S&P Under Attack from the Government

I had made a prediction last year, found HERE, that US Treasuries would be put on negative watch by Fitch and downgraded to junk by China. Well, I was wrong as it was S&P who made the call and actually did downgrade the US to AA+ which is still a joke as the government will never be able to actually repay much of the $14T it has outstanding without just printing money, which IS a form of default. China is now saber rattling about the US dollar again, but this time they are serious, I think at least, asking for a new reserve currency and I think they will get what they want as other countries have raised the same concerns.

The US deserved to be downgraded and we should be downgraded much further than AA+ as we will not get serious about debt reduction. To prove my point all we have to do is look at how the debate is structured. The politicians are all talking about annual deficits and NOT the outstanding debt load. They do all sorts of double talk to make sure the average person only believes we have a trillion or o in outstanding debt, but that trillion is just the annual deficit and no one talks about the big number of $14T in outstanding current liabilities. S&P gets it and that is why they are the first one to downgrade the US.

When the downgrade happened the Treasury Department acted quickly calling the move unjustified, political, terrible lapse of judgment, S&P made a mistake, and these are the same people who rated junk bonds AAA to begin with. While it is easy to criticize S&P for their prior actions, but relative to its sovereign debt ratings those arguments hold no water and anyone with a stitch of unbiased rationale realizes that the US is indeed in big trouble and we do not deserve a AAA rating. The worst part about this downgrade is the fact that the government is now baring down on S&P about this downgrade.

It was just announced that the Senate Banking Committee will be looking into the downgrade. While we do not know if hearings will happen or not the person close to the matter did say all options are on the table. I was under the impression that Congress wanted independent ratings agencies along with an independent Federal Reserve. Silly me I guess as the minute a ratings agency does the right thing they try to crush it with Senate investigations, but the Federal Reserve can monetize trillions in US debt without Congress blinking an eye, unreal.

What Congress is saying is be independent as long as you do what we say and want and if you decide to think for yourself, well, we will hunt you down and skin you alive. The government is acting very much like the old Soviet Union and is sending a message, not matter what we do keep us rated AAA. How can a ratings agency offer an independent review of a security if the government demands that it gets what it wants regardless of what the facts are? It is insane to think that the ratings agencies will remain independent if Congress has investigations if the US is downgraded. Frankly, this is extortion, blackmail or a combination of the two since the government is the one who issues S&P with its ratings license. Will S&P lose its license over this? I do not know, but it is possible and shameful if that is what happens.

As an American you should be angry over the downgrade, but not at S&P. You should be angry at the people who rubberstamps every bill that comes along wasting billions of dollars. You should be angry at their inability to work with each other and address the seriously obvious structural issues that will consume immense amounts of capital in the coming years. You should be angry that the Senate wants to investigate S&P while saying other quasi government agencies are left alone even though they are part of the problem. You should be angry that Alan Greenspan, Mishkin, Bernanke and every other clown out there says the US will never default because we can print our own money to pay the debt, devaluation IS a default.

You should NOT be mad at S&P and you should demand that Congress work on real problems because their lack of dealing with those problems is exactly why S&P downgraded them to begin with. We are not showing the world that we are capable of fixing any real problems. What we are showing the world is that if we do not get our way we will simply create problems were none exists and threaten the “trouble maker” with depriving them of their livelihood or by throwing them in jail. Way to go America.

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Insider Trading is Legal, Finally!

Insider trading is profiting from the buying and selling of a security based upon information that is nonpublic. Trading on nonpublic information is illegal and if the SEC catches you be prepared to cough up your gains, fines, being barred from the business and possibly going to prison. Well, that is if you are just the average Joe of course because the SEC views Congressional members who trade on nonpublic information as completely legal.

John Edwards said in 2008 that we live in a 2 society system, the haves and the have not’s. He was partially correct as we do live in a 2 tiered society but it is the average person and the political elite. Being an average Joe is no fun since all laws and rules apply to us and if we break them we go to jail. However, being in the political elite class is the best thing that can happen to you as you can write the laws, exclude yourself from those laws or even break those laws and all that happens is you get some bad press a censure from Congress and then reelected again. There is a 97% reelection rate for politicians in America even those who are found guilty of crimes, Charles Rangel is a great example, so getting elected is much like the Soviet system of appointment for life.

The issue of Congressional insider trading first crossed my mind in 2008 when I pulled Mel Watts financial records and saw he was trading leveraged ETF’s during the market crisis that year. The country was on the brink of disaster and Congress was pressed to pass TARP and Mel Watts, who hails from North Carolina surprisingly from Bank of Americas home office, was trading leveraged ETF’s. Did Mr. Watts know that TARP was not going to pass the first time around? Did he know it was going to pass the second time around? When did he know, he is on the Financial Services Subcommittee, that mark-to-market restrictions were going to be gone for banks? Did Mr. Watts profit at all from this information? I do not know and no one will answer the questions. Even more surprising is the SEC does not even care as they do not consider any of that insider information.

That’s right, a sitting member of Congress can know a bill that will benefit a certain company will be passed or failed and buy or short the stock on that information and the SEC says that is fine. I wish I was making this up, but I am not as this CNBC article points out. Even worse is that our elected officials, who are mostly lawyers, outperform the market regularly based on a study by some heavy weight academics. The odds of the best mutual fund manager outperforming the market over the long-term is against them, 95% of fund managers fail to outperform the S&P 500 on the 10 year benchmark, but our Congressional members can do what these professional money managers cannot do… amazing, right?

The funniest part of this is the simple fact that these people can make a killing for themselves but cannot get the country’s finances in order. Perhaps if they wasted less time making money for themselves with, apparently, questionable information we would not have this debt ceiling issue. Apparently I am not the only person who is worried that the political elites are helping themselves to illicit gains as, for the second time, a bill is being introduced that would make it illegal for Congressional members, their staff or their family members from disclosing and profiting from nonpublic information. Good luck with that, who would give up that gravy train.

I think it is pretty clear that we do indeed live in a culture of complete corruption were it really does pay to be the elite. There is also a striking resemblance to the U.S. and the Roman Empire or any other Empire that has failed in the past. As this type of corruption becomes commonplace and the citizens tend to not care or pay attention the Barbarians tend to storm the gates and the bloodbath ensues. Insider trading is terrible whether it is Goldman Sachs doing it or my elected Congressional member, actually it is worse if my Congressman was doing this as they are breaking the law and betraying my trust. It is time we ask for some accountability and stop this king of behavior from our public servants.

For the record, the Democrats tend to have better performing investment portfolios than Republicans so this is not a partisan issue, based on the study.

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What happens when you really need your disability insurance company to actually pay up?

As many know I have had a bad fight on my hands over the past few years and while the prognosis is now good the war has taken its toll on my body. I have severe chronic pain which makes even this tough guy come to tears every once in awhile and this pain has prevented me from regular work of any kind anymore. Of course with my extensive insurance background I was prepared with disability riders on my life insurance policies and a top of the line disability insurance policy.

Everyone knows that insurance carriers do not make money by paying out claims but some claims are so obvious they have no choice, such as mine. I have medical files thicker than the Holy Bible written in brail so proving my disability was easy, at first. I breezed through the short-term policy of 12 weeks rather easily, which pays you nothing I might add, and hit my long-term policy back in November of 2010. At first there were no problems as the first 3 checks went out on time with no further information needed. However, that changed when I called in to verify my 4th months check and it was not approved.

I had read the prospectus and understood it and by their definitions I could not perform, at a minimum, my job that I was trained for which triggered a benefit payout. Well, I told the nice service person that I wanted to talk with a supervisor for the real reason why my benefit was not being paid, OK, I was yelling at her, but she got me through to a manager. After I politely explained to him that I understand how the denial system worked as I was, at one point, a Director of Insurance Markets and that according to this policy there was no reason for a denial of benefits and my attorney agreed with me the manager said he was just going to approve the claim and more paperwork will be on the way. That was an honest to God true story that I would swear my good leg on and that should tell you something, if you don’t know anything they will deny you right off the bat. Read the prospectus or get a lawyer to read it for you and be prepared.

Now, I got my benefit and the work is all over with, right? Wrong. All long-term disability insurers want you to apply for social security disability because if you win whatever the government sends you will be deducted from the benefit the insurance company sends you. The disability insurance company will provide you with an attorney to help you win, do not take that attorney, go get your own so they are not collecting evidence to deny you benefits either now or at the 24 month review period. There will be a fee for hiring a private lawyer, but so what better safe than sorry. You are also better off going with a local guy who talks to you versus a national firm where you will never see an attorney until your hearing date some 18 to 24 months away.

The social security offset is what really angered me today because I learned that my private insurance carrier will offset any benefit my wife and kids will receive from social security, which they do receive, typically. I was thinking why would the benefit my kids get offset the benefit I get from my insurance company? The check from social security comes in their name and I will need the money to live on so the insurance company is forcing me to break the custodian law by cashing it to by food for the family. I paid premiums based on my income, not my wife’s or my children’s so why would their benefit be reduced from my disability insurance checks? I asked the insurance company that question and their answer was that since my family was pushing my income over 60%, what my disability benefit was, of my previous income it is considered my additional income because they are getting because of my disability.

That is simply outrageous considering that SSDI, social security disability income, family payments were designed to make sure your kids can go to college and have savings not so insurance companies can offset benefit payments. Well, maybe I am wrong since insurance companies contribute more money to Congress than disability recipients, who knows.

I am upset over this because it reduces the value of the policy I paid good money for throughout all those years. I am mad because people who are in a worse position than me will have to deal with the same thing and not have the knowledge, resources or desire to fight the system and it will hurt them. I do and plan on fighting this; I will let you know how I make out I am confident I can win 2 years worth of exemptions, but after that I do not know.

Why do you need to know any of this? Because like me you have a greater chance of becoming disabled at a younger age than dying, look at me, and you might have to go through this mess. I can assure you that I am giving you the very abridged version of everything, but all the information I have given is 100% accurate. Oh, the insurance company I use… Lincoln Financial Group who had no problem taking TARP Funds while it scrambled to dump its toxic assets and was, shall we say, encouraged to sell Delaware Investments among other things because they run such a great operation.

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The Bulls Still Have to Make Their Case

I have stated that you have to be long this market until the Fed pulls the ample liquidity it has been pumping into the markets for the few months now. Before the Fed announced QE2 I was right to be bearish as the indices were heading lower under numerous stresses from both domestic and foreign sources. It was in August when Ben gave his speech about asset purchases and then the next meeting which started them that caused the markets to take off. Up until that point there was no real reason to be bullish.

Frankly, outside of the excess liquidity, there is still little reason to be bullish. Just because stocks move higher it does not mean that the economy is all better, sorry, but it does not work that way. I believe that the economic data we are seeing is heavily distorted and if we are in fact having 3-4% GDP growth, like several Fed officials claim, where are the jobs? That is a huge jump in GDP growth and that would certainly create jobs, but here we are witnessing the greatest exodus from the job market since the data has been tracked. The U-6 data is way up over 17% and Shadow Stats says we are saddled with 20%+ of unemployed/underemployed.

If we are experiencing 3-4% GDP growth why in the world are we still experiencing ZIRP and QE of any kind? It makes no sense at all. I know, because “inflation is too low.” Inflation as defined by Ben Bernanke and not by people who have to buy food and energy every day. The fact that we are arguing over the definition of inflation is asinine. Normal, sane people, would define inflation as the normal cost of living items, but the insane people say that inflation should be measured by the cost of computers and flat screen TV’s, that makes sense. The bottom line is Ben is distorting everything with this insane monetary policy and is causing food prices to rise around the world, including right here in the USA.

The economy is better, I have admitted this for some time now, but it is still sick and not functioning correctly. What we are seeing now with runaway government spending and excess Fed easing is a serious risk to the US dollar. I realize that every country wants a weaker currency so they can export their way to prosperity or so they can grow their way out of their debt problems, but this will not work for the US. The US debt issues are so large and the trade imbalances are so out of balance that it is impossible for the US to grow its way out of its debt problems.

While Ben tells Congress that the US must get the deficits under control immediately, a first I might add, it is impossible to do so. Have you ever wondered why the US cannot cut annual spending? They tell you it is because of entitlement programs, right? They also say these entitlement programs are solvent, at the moment at least, right? Wrong. The proof of this is in the annual deficits. When you received your paycheck there were federal income taxes withheld and FICA taxes withheld, for Social Security and Medicare. Supposedly the FICA taxes went into separate accounts to be used at a later date but our leaders used that surplus money to plug holes in previous deficits and gave the SSA and Medicare IOU’s instead. Now the SSA and Medicare are cashing in those IOU’s which is why the government cannot cut the annual deficit and it proves that the programs are insolvent.

All of this is evidence that the economy and economic health of the US is not good. We are still in trouble and all we did in 2008-2009 was transfer the bad debts from the banks to the US government, kicking the can down the road, and the banks are still in bad shape. The economy is not replacing lost jobs and probably never will replace all those jobs lost in the last few years. The only way the unemployment numbers will get better is because of how the BLS calculates the unemployed, i.e. not counting the ones that fall off the rolls.

The bulls need to make the case that the economy has really recovered. I am a bear and I said to own stocks, and commodities, and I was right too, but I am under no illusion that things are that much better. A stock market going up doesn’t really mean anything especially when the Fed is giving primary dealers billions of dollars every week to do something with. Not to mention that rising stock prices only help the investing class anyhow which is a shrinking portion of America nowadays.

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You can fool some people some of the time

I believe what the Federal Reserve has begun was completely idiotic and unnecessary which will ultimately hurt the majority of the American people. However, many economists disagree with what I just said. I guess you can fool the people sometimes, but economists can be fooled all of the time. Part of economist’s problem, and why they are so horrible at predicting things, is because they live inside of models and rarely look up. They are also way overpaid for what they do which adds more of a problem with their theories since higher prices do not impact them as fast as it impacts 80% of Americans who live paycheck to paycheck.

Paul Krugman is one of those people who has been far more wrong than right, but for some reason people still listen to him, odd, really, really odd. Mr. Krugman has taken aim at Jim Rogers recently claiming that inflationist’s have gotten the last few cycles’ dead wrong. Really? So, oil going from $50 to $147 never happened. Gold rising to new highs isn’t happening. Food prices going ballistic did not happen then and is not happening now, sure, whatever. The fact is that prices, including food and energy, have moved higher this year and before the collapse of 2008, but Krugman says that did not matter… why do people read him?

It is my opinion that higher food and energy prices helped collapse the system in 2008. As prices rose people diverted more money to the things they needed the most, food and heat which took away from our consumption oriented GDP. After the collapse began we saw these prices ease, a lot, and GDP did pick up after the crossing point was reached. Of course, government intervention helped and many people simply stopped paying much of their debt which has helped GDP since now one cannot pay their bills, not lose their home and now needed a new Kindle or iPad. Now we have rising commodity prices again, but no one seems to think this is bad news. Well, it is.

While mainstream economists talk about “sticky” CPI, excluding food and energy while concentrating on wage inflation as the sole indicator of inflation proves that most economists have lost their minds. Wage inflation does not have to come before food and energy inflation, I am not sure why anyone thinks this is always the case, and if we look back at 2008 we see a similar situation, rising commodities and flat to lower wages. This is a major red flag, but most mainstream economists don’t care. These economists look at me or a Jim Rogers and assume we do not have a clue about what we are talking about. The do not seem to understand that an economy can go from deflation/disinflation to inflation overnight, it happened in Germany. Maybe they are right, but at the same time they are so devoid of reality it is not even funny.

To think food and energy prices do not matter to people is idiotic. It is the same as saying fish can live fine out of water as long as they can hold their breath long enough. With money being diverted to $4 gas or $5 loaves of bread it is clear that we will continue to have deflation in color TV’s which means economists will not see any inflation, anywhere. This is a common sense issue which might fool Wall Street people into believing everything is fine, but Main Street, well, Main Street is not quite that stupid. They know $4 a gallon gas and $5 loaves of bread is bad news. They know that those iPads will be out of reach when a greater portion of their incomes are moving towards those unimportant things… like eating. This is bad news for the economy.

I have no illusions, the market will go up and economists will demand more QE because it is “working”, but this policy is not benefiting Main Street, it is killing it. More and more investors are moving out of stocks which negates the “wealth effect” of magical 9% S&P gains which are based on pure liquidity and not fundamentals. While stocks will move higher I am betting silver and gold will continue to outperform, along with other commodities. This is a catch 22 to the Fed because higher commodity prices is bad for the people, but good for GDP growth, even though it is imaginary growth, but that doesn’t seem to matter as long as the politicians are happy. So much for an independent Fed.

I think the recent views and writings of major economists have proven that they are completely worthless. To think intentionally driving the prices up for the basic essentials in life with high unemployment and flat incomes is barbaric. The worst part is economists all say this is a good thing, what world do they live in? We might get wage inflation out of this at some point, but it will be after price inflation is in full swing and major damage is done to the consumer. I also have no idea how the Fed can reverse this latest policy decision without blowing itself up, I actually believe this is now a permanent policy the Fed is following, just like Zimbabwe.
The biggest question is will Tim Geithner and Ben Bernanke be impeached for lying to Congress when they said they would not monetize the national debt? They should be, the last I checked lying to Congress was frowned upon, but we do now live in bizzaro world.

The Fed is doing everything I feared it would do and they are inflating the country out of its debt, they say they are not, but what credibility can they possibly carry with the people now? On top of that, their actions speak louder than words. When you are intentionally trying to create inflation and write an op-ed about it that makes it harder to say we are not trying to inflate our way out of our trillion’s in debt. Everyone can see what is happening and when Brazil is giving you a smack down, as well as Russia, man, you got problems.

As far as economists, perhaps they should be put on a salary that mirrors the national average in their respective areas so they can understand how higher commodity prices really impact the people. It is easy to say higher prices don’t natter when you make high 6 or 7 figure salaries for playing with computer models, but on a modest 5 figure salary I bet they will see things differently. I am not one of those ‘social justice’ people, but in this case I might make an exception since they are all being complacent in one of the greatest snow jobs ever given to the people. This will do nothing for the people other than create misery and it certainly will not improve the image of Wall Street. We are not a banana republic because we voted in Republican. We are a banana republic because we have idiots in charge of our monetary policy. Stay long commodities.

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