Thursday, February 26, 2009

None of This Makes Any Sense!

It will be in the high fifty degree range here tomorrow. It is going to rain, but 50 degrees after a bad winter feels good no matter what.

Odyssey Marine Exploration Show
The company with the ticker OMEX has so far been a bust as an investment. There is still time to impress me, but unless they are setting up some grand finale I would say no. Still their TV show on Discovery Thursdays at 10pm are great entertainment. This evening the crew will check out the historic RMS Lusitania, and if you know your history I need not detail the significance of the ship. There is no "treasure" to be had, but perhaps an answer to a long held question in history: Two torpedoes, or one?
Full Disclosure: I own OMEX shares.

Just Plain Wrong
Recently many of my posts have been angled to a "right vs. wrong" kind of thing. I hate to do those kinds of things because what is right for some is not for others, bla bla bla... and all that moral ambiguity crap. I still feel that in a reasonable person's mind they KNOW right from wrong.

As usual, another writer puts my sentiments into words better than I can, and so I recommend the entire post from today's Automatic Earth blog. I will excerpt below, but be aware that after the intro commentary there are a ton of news stories so the page is very long!

Rudderless Bathtubs
You don't have to be a teacher of morals to know that some things are just plain wrong. And in our societies these days, a lot of things are plain wrong. Morally wrong, legally wrong, politically wrong, economically wrong.

The Royal Bank of Scotland this morning announced the biggest corporate loss in British history. Its stock, however, shot up 20-25%. The reason for that was another announcement, this one by the UK government, that RBS will be allowed to place over $1 trillion in toxic assets in government insured vehicles. What this means is that private shareholders have the opportunity to make a lot of money over the backs of taxpayers. The government is majority stockholder in RBS, but still allows speculation and profit taking with RBS shares. It's simply completely wrong, and an unforgivable piece of policy. RBS should have been placed in bankruptcy, the government should have taken over its assets, and shareholders and bondholders should have been wiped out 100%. All executives should have been fired without severance packages or pensions. Instead, former chief Sir Fred Goodwin, responsible for all losses, is set to receive a $925,000 pension per year.

In the US, Bank of America and Citigroup should have been taken over, wiping out share- and bondholders. It's not called risk capital for nothing. The taxpayer never accepted the risk willingly, but is burdened with it. Those who did accept it, can sell and walk away free. Wrong. Companies like AIG and RBS are still free to make multi-billion dollar decisions without consulting the governments without whose money they would have ceased to exist. Wrong.


How About an AIG Press Conference?
Our president has been on TV just about every day since November 4th. Not just as in a "cameras saw the president.." kind of thing but full blown speeches or press conferences called by him and his staff. Well if Mr. Obama is not too busy next week I sure would appreciate 10 minutes of his time, I am sure all the networks will carry it, to explain WHY IN THE HELL THE GOVERNMENT IS GOING TO BACKSTOP AIG CDS EXPOSURE!!!!:
AIG Rescue May Include Credit-Default Swap Backstop
Feb. 26 (Bloomberg) -- American International Group Inc. may get a backstop from the U.S. to protect against further losses on credit-default swaps, according to a person familiar with the matter.

The federal guarantees may be included in New York-based AIG’s restructured bailout, which the company plans to disclose next week with fourth-quarter results, according to the person, who declined to be identified because the talks are private.

Regulators who saved AIG in September feared that a collapse of the insurer, which sold swaps to banks including Goldman Sachs Group Inc., would spread losses throughout the global financial system. In November the U.S. committed $30 billion to retire some of the contracts tied to subprime mortgages, while not addressing other swaps tied to corporate loans and European debt.

“Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG,” the Federal Reserve said in a report in November.

So President Obama's weekend assignment to to put together an explanation of:
1.) What is a CDS?
2.) Why is the government giving an open ended taxpayer commitment to any and all losses on them?
Seeing that Mr. Obama is about 100X smarter than George Bush, I imagine this will be no sweat. He can even ask Ross Perot for some charts.

I am serious. If the president wants to talk to us every day, at least talk about something important. I am waiting for change I can believe in.

None of This Makes Any Sense!
The deluge of bailouts, backstops, tax hikes and budget proposals were so severe today I was a bit confused. I thought it was the sheer volume of information that was causing me to be a little fuzzy on the conflicting information. Now that I have had a little time to read over some material, I must admit total bewilderment. I have no idea who is putting this stuff together, but it is not funny (well a little bit) and it is very damaging long term.

-There was just a mortgage bailout plan announced and then today the mortgage interest deduction option is stripped out in the new budget? Granted it is for the ultra rich-those making over a whopping $208k a year combined-but really what a way to crater home sales even further. Side note: $208k combined is not much in most of California, New York, Massachusetts and many other places. That is not "ultra rich".

-Tax increases for businesses after they just allowed aggressive carry loss forward provisions for business. How are they going to pay more when they can use losses even more aggressively to, you guessed it, cut their tax bills? Never mind the debate about hiking taxes in a recession, the cancelling out of policy is confusing.

-Higher capital gains taxes for private citizens when there are NO GAINS to tax! After a 50% market meltdown I doubt the tax returns are going to be stuffed with anything except, you guessed it, loss provisions. Again, wildly crazy!

-The budget assumes the whole crazy carbon credit swindle will pass as law. This dumb legislation is going to be a hot button issue, even among democrats. To assume it passes AND adds 500 Billion in revenue to a budget before it has even started debate is a brazen action.

There was plenty more but my head is spinning (You spin me right round, baby right round) and I am going to puke. While I have always assumed the government was operating with the worst and the dimmest of what the country had to offer in terms of personnel, events of the last 2 years have shown me to be correct.

It is obvious that the budget estimates are too optimistic as to what kinds of revenues they are going to collect. I fully expect the tax hikes to extend to anyone making over $50k and the mortgage deduction to be revoked for all. For the record I am for the mortgage interest deduction being removed. The government has no place favoring by tax policy home buying over renting. None at all. Expect this little tidbit to get people you know all upset, many cling to the idea that the mortgage interest deduction is the single greatest thing in the world (except Friday Night with Economic Disconnect, or so I hear).

Things are moving fast. It is my belief that the most harmful and dangerous legislation is being rushed out the door as fast as possible using the economic mess as cover. Most policies I saw today will run high opposition, and no, not just from republicans. I think "Tea Party Locations" will become the Google most searched term before long. Of course, pretty soon it will be too late as all this stuff will be passed.

Trillion dollar deficits as far as the eye can see, perpetual bailouts, backstops for contracts that have no bottom, and policy that ensures reduced tax revenue are a recipe for many things and none of them good. Gold is being aggressively shorted right now as it is the only thing that has gone up. Right at the NY market open at 10am for a week a huge sell block has been issued (Central bank? Which one or ones?) on gold which pushes the price down. There is a line of thinking that as other currencies and markets get worse than the US markets and the dollar that gold will get crushed. Reread the first sentence of this paragraph. If the US situation is going to be the best of the lot, how is that bad for gold? Besides, it's pretty!
Full Disclosure; I own gold miners GG and KGC

Have a good night.


David said...

The problem with OMEX is that once they find the ship/gold/silver or whatever, if they can not SELL it...monetize it..then it is a monumental waste of shareholder's money.

In addition, shareholders are not paying millions for them to have fun and visit old WWI ships with no treasure. From a TV watcher point of view, fascinating, if I were a shareholder knowing my investment capital is being wasted on this with no possible revenue, I'd be disgusted.

Lisa said...

On CNBC this morning, Steve Liesman is saying Citi shareholders won't be wiped out, so with the government as a "partner", investors should buy the stock. Just like with RBS. So far Citi shares are tanking.
Tea Party in NYC Saturday, I'll be there.