Bank "Stress" Tests, yeah, ok, we believe you...

The link below will bring you to the guidelines for the bank stress tests. Several observations and an editorial:

* The government's "base case" has unemployment averaging 8.4% in 2009. We're at 7.5% as of Jan 31, so we are either going to get to 8.5% in a hurry or they now expect to finish the year well into the 9's
* The base case unemployment for 2010 is 8.8%. Assuming we finish 2009 in the 9's, they are basically saying that in about 2 years unemployment will come back down to about where it is right now
* The base case home price decline in 2009 is 14% with another 4% decline in 2010. Who is gonna buy a house if the government's own reports say real estate is going down another 20% over the next two years? Why not just rent and wait? (Rents are coming down as we speak.)
* I find their "alternate more adverse" GDP of -3.3% and 0.5% laughable given the other inputs of that scenario. If home prices drop another 22% this year and unemployment AVERAGES 8.9%, there's no f-ing way that 2010 GDP is positive.

Here's the link: https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiys3s3SFVys8tcn2C5sAju4uUPq8vL8xn1Dk3XIYs15vgLdxzpzLlDBLS6z-ZGsmaOXOe1tIX9QoC988IstaTk5paa7Wqm3mSilZFGfl0dXRpqJC2AaM5UIvumJZ2cfbxLPpLNs-GJ80s/s1600-h/EconScenarios.jpg

Joe

Crisis of Credit mini-movie

Pretty nice, simple video explaining the credit crisis, CDO's, CDS's etc.

http://vimeo.com/3261363

Bloomberg: Clinton Urges China to Keep Buying Treasuries

Clinton: "We are truly going to rise or fall together."

Ahem, is it a break from Obamaspeak to say that "falling" is a possibility, and if the word "truly" is in there, don't we have to take the possibility seriously?

Feb. 22 (Bloomberg) -- U.S. Secretary of State Hillary Clinton urged China to continue buying Treasury bonds to help finance President Barack Obama’s stimulus plan.

The two nations’ economies are intertwined and it wouldn’t be in China’s interest if the U.S. were unable to sell its government debt, Clinton said in an interview with Shanghai’s Dragon Television today. China knows it needs a healthy American economy as its biggest export market, she said, adding that the U.S. must take “drastic measures” to stimulate growth.

“We are truly going to rise or fall together,” Clinton said. “By continuing to support American treasury instruments, the Chinese are recognizing” that interconnection. China, the largest holder of U.S. government debt, boosted purchases by 46 percent last year to a record $696.2 billion as the global recession spurred demand for the securities. The Chinese government said last week it plans to keep buying Treasuries, adding that future purchases will depend on the preservation of their value and the safety of the investment.

China continued to buy the U.S. debt amid a 27 percent increase in its holdings of foreign currencies in 2008. JPMorgan Chase & Co. predicted in a Feb. 6 report that China will keep buying Treasuries “not only for the near-term stability of the global financial system, but also because there is no viable and liquid alternative market in which to invest China’s massive and still growing reserves.”

Chinese attempts to diversify from Treasuries into more risk-oriented assets have not fared well. It has lost at least half of the $10.5 billion it invested in New York-based Blackstone, Morgan Stanley and TPG Inc. since mid-2007.

China’s currency reserves of $1.95 trillion are about 29 percent of the world total.

Flying Home

Clinton also pledged that America would not practice protectionism. She said the “Buy American” provision of the stimulus package, which says U.S. goods must be used for infrastructure projects, would be carried out in compliance with existing international trade agreements.

Clinton today wrapped up a weeklong trip to Asia, her first as Obama’s top diplomat, having already stopped in Japan, Indonesia and South Korea. She attended services at a state- sanctioned church, and met with community organizers before starting the trip home. She met U.S. troops at Yokota Air Base in Japan on a refueling stop.

China and the U.S. will continue the bilateral strategic dialogue begun during the Bush administration, expanding it to include security and political issues, Clinton said yesterday after meeting with Chinese Foreign Minister Yang Jiechi.

Clinton will co-chair the dialogue on the U.S. side with Treasury Secretary Timothy Geithner, she said today.

Worthwhile listen

Below is a link to a radio interview with Tom Woods, author of "Meltdown," which has moved up to #16 on the NY Times best seller list. It is not gloom and doom, it is a great summary of what works and what doesn't in recession/depressions and how they get caused in the first place.

Warning - it's 57 minutes. Encouragement - if it helps you understand your surroundings, it is worth the time. A good quote, paraphrased - "we spend more time researching what plasma TV we're going to buy than what bank we put our money into."

http://awr.dissentradio.com/09_02_16_woods.mp3

Telegraph: Harvard's Alumni Fail to Dazzle in Recession

Relating back to comments on college institutions in prior post:

http://www.telegraph.co.uk/finance/financetopics/recession/4634048/Harvards-alumni-fail-to-dazzle-in-recession.html

Joe

Market action and Spring outlook

Pretty good breakdown of S&P futures overnight. Low of 801.5, currently 802.75, that's down another 1% since last night.

I would call it the "not ruling out" overhang - over the last several days, the Obama administration is no longer "ruling out" auto industry bankruptcies and also not ruling out bank nationalization. I think the "stress test" is their effort to transition to nationalization in a way that will be acceptable to the public. "We looked under the hood, and we had no choice..."

Then GE will lower their dividend and the market will really tank.

Then, we have the mother of all bear market rallies while everything thinks the bad news it out. Feels like something's gotta give. That nasty Nasdaq just isn't cooperating and it keeps reminding me "maybe this is the bottom." Then I wake up...

Perspectives on future college tuition

A friend of mine asked, "how will the current economy effect college tuitions?" Here's what I told her.

College tuition has been supported primarily by (1) the pervasive belief of getting a "better" job with a degree than without, (2) abundant sources of long-term credit willing to finance college tuition with very long payback periods, and (3) a populus willing to take on that much debt, at those interest rates, for the terms of those loans. There is one more element to the college tuition financing experience - financial aid paid for by endowments swells the ranks, which creates efficiencies, which lowers the cost/student, which helps regulate tuition increases. In other words, stable or growing enrollment is key to the current systems' maintenance.

At the moment, we are on the verge of all of these elements breaking down. (I could use words like "we may be...", but it's more fun to tell you what I think than advice you on what "could be.") I'm talking full-blown 1930's-like depression, and based on that environment, here is what would (will) happen to the college scene:

1. High unemployment for an extended period of time would severely diminish the expectation of a "better" job

2. High unemployment for an extended period of time would limit a family's ability to pay for college tuition, reducing the ranks of students that can pay their own way

3. Sources of long-term credit will greatly diminish, first because of the liquidity of entities that provide such credit, and thereafter, as endowed schools "step in" to provide the lack of liquidity (much like the Treasury today) but quickly learn that consuming their own nest eggs to live day to day is not a solution. The example here is GMAC providing loans so you can buy a GM car. Without this credit, fewer students will be able to attend.

4. A strong aversion to debt as an answer to any problem will emerge, and students will rationalize that college is not worth it given the amount of debt necessary, particularly given the employment outlook.

5. As schools redirect their diminished endowments (diminished today by significant losses in the stock market, and later by overuse to support a student base that is more and more needy of "help" (i.e., aid or step-in loans), they will realize that the "need" base, as defined by incomes & assets of families versus tuition costs, has swelled to >50% of their current students (let alone their goal of students, which is now unatttainable due to enrollment reductions), they will be forced to reduce tuition to rebalance the rolls between those needing aid and those not needing aid. This rebalancing is a fancy way of making tuition affordable.

6. At first, the wave of lowering tuitions may be validation of the original class who passed up the college degree on the prospect of lack of jobs, unwillingness to take on debt, etc. Those folks will say, "see, I was right because "value" of college at the time I was looking was much less than what they were trying to get me to pay. I went to the school of hard knocks instead and look how well I turned out."

7. Still, quietly and slowly, a new generation will emerge that sees the "new price" of college as simply the current environment, and as it is more attainable, as wages are beginning to increase and unemployment begins to return to normal levels, they become more willing to pay the price and, if necessary, finance the cost with debt. Enrollments will begin to advance for the first time in 10 years.

8. With the expansion of college rolls, sentiment about college degrees will begin to improve, eventually driving more pride of college degreed individuals. Together with improved unemployment and job prospects, wealth expands, putting a generation in the position of donating to endowments to pump up "their" schools...and eventually tuition begins to swell again like it did in the 80's and 90's when everyone had to have an MBA or they couldn't get a job.

Today, if you a recent grad with an MBA you can't get a job. So, the short answer to your question is, tuition will be coming down, probably pretty hard, in the 3-10 year window, unless you think the Fed and Treasury and save the world.

I would also not be surprised if a new set of colleges emerges from this cycle as "Ivy League II," with the greatest of great schools' arrogance causing them to take bigger and bigger risks in managing their endowment to try to make up losses because "they're the smartest guys in the room" thus completely destroying their endowments, while conservative schools with lower endowments preserve what they have and are in a better position to provide aid when college degrees return to social desirability.

You can take the steps above and change "tuition" to just about anything in today's economy and see that we have already begun a deflationary cycle, and deflationary cycles don't end until all consumption is sapped out of the system. It's already happening with homes, cars and appliances, all of which rely on credit to provoke sales. Home values have fallen 30-40% from the peak (that's called "deflation") with another 20+% to go; car companies are doing everything they can to forestall the inevitable, and they will soon start massive price reductions just to purge inventory and generate cash, and if you saw Whirlpool's financial results you'd see that it has begun with large appliances.

PBS/Frontline Special - "Inside the Meltdown" 2/17/09 9 p.m.

http://www.pbs.org/wgbh/pages/frontline/meltdown/

From the press release:

FRONTLINE INVESTIGATES HOW THE ECONOMY WENT SO BAD SO FAST
FRONTLINE PresentsInside the MeltdownTuesday, February 17, 2009, at 9 P.M. ET on PBS
www.pbs.org/frontline/meltdown
On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. “There was literally a pause in that room where the oxygen left,” says Sen. Christopher Dodd (D-Conn.).
FRONTLINE producer Michael Kirk goes behind closed doors in Washington and on Wall Street to investigate how the economy went so bad so fast and why emergency actions by Federal Reserve Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson failed to prevent the worst economic crisis in a generation on Inside the Meltdown, airing Tuesday, Feb. 17, 2009, at 9 P.M. ET on PBS (check local listings).
As the housing bubble burst and trillions of dollars’ worth of toxic mortgages began to go bad in 2007, fear spread through the massive firms that form the heart of Wall Street. By the spring of 2008, burdened by billions of dollars of bad mortgages, the investment bank Bear Stearns was the subject of rumors that it would soon fail.
“Rumors are such that they can just plain put you out of business,” Bear Stearns’ former CEO Alan “Ace” Greenberg tells FRONTLINE.
The company’s stock had dropped from $171 to $57 a share, and it was hours from declaring bankruptcy. Ben Bernanke acted. “It was clear that this had to be contained. There was no doubt in his mind,” says Bernanke’s colleague economist Mark Gertler.
Bernanke, a former economics professor from Princeton, specialized in studying the Great Depression. “He more than anybody else appreciated what would happen if it got out of control,” Gertler explains.
To stabilize the markets, Bernanke engineered a shotgun marriage between Bear Sterns and the commercial bank JPMorgan, with a promise that the federal government would use $30 billion to cover Bear Stearns’ questionable assets tied to toxic mortgages. It was an unprecedented effort to stop the contagion of fear that seemed to be threatening the rest of Wall Street.
While publicly supportive of the deal, Secretary Paulson, a former Wall Street executive with Goldman Sachs, was uncomfortable with government interference in the markets. That summer, he issued a warning to his former colleagues not to expect future government bailouts, saying he was concerned about a legal concept known as moral hazard.
Within months, however, Paulson would witness the virtual collapse of the giant mortgage companies Fannie Mae and Freddie Mac and preside over their takeover by the federal government.
The episode sent shockwaves through the economy as confidence in Wall Street began to evaporate. Within days, in September 2008, another investment bank, Lehman Brothers, was on the brink of collapse. Once again, there were calls for Bernanke and Paulson to bail out the Wall Street giant. But Paulson was under intense political pressure from conservative Republicans in Washington to invoke moral hazard and let the company fail.
“You had a conservative secretary of the Treasury and conservative administration. There was right-wing criticism over Bear Stearns,” says Congressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Paulson pushed Lehman’s CEO Dick Fuld to find a buyer for his ailing company. But no company would buy Lehman unless the government offered a deal similar to the one Bear Stearns had received. Paulson refused, and Lehman Brothers declared bankruptcy.
FRONTLINE then chronicles the disaster that followed. Within 24 hours, the stock market crashed, and credit markets around the world froze. “We’re no longer talking about mortgages,” says economist Gertler. “We’re talking about car loans, loans to small businesses, commercial paper borrowing by large banks. This is like a disease spreading.”
“I think that the secretary of the Treasury could not fully comprehend what that linkage was and the extent to which this would materialize into problems,” says former Lehman board member Henry Kaufman.
Paulson was thunderstruck. “This is the utter nightmare of an economic policy-maker,” Nobel Prize-winning economist Paul Krugman tells FRONTLINE. “You may have just made the decision that destroyed the world. Absolutely terrifying moment.”
In response, Paulson and Bernanke would propose—and Congress would eventually pass—a $700 billion bailout plan. FRONTLINE goes inside the deliberations surrounding the passage of the legislation and examines its unsuccessful implementation.
“Many Americans still don’t understand what has happened to the economy,” FRONTLINE producer/director Michael Kirk says. “How did it all go so bad so quickly? Who is responsible? How effective has the response from Washington and Wall Street been? Those are the questions at the heart of Inside the Meltdown.”

NY Times: Legacy of a Crisis: A Generation Shy of Risk

In Friday's NY Times, this article http://www.nytimes.com/2009/02/14/your-money/household-budgeting/14money.html?em does a nice job of explaining the potential generational change in risk tolerance we could see. While the article casually dismisses the possibility that we'll see the type of change in risk tolerance experienced by those in the great depression, excerpts of the article actually tell a different story. My interpretation: we are at the beginning of the change in risk tolerance, and articles like this advising changes in saving and investing behavior are providing the road map to ensure that the change takes hold. For example:

...one sensible way to reduce overall risk is to pay down high-interest debt, like credit cards or private student loans. That, at least, offers a guaranteed return, since every extra dollar you pay now keeps you from having to pay more interest later. Also, the sooner you rid yourself of debt payments, the less you would need in your monthly budget if you lost your job.

“I think the only thing younger people should be more risk-averse about is the leverage they take on,” said Jeffrey G. Cribbs, president of Chicago Wealth Management in Oak Park, Ill. In particular, he suggested they buy real estate and cars at levels below what they can actually afford.

Pulling leverage out of the system, as recommended above, will suck GDP out of our economy. It is what the Fed and Treasury are so concerned about. If you take the above comment seriously, the only way to stop the consumer from deleveraging is to provide guaranteed returns that offer better use of funds than paying down debt. That's a business proposition only the government would undertake (offer risk-free rates higher than what people pay on mortgages, credit cards, auto loans). Of course, the zero-percent-mortgage is a good start (an earlier post I predicted this as one potential outcome).

The article goes on to explain the importance of looking at your career as a component of your diversification strategy. That is, if your job is volatile, then maybe you should be more conservative in your investing. (I came to this very conclusion just before the market crashed last October - since most of my current income is highly market dependent, that I should move my investments into more secure instruments.) Likewise, if you are a fireman or a doctor, whose jobs are typical very secure with less volatile pay, then you can take risk in your portfolio. The article provides more, but here is a tidbit...

For most young people, however, their biggest asset is not a 401(k) account or a home but the trajectory of their career and the value of 20 or 30 or 40 years of future earnings. It makes nearly everyone a millionaire on paper. So whether you are taking on too much risk right now or not, all of that money will provide many more chances to fix any mistakes you have already made.

This conclusion is interesting. They are basically saying, "forget everything you read in this article - if you are young, take foolish risk on the promise of many more bites at the apple." Who's really gonna buy that?

Joe

Nov 16, 2008 stock picks...scorecard.

I've made a lot of "predictions" for lack of a better word in prior posts, so I thought I'd collect them and track progress once in a while. I'll do my best not to dismiss when I've been off-base.

The Nov 16 Stock Picks are three months old, time to put them to the test:

HIG, "if it goes to $10, it starts looking like a short." The next day, it broke below $10, and was at $4.95 by the end of that week. 1-0

UBS, short, it did go lower, but not far enough and not for long. 1-1

PCU, short, didn't reach target. 1-2

MS, as a short, it sort of worked, but it only went down 20%. 1-3

JBHT, did not hit target. 1-4

GGB, did not hit target. 1-5

CCK, did not hit target. 1-6

ISRG, did not hit target, but it was close. It's a loss on paper but it would have been a great short, down 40% from the entry point. I hate to say it... 1-7. P.S. I'm short this again at $114 w/ target $85 I think.

CMA, target met & exceeded, 2-7

BK, did not meet target, although the move that week was 20% in the right direction. 2-8

AIV, met intermediate target, on it's way to hitting longer-term target. Has to be a W. 3-8.

That's not so good, but if the money management was right, with riding winners and cutting losers early, it would have been a good palatte of picks.

The next shoes to drop

Well, we are about ready for the government to start realizing that bankruptcy for GM (and I guess Chrysler and eventually Ford) is a better alternative after all. Had they thought it through in the first place, they would have come to this. But the threat of losing millions of jobs clouded their judgment. Didn't they realize that sending the auto makers away to figure out a way out of the mess would have them come back either having failed to answer that question, or deciding to shed millions of jobs anyway? So, here we are, well, not yet, but we're closer to where I get to say "I told you so." And the cascade will begin...

Once they allow GM to go into bankruptcy with federal debtor-in-possession financing and, not only does the sky not fall, but they actually create a brief but measurable burst of GM auto sales, they'll start feeling good about themselves. Then that will give them a little confidence that wiping out preferred and common shareholders can be good for many although bad for a few. Did I say "nationalize" the auto industry? Of course not, but that's what it will be. That's ok, it's better than shutting it down and letting all that manufacturing capacity go away, and permitting the rest of the world to take it up.

Once they've had a taste of wiping out shareholders, then they can start coming up with a word for nationalizing the banks that isn't "nationalize." Whatever this word is, the operation is what matters - let the preferred and common shareholders that decided to risk their capital on the banks take the hit, not every person in the country (and our children, etc.). Maybe this gives them the framework to begin. I'm skeptical, but that is only because of the penchant for being unable to do the "right" thing. In this case, nationalize and get it over with. They may have taken a political stance against nationalizing the banks that would seem duplicitous, thus preventing themselves from being able to do the right thing.

They get to say that "nationalizing the banks isn't the American way" because that sounds good, but it (a) isn't true and (b) isn't their real reason. Who did Obama have surrounding him when he had his little economic summits? Big business [with whom I have no issues]. But if we nationalize the banks, then Mr. Obama has to deal with his friend, Mr. Buffett. Buffett gets wiped out by that move (and the ensuing moves).

In order for this president to succeed, he is going to have to turn his back on everything he's learned and a lot of people that he calls friends. In the end, the only real answer to this mess is to recognize that the deflationary spiral cannot be avoided, leaving two choices - slow it down or let it go basically at its own pace. What he's doing now is only going to slow it down, which is only going to cause it to lengthen dramatically, perhaps by a decade. Honestly, since his main edict is to get the credit markets "working," he's actually pushing up a string. Debt contraction is underway and it can't be stopped, and until he realizes that, we'll just be creating smaller and smaller bubbles until all the assets are wasted.

By the way, when no one can afford to pay back a loan, when the collateral under which a loan is given loses value faster than the loan can be paid off, or when no one wants to borrow money because they see the value of savings as the best way to build their assets, and no one issues credit in that situation, the credit markets are working. They're working just fine. They just don't like the fact that the effects are not desirable for the country (GDP shrinks). However, they are very desirable for the country long term.

Where was I? Oh, and once GM files bankruptcy, maybe they'll see the answer to the foreclosure mess is to let people file bankrupty rather than try to prop them up. It's (a) fair to the people who didn't overextend themselves (b) very quick in terms of getting on to the next phase of our economic history and (c) very very painful for the banks, since the credit card debt will also be wiped out. But, that's ok, because we'll nationalize the banks and then really nobody gets charged for those bankruptcies except the debtors that are not owned by the federal government. If the government owns all the debt and they forgive it all, they don't have to raise taxes to fill the gap. They just liberate people from their debts so they can start keeping more of their paychecks and consuming with their disposable income.

But we have to get very far from here in terms of removing credit from the system before we get to that point, and they have chosen the slowest path there.

Perhaps the next leg down in the market will move the needle on their perspective a little. More likely, it will solidify their resolve, encouraging them to make more of the same mistakes, only bigger. However, that resolve will give people a new sense of hope, and that will lift the markets like nobody's business. Eventually, when the air pops out of that balloon, and the markets show everyone how low they can really go, only then will folks wake up and start to say, "I understand now that we can't make things better for my generation, so let's do what we can to make things better for our children's." And, since these politics are not the politics of our generation, we'll need a whole new cast of characters in Washington. I can't wait.

I noticed nobody pointed out that it was OK for the White House to send a private plane to Ohio to have a Senator come back for a vote. Too bad the Auto Industry doesn't have a panel where they can bring Senators in and berate them like selfish, arrogant children. Seems to me most of those in the Senate would make excellent auto executives and bankers, at least as far as the current standards have been established.

Joe

Congressman Kanjorski discussing "the world economy would have collapsed"

Here is the link (wait out the irate caller, the good stuff comes at about 2:20 in the video): http://www.youtube.com/watch?v=_NMu1mFao3w

The text of the comments:

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous
draw-down of money market accounts in the U.S., to the tune of $550 billion was
being drawn out in the matter of an hour or two. The Treasury opened up its
window to help and pumped a $105 billion in the system and quickly realized that
they could not stem the tide. We were having an electronic run on the banks.
They decided to close the operation, close down the money accounts and announce
a guarantee of $250,000 per account so there wouldn't be further panic out
there.If they had not done that, their estimation is that by 2pm that afternoon,
$5.5 trillion would have been drawn out of the money market system of the U.S.,
would have collapsed the entire economy of the U.S., and within 24 hours the
world economy would have collapsed. It would have been the end of our economic
system and our political system as we know it.

We are no better off today than we were 3 months ago because we have a decrease in the equity positions of banks because other assets are going sour by the moment.

Obama's White Knight...Paul Volcker

A short historical perspective on Paul Volcker that casts a different light on his economic genius: http://www.realclearmarkets.com/articles/2008/02/the_paul_volcker_myth.html

Volcker's focus on managing the money supply was a failed attempt at creating growth. Ultimately, it was banking deregulation that broke the cycle. Banks started issuing "NOW" accounts, which swelled bank reserves with capital that was previously in money market mutual funds. We exited the early 80's recession with a step-function change in bank reserves, combined with tax cuts, that increased risk appetite.

I'm not necessarily pointing this out to say that deregulation is the answer to our current problems. Rather, I simply observe that our general prosperity since the early '80's was fueled by ever-decreasing banking and business regulations, and now that the populist sentiment is that more regulation is needed, we are extremely likely to at last pay for the contraction of the 70's as policy shifts to reregulation.

We are working through some massive pendulum swings as a culture right now. Regulations went from being anti-business to eventually anti-capitalist and therefore anti-American. Now they are the savior. Will the government cure our job losses by mandating long severance periods, such as those of France? I think they will eventually come to decide this is part of the answer. [I disagree.] Credit is contracting and the government can't fill the void fast enough (not that I think they should attempt to), and businesses are reacting with layoffs, which perpetuates the cycle. Businesses are looking out for themselves and they will continue to react to the shrinking economy with additional layoffs as demand continues to fall. The problem no longer can be solved by arresting falling housing prices, layoffs have to be arrested. There should be a lot more corporate cash available to hold on to workers that we don't need on the payroll, since the move to cap executive pay has begun. The transition will be very distracting to the economy; the deflation of executive pay will crimp consumer spending and individual income tax receipts like nobody's business, this on top of already rapid declines on both fronts.

A simple blog morphed into a rant. The good news is that we're more likely to come out of this with more experience in the White House. We just have to wait about 3.9 years.

Joe

Smoking made illegal?

This one also makes perfect sense. We all know how much smoking costs the healthcare system. Once we hit rock-bottom and stop trying to create jobs by wasting money, by propping up the economy with spending for spending's sake, we'll look for ways to create value. There will be no more tobacco lobby by that time to defend itself. There will be no stockholders of tobacco companies to piss off, because the stocks will be worthless by then anyway. And the federal government will eventually stop being so concerned about wiping out common shareholders. Shoot, maybe by then investing will be socially frowned upon.

Nicotine is a stimulant. Use of stimulants fuel bull markets. Depressants take over in bear markets. Long booze! The rise of Starbucks through the last bull market and subsequent crash in the bear is all you need to understand this concept.

By the time we get to the other end of this depression, I'll bet you smoking will be illegal. So, smoke 'em if you got 'em!



Joe

Best long play, next 5 years, maybe 25 years

I can't help but correlate the desire for energy conservation with a growing attraction toward conservatism. Frugality is in, people are doing more with less, getting back to basic, finding their roots, living like their parents/grandparents did and rediscovering "what's important." Translation, consumption is dying, and it ain't coming back for a multi-generational span. Consumption is being made the scapegoat, and now the government is going to consume excessively. When the government's excess proves also to not provide an answer, consumption will be as dead as "buy and hold."

As things unfold politically, the conservatives (Republican Party) are already setting themselves up to be begged to lead. They are claiming no connection with this stimulus plan. The stimulus can't "work," in that the best you'll be able to say about it is, "we would have lost a lot more jobs if we didn't do it." That didn't work for Bush ("we avoided a lot of terrorist attacks because of our policies"). It won't work for Obama, and as the unemployment rate peaks in mid-2010 (hopefully), the republicans will retake the Congress or at least make some great dents coming into the 2012 election.

So, what is the long play here? Religion. Living like our grandparents, fearing God, taking care of our neighbors, humility. Being conservative. When people run out of places to turn, they always wind up at the same place. And if unemployment grows as high as many think, there will be an historic number of people running out of options. By the time this is all over, which could be 10 years, the dollar may take a beating. But I bet the currency will still say, "In God We Trust" on it.

Joe