Bad things often happen to good people, but why would anyone take advice from a guy who is bankrupt? Lenny Dykstra famously lost his house and fortune last year in a very public bankruptcy and at one point the judge ordered a trustee to take control of Dykstra’s assets because Lenny seemed a bit, um, well, aloof. Lenny claimed that he got bad advice from a mortgage broker and was a victim of fraud. I do not know if the allegations are true or not, but one thing I do know is that you do not buy a house you cannot afford, he clearly could not afford it, and then claim fraud.
Lenny famously wrote for the TheStreet.com under the watchful (?) eye of Jim Cramer who had nothing but praise for Lenny. That is, of course, right up until his bankruptcy hearing when he was quickly and quietly let go from Cramer’s outfit. You would think after such a public display of horrors Lenny would simply just go away to rebuild his life somewhere, but that is not to be. Apparently Dykstra decided that he needs to get back up on that horse and has started a website to sell his top picks.
The service for Lenny’s top picks range from $899 to $1548 a year, depending if you pay monthly or all upfront. For this service you get access to Lenny and a signed baseball as a value add proposition, ever hear of Ebay? Regardless, his website mainly brags about his baseball achievements and his prowess as a deep in the money option player, but you have to pay to find out how good he is. What his site leave out is the facts regarding his own personal financial problems.
While I could never hold a personal financial issue over someone’s head or a string of bad luck, maybe he was a victim of fraud, but to omit such information is sketchy to me. If he was so good at picking winners, he boasts a track record of 140-0, how could you lose your home? I honestly wish Lenny the best, but why anyone would trust his picks or why he would omit his public financial problems is just dirty pool, in my opinion. Everyone is entitled to make a living doing what they do best and, in this case, perhaps Lenny should go back to something baseball related instead.
Visa had fantastic earnings with a pretty nice increase in cards issued with its brand and blew away expectations, but MasterCard had the exact opposite results. Both business models are probably the best business to be in, they are simply credit card processing service, as it has no risk and is all profit. Regardless, both firms have been rivals for decades, but it looks like Visa is gaining the upper hand.
Earnings per share for MasterCard came to $2.24, compared with the consensus estimate of $2.46. The disappointing figure comes after rival Visaissued results Wednesday that comfortably beat The Street with earnings per share of $1.02, 11 cents better than expected. What is interesting about the massive profits, of both firms, is that the consumer, for the most part, has no idea that every time they swipe their credit or debit card Visa and MasterCard makes a profit. The merchant automatically pays the fee, but consumers don’t realize that the fees do get passed on to them through higher prices. In a cashless society, though, it probably would concern most people anyhow as it is convenient to just charge it instead of using cash.
In an unusual twist from the US’s largest creditor China is demanding the release of Bernie Madoff and want him appointed either as Federal Reserve Chairman or Treasury Secretary immediately. The Chinese demand this to be done because it is becoming increasingly concerned that the current US government is unaware on how to properly run a Ponzi Scheme properly. It seems Beijing is perplexed on how US administration officials and the US media does not seem to understand the difference between annual budget deficits, which is the annual funding gap, versus the reduction of total national debt.
Obviously I am kidding, but there is a chance that the Chinese or other foreign creditors might actually feel this way. Considering the administration started talking about debt reduction and fiscal restraint only to come out with a spending freeze, after they increased those same budgets the year before essentially locking in the budget increases, which will only reduce the annual budget deficit by $250B over 10 years. Notice I said annual budget deficit? That means we are still bleeding red as far as the eye can see and we are doing nothing to reduce the national debt problem we have, which is the largest the world has ever seen, throughout history.
While the administration is at least acknowledging the problem and doing more than Bush ever did they are still doing what politicians do, playing with the words. When regular people hear budget deficit reduction many think this is great, we are paying off our national debt! Wrong. What our wonderful leaders are doing is telling us that they are still going to have to borrow hundreds of billions or trillions a year, but they are reducing the amount of their shortfall on an annual basis. Basically, it means nothing because we are still spending way more than we have. The biggest expenditure that we have is on entitlement programs which everyone admits we cannot cut, but Obama did reduce funding to elderly and disabled housing subsidies which may actually give some credence to the “death panel” argument during the health care debate. I mean if you’re willing to throw grandma out of her home or nursing home than why not have death panels, I am just saying now.
Regardless, what we know is that there is no way any politician will do what is necessary to cut the annual deficit down for real, which means higher entitlement taxes, longer waiting periods for benefits or reduced benefits in general. Instead they will merely grandstand against each other while they slowly, or not so slowly is some projections are correct, destroy the entire country. I do not mean this to be partisan, most know I blame both parties for this mess and pray for a real third party to create some competition in politics, come on 2 parties is not a democracy it is a choice between dumb and dumber. Well, technically we actually live in a Republic anyhow so this basically shows us how limited our politicians are in their actually knowledge when they claim we have the greatest democracy in the world.
The bottom line is that we are adding to the national debt everyday and there is no way to stop it without serious action. The action I speak of will never be taken, not yet at least, but eventually they will happen, if we make it that far. The numbers are simply staggering when you think about it, $14T debt ceiling, $107T in unfunded liabilities and the numbers just get bigger and bigger. The entire US mutual fund industry is $15T so the government could confiscate every mutual fund asset in the US and we would barely payoff our debt, think about that for a minute. In a couple of years that $14T will be much bigger and a large reason that the debt ceiling will have to continually be increased, before the repeal the debt ceiling language that is, is to pay the interest on our debt. The crazy thing is we actually have to borrow money to pay the interest on our debt, talk about insolvency?
To steal a line from Dick and Jane; “Dick, I think were in a bit of a pickle” is completely appropriate right now. We are in the midst of the greatest debt bubble ever created and I have no idea how it will end, but I do know it will end and it will more than likely be very ugly. On an interesting, slightly off-topic, have you noticed the public-private lending facilities being set up with the TARP proceeds? I predicted that would happen a few months ago, I just wanted to say I told you so. Anyhow, there have been lots of interesting happenings lately in politics which I will be writing about very soon. I was incredibly sick for the past 5 days so I apologize for not humoring you with my tasteless jokes, or whatever you call them. In the meantime I am still very bearish, expecting unemployment to be particularly ugly and GDP, well we knew it would be huge, but 5.7%? Expect revisions down to 3%, but if you believe the 5.7% please contact me about fabulous leasing opportunities in Pakistan.
Here we are on the eve of the Presidents ‘State of the Union’ address, which should prove mind numbing as I will explain later, along with a host of other exciting events on Capitol Hill. We will see testimony from a few important figures from 2008 regarding the credit crisis, how they cannot figure out the cause is really beyond me as my 9 year old can recite the causes, but that is your government at work. While I fully expect to hear, during the Congressional hearings, ‘we did everything right and we would do it again ,‘ like they would admit that they screwed up. The President will give the usual speech tonight, the state of the union is strong, but we need to do work, a complete contradiction of reality I can assure you.
We will also hear the President talk about fiscal responsibility, which is a complete joke, as he talks about the massive $250B 10 year spending freeze in government, after he increased spending in those same departments 40% last year. Basically, the President is saying we will save $250B over 10 years, but those spending increases from last year will cost $1.3T, or so. With numbers like those I can assure you the media will not talk about the total hypocrisy of the spending freeze. I am sure we will hear about how well things have ‘improved’ from last year when he inherited this mess, the public is getting tired of that line Mr. President, and keep this in mind, ‘improved’ is a relative term and more politically correct than true for the average American.
A twist will be the indication that Mr. Obama ‘heard’ the public with the MA Brown victory, but he is still not listening. Like him or hate him there is one fact that cannot be ignored, Obama is tone deaf to the public and his arrogance is overwhelming, dare I say more than Bush’s? The point is that he may have ‘heard’ Americans, but he still will not listen to them which will cost him in the upcoming elections. Let’s face the facts, Obama campaigned for 3 Democrats and all 3 Democrats lost and he thinks it is not a repudiation of his policies? Sorry Mr. President, but 3 strikes and you are out. Like most Americans I like Obama on a personal level, but that is not the same thing as endorsing his policies or being blind to the fact that his policies are not working. Hell, Ted Bundy by all accounts was a likeable guy, but few people would want to be roommates with the guy.
No matter what the rhetoric is from tonight’s speech I can assure you that it is going to be meaningless and tone deaf to what is really needed for the country. What is also clear, to me at least, is that fiscal responsibility does not exist and the only things to cut are social programs, labeled ‘entitlement programs.’ It is only a matter of time that Social Security and Medicare benefits are reduced or altered, it needs to be done, but I do have a problem with that. The thing about entitlement programs is that every time you get paid a piece of your money goes into those entitlement programs. In other words, you already paid for these programs through years of work.
The irony is this, we know that these programs were not funded properly and they are broke, even though we put such a large portion of our checks into them every week, but Obama seems to think national or single payer health care is viable. How can any single payer or national health care be viable is Medicare and Social Security are bust and why would any trust the government after 2 large examples of, essentially, failed programs? I am not saying get rid of the 2 programs, the opposite is true, as these programs helped millions of Americans survive, literally, retirement. What I am saying is that these two programs are broke and if these programs, which pays benefits out to those 60 and older, cannot support that segment of the population how in the world can over 300M people get insurance from the government and not have that program blow up? It is not possible, sorry.
Regardless, the President is showing zero sign of fiscal responsibility as his $1.35T budget shows. What I found interesting is that the CBO came out with a damning report on the deficits which got a little air time, but not as much as it should have. However, even the CBO has the projects rosier than what is likely to happen. They actually predict that the deficits will shrink as the Bush tax cuts expire, this is true, for year 1 after the cuts expire. However, we know from history that as taxes go up revenues go down because the ‘wealthy,’ who are the enemy of the state now, decide to earn less because it will eventually be equally as profitable for them to earn less so they can keep more, this is why tax hikes never work long-term. However, that logic is lost on people who care to ignore both history and economics.
The good news is that real tax hikes will not take place until this fall, after the mid-term elections. Now, as far as the whole repayment of TARP tax proposed by Obama, that is a joke because TARP was paid back by most major banks. However, Detroit will likely never payback what they owe, how can they when unions now have board seats? Unions are the ones who killed Detroit to begin with, that is another argument though. The fact is that TARP, a Bush solution, worked, as much as I hate it, and if Obama stuck with only banks receiving it then it would have been profitable. However, now banks have to pay for Detroit which is about par for the administration, blame everyone else but themselves and make others pay for their pet project failures.
I am not sure how the President can claim everything is fine when all the economic data, bad data I mean, is coming home to roost. Unemployment is going to move higher as initial claims increase and the GDP figures, minus government transfers, will show horrible organic growth. We are not out of the woods yet, but everyone is acting like we are.
Everyone remembers the aftermath of 9/11/01 and how horrible those days were, but what sticks out in my mind, after the obvious, was what happened after words. The President said to get out and shop, and boy did we, but the thing most do not recall is what the auto industry did to boost sales, 0% financing. This was the beginning of the end for the auto industry simply because how can you ever raise financing costs after you go to 0%. The demand that 0% financing created meant that the automakers would have a heck of a time raising those rates and they needed the sales. It essentially created a major problem for the industry which help speed its way into bankruptcy.
We are seeing the same thing happen in housing with all the government help being injected into the market. We have tax credits to encourage buying, but we also see what the market looks like without those credits, see recent home sales data, and we have the Fed lowering mortgage rates like mad with QE. What happens when/if these programs stop? It will get ugly, just like when the automakers tried to stop 0% financing. If you do not let the markets work their magic, i.e. stop malinvestments, the pain is just prolonged. GM and Chrysler should have gone out of business a few years ago but that 0% financing helped keep them around, however it could not stop the inevitable.
The mistakes made by the automakers are being made by the government with the housing market. Homeowners already enjoy a ton of tax breaks, mortgage interest deductions, property tax deductions, etc. and the last thing they really needed was a tax credit to buy a home. It has helped, the data shows that, but the problem is these programs have to end and then what happens? As we have seen already, with limited data of course, is that housing does not move without that tax credit. Sure we can blame the weather or whatever external force we want, but that is ignoring the obvious, housing wants to go lower. That leads me to believe that more tax credits are on the way and QE is a permanent fixture at the Fed, see Japan.
When you incentivize buying to such a degree you create a major problem for yourself, or the country in this case, as you boost expectations on false hope. Once you remove those incentives and reality sets in you are stuck with doing nothing, clearly something government does not want to do now, or let the market sort things out, what should happen. Because the government has created false hope for a housing recovery they have created more problems than they solved. The sales we do see now are false demand, meaning it is only there because of the rich incentives, which means that many economists and market participants are creating strategies or projections around numbers that are not real. The fact is that without a natural housing recovery the economy cannot recover.
While the insane 0% financing hastened the decline of the automakers into bankruptcy, in my opinion, the government is simply slowing the fall of housing or kicking the can down the road a bit. The good news is that at least the incentives will not cause the government to go into bankruptcy, well on their own at least, but it is an enormous waste of money. The government should step back and stop what they are doing and the Fed needs to stop its QE program. If neither stop and they continue doing this the next leg down will be ugly and, the reality is, we do not need more incentives to buy houses, look at the tax breaks you get now. False demand creates false hope which lures investors into investments they ordinarily would not buy. When that false demand and hope disappear those investments decline in value, investors are being suckered.
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