Archive for January, 2012

Video: Romney’s Rally and the Facebook IPO

23 | By Shah Gilani

This morning, Editor Shah Gilani made an apperance on Fox Business’ “Varney & Co.” to talk about how a win for Mitt Romney in the Florida primary election Jan. 31 would affect U.S. markets. Host Stuart Varney also asked him about the Facebook IPO. The social media giant is rumored to be filing Wednesday for an IPO, but most retail investors won’t be able to get a piece of the action until the secondary market, meaning they’re locked out of profits. In this video, Shah discusses who the IPO shares will go to, what CEO Mark Zuckerberg could do to include the average investor in the profits, and what the IPO will mean for the tech industry in 2012.

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Stone Crabs and the State of the Union

8 | By Shah Gilani

I love stone crabs. They’re delicious, expensive, and well worth it.

Maybe the real reason I love stone crabs is that only one of their claws is “harvested” (that’s the politically correct way of saying “ripped off”), so the creatures can defend themselves (from us?) while they regenerate another claw.

The best place in the world to get stone crabs is Joe’s Stone Crab on South Beach, which just happens to be on the south end of Miami Beach – imagine that.

I was planning on going there for dinner yesterday until I came across a farmer’s market (I won’t say where) and a young couple selling stone crabs for just $12 a pound (that’s why I won’t say where).

To make a long story short, I bought five pounds and cancelled my South Beach plans.

Here’s where I’m going with this… As I was cracking the claws with a hammer (nothing else works) and stuff was splattering all over my kitchen (I know, I should have used a towel, but that’s what an imminent stone crab dinner will do to you), I began thinking about the President’s State of the Union address, and the real prospects for the U.S. economy.

And it hit me. Both Republicans and Democrats are “harvesting” the remaining hopes Americans desperately claw at, and are splattering our dignity across our kitchen tables.

We’re caught in a trap. The American people are systematically being misinformed by extremist Republican and Democrat rhetoric about who’s got the better vision for America. They think that, by polarizing the nation, they can divide us into their warring camps to wage their battles to enrich themselves once they’re in office.

Just one problem.

We’re not stupid.

Are You Buying What They’re Selling?

Are you buying Newt Gingrich’s pandering to Florida’s “Space Coast?” Before this Tuesday’s primary, he channeled JFK calling for a colony on the moon in eight years, and wants us to go to Mars. Maybe he should go first. (Space exploration, yeah, very cool. But how about cooling our own planet first?)

No, actually, we need him here. I forgot. Newt is the stalwart voice railing against Washington insiders infighting and breaking his Contract With America. Yeah, that Contract, the one he wrote when he was in Congress. You know, Congress, where all those Washington outsiders are. The same Congress of Outsiders that kicked Newt out.

Oh, I just got it! That’s how he can call himself an “outsider.”

I want to trust him, I just can’t. Should you?

And how about Mitt Romney? Are you buying his “conservative” agenda? The conservatives aren’t.

Are you listening to the man who made hundreds of millions of dollars in private equity (that’s code for Wall Street, people), about how he wants to deregulate more and free up markets to let people do what they have to do to grow jobs unimpeded by government?

That would include Wall Street, I guess?

I’m not sure where Mitt’s loyalties are. Are you?

And about President Obama’s State of the Union speech – are you buying it?

He wants to bring manufacturing jobs back to the U.S. I’m 100% behind that. Only there’s one problem: His plan is grossly flawed and needs a lot of work.

We’re not stupid; we can handle the truth.

Obama wants to tinker with “territorial taxes.” Basically, when American companies make money overseas, they don’t have to pay taxes on that profit until they “repatriate” it back home. If they do bring it back here, they pay the difference between the low tax rate where they (paid) and made their profits and the U.S.’s 35% corporate rate.

So why bring the money back home at all, especially when you can reinvest it overseas, tax-free? By the way, why not invest where the growth is?

The President wants to disincentivize outsourcing jobs overseas and wants corporations to manufacture here at home. And, he wants to tax them more on their overseas profits to offset reducing taxes on U.S. manufacturers.

Let me see… Would I pay the lower overseas tax and a penalty because I manufacture overseas because my total burden is less than 35%? Would you, if you were in business to make money? Some plan…

What he thinks we’re too stupid to understand is that, first, he’s threatening China. You know, China, the country that owns half of our debt, that’s been financing our government’s deficit spending. The country that’s set to surpass the U.S. in economic muscle in a handful of years. China, where so many of our big corporations – the ones with a trillion dollars parked overseas – are making profits.

The only way this little plan works, theoretically, is if we then lower the U.S. corporate tax rate to maybe 15%. Let’s see, lowering corporate taxes, on top of all the loopholes corporations have, hmmm… Why waste all that money on accountants? Just eliminate all corporate taxes and raise taxes on the middle class. After all, they’ll be able to afford it with all the low-paying manufacturing jobs the plan will create.

Where’s the consideration that manufacturers here have to ship goods to where the demand is? After all, we’re building McDonald’s and other businesses overseas because that’s where we’re selling American goods.

Then there’s the issue of the dollar vs. other currencies…

Oh, that’s why the Fed is promising to keep rates at zero until 2014, and do another round of quantitative easing (or “twist” again, like we did last summer)… to cheapen the dollar to make our domestically manufactured goods less expensive abroad. Brilliant!

And, on the subject of helping American manufacturers, the President wants to pick winners. Besides autos (okay, that actually worked out), he’s now chosen technology companies for a helping hand. Good thing Obama is putting the government glove over the invisible hand of free markets; after all, his picking Solyndra was such a good bet, maybe he should start a hedge fund! Seriously, why don’t we have our own sovereign wealth fund and let the President and his administration run it for a 2% management fee and 20% of the profits…?

Can you see the battles ahead? Does anyone think for a second the Republicans are going to take this Democrat drive to dismember free markets and not come out guns blazing?

It’s going to get ugly.

In fact, America’s hacked-off claws are going to get splattered everywhere over the next few months. Why? Because the real fight isn’t being waged openly.

There’s a dark secret that’s cloaking the truth about America’s future.

If you want me to tell you what it is… I will.

Shah

Why the Fed’s Actions Are Threatening Capitalism

2 | By Shah Gilani

Here it is, folks, the quote of the day (from yesterday), courtesy of Federal Reserve Board Chairman Ben “Helicopter” Bernanke:

Our ability to forecast three and four years out is obviously very limited.”

Here’s what’s really amazing about Bernanke’s frank assessment of his club’s prognostication prowess…

It came on the heels of his pronouncement – after a two-day confab of the Federal Open Market Committee for the Everlasting Future of Big Banks, Bigger Bonuses, and Rampant Speculation with Cheap Leveraged Financing for All – that’s their full name – that the Fed expects to keep short rates “near zero” (yes, that’s a “0” with several zeroes behind it) until 2014, or until Ron Paul becomes president, whichever comes first.

What’s comforting about such decisive action in the face of uncertainty (at the Fed) so many quarters and years out is that the Fed, in spite of its modesty about its remarkable forecasting facilities, is usually quite good… oh, no, not at forecasts, but at making quote-worthy prognostications.

Here are some of my favorite quotes from the current Chairman (I’d include some even more prescient calls from Benny the Jet’s predecessor, Alan Greenspan, but alas, I don’t want you to laugh so hard you start crying when you realize this isn’t funny.):

  • October 20, 2005: “House prices have risen by nearly 25% over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.”
  • February 15, 2006: “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
  • March 28, 2007: “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
  • November 14, 2007: “We at the Fed will have to remain exceptionally alert and flexible [emphasis added, because I can] as we continue to access how best to promote sustainable economic growth and price stability in the United States.”
  • February 14, 2008: “At present my baseline outlook involves a period of sluggish growth followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt.”

Someone should tell Benny that we’re still waiting to feel the effects of monetary and fiscal stimulus…

Keeping rates low led to cheap financing of leveraged speculation in the housing market.

Cheap money – which is considerably more expensive than “free” money (which is what the Fed has been giving away for years) – is not the answer.

To Say That I Have a “Problem” with the Fed Is like Calling the Grand Canyon a “Ditch”

The Fed has become a police force that’s taken free markets hostage so that their masters, the Big Banks, can loot and pillage taxpayers at will.

It’s insane. It’s criminal. And it has to stop.

The Fed doesn’t have to be shut down; it just has to be stomped on, really hard.

The Fed was a creation of the most powerful bankers in America. It was based on the Bank of England and the Bank of Switzerland. Not bad models. But its American banker creators created a de jure bank-led arm of government that actually controls the purse strings and wields its power in such a way that it has become the most powerful institution, not just in America, but in the world.

Color me crazy, but that’s too much power for anyone to have and to hold… and especially for my favorite class of citizens (bankers).

And because I feel that this is perhaps the most important issue facing America, what to do about the Federal Reserve’s power, I’m going to say to heck with the Democrats, to heck with the front-running Republican wannabes… let’s elect Ron Paul for the Libertarian that he really is.

Of course he can’t say he’s still a Libertarian. Otherwise he’d be outside the levers of power and money afforded the combatants in our grossly outdated two-party system. Which, by the way, isn’t anywhere in our Constitution.

I used to be a staunch pull-yourself-up-by-your-own-bootstraps kind of conservative.

When America elected an actor as president, I was going to move overseas. But I came to revere Ronald Reagan, not for everything he did (hated the massive deregulation spree), but for his character and objectiveness in the face of changing circumstances (he raised taxes 11 times).

You could say I was a Republican, until George W. Bush took us to war for the benefit of the military industrial complex, bankers, and his oil buddies. I hated his tax cuts even though I was a huge beneficiary of them. Don’t get me wrong, I hate paying taxes and I will use the tax code to my advantage wherever it is allowed. But we had surpluses coming out of the Clinton years, and that was brilliant.

Then I fell into the Democrat camp and fell in love with Barak Obama. So much for that love affair… “Where’s the beef?”

Today I don’t care a lick for Republicans or Democrats anymore. They’re all just politicians (more like vultures), fighting over every scrap of power they hope to wield to crush each other.

I care about America.

And if Ron Paul is going to be different than any Republican or Democrat, well, I’m for change that matters.

More than that, I’m for changing the Fed and for constructive, sensible, pragmatic, objectivism in America, for Americans, and for the world.

What scares me is the Fed’s actions are a threat to free markets, and that is a threat to capitalism.

Not that capitalism is perfect – far from it. But any alternative is anathema to me and to our Constitution.

And speaking of threats to capitalism…

Let’s Talk About Private Equity

No, I’m not going to go after Bain Capital and Mitt Romney today.

For heaven’s sake, leave the guy alone. Just because he made a fortune and pays an effective tax rate of 14.9% doesn’t make him a bad guy. It makes him a capitalist who played the game, won, and pays his taxes according to what the law requires. We can pick on him for other things, but not for being a successful capitalist.

But about that private equity model…

I’m not going to get into how the business works and whether they’re egalitarian capitalists or vulture capitalists, or what side of the creative destruction equation they’re on (they’re on both, so there). I just want to point out that one of their own, one of the biggest players in private equity in the world, is putting forward an idea that is about as anti-capitalist as they come…

The D.C.-based Carlyle Group wants to take itself public in an IPO. That’s good for them, but really bad for their shareholders and for everyone’s sense of free market capitalism.

What’s good for Carlyle is that they can raise a lot of money to make themselves (the three principal founding partners and a few other “partners”) vastly richer than they already are.

Good for them. That’s capitalism.

What’s bad for their would-be shareholders is that Carlyle plans to insulate itself permanently from class-action suits and any courtroom suits by any shareholders.

That’s bad for shareholders, which is bad for capitalism.

The buyout behemoth’s registration statement filed with the SEC requires future shareholders to resolve any and all claims against the soon-to-be public company by means of arbitration. In other words, they can’t sue the company or its officers or directors, for any reason, including fraud, in any court, ever.

Any action brought against the company by any shareholder or shareholders would have to be arbitrated in private and be entirely confidential. Entirely.

Arbitration? Seriously?

I don’t care about a lot of the other “stuff” in the company’s registration statement, stuff like shareholders have no ability to elect directors or fire them, nor do they have any say in the company’s business (what do you know about private equity, anyway?), what anybody gets paid, or pretty much anything that goes on at the company. That’s none of your business.

All that “stuff” is out there, and if shareholders accept their backseat, blindfolded ride to wherever they’re being taken, that’s up to them. If they get in and don’t like the ride, they can always vote with their feet and sell their shares.

What’s egregious is that Carlyle wants to take away the shareholder’s right to address their grievances in any court of law they choose, or have to, turn to, in an open public forum, which is the American way.

That is sickening.

And some private equity guys wonder why they’re in the limelight these days…

The SEC is going to have to rule on this, because preventing shareholder access to the courts by a public company is unprecedented. They will likely disallow it (thought that’s just my opinion, based on the scrutiny the SEC is getting lately as a regulatory body supposedly looking out for shareholders and governing public companies). And if they do, Carlyle may take its case to the Supreme Court, which, by the way, has in the recent past issued a series of “pro-arbitration” decisions.

These threats to capitalism are just more gasoline on the fire that rages over America’s future.

I, for one (and one for all), call on you to join your voices with mine in defending free markets and American capitalism before we lose both to the oligarchy of banker fat-cats that brought us class warfare and economic Armageddon.

The Gloves Are Coming Off

2 | By Shah Gilani

Hard, bare-knuckled punches are going to get thrown at the failed experiment that spawned the euro, at failing American politics and politicians, and at the markets.

In order to not get bloodied (yeah, good luck with that), knocked out, or taken out permanently, we’re all going to have to bob and weave and just try and go the distance.

This year is going to be about surviving, not thriving.

Sure, we’ll have plenty of shots to take, and smart trader-types will come out looking “pretty.” But, this isn’t the time to throw caution to the wind and go all in, on anything.

That time is coming, just not yet.

Let’s take the market first. Everyone loves a bull market. But is that what we’ve got?

Or are we getting a huge push upward from massive short-covering on the heels of what’s being perceived as the end of what was only last year considered the beginning of the end of the European Union?

Are we looking at a global relief rally that’s happened so quickly that institutional money managers and sidelined investors are going to have to jump in with both feet to play catch up because benchmarks are already up between 4.6% and 7% three weeks into the new year?

Let’s look at the leaders over the past few weeks. They have been the homebuilders, the railroads, and financials.

Bottom-Fishing Plays

The homebuilders’ sentiment index is now at its highest level since June 2007. That’s good news. But maybe not so great when you look at it in terms of where it is, not where it came from. It’s at 25 and change. Too bad 50 is the “breakeven” line. In other words, we’re only halfway to the point where things are considered to be neither good nor bad.

Housing starts actually fell 4.1% in December, in spite of exceptionally mild weather all across the U.S.

The rise in homebuilders is a bottom-fishing play that’s predicated on a settlement over the robo-signing foreclosure-gate mess. Banks have been bending over backwards to reduce principal owed on delinquent mortgages, while at the same time making enough mortgage money available on reduced standards to sell enough existing, languishing homes, which then spurs new home construction.

Seriously, homebuilders?

Go ahead, if you dare, and jump on to that trade.

Me? No thanks. I’ll go with Home Depot and Lowe’s. They make more sense and already are showing good forward momentum.

A Derailed Recovery

Then there are the railways. That bet is about the economy recovering and prices for freight haulers rising to meet demand. But, that’s a bottom-fishing bet, too, and could get quickly derailed if the U.S. hasn’t “decoupled” from the global economy (if you think it has, I’ve got a little bridge in Brooklyn I’d like to sell you).

What are hauling rates doing around the globe? They’ve been falling steadily since last December. Based on the Baltic Dry Index, which measures day rates for ocean-going bulk haulers, shipping costs per day last December were $32,889. Today, it will cost you $7,793 a day to move the same amount of goods.

Betting on that trend turning around any time soon isn’t my idea of a good risk-reward play. The railroads have jumped too far too fast. If I’m going to make a bet on recovery, I’ll bet on global recovery, eventually, and bottom-fish by buying the beaten-down dry shippers.

The Financials are Beaten Up

And, about those financials. The financials were so beaten up (with good reason), and so heavily shorted that they were bound to bounce with any relief talk that European contagion was being contained.

The fundamentals for the big banks are terrible. Sure, there are signs of life at Wells Fargo and at some regionals. But the rise in financials is predicated on the economy here rebounding robustly, with loan demand soaring and overseas spillover being mopped up.

I’m not buying it. If you want to play the financials, play them in “pairs.” For example, I’d buy Wells Fargo and short Goldman Sachs, as a “paired” trade. If you don’t know what pairs trading is, you’ve got a little homework to do. But, it will be worth it.

Make no mistake, short-covering has fueled the rally. In fact, short interest is now the lowest it’s been in a year. All that buying powder has been burnt through.

Bullishness is near rampant. Bullish leveraged ETFs have been seeing record inflows, while bearish ETFs have gone the exact other way. Individual investor sentiment, as measured by the American Association of Individual Investors, has bulls outweighing bears two to one.

And according to one report I came across, the S&P 500 is three standard deviations above its 20 day average. For you non-mathematical types, that means it’s very, very overbought.

But, like I’ve been saying, I’m playing this bounce from the long side and only hope it lasts into the second quarter. Why the second quarter? Because, while earnings have been a mixed bag, but generally positive this season, revenues have been disappointing.

If first quarter revenues show a continuing downtrend on the heels of lackluster fourth quarter revenue numbers, it’s time to start packing in the longs and unpacking the short lists. We’ve still got room to go higher, but we are now near the top of the range and everything from here on out matters.

Watch out for volatility. If it picks up on moderate down days, we’re getting toppy.

Here Comes Newt

Of course, by now you know that former House Speaker Newt Gingrich won the South Carolina primary by a huge margin. He upended Mitt Romney with an uppercut. In fact, he laid him out on the conservative canvas like a heavyweight taking out a featherweight.

Now, the gloves are off.

Newt and Mitt (well not them, but their super PACs) are going to start ear-biting, eye-gouging, and kicking each other below the belt.

It’s really going to be fun to watch.

Just because Newt attacked the press in his last couple of debates, and tried to throw a knockout punch at them in his South Carolina acceptance speech, doesn’t mean he’s not going to get pummeled by the press. They will hide from his wrath by pointing out that its Mitt’s super PACs attacking Gingrich’s conservative approach to open marriage.

By the way, the “liberal media” didn’t set up Newt to knock him down, as he claims. His second wife did. We listen to politicians about politicians, and we’re asked to listen to the politician’s children defend them; why not listen to their spouses and ex-spouses?

Why shouldn’t the morals of an avowed Christian conservative – who cheated on his wife (oh, there’s so much more!), got caught, and asked her to let him continue his affair while she dutifully kept up their conservative appearances – be aired like the dirty laundry?

Is anyone out there really going to tell me that any politician’s private life is none of the public’s business?

I know some of you are, and I know who you are. You are the dead weight pulling America down. You are the holier than thou liberal and conservative Machiavellian types who’ve lost your sense of family values, lost your sense of right and wrong, and lost your own moral compasses.

Everything matters.

Martin Luther King Jr. said from a Birmingham jail, “An injustice anywhere is a threat to justice everywhere.” We all need to live and hold each other to higher standards.

Oh, and I almost forgot, about Europe.

It’ll come back to haunt us, it’s just a matter of time.

Liquidity Liquor and the Battle Ahead

3 | By Shah Gilani

Equity markets have been charging ahead for a few weeks. Not just here in the U.S., either. They’ve been rising in Europe too. Even China’s Shanghai Composite, after falling 22% last year, has been percolating higher.

Thanks to the ECB filling Europe’s punchbowl, last year’s sovereign debt hangover has been mellowed by some 100-proof “hair-of-the-dog” liquidity liquor…

And it feels good.

This party atmosphere is infectious!

After the European Central Bank poured some $600 billion (and counting) into the party bowl and let teetering European banks ladle themselves out as much as they could stomach, the Federal Reserve signaled that it wanted to throw in some free “shots,” in the form of more quantitative easing or some other easy money contribution, to make sure Europe isn’t the only party house on the block.

And now the IMF – the usually stodgy party-poopers of fiscal discipline fame – are trying to get themselves invited!

They know they’re not usually welcome while any economic bacchanal is raging, so they’re asking for donations of $500 billion to $600 billion (on top of the $400 billion in commitments they’re already packing), so they can man the kegs and stills and pump in whatever juice is necessary to make the budding soiree a true world party.

It’s amazing how giddy easy money makes everyone feel.

How else could we go from fearing the next “Lehman moment” to feeling like there’s enough money and time for over-indebted countries and increasingly strung-out banks to heal themselves?

Don’t get me wrong: I love a good party. I’ll stay until the music stops, or until the punchbowl is empty. I just hope I hear the music stop before everyone realizes the punchbowl’s been cracked.

There’s no reason not to be participating in this rally. And there’s no reason not to be aware of what’s driving it.

Liquidity, liquidity, liquidity – much like location, location, location – is everything.

Liquidity is the Liquor in Every Economy’s Punchbowl

The party started with a bang over in Europe. Not because things were so good, but because they were so bad. Without banks getting huge, almost unlimited, three-year loans at 1% from the ECB, they wouldn’t be able to buy all the new sovereign debt that’s being issued, and they wouldn’t be able to roll over their own debts.

Borrowing costs have plunged, thanks to the open liquidity keg. But borrowing needs aren’t diminishing; they’re about to intensify.

In the U.S., the Fed is talking about more easy money schemes. Not because things here are so good, but because they see them slipping.

The IMF isn’t asking to raise its emergency war chest to over a trillion dollars because everything is so good, but because they’re scared as heck that things could get ugly.

But as growth slows, existing liquidity begins to evaporate. It has to be replaced or economies will run dry and seize up.

It’s all okay right now… but for how long?

The Music I’m Listening to is Starting to Slow Down

Global growth has been propped up by so much liquidity, and even as more liquidity is being pumped in everywhere, growth is showing signs of serious fatigue.

The World Bank on Monday reported it expects growth in developing countries to slow to 5.4%, from its earlier estimates of 6.2% only a couple of months ago. “High income” countries were knocked down from 2.7% to 1.4% for all of 2012.

In the U.S., the Fed thinks that fourth-quarter growth, however positive it may appear, was a “last gasp” spurt and unlikely to continue into 2012. Hence the talk of more QE.

China, while still showing very positive growth metrics, is nonetheless showing signs of slowing down. The question the world is asking is whether China’s domestic growth can make up for falling exports to Europe and other developing countries.

China has also seen a rapid slowdown in foreign investment, which dropped 12.7% in December on a year-over-year basis after falling 9.8% in November.

Germany, the “engine of Europe,” today announced a ratcheting down of its own growth expectations for 2012. It expects to teeter near a dismal growth rate of only 0.7% in 2012, down from its previous forecast of 1% last month, which was lowered from 1.8% the precious month. Germany’s economy actually declined 0.4% in the fourth quarter.

Meanwhile, France is lowering its growth projections for 2012 to 1.7%. Before its downgrade last week, France warned of a “significant slowdown” that began in 2011’s fourth quarter.

Again, I love a party, and I’m dancing to the tune this one’s humming. But, as I said on Sunday, there’s an increasing disconnect here that reminds me of the summer of 2007.

So what do we do?

We need to keep our eyes glued to global growth.

If it continues to slip while massive liquidity pumps are flooding banks with cash, and sovereign borrowing costs begin to rise again to dangerous levels, that’s the end of the music and time for me to unwind my long positions, or at the very least, hedge everything I want to hold on to.

And speaking of “holding on”…

What’s with Mitt Romney?

Now, I know this is a charged issue, and I don’t want to offend anybody. And personally, my vote is still up in the air.

But I think it’s important we look at the facts behind a candidate’s words.

And Mitt Romney is beginning to look and sound like he’s out of things to say, and out of ideas for fixing what’s wrong with America.

Maybe that’s because he’s part of the problem

Could the guy come across as any more “wooden?” Or any more cavalier about the plight of average Americans?

How can a guy worth more than $250 million (supposedly) earn almost $400,000 for speaking to, well, whoever will pay him over $40,000 for an hour-long speech, and call that “not a lot of money?”

Is that insensitive or just plain ignorant?

If you ask me, it’s both.

I have plenty of issues with how a lot of leveraged buyout (LBO) deals are done and how they end up. But I’m not totally against the business model. However, I am against the outright lie that Romney created net 100,000 jobs while he was at Bain Capital.

And I’ll tell you why.

First of all, he’s a banker. So I take everything he says with a grain of salt.

Second, the LBO business doesn’t give a hoot about job creation. It’s all about profit creation – at any cost. Romney has not one iota of proof that he created any jobs, gross or net.

The South Carolina primary is going to be really interesting, to say the least. Romney has gone from the anointed Republican nominee to looking like a floundering fool in no time flat.

It’s the typical banker swagger that makes me livid. He’s not part of the solution; he’s part of the problem, masking as do-gooder capitalist making jobs and making America a more egalitarian country.

What?!

As if we’re not engaged in enough of a class warfare debate…

Romney, if nominated, is going to push America to the brink of a battle it’s not ready to fight.

Shah

It’s 2007.2, and Our Next “Lehman Moment” Is Coming Fast

3 | By Shah Gilani

It seems that my Thursday edition of Insights & Indictments was warmly received by the bullish crowd, many of whom reached out to me to thank me for my optimism.

I’m sorry to burst your bubbles, but I am not a raging bull (but thank you for asking).

In fact, I’m still bearish.

There’s a big difference between being bullish and playing all stocks (and other asset classes) from the long (that means “buy”) side… and judiciously buying select momentum stocks with fat dividend yields, which is what I was recommending on Thursday.

I was talking about taking the path of least resistance, which I identified as “upward,” based on equity activity through year-end and so far in 2012. You’ve heard the old adage “the trend is your friend.” Well, that’s what I was talking about. The trend has been up.

I’m bearish because I’m afraid of a European meltdown and a “hard landing” in China.

But there’s a huge danger in missing what could be the beginning of a real bull market.

So, it makes sense to start putting on solid positions and even speculating here and there. But I am not all in – not yet. However, the time is coming. But, that is also the problem.

I’m fearful that a crash is coming, and maybe soon. If we get one, and everything flushes out and we get a capitulation bottom amidst a global panic sell-off, then I’ll be all in, all the way, for the long-term. I’m talking about loading the boat up with stocks and commodities and enjoying a generational ride that will last for maybe 10 years, or more.

What keeps me up at night now, however, is the echo of 2007. I call where we are now 2007.2. If we are facing 2007.2, then 2008.2 will follow with a vengeance.

I’m guessing the breakdown could come in the first or second quarter of this year (although it could also take as long as 18 months to develop, which would only make it 10 times as bad when it does come).

Think about what I’m about to lay out for you, and ask yourself, what if he’s right?

In the spring of 2007, U.S. Treasury Secretary Henry Paulson, when addressing problems surfacing in the subprime mortgages arena said things “appear to be contained.” Fed Chairman Ben Bernanke said, “We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.”

Comforting words, right?

Then, speaking to members of the Federal Reserve Bank of Chicago in May of 2007, Bernanke said, “Importantly, we see no serious broader spillover to banks or thrift institutions from the problems in the subprime market.”

Comforting words, right?

Even before two Bear Stearns hedge funds imploded in June of 2007, the Fed Chairman was touting the virtues of derivatives and the widespread sale of mortgage-backed securities when he stated, “The key thing to remember is that these losses are not just held by American banks, as the bad loans were in Japan (referring to Japan’s lost decade), but they are dispersed.”

Comforting words, right?

Then, on August 9, 2007, after one Bear fund was shut down and the other fund temporary propped by an injection of some $3.2 billion from Bear itself, and the seemingly contained fallout from subprime and AAA mortgages hitting “dispersed” banks in Europe, the European Central Bank’s website quietly announced that the ECB would provide as much funding as banks might wish to borrow at only 4%.

What was happening was that European banks weren’t lending to each other. The commercial paper market was at a standstill, and there was no short-term funding facility open wide enough to finance their longer-term mortgage positions. And they couldn’t sell their positions because after the Bear funds imploded, there were no buyers for mortgage bonds, even the super-senior AAA tranches many European banks and all the big American banks were holding.

Two hours later, 49 banks borrowed three times what they were usually asking to borrow. And by the time trading closed in the U.S. on that same day, gold had spiked higher, as had safe-haven U.S. treasuries.

Of course, the equity markets were doing their own thing and were rising that summer, nearing new all-time highs (which they would reach in September 2007).

It took another year before we got our “Lehman moment.” But, boy did it hurt.

Fast-Forward to Now….

We’re being told by the Fed that our banks are in good shape. We’re being told by bank CEOs that they are in good shape and their European exposure is limited. We’re being told that there won’t be any significant hit to our economy from events in Europe. We’re being told that there won’t be any significant spillover because European debts are dispersed and banks have derivatives hedges.

These are all lies.

Exactly like what happened in 2007, banks in Europe aren’t lending to each other. The commercial paper market over here is closed to them. That’s why the ECB announced they would effectively execute unlimited three-year term repos at 1%. And, by the way, they are taking just about anything for collateral, really.

Did 49 banks step up like in 2007? No, in 2007.2 (meaning now) some 500 banks stepped up and took 489 billion euros the following day. And they’ve been adding to that.

What’s happening to gold in 2007.2? After selling off as part of the initial risk-on grab for equities a couple of months ago, it’s rising again, and fairly quickly.

What about safe-haven bonds? U.S. bonds have been rising rapidly in price as investors clamor for safety. The 10-year closed Friday at a 1.87% yield, only 20 basis points from its all-time low yield, which it saw in September as European woes were strangling global markets.

How panicked is a lot of smart money? Yields on German and U.S. short duration bills are less than zero. That means investors have bid up the price of these short-term safe government instruments that the premium they are paying is greater than their yield. Put another way, people are paying to place their money in safe government securities.

Comforting, right?

No, it’s not.

Talk about concentration build-up. First of all, most U.S. banks and most European banks are still sitting on tons of mortgage-backed securities that they can’t unload. And the U.S. housing market isn’t getting any better, nor is Spain’s, Ireland’s, or China’s.

Sure, foreclosures are down lately. But that’s because of foreclosure moratoriums resulting from lawsuits. There are estimated to be 10 million homes for sale and over 11 million homeowners holding onto upside-down mortgages. What’s going to happen when banks get on with foreclosing and start dumping houses again? It’s about to happen.

All that nonsense about dispersed risks – don’t believe it. There is no dispersion that matters because all the big banks in the U.S. and Europe and plenty of others hold the same asset mixes, the same duration mortgage pools, the same sovereign debts.

But in the place where things are smoldering and there’s kindling everywhere, European banks are buying more of their sovereign’s toxic debts to stave off a collapse of the prices of the debts already on their books. It amounts to a crazy leveraging up on the same bet that sovereign debts will pay off 100 cents on the dollar.

And where are they getting the money to buy more of this crap? From the ECB, who is printing it against the backstop of the same countries who need banks to buy their constantly rolled-over debts.

It’s musical chairs, and sooner or later the music is going to stop. Greece looks like it will be the first one standing, or in this case, falling down. Portugal could be next, or Spain, or Italy.

Greece has more than one trillion euros of public sector debt outstanding. Do you think that a real default isn’t going to crush a lot of banks? Wake up. And if you think that Greece defaulting (or even forcing a 50% haircut on private investors, that would be banks, folks) wouldn’t spill over into other countries and across the globe… wake up.

Talks in Greece over private investors taking a 50% haircut – meaning they will only get 50 cents on the dollar on the 100 cents they lent out previously and the other 50% they are giving up will be replaced with longer-term bonds yielding less interest – aren’t going well. Most analysts and even central bankers believe the haircut needs to be closer to 75% than 50%. Comforting words to be spoken while negotiations are ongoing, right?

Ah, then there’s that little downgrade thing that happened on Friday after European markets were closed. Just because the downgrade of the U.S. from AAA to AA+ didn’t cause our borrowing costs to rise doesn’t mean it isn’t going to happen in Euroland.

It will happen. Downgrades will trigger new capital calls as margin requirements will increase to offset the lower quality of collateral, we’re talking about the same collateral folks, the same sovereign bonds. It’s an increasing pile, make that pyre, and it’s going to self-ignite.

We have a big week ahead; we have Citicorp, Goldman Sachs, and Bank of America reporting fourth-quarter numbers. We have housing starts (homebuilders are up 60% since their October lows) and new home sales. And Spain and Italy are auctioning off bonds on Thursday.

Our markets have risen nicely. And on Friday, after selling off hard on the S&P downgrade news, they rallied back impressively. I tell you, it’s 2007.2.

Stocks are going one way, and credit markets are signaling trouble ahead.

Sovereign debt has replaced subprime as the powder keg. That makes the brewing storm infinitely more powerful than the subprime dust-up was. It’s a question of how long before we get the Lehman moment.

We’ve survived, even thrived, on a series of “liquidity puts,” which is what I call all central banks’ stimulus and “free and easy” money thrown at banks to keep them afloat. In a politically charged 2012, that could change.

Keep this in mind. If we’re facing 2007.2, then 2008.2 is coming right around the corner. It’s just a matter of time.

That’s why I say play the equity market diligently; we could scrape higher for a while, as we did in 2007. But, when the fat lady sings, it’s going to be deafening.

And everyone knows the opera isn’t over until the fat lady sings.

Shah

Follow the (Bumpy) Path of Least Resistance

4 | By Shah Gilani

Thank goodness we all just woke up from that bad dream we were having.

You know, that recurring nightmare that kept us all up in 2011.

What? You don’t remember those restless nights? Waking up in a cold sweat and clicking on Bloomberg TV to see whether European markets were going to drag us into a global depression?

Oh, all of a sudden you’ve forgotten last year’s unprecedented volatility? Now, you’re excited by early “green shoots” in 2012 and are embracing risk-on with both hands?

Wait a minute, are you loading up on financials, commodities, and emerging markets again?

Look, it’s okay to follow the market’s path of least resistance – which sure looks like upward – in order to put a nightmarish 2011 behind you. It’s fine to embrace the hope that the New Year will be a sweet dream.

Really, it’s okay, you’re not dreaming, good stuff does happen.

Not that everything that’s happening is good… but that’s not the point.

The point is that markets follow the path of least resistance. And if you fight that path and go off the reservation, chances are you’ll get left behind, looking for water while the “madness of crowds” tramples its way to the nearest watering hole oasis.

I’m following the crowds this time. For how long, I’m not sure. But, frankly, I’m tired of being mostly on the sidelines for the past few months (for some of you, a lot longer) and don’t want to “fight the tape.”

My “Insight” Here Is Simple

I see tons of problems ahead, but I also see that investors are now beginning to look past their immediate fears on account of some large Band-Aids being applied to macro-global issues.

It’s not for me to say whether recent actions are enough to actually fix seemingly intractable problems, or whether they will be enough of an analgesic to give time a chance to heal serious wounds. I don’t know. Actually, I do know…

But mostly what I know is that if global investors want to believe, I’m not going to stand in the way of literally trillions of dollars of capital that could flow into equities, commodities, and lots of cheap value plays that now litter the global investing horizon.

Be afraid; that’s okay.

Just don’t be stupid; that’s not okay.

It’s time to get back on the dance floor and start dancing. But listen to the music. If the beat slows down, take notice. If the dance hall starts thinning out, don’t be the last one out the door.

When the bumps come – and they will – don’t hang on to your highly volatile and speculative plays. Play the more aggressive and volatile stocks that can skyrocket (and also crash and burn) very gingerly.

Instead, it’s a reasonable time to start building a longer-term core portfolio. That means buying a few, maybe five to seven, solid stocks that have a dividend yield of 4% and up, and adding to those positions on market dips.

For Now, the World is Holding Together

The biggest Band-Aid on the biggest gushing wound (European sovereign debt and bleeding banks) seems to be working.

It just proved itself this morning.

When the ECB offered Europe’s hemorrhaging banks three-year term loans at about half a percent interest, they grabbed the cash. Some $489 billion worth was vacuumed up.

The banks weren’t lending to each other, and they’re still not. They parked the money back at the ECB for safekeeping. But because they aren’t making any money on their money – just watching it sleep – they’re amping up the interest rate spread they make by buying (guess what) sovereign debt.

This morning saw two successful debt auctions by both Spain and Italy.

Who was clamoring for last year’s deadbeat debtors’ dirty paper? Why, that would be the very same banks who already own tons of it (most bearing much lower interest rates) – the same banks who borrowed massive amounts from the ECB.

That’s the Band-Aid. The ECB’s back-door plan is working beautifully. (It’s a back door because the front-door rescue of these struggling borrowers would entail the ECB buying massive amounts of their debt on the open market to lower their borrowing costs.)

So far, so good.

But Europe’s not exactly out of the woods. The fact that wobbly banks are leveraging themselves with more sovereign debt amounts to the “extend and pretend” game – that everything will be better over time – being played out on an unprecedented scale.

Only growth will fix Europe’s problems. Austerity alone won’t cut it.

So watch Europe’s growth rates to get the “big picture” view.

If Europe plunges into a deep recession and bond rates start rising precipitously again, after banks have gorged themselves over the first and second quarters of 2012, that will be a good time to take whatever profits you have and tread lightly.

China is applying the other big Band-Aid – to itself.

Its economy is slowing as exports to Europe have been hurt and prices of commodities, which they massively stockpiled, have come down. They are now loosening monetary policy somewhat. The question is whether or not the centrally planned government can guide the Chinese economy to a “soft” landing.

Over here in the U.S., everyone seems to be in a good mood. Individual investor sentiment is dangerously optimistic, approaching 80% bullishness and only 17% bearishness. That gives me some cause for concern.

Earnings season is upon us. Let’s see how companies that fall short of consensus estimates get treated. Earnings are everything (unless they’re trumped by macro events), and this season will be the most important one to watch in the past three years.

Because at this hopeful moment of “are we decoupling,” for the U.S. it’s about earnings, earnings, and earnings.

I’ll be breaking down what’s happening under the radar, as major earnings reports unfold.

Stay tuned…

The JPMorgan Chase Question

I wasn’t joking up top when I asked if you were buying the financials. They have led the market higher in 2012. (Granted we’re so far into the year that, of course, we know how this is all going to end – NOT.)

But if you’re a bottom-fisher and you believe that the worst is behind us, the financials are worth a throw with some of your speculative capital.

Just don’t be suckered into believing that all their problems are behind them…

Yesterday morning I came across a very interesting and well-below-the-radar piece about JPMorgan Chase in The American Banker – an American Banker Association publication, and an excellent one at that.

I had first read in The Wall Street Journal, back in June, that Chase was abandoning its debt-collecting efforts by in-house legal teams, who were being disbanded. Back then there were questions about Chase’s debt-collection lawsuit efforts and to what extent they had been “robo-signing” unimportant little pieces of paper like affidavits, debt amount ledgers, and the like.

Chase was dropping thousands of cases they had been pursuing against defaulted credit card borrowers – even those where they had presumably already gotten judgments against borrowers. An Illinois state-court judge was quoted in the Journal article saying that lawyers for JPMorgan asked to withdraw all pending collection cases in his court.

Since industry data reveals that 94% of cases filed end in a judgment in favor of the lender, you have to ask yourself, why would Chase simply stop its efforts to go after so many defaulted borrowers?

The American Banker article picks up where the Journal left off, reiterating what the article supposed and adding fuel to the fire with the burning question… Why?

According to the article, “The bank has not explained its apparent moratorium and declined comment.”

But it sure looks like it has something to do with allegations that Chase has been falsely overstating the balance of thousands of delinquent accounts… Or maybe it’s the accusations that Chase has been selling outside debt collectors pools of debts they claimed were backed by court judgments they had won…

If the judgments were attained under questionable circumstances, meaning sworn-to documents and affidavits were robo-signed and proper legal work was short-sheeted, that would bring all past judgment and collections into question. Can you imagine?

Are there ongoing investigations by regulators over these allegations? The Office of the Comptroller of the Currency, for one, isn’t commenting.

Whatever is going on, I’m more than just a little curious. (I contacted JPMorgan Chase yesterday and am awaiting a reply from them.) And you should be, too.

No one just stops collecting on judgments they are owed for no reason.

Is JPMorgan Chase – and possibly a host of other big banks – about to be embroiled in yet another mega legal nightmare?

This could make Foreclosuregate look like a day at the beach.

Oh, and about your investment in those financials… you might just want to tighten up your stops.

Shah

These Four Lessons Mean
Everything Today

4 | By Shah Gilani

Talk about information overload…

There’s so much news and data, so many opinions about events and data points, so many financial publications, so many shows, so many stocks, mutual funds, ETFs, futures, options, derivatives, so many opposing points of views about everything, it’s enough to make your head explode and your investing comfort level implode.

Most people tend towards like-minded analysts and economic analysis that confirms what they’re seeing and thinking. There’s a kind of comfort zone there, where “We’re in this together and if we’re wrong, well, I wasn’t alone; but if we’re right, boy am I smart.”

Then there are the “skittish” investors who think they know what they’re doing – that is, until they hear a different opinion from someone, anyone, they think has a leg up on them. And what do they do then? They usually ask, “Really?” Meaning, “Do you know something I don’t know?” Chances are, at that point, they are going to panic.

And, of course, there are those investors who know they are right, and stick by their convictions and positions all the way to, well, you know where.

Maybe you’ve been there.

I was there myself when I started trading professionally on the floor of the Chicago Board of Options Exchange in 1982.

But I quickly distanced myself from all the noise that distracted me from being a successful trader.

There is no magic bullet to being a successful investor; that’s the bad news. The good news is that it’s a lot simpler that everyone makes it out to be.

Here are the four most important trading lessons I have learned:

  1. First of all, never be greedy. Never throw a lot of money onto a “sure thing” or any one position. There is no such thing as a guaranteed profit.
  2. Second, when there’s nothing to do, do nothing. And don’t chase trades or investments. Trades are like busses: if you miss one, there’s always another one coming along.
  3. Third, trust yourself. It’s okay to take advice and listen to others, but make sure you do your own homework. It doesn’t have to be a lot of work, just enough that you can be comfortable with your decision. After all, it is YOUR decision, your money.
  4. Lastly, have a plan. At what point will you exit the position if it’s not working out? You can use a hard stop or a mental stop; just make sure you have an exit plan. Take profits. You don’t have to take off all the position if it reaches your profit target, unless things have changed regarding your outlook. If the position is profitable and keeps going up, raise your stops.

So, what do these simple lessons mean today? They mean everything.

Why? Because we’re looking at a light at the end of the proverbial tunnel… but we don’t know if it’s the light of day or a train barreling straight for us.

Sure, we got a healthy year-end rally. Sure, the first week of the New Year was positive. Sure, we’ve gotten a fair amount of better-than-expected economic data here in the U.S. Sure, there are “green shoots” of growth, and there’s hope that the U.S. may be decoupling from global woes.

Unemployment is down to 8.5%; it has fallen for four months in a row. U-6, the measure of the unemployed and the underemployed, is down to 15.2%, a three-year low. But of the 200,000 jibs created in December, 42,000 were temporary messenger and delivery jobs needed to accommodate on-line sales deliveries over the holiday season. In 2010 we saw the exact same number of “delivery” jobs created, and they all disappeared in January, the following month.

So are we really making big strides in employment? I hope.

What about the year-end rally and last week’s rally? Will it hold? Of course, we hope it will.

But the truth is that we’re seeing a lot of rally-chasers. Institutions – and that includes hedge funds – that missed the year-end rally and were on the sidelines last week are going to have to play catch-up if we continue to see better-than-expected economic numbers here.

Another reason we might see buyers come off the sidelines is that the Fed has been indicating there may be more easing ahead. That’s always a plus for speculators and investors. The Fed is also going to start outlining their interest rate outlook forecasts to the public. I doubt they’re going to do anything that scares the public and markets by indicating they might start raising rates.

To the contrary, they are going to lay out long-term “feel-good” interest rate policies that will set the stage for more leverage in financial markets. That’s good in the short run, but it only adds to problems long term.

That all makes the light in the tunnel look like the light of day. So, from a short-run perspective, I’m inclined to play U.S. equity markets from the long side.

But, as has been the case, there’s always the possibility that that light is the runaway train driving Europe’s problems headlong onto our shores.

We may look like we’re decoupling, but we are not; we cannot decouple from macro events that we are inextricably interconnected with. We just can’t.

Last week, UniCredit, a big Italian lender, floated $9.53 billion in new stock. The issue was fully underwritten, meaning the underwriters (big banks) agreed to buy the entire issue and resell their shares to public investors. What happened?

Because there was virtually no interest on the part of investors, the price of the shares was 65% below where the bank’s stock was trading. Its outstanding shares promptly fell 39% to reflect the impact of the new issue discount.

That’s bad enough. But it’s nothing compared to what few people are talking about. All those underwriters are stuck sitting on the shares they took down. The ECB has said that Europe’s banks need at least another $130 billion in equity to meet minimum reserve standards under already eased Basel standards.

Who is going to underwrite these equity issues? The same banks that need the equity? The same banks that just took a huge hit on the UniCredit deal, which would be most of them that need new equity themselves?

While I’m inclined to play gingerly in U.S. markets, I’m not going to be too committed to too many positions. This is no time to be greedy.

There’s always another trade coming along – remember that. If the European situation is going to get worse, and it sure looks like it is, regardless of seeming decoupling, well, be careful… Be very careful.

Use your own sense of things. Trust yourself.

This market is beginning to look enticing, but it’s also the kind of market that can crush you overnight.

Stick to my basic rules of thumb… and make sure you’re not tied to the railroad tracks in front of any tunnel, ever.

Shah

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Let’s Play Insights & Indictments Jeopardy!

5 | By Shah Gilani

Today I want to play a special game I call Insights & Indictments Jeopardy!

It’s based on the classic T.V. game show where contestants vie to pose the correct “question” to the answers that are revealed in an array of categories.

For example, let’s say the category is “Federal Agencies.”

The first “answer” happens to be: “This new organization holds primary responsibility for regulating consumer protection in the United States.”

If you ring your buzzer first and shout out the question, “What is the Consumer Financial Protection Bureau?” you would be right.

Got it?

Okay, let’s play Jeopardy!

Today our category is actually going to be the Consumer Financial Protection Bureau (CFPB); see how many you can get right…

  1. The CFPB was founded as a result of this July 2010 Wall Street reform and consumer protection act, which was meant to save America from being used and abused by Wall Street crooks and bankers in the future.
  2. In a sign that the GOP mostly opposes new powers being granted to the CFPB, this is the number of Republican Senators who actually voted to enact the reform and consumer protection act.
  3. When the president nominates an appointee as director of the CFPB, the same act requires this kind of confirmation.
  4. This man’s appointment yesterday as CFPB director is controversial because he is being seated without the above confirmation
  5. This CEO of the American Bankers Association said Obama’s move to install the director without the required confirmation complicates efforts of banks, and puts the bureau’s actions “in constitutional jeopardy.”
  6. This Harvard law professor was the principal architect of the CFPB when she was an aide to President Obama and the Treasury Department.
  7. Interestingly, the director of the CFPB also gets a seat on the board of this powerful government-backed corporation.
  8. In the alarming situation I’ve just described, S.O.S. stands for this.

Got your answers? Let’s see how you did…

Give yourself half credit if you got any part of the long explanation correct and 100% credit if you got most of it right. If you get most of these, but stumble on the last one, don’t feel bad. (And you won’t, when you find out what it is.) But if you did get the last one right, and even if you didn’t get any of the other questions right, congratulations… you are the new champion.

Here are the correct “questions” (along with some explanations).

  1. What is Dodd-Frank? Great work. By the way, the CFPB was created under the Dodd-Frank Act to act as a supervisory and regulatory body over non-bank lenders (as well as traditional lenders), specifically to root out “unfair, deceptive, and abusive” practices.
  2. What is three GOP Senators? Look, I’m not picking on Republicans; I used to be a stalwart conservative myself. But really, how can you not vote to protect the American public from what everybody knows was caused mostly by Wall Street and shady non-bank operators’ greed?
  3. What is Senate confirmation? However, it is constitutionally legal for the president to seat a director without confirmation if the Senate is not in session to “advise and consult” and vote on the president’s nominees.
  4. Who is Richard Cordray? If you get that wrong, here are some extra clues… This former Ohio attorney general prosecuted banks, brokers, and insurance companies and won over $2 billion in judgments and settlements from them in a single year. Or how about: This man graduated Phi Beta Kappa, with law school honors, studied economics at Oxford, and is a five-time Jeopardy! champion himself (really!).
  5. Who is Frank Keating?
  6. Who is Elizabeth Warren? And too bad for Elizabeth, because she was expected to be – and was the most obvious and interested candidate to be – the director of the CFPB. Senate Republicans vowed to stymie her confirmation on the grounds that she would be too tough on their constituents (that would be the banks and money-lenders of last resort). Actually, Senate Republicans vowed to stymie the confirmation process for any Obama nominee on the grounds that they just don’t like any regulators messing with the free-for-all market they want lenders to enjoy. Of course, they say their opposition is about wanting a committee to run the CFPB (which they didn’t want in the first place), instead of a single director heading the bureau – the same bureau that they don’t want anyway; did I say that already?
  7. What is the Federal Deposit Insurance Corporation (FDIC)? Remember, the FDIC guarantees bank deposits at insured institutions, oversees banks as a regulator, and liquidates them when they go belly-up (and 92 banks did so in 2011). Back to Frank Keating of the ABA for a second. He went on to say, “Moreover, with this appointment, the President has also altered the composition of the board of the FDIC, potentially undermining its official acts.” There’s something that’s even more incendiary, given the brouhaha over Obama seating Cordray while the Senate is “technically” in session and are saying they have to confirm the nominee – even though they are not really at the Capitol at all, but are on vacation. As Keating points out (or maybe “threatens” would be a better way of putting it), this is happening at the “same time that the FDIC appointments, including that of its chairman, are pending in Congress.” Can you see where this is going?
  8. There are two correct answers to this one. What is save our souls or the same old shoot?

And if this political infighting isn’t bad enough, it’s now about to get even worse… before it gets even “worser” as we wend our way into the election year ahead…

There’s going to be huge legal fight over Obama’s seating of Cordray – a legal fight that could end up with Constitutional challenges. So it’s not going to be resolved easily.

But seriously, the Dodd-Frank Act is the law of the land (at least the parts that have been written). And what’s wrong with having a CFPB to protect the American public from unfair, deceptive, and abusive acts perpetrated on us all by the likes of banks, mortgage brokers, credit card issuers, student loan shysters, credit reporting agencies, payday lenders, and debt collectors?

As if the director of the CFPB is going to become the almighty and undermine free markets…?

Come on, seriously.

Can’t you just smell the lobbyists and bankers in the wings cooking up filthy lies about how we are ceding our freedoms to regulators who want to bind us to a socialist model that undermines free will and the American dream? After all, they know something about that, since it happens to be their objective, only with their own oligarchy at the top of the heap.

We need the CFPB. And we don’t need the same old shoot from politicians.

You don’t believe me? You disagree?

Then tell me if you think this next little practice is wrong… (It’s something that is happening a lot these days, and it’s something right up the alley of the CFPB to jump on.)

More and more, credit cards are being sent to folks who have bad credit because they didn’t pay off old charges.

The new cards are being offered to a lot of down-and-out folks desperate for some form of credit. Have you tried buying something lately without a credit card?

As an aside, I went to pay with cash for a purchase the other day, and they asked to see my I.D. Is that crazy or what? Okay, that was a joke… even though our currency having being depreciated for so long is no joke at all.

Anyway, it turns out that debt collectors are teaming up with credit card issuers to give credit cards to needy Americans.

But there’s a catch.

To get the credit card, you have to pay something towards an old debt.

Sometimes the come-on for these new cards is couched in the typical “Balance Transfer Program” rhetoric. Only, they’re not transferring your high-interest debt on another card to the new card, they’re transferring your old, unpaid debt onto a new card.

The thing is that in all states there exists a statute of limitations on your unpaid credit card debts. It ranges from three to 10 years, depending on the state. If you haven’t paid (naturally your credit is destroyed) after the statute of limitations expires, your debt is wiped out. You don’t owe it anymore. That may be a moral failing, but it is the law.

However, if you agree to make a payment on your old debt, the statute of limitations starts over from that new payment date.

Of course, debt collectors certainly aren’t telling people that they are “re-aging” (the industry term) their old debts, bringing them back to life, even if they were past the statute of limitations and you legally didn’t owe them any more.

Seriously, this is going on. It’s abuse, and it targets the same folks who have had a hard enough time and are trying to get their lives back on some economic track.

But, whatever, we don’t need any Consumer Financial Protection Bureau, we’re better off dealing with the same old shoot fired at us by banks and politicians. Right?

This isn’t a game; if we keep letting the same old shoot to knock us down time and time again, we really are in very serious “jeopardy.”

Get up, stand up. Stand up for your rights! (Thank you, Bob Marley.)

Happy New Year indeed!

Shah