitution to be amended?  Otherwise, we could end up like the impotent Japan.

While not recommended for the faint-of-heart, go to http://www.the-privateer.com/ for a chilling review of the world's fiscal condition.

Thursday, January 17, 2013

Happy Bankers, Unhappy Regulators

Scratch a banker and they will tell you they have money to lend and are just looking to make new loans.  Without question, they are honest in that comment.  Of course, if they are candid as well, they will add that credit has to be absolutely 100% perfect to qualify for a loan, which is very different than the recent past.

But, the numbers don't lie -- total loans outstanding have not increased significantly.  Most of what bankers cite as new loans are merely renewals of existing loans, including those that cannot be repaid and are simply "rolled-over," which is called "extend and pretend" that they will be repaid.

But, there is also something more subtle happening . . . banks have been preparing to comply with the new requirements of the Basel Agreement.

Basel is a charming town in Switzerland, halfway between Zurich and Geneva.  It is home for the Committee on Banking Supervision, which is writing new capital requirements for banks worldwide.  In the aftermath of the global financial crisis, the committee quickly announced that capital requirements would be raised substantially.  Unfortunately, this decreases the profitability of a bank, because it can lend less -- if it must keep more of its balance sheet tied up in low-yielding capital.  The banks screamed "bloody murder" (whatever that is).

In addition to capital requirements, the Committee is responsible for setting minimum liquidity requirements for banks.  Last week, they reduced that amount from 5% of insured retail deposits over thirty days to only 3%.  Even worse, the acceptable collateral quality was loosened.  Lobbying does work.  Even better, it pays!?

Less capital and less liquidity in customers does NOT make banks happy.  Less capital and less liquidity in banks DOES make banks very happy.  The good news is that bank lending will probably increase slightly.  The bad news is that there is an old adage that the seeds of the next crisis are sown in the aftermath of the last one . . . Amen!

Wednesday, January 16, 2013

Looking Down the Pipleline

Frequently, I am asked whether I worry about inflation.  The answer is:  Yes -- all the time!  There is no doubt in my mind about serious inflation coming at us.  Theoretically, it doesn't matter that the Fed has "printed" so much money, as they can simply withdraw the excess money supply when necessary.  As a practical matter, it is politically difficult for the Fed to do that.  It has been described as "removing the punch bowl when the party gets started."  Because of that delay, serious inflation is out there . . . but it is WAY out there!

In this space, I've explained the Monetarist theories about the supply of money increasing faster than the supply of things to purchase, i.e., more money chasing fewer goods drives up the price of the goods.  Like most things, it is usually more complicated.  What happens if people don't spend the newly-printed money?  What happens if people save? What happens if banks don't lend?

The increased money supply created by this Fed is not being circulated or spent by Americans like normal.  Called the "velocity of money," it has slowed approximately 67%.  Serious inflation would return quickly if our normal spending and lending habits returned quickly.

I've also explained that inflation cannot sneak up on us.  It will be easy to see before it gets here.  Here is an example.

We measure inflation in prices at (1) the consumer level, (2) the wholesale level, and (3) the production level.  As we know, inflation at the consumer level (CPI) has been benign.  In fact, the Fed wants inflation at 2% and was lucky to get 1.7% over the past twelve months.  At the wholesale level (PPI), inflation was only 1.3% in 2012.  CPI was flat, and PPI was negative during the fourth quarter, primarily because of energy costs which fall at an annualized rate of 19.6%.  However, if you look further down the pipeline, you'll see that prices at the production level have been increasing.  Theoretically, the increased prices at the production level would pass to the wholesale level and then the consumer level.  Yet, the 2.3% increase in food costs at the wholesale level was compressed to 1.8% at the consumer level.  That shows me the consumer is fighting back, but that cannot be expected to last.  Wholesalers cannot keep absorbing the inflationary pressure.

All this suggests a modest build-up in inflationary pressure over the next twelve months.  But, there is no evidence of the serious inflation that I expect later.  When you see the Fed start raising interest rates, you should already be owning real estate and commodities.

Subject to the unemployment level, the Fed has stated they don't expect to raise rate through 2014.  So, you have plenty of time.

Monday, January 14, 2013

The Hi-Jacking of Ayn Rand

When I was nine years old, my father gave me my first gun.  As a child, I spent countless hours shooting birds for target practice (which I'm not proud of today).  As a result, it was no surprise when the Army qualified me as an Expert Marksman.  As a civilian, I have had a Concealed Weapons Permit for many, many years, because I find it comforting to keep a pistol in my car.  I was a member of the National Rifle Association.  If the government asked for weapons to be voluntarily turned-in to the police, I would not participate.  I do believe America is a safer place because I am armed.  So, I guess that makes me a gun-nut.

But, I'm not a ridiculous, paranoid gun-nut!

Ayn Rand is the most influential author in American history that few people know about.  As a refugee from the Communist revolution in Russia, she saw the government confiscate the wealth of the successful and/or lucky (read:  rich) and, in many cases, execute them.  The more fortunate got deported, such as Ayn's parents.  When she came to this country, during that period of American history when unions were gaining power, she logically connected-the-dots and assumed the U.S. government would someday confiscate the wealth of the successful and/or lucky here, before executing or imprisoning them.

That may or may not be a legitimate fear, but the NRA seized on that argument to increase paranoia among their members and to increase their lobbying influence.  It was an easy sell to a relatively young nation that fought for its independence from an oppressive government.  Today, the NRA is regarded as the strongest lobbying organization in America.

As much as I appreciate my guns and admire Ayn Rand, this free-floating anxiety is ridiculous!

Suppose the Federal government decides to confiscate all guns in America. And, suppose you're sitting at home one night when jack-booted storm-troopers kick in your front door to remove any guns in your house.  First, they have to look in all the obvious places, like the nightstand beside your bed.  Then, they must remove the drywall covering your interior walls, to check for guns.  Then, they need to tear up the floors, to check for guns.  Then, they need to dig up your backyard, to check for guns.  Then, they need to dig up any forests that you have visited.  Where does it end?  How many storm-troopers do you need to scour a huge country for 300 million guns and over 100 million residences and apartments?  Who is going hire, train, and pay all those storm-troopers?  If you utilize existing police (most of whom are also gun-owners and may choose to ignore any guns found), what functions will they no longer perform?  Will they no longer investigate crime or monitor traffic or patrol schools?  If you utilize the military, what functions will they no longer perform?  I could keep going, but you see the point.

The logistics of removing 300 million guns from 300 million people in 100 million homes is over-whelming.  Even Ayn Rand would agree that Czarist Russia did not pose so many logistical problems.  Confiscating our guns in America would be a greater effort than World War II in Europe, as our far-right gun-nuts would certainly and quickly become snipers.

It would also be an enormous drain on the economy, diverting resources from other badly-needed services or projects.  Knowing the impending armed fight in America that would break out quickly, the stock market would drop markedly, signalling its disapproval.  This is just NOT going to happen!  Stop worrying about the impossible!

As a responsible, experienced gun-owner, I look forward to increased gun-control!  My Second Amendment rights are NOT being threatened . . .

Sunday, January 13, 2013

A Seven-Minute Perspective on Medicare

My favorite cousin and lifelong buddy is a registered nurse who has a perspective on Medicare that is somewhat different from mine.  She understandably sees it through the prism of medicine, while I see it through the prism of economics.  I think she sees it as the delivery of necessary social benefit, while I see it as something that crowds-out other spending programs.

Anyway, she sent me an excellent short video on the history of Medicare, which can be found at:

http://www.kff.org/medicare/medicare-timeline2.cfm

I encourage you to take a few minutes to view it.  After you do, ask yourself how Medicare would be different if it was designed by nurses and economists, instead of lawyers and politicians?

On the News Stands

Readers know I also write a quarterly column for Inside Business on the economy and investing.  I enjoy writing it, because it allows me to group subjects that I think are important.  The latest was published yesterday and is on news stands today.  It can also be found at:

http://insidebiz.com/news/making-it-through-q4-and-around-cliff

The columnist does not control what accompanies the written part of the column, but I never expected to see a photo of Redskin fans and Cowboy fans sitting together in a column I wrote.  Apparently, the editor has a sense of humor, which I do appreciate.  (Unfortunately, it does not appear in the online edition.)  It will make sense after you read the article . . . I promise!


Friday, January 11, 2013

Good Intentions Are Not Enough

With my interest in health care issues aroused recently, I noticed the Centers for Medicare and Medicaid Services (CMS) just issued their report on 2011 expenditures, reporting that the U.S. spent $2.7 trillion or about $8,680 per individual. That is a whopping 17.9% of the economy, as measured by GDP.  The government's share of expenses was 45%.

Looking at trends, the increase is only 3.9% -- still twice the rate of inflation but much lower than normal.  It is thought this is due to the increased number of unemployed and uninsured who received less medical attention during 2011.  The CMS estimates government expenditures will increase 7.4% in 2014 when ObamaCare offers health insurance to another 22 million Americans, before averaging 6.2% growth in expenses each year from 2015 to 2021.

Also, while the government's share of healthcare expenses was 45% in 2011, it was only 30% in 2002.  This rapid growth was before ObamaCare and the Baby Boomers entering Medicare.  The government's share can be expected to continue rising.

Paul Ryan's plan to end Medicare by giving everybody a $7,000 voucher to shop for their own insurance would still leave the average Medicare patient with a "pay cut" of $1,680.  (Frankly, shopping for health insurance was one of the most difficult, complicated purchases I ever made -- far more complicated than buying a house or car or even picking a spouse!)

Who was the rocket scientist that said "that which is unsustainable cannot be sustained?"  While I'm delighted to see more Americans getting medical attention, the cost curve must be bent . . . soon!

It is not fair to say the government does not try to control the costs.  Medicare imposes strict limits on the price they will pay for drugs.  According to an FDA report, the number of drug shortages increased from 61 in 2005 to 251 in 2011, because companies won't invest more capital into making drugs with artificially low prices.  (Companies will always allocate capital where they can make the most profit, not the least.)

Choices have to be made.  Recently, I heard an elderly Medicare recipient, who has never worked, argue that a certain infrastructure improvement should not be made, as the money should be saved for Medicare spending.  I just shook my head.  Choices do have to be made, indeed.

Most churches I know would love to take care of every poor person they can find but are constrained by the cold, hard reality of economics.  So is the government!

Thursday, January 10, 2013

Tapping My Fingers . . . Impatiently

I think I took my first course in Principles of Investment in either 1970 or 1971.  At the time, there were two dominant schools of thought.  One was the "fundamental approach" founded by Benjamin Graham and popularized by Warren Buffett.  It emphasized detailed analysis of the company financial statements, especially the footnotes.  Critics allege it is "bottom-up," putting too much emphasis on the arcane statements and not enough on the sector or the competition or the overall economy.

The other dominant school was the "technical approach," whose followers are called "chartists."  Many even brag that they don't know the name of companies they buy and sell, because their decisions are driven by the chart action alone.  Critics allege it is too simplistic and ignores too much that matters.  My thinking is that charts are only useful in timing decisions.  Now, take a look at this chart:

Chart of the Day

The Russell 2000 is a popular index for the price performance of smaller companies.  This shows that the long term trend line (green) for these stocks has broken above the resistance line (red), which is that price level where the index has bounced off before.  This is important!  It could mean the bulls are getting ready to run!

It is not unusual to see a stock or index pierce the resistance line briefly and then fall back below.  However, when it pierces it the second time shortly afterwards, it suggests the bulls are getting ready to run -- BIG TIME!

Now, if Congress would just resolve the debt ceiling and budget issues . . . quickly, please!

Wednesday, January 9, 2013

Back On The Road . . . to recovery!

Readers know I am endlessly fascinated with the permutations of portfolio management and the impact of myriad economic data on different portfolios, along with the politics that thread them together.  However, those subjects become less entertaining when laying awake at night with your throat burning and your lungs rattling.  It has even been hard to care whether people see economics as a suit, rather than a wardrobe to mix & match.  Or, that most stock analysts don't understand the relationship between earnings-per-share and growth rates.  Or, that the Tea Party would rather capsize an aircraft carrier than change course slowly.

Not being one who prefers hope instead of action, I've been to three doctors in six days, i.e., my family doctor, an ENT specialist, and the local Urgent Care.  You guessed it . . . the local "doc-in-a-box" finally diagnosed and treated the problem correctly.  By the way, they don't accept Medicare.  Does that suggest anything about ObamaCare?

The visit to the family doctor cost me nothing.  The visit to the ENT specialist cost me nothing.  Medicare paid 100% of both.  However, I paid 100% of the visit to the doc-in-a-box, which was only $150 and included a chest X-Ray, after a mere ten minute wait.

Countless polls tell us that Medicare is the most appreciated entitlement program in our country.  As a result, politicians are understandably loath to cut any funding for it.  They're too afraid of us!  This is one Medicare patient who begs for change.  Make us pay larger co-pays.  Increase our monthly premiums.  Set up ways to  decrease end-of-life costs when there is no hope.  But, most of all, find a way to pay for results.

It is not time for the perfect solution.  It never is.  It is time for a first tiny step, Mr. President!  Please think about that during the upcoming spending negotiations.

Anyway, the worst is over for me, I hope, and it will soon be time to start thinking again . . . finally!

Tuesday, January 1, 2013

GOP's New Year's Resolution

I like Lindsay Graham, the Republican Senator from South Carolina, and agree with him that President Obama has won a great political victory and should, of course, be congratulated on his victory.  Enough said!

My New Year's Resolution should be to attend the next meeting of the Republican National Committee and to nominate Mr. Spock as the new Chairman of the Grand Old Party.  You'll remember he was the half-human, half-Vulcan on the television classic Star Trek.  He was forever trying to control the emotions from his human side and think logically like any good Vulcan.

When Republicans lost control of their emotions, they lost the message-campaign, allowing Obama to win this victory.

I know many, many Democrats who detested Bush 43.  However, I know even more Republicans who absolutely hate Obama!  I know that is a harsh word, but I find it accurate.  Not only do many of my friends tell themselves that Obama is actually a Muslim-Socialist, I have one friend who believes Obama is the apprentice to the Devil himself in case he retires . . . no, seriously . . . he believes Obama is conspiring with the Devil.  Where did the logic go?  It was consumed by emotion.

This put the Party into the position of disagreeing with anything and everything Obama said.  So, when Obama said he wanted the successful and the lucky to pay more in taxes, the Republicans reacted with protecting the "rich," instead of saying "yeah, but how are you going to cut spending, especially entitlements?"  The Republican message became merely anti-Obama, instead of advocating for real lasting Change.

Of course, when we negotiate the debt ceiling increase, there will be another opportunity to control spending.  If they can control their emotions, Republicans will stay focused on controlling the deficit.  If they don't control their emotions, they will find themselves arguing the poor and the elderly don't need any help.

The market should stabilize for awhile, as uncertainty has been reduced.  Given that we lost our AAA credit rating following the last debt ceiling debate, I expect the market to lose value if the debate becomes another debacle.

And, by the way, what is YOUR New Year's Resolution ??