Friday, February 27, 2009

A Good Feeling

A typical weekday morning for me usually involves me waking up around 6 AM, putting on CNBC and sitting down at my kitchen table with the Wall Street Journal and a cup of coffee. I'll then spend a few hours reading articles online and eating some cereal.

If you haven't noticed yet, my usual emotions derived from this reading are disgust and anger based on my current level of economic understanding of the future damage to our country based on the decisions being made by leaders today.

But today, as I read page after page of the Wall Street Journal discussing Obama's current and future budget plans, I had a calm feeling wash over me. Why?

Imagine you know a kid in his mid 20's. He went to college for four years with money given to him by his father. He was given money for all his bills, food, clothes, and spending money. After college, this kid left school and his father bought him a new house to live in. To help him get his life started he continued year after to pay for all his bills, food, clothes, and spending money.

After a few years he started asking for new cars, a new boat, a lake house, additional clothing money, and additional spending money because he wanted to go to nicer clubs on the weekend. He never actually got a job because he needed time to shop with the money he was given every month.

Now, looking at this situation, who are you upset with? The kid for taking all this money and spending it, or the father for giving it to him?

I felt good this morning looking at Obama's face on my newspaper announcing his new yearly deficits. I look at our government like I do this child.

Not only did we spend that last five years sending all of our mortgages overseas, we have announced a new "projected" budget deficit of $1.75 trillion. (Obviously it will end up much higher and doesn't include off balance sheet costs.) We are in the midst of one of the greatest economic collapses in human history, and he has announced to the world that he wants to spend hundreds of billions of dollars on his social programs that he had promised before taking office.

Here is a chart that shows Obama's deficit this year compared to the last thirty years. (Remember that the previous eight years under Bush were considered to be horrendous)

You know who pays for the social programs? THE REST OF THE WORLD. They are the father in the example above. His new spending plans are the equivalent of kicking the rest of the world in the crotch, spitting on their face, taking their money, and letting them know he'll be back next year for more.

And you know what? Why not? How stupid must they be to lend us this money? We have no way of ever paying it back. He should have announced a $5 trillion deficit for the year. That way we not only have all the social programs but he can just send the extra to Americans as checks in the mail.

The calmness came over me this morning not because I was less upset with the government's decisions, but I thought about what it must be like to live over in those other countries that actually have to pay for all this spending. Imagine what it is like to be the father I was just describing.

As mad as I would be looking at what the kid was doing, I can only thank God that I am not the Dad. The Dad who has to wake up every morning and work as hard as possible so he can provide this lifestyle for his kid every year.

If we are a bankrupt country, which we are, and we offer nothing of value to the rest of the world, which we don't, then why not take as much as we can get before the music stops? Maybe those dummies will send us money for five, ten, fifteen more years, who knows.

If they ever did stop or even slow down, all that would happen would be that our currency would lose close to 100% of its value and the entire life savings of every American would be wiped out.

No big deal.

Party on Obama. Party on America.

Wednesday, February 25, 2009

Nationalized or Not?

Its funny to me that the major topic in the media right now is whether or not we have "nationalized" the major banks. The government now make decisions for these banks on executive compensation, transportation costs, marketing promotions, and just about every major cost moving forward.

More importantly than that, the government now stands ready to cover any losses these banks have moving forward with "loans" from the taxpayers. We cover all the losses under the current program with no upside. At least if the government admits they have taken full control, the tax payer's would receive a benefit from future profits.

The problem is that everyone knows that future profits will never cover the losses we are currently paying for. AIG started with $60 Billion, then $100 Billion, and now $160 Billion. The number will keep getting higher and it will be the same for the oncoming losses from Citigroup and Bank of America.

It is important to remember that after we cover the estimated total $3.6 trillion in total losses, that their businesses will only be a fraction of their former selves. They made all their money over the past few years on fees associated with bundling mortgage back securities. Fees associated with credit default swaps in protecting these securities. Fees associated with the ridiculous company mergers during the credit boom.

That is all gone, and its not coming back. So it will take about 740 years to pay back the government grants based upon their new business models. This is the reason why I refer to these loans as "flushing money down the toilet."

While people continue to worry about if these banks have been nationalized, Obama spoke to the nation last night. He spoke to us about great sacrifice and fiscal discipline over the next few years, which is necessary to turn our country in the right direction.

Fiscal Discipline?

Oh yes. He must mean the estimated $2 to $4 trillion he is projected to add this year to our national debt. Or maybe he's referring to the total of $9 trillion worth of guarantees the government and the Fed have ALREADY accumulated this year.

The Sacrifice?

That will come from us. As the government pumps in trillions and trillions of liquidity, it will be up to Americans to do what we do best; spend. Our sacrifice will be to go back out and buy houses, cars, televisions, and go on vacation. That is the foundation of a great economy, and that is the sacrifice he is hoping for from the American people.

Monday, February 23, 2009

My Contribution

I read a book a few weeks ago called "Contagion" by John Talbott. I like learning from people that not only shouted the warning signals before our country collapsed, but also had a strong understand of why it happened and where we go from here.

This morning I received my annual bill from the Realtor Association in North Carolina. They charge me about $1,000 a year in total fees to keep my real estate license active. I was upset having to pay the dues, however, after reading Contagion I have a much clearer understanding of what that money is used for.

The National Association of Realtors, the national mortgage association, the national appraisal association, (every association involved with the real estate industry), pays enormous booster fees to politicians every year toward their campaigns.

When those politicians take office they then feel obliged to turn around and return the favor. Right now real estate prices are falling and the real estate industry is contracting. If you haven't noticed, the government is doing every thing possible to keep home prices at artificial, unaffordable, bubble prices to help out my industry.

A significant part of my $1,000 fee is sent to politicians, and that money is now being re-sent out all across the country to subsidize housing prices.

It is essentially the same format for education, health care, etc. This is obvious by Obama's new stimulus plan that contains no stimulus. The stimulus is a payoff sent out to all the associations that helped the Democratic party get to where they currently are. (Republicans are equally bad, the party makes no difference.)

Their activity in the free market is keeping real investors on the sidelines, waiting to see the government's next move.

I would love to buy American stocks right now. I would love to own a part of this once great country. I would love to own American real estate as a rental investment. I think real estate is the best long term investment based on numerous tax advantages, cash flow, and control you have over the property.

When will I buy these things? When they become priced correct to purchase them. If that means I have to wait 40 years to purchase a home to live in, that's how long I will wait. I'll just keep on renting with the "lower class" Americans. If I have to wait 20 years for American stocks to be a good value based on price to projected earnings, that's how long I'll wait.

Because it is the government's goal to not allow asset prices to fall, the price of everything else will just rise up to these artificial levels through inflation. This means I will continue buying gold and silver as I have over the past 4 years. Does this mean I am buying an anti-American investment? You betcha. I already sent my $1,000 contribution to the government. Now that I've done my part I can sit back and watch them destroy what's left of our country.