DogJ's Blog

I don't care if you are a Republican, Democrat, Communist, Libertarian, Conservative, Liberal or Centralist/Moderate, PLEASE read the details of what the U.S. Senate passed last night. It contains an additional $150 BILLION in PORK to persuade members of Congress to vote for it.

I don't care who anyone votes for in the Prseidential election, but if you vote to re-elect ONE current member of Congress I HATE YOU! (tongue and cheek people, tongue and cheek).

I urge EVERYONE to contact their Congressperson and say HECK NO to this package (real LOUD please).

Is it possible for Congress's approval rating drop to negative numbers?

Not much has been mentioned in the news about Hedge Funds, so allow me. Hedge Funds are the playground for the rich and edcuated. Want to play with the big boys?  Want to earn returns 3,4,5, or 20 times the norm? Hope you have a minimum $100,000 to throw in. So,  why aren't we talking about the estimated demise of 20-30% of all Hedge Funds, and the underfunded liquidation of 50% more?

Because it's the rich who are getting burned - we don't care. Now understand, these Funds have hurt your bank or investment firm, but nothing like they've hurt their shareholders - those nasty rich people. This my friends is the "UNREGULATED" playground.

How does it work? First, I am no MIT graduate but I do understand the basic concept, so here goes.

A Hedge Fund manager goes out and raises $1 million in cash, (just an example). Then they buy U.S. Treasuries that yield 2%. They take $100,000 of the Treasuries and use it as collateral to borrow $1,000,000 U.S. dollars worth of Japanese Yen at .5%. They convert the Yen to New Zealand dollars and buy N.Z. government bonds yielding 7%. They take 10% (100,000) of the NZ bonds and use them as collateral to buy $ 1,000,000 worth of Mortgage Back Securities (MBS) yielding 6.75%. Then they take 10% of the MBS's and use them as collateral to buy $1,000,000 worth of Crude futures, which act as a hedge against their cross currency exposure. Throw in some puts (shorts) on the finacial firm that lent you money and...  Are you lost yet.

This process is done over and over again, crossing over many commodities, currencies, equities and bonds to where the return on the original $1,000,000 approaches 12, 20, 40%. Does this look too good to be true? Well it's not! It's not until one piece of the puzzle is lost. Oh, I forgot to mention the Credit-Default Swap which insures against the complete failure of the whole puzzle... lol (They just forgot that it can't be a whole puzzle if one piece is missing).

In the 90's, Long-Term Capital Corp. and Franklin Savings in Topeka were two large Hedge players who failed when the historical yield curve inverted for an extended period of time, (they forgot to hedge against something that had never happened). Today, an unprecedented mortgage default rate has caused a big piece of the Hedge Fund's puzzle to disappear. When this happens, margin calls are made, which causes sales of collateral, which causes the net asset value to fall which causes investors to seek redemptions which accelerates the cycle. Things are great when markets are stable and monies are flowing in.

Hedge Funds represent the biggest of the big speculators. They demand and get borrowing facilities that can reach 100 - 1 debt to equity ratios. The returns are astounding, the fall is blinding.

In reality, speculators have very little influence on the market because their speculation/hedge is a move to protect an offsetting position. It's when the market turns ugly that the speculators get exposed. The market kills seculators, speculators don't kill the market. I wonder how many Hedge Funds bought Crude futures above $120? (ouch).

Anyway, Hedge Funds are run by the greatest (oxymoron) mathematicians from MIT, Ivy League and Wall Street. They cruise the streets of Martha's Vineyard and Cape Cod selling their wares. To date, Hedge Funds have not succeeded. Wake up Ivy League.

Hedge Funds will add to our pain, but any attempt to bail them out "for the good of the citizen" is a simple ploy to help some rich friend.

If you own any Hedge Funds, SELL!!!

Feel free to correct me because in some instances my calculator will not handle all the zeros... and I'm not a math major.

If the current financial crisis is based on faulty mortgages, and it will take $700,000,000,000 to correct or soften the crisis, then...

We would divide the average price of a home into the $700 billion. Assuming a median home price of $200,000 in 2006, we could estimate that there are 3,500,000 homes in or will be in irreparable default.

If there are 300,000,000 people in the U.S and 3.2 people per household, then there would be 93,750,000 homes. This mans that 3.73% of all home mortgages are irreparably in default. 

Historically, the home mortgage default rate runs just below .25% (one quarter of one percent). Also historically, home mortgage rates run 2% over the cost paid to fund the mortgage. (i.e. A person with $200,000 in cash is paid 4% to fund the home. The buyer of the home pays 6% to "borrow" the $200,000 and the banker gets the 2% spread for arranging the deal and the risk {the banker will always have the obligation of returning the $200,000 and 4%). With a 2% spread and a .25% default rate the bank expects to make 1.75% return.

Game on!

With the bank making 1.75% and the default rate @ 3.73%, (or any where above 1.75%), the bank is losing all their interest and almost 2% of principal. WAIT, let's throw in a 10% decline in the home value and the bank has lost 12% of the depositors’ principal!!! Do you have money in a bank or a financial firm that holds mortgages??? (Yes, I do). So, if the bank called all the loans and the depositors demanded all their money, the depositors would only get .88 on the dollar AND no interest!

So, the questions that need to be answered; Are there really 3.7 million homes in irreparable default? Is $700 billion enough (to much) for you to get your dollar back?

Game on!

Yeah, yeah, I know, mortgages aren't 100% of the problem and not all deposits become mortgages, so try not to ruin my fun.

Despite the expiration of the time limit to vote for the Bail-out, and the measure failing, House leaders have refused to strike the Gavel, which by parlimentary procedure, must occur to "officially" signal the end of the voting.

House members are chasing around those that voted NO, trying to get them to change their vote.

If the House can't abide by their own rules, (voting time-limit), it certainly must give us great confidence in thier ability to handle the Bail-out monies.

This is like watching a Hollywood movie!

I wonder how much bribery is going on right now... to get someone to change thier vote?

The House just vote against the Bail-Out

Dow Jones DOWN 600+

Have a great day.

At 8:30 this morning the Gov't announce that new home sales posted the steepest drop in 17 years. New home sales are down 35% Y-o-Y. Resales dropped 9.5%. Median home prices dropped 6.2% to a 4 year low. Durable Goods fell way more than expected, 2% in one month).

Economist attribute the vast majority of this bad news to the escalating Credit Crunch.

Look out your windows people, the financial crisis parade is marching down Main Street right now.

I am gratified by the numerous people who have articulated the many causes and solutions to the current financial crisis facing our country. If nothing else is gained from this exercise, at least we have people reading and talking.

To simplify this crisis, and I stress simplify,  the simple fact facing us today is that there is no money available to be borrowed. Forget about blaming Reagan, Clinton, Bush or Pelosi.

I am a devote fiscal conservative, my Bio has said that from day one. But when a country finds itsself with NO money to lend/borrow, the wheels of the economy grind to a halt. Yes, banks, brokerages, insurance companies and mortgage lenders went on a rampage for the almighty INCOME, and are clearly at fault for creating this crisis, but what now?

To contain and/or rectify this situation, our Gov't, (the White House, Congress, Fed & Treassury) have to work with one simple end in mind. Find a way to provide $$$ for borrowing. The simplest way to do that is to buy the failing assets currently held by the aforementioned guilty parties, which will (in theory) supply the money that would be available for lending.

Perthaps, the majority of people do not realize how many legitimate companies have to borrow money to keep a plant running, to buy the inventory to sell it later. The vast majority of these companies make good money and pay taxes. Choke off their blood supply and the worker gets laid off. See where this is going? Want to buy a house? Want to increase your credit card limit? Go ahead, call your bank and see what they say.

Solution: The Gov't needs to provide a financial rescue/ bailout that addresses ONE single issue - creating money available for lending. I'll stick my foot out a little beyond that and add, any financial firm that wishes for the Gov't to buy their bad assets subjects itsself to Senior Management Compensation alteration, and a stiff one at that. Anything, and I mean anything beyond that is nothing but D.C. wrangling for political votes. I call it DC bribery.

If Washington screws this up, it won't matter.

This mornings financial market rumor is that China's Sovereign Wealth Fund is raising it's stake in Morgan Stanley to 49%.

See, you don't have to "borrow" money to bail someone out, just pay cash!!! Does anyone realize how many foreign entities have purchased substantial positions in US companies; specifically financial institutions?

Not a rumor is that Morgan Stanley and Wachovia are in talks to merge. Hello kettle, will you accept a collect call from Pot?

Take this merger idea a step further; Are they trying to become To Big To Fail? Hum.

The Fed just announced they are leaving rates unchanged (@ 2%).

Dow Jones Up 30; Down 20; Down 50;  Down 75; Down 92 Down 60; Down 42; Down 38; Down 55; Down 80; Down 95. Excuse me while I run down the hall and tighten my jock strap!!!

Today, I complimented a blogger for expressing a "fundamental" reason for not voting for a certain candidate, which in turn led me to writting this:

I don't care if Obama said Pig. Actually, he present the long known analogy correctly. It was Palin that created a euphemism.

I don't care whether Obama said 50 or 57 States.

I dont' care if Palin took credit for killing the "Bridge to Nowhere" - it didn't get built. She did hammer the final nail.

I don't care if Palin spoke at a AIP convention.

I don't care if Quayle can't spell potato(e).

I don't care if Clinton did or didn't inhaled.

I don't care if Ford stumbles/falls all the time.

When it comes to running our Government, I care about what the Government does. How much of my hard earned income they take and where they spend it. I care about my Federal Government being involved in things they have no business being involved in. I care about the ecomony, but have an explict understanding of how little effect they can have on it - until they borrow beyond comprehension. I care that my Government won't let my military fight to win.

I care that my Government has gotten so big over the last 50 years that it lacks focus, resolve and ability; not to mention it is backrupt.

Fundamentally, I believe it is high time we "shrink" the Federal Government back to its basic functionality. Turn everything else back over to the States. That is the fundamental belief I hold. Nothing else really matters. 

Pay no attention to the man behind the curtail.

For grins, let's look at a real issue - Social Security. If you look at the McCain website you won't find anything for Social Security or Seniors; kind of disappointing:-(

If you look at Obama's website it has a specific "Issues" page that does address his plans for Social Security (SS). In summary, (look it up if you don't believe me), he wants to increase the ceiling where SS taxes terminate from $97,500 to ???. Does this mean he doesn't want to tell us how high, he hasn't decided or the sky's the limit? He states that by doing such it will insure that benefits are available to all Seniors for decades to come.

Okay, I'm all for this sound bite.

But, Obama does not address whether the Gov't will cease, hold current levels or increase its borrowings from the SS trust fund. He neither proposes or mentions limiting the Govt's ability to continue to issues IOU's to SS. Hum!

The volume on this sound bite just went way down!

So, the Gov't gets a massive influx of money to insure that Seniors are taken care of for decades, but retains its voracious appetite to steal and plunder.

This bite is starting to hurt.

So, if I'm supposed to believe in Obama's "Change" platform, were is the change? More taxes and a promise?

This won't hurt, trust me.

Please feel free to blog why this "change" appeals to you.

Yes, yes, I know, McCain's website doesn't even address it, but let's stay on this topic for now. McCain or the Republicna position can be another post.

Okay, for those regular bloggers who I have had the priviledge of debating I think you know that I have declared my endorsement of the Libertarian Party for this election. I have regularly declared my distain for Obama's "change" of making government bigger, and my total uncertainty that McCain was in fact too much of the same old thing. However, after having just watched Palin's speech maybe there is an opportunity for "change" that none of us saw coming!?!?!?

Frankly, when McCain announced Palin as his VP choice, my first reaction wasn't about experience or lack there of, it was "why didn't Obama do something like this? If he was all about "change" why did he go with a 'safe' DC insider for VP?

My reaction after her speech is... the gauntlet has been thrown. Neither Geraldine or Hillary represented woman or America like this. She looked every politician in the face and said "bring it". She spoke like a reformer/changer, not as a woman or a politician. I know that if I vote Libertarian that I have no chance to win, and I can live with that, but suddenly I have reason to pause and re-evaluate. Hopefully, I can get this post written before all the pundits can evaluate and poll her speech.

Suddenly I may be believing in "change", just not the way I thought I would. Wow!

Yes, I know, time will tell, but I wouldn't want to be Biden in a debate with her.

Nibble on this piece of news, released this morning:

Existing home sales rose 3.1%, easily beating expectations of up 1.6%.

Think that's good news? Keep reading...

Prices continued to decline, now 7.1% below this time last year. Inventory of homes for sale rose to an 11.2 month supply, matching an all-time record set in April.

Now try to stay with me. Currently, the Fed tells us that "Consumer" inflation (CPI) is running y-o-y at 5.2%. But, if housing makes up 42% of the CPI, isn't the Fed understating inflation?

My math/calculation: If housing makes up 42% of CPI, and housing prices are down 7.1% then the Fed is understating inflation by 2.982% (42% of 7.1). If you add that to the stated CPI number of 5.2, you get a REAL inflation rate of 8.182%.

My logic is based on the premise that while your home's value may be decreasing, your monthly payments aren't. Therefore, everyone outside the Fed is really feeling the impact of REAL inflation. Now compare your latest pay increase to the real inflation and you can see what I'm geting at. If your a retired senior, you probably already knew this!

And one final comment. To prevent Freddie & Fannie from failing, the Gov't is planning another $25 billion bailout. So, instead of letting these investors, equity and bond holders lose money, the tax payers are going to pick up the tab. Hum, is my reaction. Since when was owning a house a "right" guaranteed by the Gov't??? Well, one thing is for sure, I'm not paying for it! HA! My great-grand kids will pay for it.