Tuesday, September 28, 2010

The Rise of Funny Money

As the days drag on and the Federal Reserve continues its program of printing money in order to buy Treasury bills one wonders how this will all end. The past few days have seen economist after economist after financial pontificate alluding to the bright light at the end of the tunnel - Stocks. Its time to buy, buy, buy they say. What gives them the confidence? The Greenspan/Bernanke Put, better known as Quantitative Easing (printing money to buy government debt). These prognosticators are of the belief that that we are in a Heads We Win, Tails We Win economy. They've decided that if the economy gets stronger stocks will do well, but if the economy gets weaker the Federal Reserve will step in and support the market via more printing of money which will help support stocks and potentially even juice them ever higher. No matter the economic situation....stocks go up. In this view more funny money equals higher stock prices, in fact the worse the economy gets, the more funny money is printed and the better stocks will do.......what?

If you are like me you might be thinking to yourself....WTF (for all you Modern Family junkies...Why the Face?). In my view when a country purposely devalues their currency in order to bail itself out from past blunders the consequences shouldn't be a reward, it should be punishment.

My fear is that we are in for a Rope-a-Dope. I'll explain this more in my coming quarterly commentary. The Federal Reserve is trying to lure you into assets that you shouldn't be buying (at least at current prices) in order to bail out their insolvent banking institutions (our banking system is solvent only because of gimmicked accounting). The problem is that you can't simply keep blowing bubbles without consequence. You can't spend (even if you are the reserve currency) without consequence, you can't continue to borrow unlimited amounts of money without consequence. The Fed, however is backed into a corner and they are shooting their last bullets - hoping things work out, even though they know the odds are against them. Its like a hail-mary pass, you have little time on the clock and you are losing, either you go for the long-shot touchdown pass and make it or you throw an interception and the game is over anyway. The Fed is throwing a hail-mary, but the only potential receivers are down with hamstring pulls.

The stock market just might end up gaining heavily in the coming years, which would in turn lure people back into it - all of it is a set-up for the potential ultimate fall. Don't get me wrong, I believe that the market will likely end this decade closer to 16,000 (assuming we don't have another Great Depression), but we just might go to 7,000 or below first. The question remains how many people can put up with that kind of volatility for such a puny return.

The Federal Reserve is playing a dangerous game as it aids and abets our Federal Government, effectively enabling the Government to spend at will - knowing the Fed Reserve will be there to take up the slack if needed. This is the scariest Too Big Too Fail ever created.

Scott Dauenhauer CFP, MSFP, AIF

Monday, September 27, 2010

Taleb: Stimulus Made Things Worse

In November 2006 I recorded the following podcast after reading a book by Nassim Taleb and another by Benoit Mandelbrot.

http://itunes.apple.com/us/podcast/the-meridian-podcasts/id194112396 click on Misbehaviour.

Listening to this podcast I sound almost prophetic, it is literally scary.....except not even I anticipated what was coming. My advice isn't as good as it could have been, though it was reasonable. Essentially I said if you can't handle the worst historical fluctuation of stocks, you shouldn't be in them. I did say "I don't think we're going to go through another Great Depression".....I might just be wrong on that one.

The article I link to above is interesting because Taleb believes the stimulus and current economic policies are the wrong direction for this country - I tend to agree.

Bottom line - The improbable events....happen. The US is taking a huge risk in the amount of debt we are piling up.

Scott Dauenhauer CFP, MSFP, AIF

Sunday, September 26, 2010

Movie Review: Wall Street - Money Never Sleeps

I took my wife to see "Wall Street: Money Never Sleeps" this weekend (yes, this is payback for that whole Twilight thing!). The original Wall Street movie is a cult classic and a favorite of mine, even though it represents everything I despise about this industry. I was excited to see the movie and can say that I did enjoy it. It was entertaining and had a message - mainly that Wall Street doesn't have your back (though it is likely stabbing you in it).

Shia LeBeouf was okay, but he was no Charlie Sheen (Bud Fox). It was pretty cool though when old Bud made an appearance in the movie....just like old times! Did somebody say "Blue Horse Shoe Loves Anacott Steel"?

What resonated most with me was "It's a victimless crime, nobody gets hurt." This uttered by the Jamie Dimon, Goldman Sachs, AIG, LTCM amalgamation that was played by Josh Brolin. This is the phrase that I hear all that time in the retirement industry. So the guy got paid a commission, so he got a free trip....what's the problem? Its a victimless crime. I don't buy it. Those victimless crimes are in fact robbing our citizens of the dignity they deserve in retirement.

Wall Street exists to transfer your money into their pockets and in case something goes wrong.....for you to pay the consequences and to like it...."Thank you ma'am, may I have another."

I enjoyed the lingo, the Wall Street speak and trying to figure out who was suppose to represent who, but you don't need to know any of the lingo to enjoy the movie - the message was loud and clear - Greed never went away and because of the bail outs we have created a monster even worse than in 2008.

While it is hard to beat the original, this movie doesn't intend to - its intent is to stand on its own and it does. I'm not much of an Oliver Stone fan, but this was a good movie.

Scott Dauenhauer CFP, MSFP, AIF

Wednesday, September 08, 2010

Yet Another Desperate, Destined To Fail Housing Program

I have no idea who this latest program is looking to help. Why a lender would participate in this program is beyond me. The program still requires the lender to take the loss, the only benefit might be that the lender might take a smaller loss than they would if they foreclosed....transferring the risks to the taxpayer via the FHA. Yet again, another Dead On Arrival plan - at least the Obama administration is keeping a consistent policy, one carried over from Bush.....that of offering destined to fail plans that help nobody.

Scott Dauenhauer CFP, MSFP, AIF

Thursday, September 02, 2010

Dodd Questions Elizabeth Warren's Management Experience -- A Concern He's Never Raised Before

I'm not saying I want Elizabeth Warren to head the new Consumer Bureau, but I also think she might do a good job (this is based on the work she did with TARP). I find it interesting that the protective powers of Wall Street (Chris Dodd) appear to now be trying to undermine Warren. I know Geithner doesn't like - which is a good sign, now Dodd (and by Fiat, Wall Street) don't like her....I'm beginning to like her more and more (of course this could all be just a rope-a-dope).

Scott Dauenhauer CFP, MSFP, AIF