Monday, May 29, 2006

They Can't Hide It Any More: It Will All Hit the Fan in 2007, Part 9

In my previous post about the Consumer Price Index, I explained how the CPI is calculated in a way that hides the true level of inflation in the U.S. economy.

It appears these tricks can no longer hide what's really going on.

As this article from MarketWatch.com states, "Household incomes were flat, consumer spending was tepid and inflation was accelerating in April, putting the Federal Reserve in a pickle about interest rates."

Things aren't looking good.

The April CPI was higher than anticipated, causing the Dow to drop 214 points on May 17.

The Department of Labor now excludes food and energy when calculating the "core CPI".

I wonder what they're going to exclude next?

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Links to previous "It Will All Hit The Fan in 2007" posts:
Part 1, Part 2, Part 3, Part 4, Part 4 (Addendum), Part 5, Part 6, Part 7, Part 8
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Immigration or Invasion?

Check out this insightful analysis of the immigration issue by the always brilliant Mark Steyn.

Here's an excerpt:

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This is not an "immigration" issue. "Immigration" is when you go into a U.S. government office and there's a hundred people filling in paperwork to live in America, and there are a couple of Slovaks, couple of Bangladeshis, couple of New Zealanders, couple of Botswanans, couple of this, couple of that. Assimilation is not in doubt because, if you're a lonely Slovak in Des Moines, it's extremely difficult to stay unassimilated.

This is not an "illegal immigration" issue. That's when one of the Slovaks or Botswanans gets tired of waiting in line for 12 years and comes in anyway, and lives and works here and doesn't pay any taxes, so the money he earns gets sluiced around the neighborhood supermarket and gas station and topless bar and the rest of the local economy, instead of being given to Trent and Arlen and Co. to toss into the great sucking maw of the federal budget.
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Good stuff.

Let’s Go After Those Price Gougers

There’s been a lot of the hoopla recently about oil company “windfall” profits, and how we should punish the “price gougers”.

I agree. Let’s go after those darned oil companies with their ridiculous profit margins!

Exxon-Mobil: 10.81%
Chevron: 7.60%
BP: 7.15%
ConocoPhillips: 8.09%

But let’s not stop there. While we’re at it, let’s go after those other price gougers:

Gannett: 15.74% (Owner of 91 daily newspapers across the U.S.)
Reuters Group PLC: 16.44%
The Washington Post Company: 8.85%
The New York Times: 5.40%
Time Warner: 6.66%
Disney: 8.22%

And what about these guys? They’re the kings of price gougers!

Microsoft: 31.57%
Oracle: 23.15%
Adobe: 25.90%
Intuit: 18.40%
Apple: 9.97%

I’m tired of getting gouged every time I read a newspaper, buy Microsoft software or download a song off of iTunes.

Let’s get these guys!

Sunday, May 14, 2006

The Saudis Realize They're Cutting Their Own Throats

According to this article from MarketWatch:

"At a four-day conference of Arab energy ministers in Amman, Jordan, Saudi oil minister Ali al-Naimi predicted that oil prices could slide if an economic crisis pushes industrialized nations to develop alternative energy sources."

At least one of the oil-producing nations of the Middle East now realizes that their short-term price-gouging is going to have a negative long-term impact on oil's role in the world economy.

I, for one, was hoping they wouldn't catch on until we were well on the way to developing an All-American alternative energy source, making Middle Eastern oil, and Middle Eastern countries, irrelevant in world affairs.

We can only hope that none of the other oil ministers listen to Mr. Ali al-Naimi.

Follow the Nerds

Scott Adams, on his Dilbert Blog, has called out to his readers for investment ideas.

He opines "...that the best way to pick stocks that will be big winners is to identify global trends before other people notice, and buy stocks in the companies that will benefit from those trends no matter how poorly they are managed."

I agree.

Scott concludes his post by asking readers for their ideas regarding up-and-coming trends.

Here's mine:

My fiance and I took a walk today through downtown Ballard (the new "cool" neighborhood in Seattle) and I made this observation:

A lot of the "cool" teens and twenty-somethings are slaves to little electronic gadgets: cell phones, laptops, iPods, video games, and digital cameras.

I remember when these devices were only owned by the "nerds". In fact, the cool kids used to make fun of nerds for owning these gizmos. Now the things are ubiquitous.

Video games used to be the realm of the nerdiest people in high school.

Now, they're a multi-billion dollar business.

At one time, only nerds owned computers and knew how to network them using modems and routers.

Now, everybody has a computer and the Internet is the greatest invention since the wheel.

So, if you want to know what the "next big thing" is going to be, find the nerdiest kids in your local high school, and ask them what they're into.

Then find the companies that makes the doo-dads, sell your Beanie Baby® collection and the dog, and buy as much stock as you can.


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Sheesh. What has the world come to when I feel obligated to add the following?

The preceding post should not be interpreted as a solicitation to buy or sell any investments or securities, or as legitimate financial advice.

I am not a licensed financial advisor. I am only a Republican with a secret identity, lots of opinions, and abs of steel. OK, so I made that last part up.

The CPI and Government Deception

Why does our government deceive us by reporting inflation using the "core" Consumer Price Index (CPI), which excludes food and energy and uses the bizarre "equivalent rent" calculation for housing costs?

We keep hearing that inflation remains benign, but it sure doesn't feel that way when I go to the gas pump or look at housing prices in my neighborhood.

I'd rather pay attention to the market, because it is a far more accurate predictor of economic trends than some contrived government statistic.

For example, the price of gold has historically been a fairly accurate harbinger of inflation.

So what has gold done recently?

Last week, gold hit $700 per ounce - its highest level in over 25 years. Silver recently hit $15 an ounce - its highest level in 25 years.

Gold, silver, and oil all hitting multi-decade highs. Housing prices through the roof. Medical costs spiraling out of control.

Everything we buy that's not made in China is going up in price.

Sounds like inflation to me.

Wednesday, May 10, 2006

Forewarned is Forearmed: It Will All Hit the Fan in 2007, Part 8

Fannie Mae is a U.S. government-sponsored entity (GSE) that was founded to create liquidity in the mortgage market. Currently, Fannie Mae and its sister GSE, Freddie Mac, hold about $3.8 trillion in mortgage loans out of the $8.5 trillion mortgage market.

Over the past decade, Fannie Mae has been accused of overstepping the bounds of its original charter, pumping much more liquidity into the mortgage market than they should, which has been blamed for driving up home prices to their recent nose-bleed heights.

They are currently being investigated for improper accounting, which has caused them to restate their earnings downward by $11 billion and forced their CEO to resign. It has also been discovered that Fannie Mae uses Enron-style off-balance-sheet subsidiaries to hide losses and financial derivative risk.

Freddie Mac has also had its share of accounting and regulatory woes.

In 2004, Alan Greenspan warned that the problems at Fannie Mae and Freddie Mac could be a "systemic risk" to the economy. To minimize the risk, the Federal Reserve and members of Congress are pushing to limit the size of Fannie Mae's portfolio.

The question is, if there is a meltdown at Fannie Mae, how will that affect the liquidity of the mortgage markets, and consequentially housing prices as well?

Just something to be aware of.

Forewarned is forearmed.

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Links to previous "It Will All Hit The Fan in 2007" posts:
Part 1, Part 2, Part 3, Part 4, Part 4 (Addendum), Part 5, Part 6, Part 7
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More on Fannie Mae from TheStreet.com's Peter Eavis here.
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Putin Recognizes Russia is Doomed

Russia and all Western civilizations are doomed. It's a matter of numbers.

Earlier this year, Mark Steyn commented in depth on the subject in a column in the Wall Street Journal's Opinion Journal.

Here's what Steyn had to say:

"Most people reading this have strong stomachs, so let me lay it out as baldly as I can: Much of what we loosely call the Western world will not survive this century, and much of it will effectively disappear within our lifetimes, including many if not most Western European countries."

He predicts that Western civilization will decline and Islam will dominate in the near future.

What was the basis of his prediction?

Falling birth rates in the Western world and increasing birth rates in third-world, mainly Islamic countries.

Steyn continues:

"...the hard data on babies around the Western world is that they're running out a lot faster than the oil is. 'Replacement' fertility rate--i.e., the number you need for merely a stable population, not getting any bigger, not getting any smaller--is 2.1 babies per woman. Some countries are well above that: the global fertility leader, Somalia, is 6.91, Niger 6.83, Afghanistan 6.78, Yemen 6.75. Notice what those nations have in common?

Scroll way down to the bottom of the Hot One Hundred top breeders and you'll eventually find the United States, hovering just at replacement rate with 2.07 births per woman. Ireland is 1.87, New Zealand 1.79, Australia 1.76. But Canada's fertility rate is down to 1.5, well below replacement rate; Germany and Austria are at 1.3, the brink of the death spiral; Russia and Italy are at 1.2; Spain 1.1, about half replacement rate. That's to say, Spain's population is halving every generation. By 2050, Italy's population will have fallen by 22%, Bulgaria's by 36%, Estonia's by 52%."

There is evidence that Western nations are recognizing this trend.

The New York Times has a story in today's paper with the headline, "Putin Urges Plan to Reverse Slide in the Birth Rate."

According to the article:

"President Vladimir V. Putin directed Parliament on Wednesday to adopt a 10-year program to stop the sharp decline in Russia's population, principally by offering financial incentives and subsidies to encourage women to have children."

and

"In 2004, for every 16 Russians who died, only 10.4 babies were born...Birthrates have also plummeted, falling from an average of 2.63 children per woman in 1958 and 1959, to 1.89 children in 1990 and to 1.34 children in 2004."

Putin suggests, "increasing government subsidies for children up to 18 months to about $53 a month for a first child and about $107 for a second child. Mothers currently receive about $25 a month for a child up to 18 months old...(and)...maternity leaves as long as 18 months that would pay a mother at least 40 percent of her salary, and compensation for some of the cost of day care: 20 percent of the cost for a first child, 50 percent for a second child and 70 percent for a third.

For mothers who choose not to return to work, he proposed a one-time subsidy of about $8,900 upon the birth of a second child — a large sum here. He suggested subsidies for adoptive parents as well, and investments in prenatal care, maternity hospitals and kindergartens."

Putin recognizes that Russia, which has its own problems with militant Islamic groups, may be bred out of existence.

It's all a matter of simple math.

Saturday, May 06, 2006

Warren Buffett on Real Estate

At the latest Berkshire Hathaway shareholder's meeting, Warren Buffett and his partner Charles Munger had something to say about the real estate bubble.

Here are some excerpts from Money Magazine's article on the subject:

Here's what Warren had to say about recent real estate speculation:

"The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities.

We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market"

And here's Munger on mortgages:

"There is a lot of ridiculous credit being extended in the U.S. housing sector."

Hmm...could that ridiculous credit include a disproportional number of Adjustable Rate Mortgages and interest-only loans?

I think I've read something about those recently...

The Washington Post Loves Socialism

"Gladys Melani was nearly blind from cataracts. Juana Mamani was illiterate. Sharon Mayra didn't officially exist. What these three Bolivians had in common was poverty, and help from Cuba and Venezuela in solving their problems."

That's how the Washington Post kicks off their gushing article about the wonders of socialism.

Fidel Castro and Hugo Chavez run such warm and fuzzy countries, don't they?

The article describes how the socialist governments of Cuba and Venezuela do so much humanitarian good, unlike the evil capitalist countries of the West.

(To be fair, the article does reluctantly admit that "The United States remains Bolivia's single biggest foreign donor, contributing a bit less than half of the $360 million annually...(that)...pay(s) 60 percent of the Bolivian government's bills.")

The article then describes how "Melani's cataracts were removed for free by one of some 700 Cuban doctors who have fanned out to the farthest corners of Bolivia."

I hope Hillary Clinton doesn't read this article - she'll change her socialized health care plan to include roaming bands of Cuban doctors.

I'm happy for the people who have benefitted from this calculated largesse. Really, I am.

But what about the other side of the Bolivia story?

The Post briefly mentions Morales' recent "nationalization of Bolivia's natural gas".

That sure is a nice way of describing the Bolivian army's recent seizure of foreign-owned gas production facilities.

This is how all socialist movements begin - the leaders promise their people egalitarian access to the country's wealth and all kinds of free benefits.

But we know how these stories end. We have seen it played out again and again, always to the same tragic, totalitarian end.

Friday, May 05, 2006

You Thought Your Commute Was Bad?

Check out this guy.

The Sudan vs. Iraq

Democrats criticize us for invading Iraq, removing a violent dictator and stopping mass murder, because we didn't have the support of the U.N. They decry our "unilateral" actions in Iraq, saying we should have instead taken a "multilateral" approach.

Yet, at the same time, Democrats criticize us for doing nothing in the Sudan to stop the violence there. We've left that situation for the U.N. to handle, and they've done it in the typical U.N. way - by doing nothing. Instead, the U.N. argues whether what's happening in the Sudan can be defined as "genocide"!

So, if we take unilateral action, the Democrats condemn us, and if we take a multilateral approach, they also condemn us.

Typical liberal logic.

Democrats and Gas Prices

For the past 20 years, Democrats have tried to raise gas prices through taxation, thinking that higher gas prices would decrease consumption and spur alternative energy development.

Now that gas prices have skyrocketed, Democrats are moaning and complaining, and looking for someone to blame.

Shouldn't they be happy?

It Will All Hit the Fan in 2007, Part 7

I've discussed a bunch of signs that bode ill for the U.S. economy in 2007.

But here's the big bad event lying on the horizon for the U.S. economy:

Payments for $1 trillion in Adjustable Rate Mortgages (ARMs) will be adjusted by the end of 2007. They will adjust upwards. By a lot.

Over the past two years, a large portion of home purchases have been made using ARMs.

There were 2 main reasons why ARMs were preferred over 30-year fixed-rate mortgages:

1) Short-term interest rates were much lower than long-term interest rates, so the monthly payments for an ARM were substantially lower than for a 30-year fixed-rate mortgage.

2) People could qualify for a larger mortgage than they could with a 30-year fixed-rate mortgage.

Both of these situations have changed.

Now the pigeons are coming home to roost.

Short-term interest rates have skyrocketed since July of 2004, as the Federal Reserve began a string of 15 interest rate hikes, raising the Federal Funds rate from 1.00% to 4.75%.

Some people are in for a rude awakening when their ARMs and interest-only loan payments increase by up to 100%.

The Washington Post describes a real-life example of this scenario. Here's an excerpt from the article:

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Mahesh Desai, 38, who sells software, decided that because interest rates were about to rise, it was time to refinance his house in Darnestown. He had a three-year, adjustable-rate loan at 3.625 percent, and he knew from news reports that rates that low were coming to an end.

"I'm still going to have sticker shock in my next payment, but I've enjoyed lower rates for a while," Desai said. "Guess the party's coming to an end."

His new rate is 6.625 percent, and the monthly payment will jump 72 percent. It is an interest-only loan, but he will be pressed to afford the new payment, even without paying down the principal.

"I'm going to work harder and sell more," he said. "I don't have a choice."
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Even when Mr. Desai did something smart (refinancing his ARM), he did it in a dumb way (taking out an interest-only loan instead of a 30-year fixed).

And I don't think Mr. Desai's case is the exception.

Scary.

Links to previous "It Will All Hit The Fan in 2007" posts:
Part 1, Part 2, Part 3, Part 4, Part 4 (Addendum), Part 5, Part 6

The Realtor's Mercedes

What is it with Realtors® and their insistence on driving expensive cars?

Almost every time I go to an open house, I see the Realtor's® $70k Mercedes, $60k Land Rover or $50k Lexus in the driveway.

I know they've had a good run lately, but why do they insist on rubbing it in people's faces?

The expensive cars only remind me how much of my money Realtors® take for a minimal amount of effort - 3% or 6% of the selling price for about 20 hours of work.

That's probably not the message Realtors® want to send.

Illegal Immigrants and the End of the Housing Bubble

A large portion of illegal immigrants work in housing-related fields such as construction.

What will happen if the current housing slowdown turns into a full blown downturn and those jobs disappear?

We will have millions of unhappy, jobless illegals trying to collect unemployment.

See my previous post on this subject here.

Thursday, May 04, 2006

Surprise! Anti-War Bias in the New York Times

Continuing with my theme of exposing the subtle methods of media bias, here's an article from the New York Times regarding the U.S. military's release of video clips showing Abu Musab al-Zarqawi as a bumbling boob.

The headline of the story is fine:

"U.S. Uses Iraq Insurgent's Own Video to Mock Him".

Here's their description of the video, which is also fine:

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"In one scene, Mr. Zarqawi, the most wanted terrorist in Iraq, appears flummoxed by how to discharge the machine gun in fully automatic mode. Off camera, one aide is heard ordering another, "Go help the sheik." A man walks over and fiddles with the weapon so Mr. Zarqawi can fire it in bursts."

"Another sequence shows Mr. Zarqawi handing the weapon off to other aides and striding away, revealing white jogging shoes beneath his black guerrilla attire. One insurgent later appears to grab the machine gun absent-mindedly by its scalding-hot barrel and drop it."
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Those "white jogging shoes" Zarqawi's wearing? The anti-American, anti-Western Zarqawi wears running shoes made by New Balance, which I think is based in Boston.

So far, so good, but the Times cannot help but interject bias into the article with the following paragraphs:

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"Zarqawi's center of gravity for his operations are in Baghdad," the general (Lynch) said. "We believe it's only a matter of time until Zarqawi is taken down. It's not if, but when."

But the military has made such predictions before, only to have Mr. Zarqawi slip away from them. Moreover, officials' view of Mr. Zarqawi as the main architect of violence in Iraq is more convenient than the possibility that much of the mayhem is committed not by foreign jihadists but by Iraqi-born Sunni Arabs.
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That's objective journalism? "...officials' view...is more convenient..."?

Then the New York Times reports, "The torture and killing of men believed to be the latest victims of sectarian violence have continued unabated in the capital."

They leave out what was mentioned in a Washington Times article on the same subject, which said:

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"He (General Lynch) said al Qaeda in Iraq is organized in three tiers: top Zarqawi lieutenants; local leaders or emirs; and local cells. He said the coalition has killed 161 of the top two tiers. Some have been tried in Iraqi courts and sentenced to death.

Most foreign fighters continue to enter Iraq through Syria. But better border control and raids such as the ones last month have reduced their numbers. The command said there are about 25 suicide attacks a month now, compared with 75 a year ago."
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Nope, the NY Times doesn't want to report on decreasing suicide attacks. It's too positive. It makes it sound like things are improving in Iraq.

Sure, all the news that's fit to print - with a twist.

Abu Musab al-Zarqawi

Is Abu Musab al-Zarqawi a skilled soldier or just a smooth talker?

Video captured during recent raids in Iraq show al-Zarqawi unable to figure out an M-249 machine gun. Even his cronies don't seem to know what they're doing when they grab the gun by its hot barrel.

Al Jazeera earlier released a version of the same video, but edited out the fumbling parts, showing al-Zarqawi as someone who knows what he's doing.

Now we know differently.

Tuesday, May 02, 2006

Geena Davis Kicked Out of Office

ABC cancels "Commander-in-Chief".

Apparently, we're not ready for a female President.

Monday, May 01, 2006

Is Uncontrolled Immigration the Cause of Traffic Congestion?

About 6 months ago, I came up with a random theory. I was able to credibly support my theory with dry facts and logical reasoning, but there was no way I could ever prove it.

Or so I thought.

Today, my theory was empirically proven by forces beyond my control.

Here's the question that begat my theory:

Is our worsening traffic caused in large part by illegal immigration?

Today was the "Day Without Immigrants". Illegal immigrants by the millions didn't go to work and school today. They slept in and only roused themselves to attend rallies across the country.

According to this article about demonstrations in Los Angeles, "Stores in the areas of the march remained shut as immigrants, including some Asians and Muslims, stayed away from work, while the city's usually snarled freeway system was almost free of traffic."

This article from a New Jersey paper described similar results: "In Bound Brook, the traffic was noticeably down and in Trenton, illegal immigrants waved U.S. flags during the day of planned work stoppages, boycotts and rallies."

Here are the facts and line of reasoning in support of my theory:

1) Over the past 10 years, traffic has gotten progressively worse in most major U.S. cities.

2) Traffic congestion is caused by increased population growth.

3) Where are these people coming from? Has there been another "baby boom"?

4) The number of babies women have to have in their lifetimes to maintain a population is 2.1 We'll call this the “replacement birth rate.”

5) Since 1972, the U.S. birth rate has been at or less than the replacement rate (the birth rate in the U.S. in 2000 was 2.03). I think it's safe to assume this number is roughly the same for 2006.

6) Thus, population growth in the U.S. is not due to an internal baby boom.

7) If there hasn't been an explosion of births, could population growth in cities be explained by people moving from less-populated areas of the country to the "big city"?

8) According to this map from the U.S. Census Bureau, every state in the U.S. experienced population growth from 1990 to 2000. The only place that didn’t grow was the District of Columbia. Again, I think it’s safe to assume this trend has continued from 2000 to 2006.

9) Thus, population growth is not caused by internal migration from one state to another.

10) The consensus is that there are 11 million illegal aliens in the United States. Some people think that estimate is too low, and the number is around 20 to 25 million.

11) There are roughly 300 million people in the United States.

12) 11 million is 3.6% of 300 million.

13) 25 million is 8.3% of 300 million.

14) If the majority of illegal immigrants live in urban areas, then the number of immigrants as a percentage of the population increases.

15) Let’s say this propensity to congregate in urban areas causes the illegal immigrant population in cities to be double that of the rest of the country.

16) That means, in urban areas, somewhere between 7.2% and 16.6% of urban populations are illegal aliens.

So the next time you’re stuck in traffic, look around and ask yourself:

“How much would traffic be improved if there were no illegal immigrants in our country?”

Now we know.

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My previous posts on immigration:

Ugly Immigration Protest Photos

And Now for the Main Event - U.S. Citizens vs. Illegal Immigrants

Webster's Dictionary Confirms That Illegal Immigrants Are Criminals

By Coming Here, Illegal Immigrants Ensure Mexican Poverty

Did Bill Clinton Really Create a Budget Surplus? Part 1 (Yeah, I know. This one really isn't about immigration, but it's a good post!)

The Catholic Church and Illegal Immigration

U.S. Immigration Policy or How to Save a Sinking Ship

More on the Los Angeles Demonstrations

Anybody Ever Hear of Aztlan?

The Silent Invasion

Foreign Nationals Wield Influence Over U.S. Government

The U.S. Was Built on LEGAL Immigration