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CONTEXT- CONTEXT- CONTEXT!

From the real estate business I learned that the most important three things that determined value were: location, location, and location. And from the likes of Richard Russell and Harry Schultz, I have learned that investing is a matter of three issues: context, context, and context. Let me attempt the explanations.

A term that has kept me from losing my shirt, sanity, and savings (and I’ve come close on all three from time to time) is the phrase, “The TREND is your FRIEND”. That’s another way of saying the context principle. When the tide is going out, it’s going out and there’s nothing you can do about it. When the tide is coming is, the same principle applies.

For the last three years, we have been in a BEAR market: after nearly two decades of a BULL market. The people who want to sell you stocks are now ranting and raving about how critical it is that you get “on board” as the gravy train is leaving the station. The BULLS are running again and we’re not talking about in Spain; however, you can get trampled if you jump in on the long side. Why?

Three years has wiped out a lot of investors and the correction on the Nasdaq was near 80% but, three years of the BEAR is not enough to knock out 20 years of BULL! The BEAR is not over and what we’re seeing is called a BEAR market rally. The TREND (your friend) is still down. So saith I (and very few others). Nearly 60% of Wall Street is now BULLISH. Hey, what the heck, it’s YOUR money, not theirs.

So, while the Dow is up 976 points for the year, the Nasdaq 331, and the S&P about 90, it’s a “head-fake”: one that could cost you mucho dinero if you are in much longer. It’s still like Vegas in many ways: stay at the table long enough and eventually you’ll lose it all.

EAST OF EDEN!

Right after U.S. troops entered baghad two months ago the question was asked: should we turn left or right? Syria was on the left and Iran on the right.

Syria seemed to be the number one hideout for fleeing Iraqi leaders and Baath party members. Rumsfeld and others issued stern warnings for Syria not to harbor Iraqi terrorists. It was clear though that Americans were probably not up to yet another war. Besides, we now had a base of operations in the midst of the Islamic world. And, Syria was not one of the three “Axis of Evil” nations.

N. Korea and Iran were in the trinity of evil doers. So,the most probable strategy would be to head East of Eden (Baghdad). It couldn’t be a military operation though. Since Iran was sending tens of thousands of Shiite followers into Iraq (particularly Basra and other cities in Southern Iraq) creating trouble for our U.S. troops, why couldn’t we send protestors into Iran?

Today you know the answer to that question. There’s no doubt that the CIA and others are assisting young dissidents in Iran to protest against Iranian religious leaders. Now in the fifth day of demonstrations, this unprecedented revolt by the students may be just what Bush needs to take on “Evil Doer #2″. Keep an eye on happenings East of Eden.

FREDDIE’S FANNIE IS THE KEY?

Ahh, the more sophisticated we become the more crazy we sound. So, what’s a clue as to where we are heading economically? How about the housing BUBBLE? I mean isn’t everyone you know refinancing their home mortgage? It’s been going on for three years now- like gold fever.

You can borrow 125% of your home’s value which is most probably up 25% over the last three years. But, when the BUBBLE breaks, it’s Katy bar the door. Home values will plunge and foreclosures will sky-rocket. That home you bought for $125,000 three years ago: that you refinanced with a 90% mortgage based on today’s appraisal of $153,000, now has a mortgage of $138,000.

Banks are rushing in and buying up “packages” of mortgages because they yield 5-6% versus that 1.5% interest that they pay you. But, when the bubble breaks and housing loses 15-30% of it’s value, and unemployment continues to grow, foreclosures will be the order of the day. Banks will take a beating, and the spiral will accelerate taking us God knows where.

A key or red flag just might be those mega-powers that buy and sell all those mortgages: Fannie Mae and Freddie Mac. Fred us under investigation by the SEC and Justice department. Both stocks tumbled 4-5% today. FNM closed at $67- down from $80, 52 week high. And FRE closed at $47, down from the $67, 52 week high.

What’s all this say? It just takes a little leak in the housing dike to cause the whole thing to crumble. So, keep an eye on Freddie Mac’s financial troubles that could bring down Fannie Mae’s ass-ets, leading to bank insolvency, and, well you know!

DEFLATION AND INFLATION

Which comes first, the chicken or the egg? Or should I say the egg or the chicken? Isn’t how you phrase the question a clue to the answer? In this case it is. We are now in DEFLATION and it’s going to get worse before we are killed by INFLATION (those that are left standing)! Or at least that’s how I see it.

There are two kinds of deflation and inflation: price and monetary. So, with that in mind, let’s look at these two trends.

We are now in price (not monetary) DEFLATION because there are four primary drivers that are not allowing manufacturers to even hold on to their prices, let alone increase them. Those four drivers are: China, Internet, over-production, and Wal-Mart (and in that order).

Fifteen months ago I bought a ‘02 Honda S2000 which had a premium price on it of $5,000 over MSRP. I negotiated a far lower price; however, today they are advertising the ‘03 model for $4,000 under MSRP. Say what? You can buy a ‘03 Miata for $6,000 under MSRP, etc. Get the picture?

But, since Greenspan is printing dollars like they are going out of style (and they will soon), we will see monetary (not price) INFLATION somewhere down the road soon. Consumers and nations are going to get the “whip-lash” of their life. Forget about standing in the sun for an hour at Fiesta Texas to ride the Texas Rattler. You can get jerked around all you want with the crazy fiscal policies being developed by the Bush Administration.

It seems that Bush learned too much from Clinton about vodoo-economics. Maybe it’s that both of them have relied too much on the Green man, Greenspan. Whatever, tighten that seat belt folks. It’s going to be the ride of your economic life.

A FOLLOW-UP ON TUESDAY

If you read yesterday’s commentary, then this makes a bit more sense: if not, hit the commentary button at the top right hand and read it.

Having been an independent most of my life (I voted for both Barry Goldwater and Jack Kennedy if that explains anything- maybe skitzo?) and a Republican for the balance, I am disappointed in where the Republican party and our president is taking us with their fiscal policies.

I understand that much of what’s being done is to get reelected so Bush can have four years to really whack away at the dominance of the Federal system and appoint as many judges (especially Supreme Court) as possible. And, it’s not too far-fetched for him to be able to appoint 3-5 (two this year alone).

With the aid of Greenspan, who doesn’t want to ruin the election of another Bush, like he did with # 41, the monetary spigots are open wide! Adjusted reserves are plowing ahead at a 31% rate. The Fed will most probably reduce interest rates another twenty-five basis points later this month. Nothing, and I mean nothing will get in the way of reelecting Bush next year.

While the Democrats only have a negative, anti-Bush platform, the Republicans are taking their pointers from Sammy Sosa. They’re using a “corked bat” approach to our kids future. The sea of liquidity that’s being built is another house of cards similiar to what Clinton built in the 90’s assuring a Democratic victory in 2008 regardless of who runs. Did I hear the name Hillary? God, I hope not; however, the way things are stacking up, we’re headed that way. At least there’s 3-5 more years to make some corrections.

Maybe Bush will do a fiscal about-face if he gets reelected and put us back on some sound economic basis. And then again, with terrorists lurking at every corner, Iran playing cat-n-mouse and N. Korea blowing hot-n-cold, anything can happen. Anything!

NEITHER THE RIGHT NOR LEFT

Currently there just isn’t enough dry powder for any third party to make an impact on the political scene. Ralph Nader caused quite a stir in 2000 but can the party grow? Pat Buchanan has just formed The American First Party. It’s doubtful he can muster as much excitement as Ralph since he just pulled away from Howard Phillips and his Constitution Party: that used to be the Taxpayeres Party.

There’s Ross Perot and his Reform Party, the Libertarian Party, American Party and another two dozen no-name wannabes. None of them have what it takes to unseat the Republican or Democratic party but someone needs to.

The way I look at it, both parties have lost touch with reality. Or as someone has said, both parties are headed towards a cliff. The Democrats at 100mph and the Republicans at 80mph. It’s a catastrophe either way. The Clinton’s have put a stench on the Democratic party worse than a panicked skunk. You’ve got nine Democratic hopefuls who sole stand is hoping for Bush to make mistakes.

On the other side of the isle is a man of honor and morals, but as Christians in times past have found out, that’s not enough to run a nation. I’m afraid the fiscal policies of the Bush administration are going to bankrupt us. It’s unfortunate that Bush had to follow Clinton and Greenspan’s insane economic exuberance; however, the war on terror and the Iraq war are causing deficits beyond catastrophic consequences. And, to get reelected Bush is having to make economic decisions that resemble more of a left-wing socialist than a conservative.

Neither one of two major political parties have a clue about how to fix our plight nor the courage to make the tough decisions, if they did!

REVISING THE BILL OF RIGHTS?

If we could go back in history, we’d change a lot of things that our founding father’s put together for us to follow. I’m not sure most of the changes would be good.

There’s a particular issue though that’s going to be a “headliner” between now and November 2004, and that’s the unemployment number. There was a day when we felt that 94-95% employment was actually “full” employment. Then came Clinton and Greenspan, and the 90’s. The hype of Wall Street became the hype of politicians. We could have 100% employment. Really!

Last week, we went back in time to 1994 when unemployment stood at 6.1%. So, the Bush administration has matched the Clinton administration of 1994 and the Democratic presidentail hopefuls are out in force demanding a “regime change” so that we can get more people employed. You see, we have come to accept the concept of “entitlements” of which our founding fathers had no clue. Everyone is entitled to a job: aren’t they?

It’s assumed that a student can go to high school, graduate from college, and have a $100,000 job awaiting them. It’s not in the Bill Of Rights, it’s not in the constitution; however, the current nine Democratic presidential candidates will certainly imply it in all of their speechs. You are ENTITLED to not only a job, but a very good job! It will be said so often between now and the 2004 elections that the younger generation will swear it’s in the Bill Of Rights. I’ve checked: it’s not!

ENJOY IT WHILE YOU CAN!

Let me say before I get to my subject that I am an optimist and a pragmatic idealist.

Having said that let me review why I think America is headed for bankruptcy court. And, just how does Uncle Sam file for bankruptcy anyway? Let me go one step further and say that between now and 2010, I see the U.S. Dollar (can you say America?) losing it’s position as the world’s “reserve currency”. The “smoke & mirrors” game is about to be busted.

You see, we’re looking at a $300 billion shortfall this year, to be tacked on to a near $4 trillion dollar national debt. When you look at liabilities going forward, the U.S. debt is somewhere around $45 trillion and getting worse by the year.

The rest of the world is growing tired of America telling them what to do. Europe is uniting, China is growing leaps and bounds, and we’re shooting ourselves in the financial foot. We simply cannot continue to live the financial lifestyle that we have. Our trade deficit, imbalance will eventually eat our proverbial lunch. We’re living over our heads, swimming in debt.

The Dollar is on the ropes, the Euro is on the rise and as Doug Casey has said, “the government pegs gold at $42.22 an ounce, it’s current fair value is more like $700, and $3,000 an ounce is coming.” Even if we only see one-third of Doug’s forecast, the Dollar is history.

I love this nation but nations are not unlike individuals. If a person spends too much, goes too far into debt, and doesn’t make enough money to service debt, they will have to declare bankruptcy. Just how Uncle Sam does that, I’m not sure, but what I can say is that nations are lining up to pick over the spoils. Only drastic and severe changes immediately can stop the eventuality.

Politicians (Republican or Democrat) just don’t have the guts to do what’s needed.

ISN’T THERE ANY REAL NEWS?

Who’s the liar and when did they lie? That’s what Congress wants to know, or should I say all Democrats. We will see three stories banter back and forth over the summer for attention. Two of the three will involve court room trials and the other hopes to get to court.

I am sure you know that there’s a trial going on at both coasts. On the West coast we have the Laci Peterson case which has also become the Amber Spicey case. I doubt Amber can get a Playboy fold-out since she’s already posed for some three dozen pictures without pay. We are in for a year or more on this West coast drama.

On the East coast we have the Martha Mess. It too will be a year long, drawn-out media circus. Passions are being demonstrated on both sides of the issue. It seems that Martha is much like Hillary in that there’s either a love or hate approach to them. Maybe Sharon Stone can do a Martha movie once she finishes the Hillary movie. A&E is doing a TV film and they selected Stone to play Hillary.

In the middle of it all is the WMD debate. Bush is toast, so say the Democrats, if no WMD’s are found before the end of the year. Did the CIA lie, the FBI fib, or was Bush just hyping their reports. Could it possibly be that he told the truth and that Saddam is having the last laugh by destroying or hiding the WMD’s so thoroughly that they won’t be found?

None of this trinity does anything for my fancy. You know, at the end of a year, decade, or life, what happens in any of these three issues will matter not one iota. So, why waste the time? Come to think of it I could care less if Sammy gets an eight game suspension, the Spurs win the NBA, Jayson Blair writes a book about the Times, or if John Lee Malvo is sane or not.

What ever happened to news and reporting that made you think and challenged your mind?

14,000 EVER SINCE 3600 BC!

I just shake my head and smile every time I read some statistic that seems improbabe to calculate. The headline above is one such piece of data. Someone, somewhere has calculated that there have been 14,000 wars since 3600 BC. About three wars per year. I don’t know what qualifies as a war, but let’s just say mankind (that’s you too ladies) has a serious problem.

There’s no doubt that war is hell. We lost fewer soldiers in the war with Iraq than we’ll lose in winning the peace in Iraq. We lost less than 100 service men and women during the actual combat phase, not counting accidental deaths: which brings me to my point.

As we continue to hear about a soldier being ambushed, two being shot, a humvee being blown up by an RPG, or some such event, pacifists will come running to the microphone in protest. For every fallen warrior, a family grieves and the emotional devastation is more than real.

Once again, those who do the data say that more than 310,000 people lost their lives in wars last year. So, why does Iraq get all of the attention? Let’s leave that question and go on to this statement. We have more people killing themselves by eating too much or smoking two packs of cigarettes a day. But, it’s the war in Iraq that gets the attention.

And that 310,000 lost lives in war ranked only 6th on the ladder of causes of deaths. The top three? Road deaths accounted for 1.26 million people ending life pre-maturely. Then there were the 815,000 suicides that came in second. Violent domestic acts came in third with 520,000 people dying.

You see when we make such a big deal out of a war death in Iraq versus everything else that’s going on in this world, it’s much like letting twelve terrorists go free (as happened yesterday) while trying to put away Martha Stewart for thirty years. Get my point?

IRAQ INTELLIGENCE-GATE?

Okay, I am back on-line after going all day Wednesday without the normal 200+ e-mails, internet, or phone calls. The storm knocked out on phones and thus the internet. What a different day. At least I had FoxNews for the highlights. I don’t know if I could have lived with myself had I missed Martha Stewart walking into the court house with her umbrella. NOT!

So, what’s HOT besides the Stewart trial? I know, the Laci Peterson trial! No, I mean what’s serious, important? Okay, how about this. How about the Iraq Intel-Gate?

Both BB’s are on the hot-seat and feeling the heat. I’m talking of course about Bush & Blair. Both opposition parties are wanting answers and wanting them fast. My sense of this is that here in America, such bluster by the Democrats will come back to haunt them. I imagine the same for Britain but with less conviction as I’m not a Brit.

The CIA is sending some Senators a pile of documents four feet high to support their position. Since most politicians have nothing to do but to position themselves for the 2004 elections, this seems like a viable issue to harp on.

I think when everything is over, Iraq Intel-Gate will not turn out to help either the opposition parties in England or America but throw whatever mud against the wall
that you can and see what sticks. In some cases, it’s something worse than mud.

KNOCKED OUT!

Our phone lines and computers all went down Wednesday morning with the storm. We just got back on line at 5:40 pm.

SO, HE’S DEAD AGAIN?

Most people can probably give some idea as to whom Friedrich Nietzche was even if just to say he was a teacher or philosopher. The 19th century German philosopher is infamous for his pronouncement that GOD IS DEAD.

He offered no proof, as if a finite being could give comment on an infinite being-spirit. But here we are in a totally different century and once again the proclamation is that God is dead. The main difference though is that few have heard of Thorkild Grosboel. Even in his own country. This Danish pastor was fired for his comments- by the state. He was defrocked by the State because Lutheran ministers are employed by the State. I mean, can this get any more bizarre?

Denmark claims that more than 85% of their population is Lutheran. I am not sure how they arrive at such a statistic as less than 5% attend church on any regular basis.

When Denmark’s Minister of Ecclesiatical Affairs asked why they took such action, the profound answer was, “It’s impossible to be a pastor and not believe in the existence of God. Duh!

Oh, yes. There’s one more thing that Friedrich and Thorkild will have in common: one day they will both be dead, and find out that God is was not.

SECOND-GUESSING TIME!

It’s that time when we head off to the optomologist to order some new glasses to look at the world. There’s what we call “real-time” glasses and then there are the “quarterback” glasses. It’s the quaterback glasses, as in Monday-type, that everyone is looking for now. Here are a couple of examples.

Many in Congress are wanting an investigation into how the immigrants that were detained after 9-11 were treated. Did we arrest them properly, give them fair treatment, and just how bad of an attorney general is John Ashcroft any way? It’s probably not a bad thing to do if we could keep politics out of it, but that would be a miracle.

Then there’s the call to investigate the CIA. Just what did they know, and when did they know it? Were they sure they knew IT at all. We are of course talking about the WMD’s. Unless we can get a better accounting of where they are or what happened to them, we need another look at what the CIA does, maybe the FBI, and of course let’s review everything while we’re at it. It seems there’s not much to do while waiting out the summer.

I guess summer is the time of TV re-runs, so maybe we shouldn’t expect anything different from Congress and our politicians. Just for the record though, I do!

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