The challenges that lie ahead

There is no doubt that President Obama takes command with a number of seemingly insurmountable challenges. Our role on the world stage has been diminished. Our reputation has been tarnished. Our economy is in turmoil. The first order of business is to restore confidence that not only Americans have, but the world has, in the American experiment.
It is a testament to his abilities, this grace under pressure, that he exhibits when not only all of us, but all of them, focus their attention on him. There will be some missteps and false starts on the way however I am confident that he is the best man for the job.
Each President has a defining moment. That one image that is etched in your memory that you recall long after their time is up. For me, some of these images are scores of Germans standing on top of a cement wall that comes crashing down. A president pointing his finger an echoing a statement, ‘I did not have sexual relations with that woman.’ Perhaps it is a hapless man exasperated over hostages taken by Iran, or it is a smallish man standing on a pile of rubble that was the World Trade Center with a bull horn and his arm around a firefighter.
For me, it is the likeness of the last image that makes me wonder what President Obama’s image will be. My image is of him standing on top of a massive pile of rubble that is the remnants of what was once our financial system. He has a bull horn in his hand and is making a call to arms – for each of us Americans to take accountability for our actions and to stop looking for hand outs. His is call to re-ignite that entrepreneurial spirit that defines our nation. His is a call to break down the barriers between people t o allow them to join hands and be successful together.
George W. Bush had a remarkable opportunity that was dutifully squandered. He had the attention of the world for a split second in time. He had us entranced with is macho American bravado when he declared, ‘The people that knocked these buildings down will hear you’.
From that point, there was a surge in global support from people around the world that has not been seen in recent history. However we did the best we could to alienate almost everyone around us. The constitution became an inconvenience on the way to administering justice. He perpetually surrounded himself with people that were from his father’s failed administration. For eight years there were no fresh ideas, no new blood and an eerie isolationism that was punctuated with statements like, ‘You are either for us, or against us. We pressed headlong into a seemingly pre-meditated war against a country that was not our enemy, led by a man that was dangerous but not a part of the clear and present danger presented by the terrorist enemy that attacked us. We created an outpost in Cuba to circumvent all kinds of domestic law and got very good at techniques of torture that violated international law. We had lost our way, and with it, the support of friends and allies around the world.
I am anxious for the 20th of January to come. It will be a day of renewal. It will be a day of renewed hope. It will be a day that America returns to business- the business of being that greatest country on earth. We will speak softly and carry a big stick. We will return to being focused, competitive, charitable, and most of all kind. We’ll return to a day when the stature, the respect, and the power of world is again restored to the American presidency. He’ll lead by example and be a man that all children can look up to. He’ll restore the romantic image of Camelot to a an office in dire need of restoration.
He’ll be our president, for our generation. He’ll ask a lot from us and we will not waver in answering that call.

Why not to bail out the big three automakers

The place we have gotten to financially is a bit sickening to tell you the truth. It seems that everyone is inept at managing their own finances and now believes that the US Government is the savior of all. When it came to solving the credit crisis, I got it. I mean it turned my stomach to put together a package to bail out wall street however it is the ability to issue loans and provide financing to American companies that is the oil in the engine of the US economy. Then we heard about bailing out Main Street which is now harder to understand. It seems that there is now a way to live in your house for free. Essentially, you just stop paying your mortgage and the government will let you live there for free. Apparently more and more Americans seem to think that defaulting on their mortgage will not have long term credit ramifications- if enough people do it all at the same time. This is getting ridiculous. I refuse to let my tax dollars be used to keep people in their homes when they should have been more cautious in the first place. It is time to man up America and take accountability for your actions. Stop asking for hand outs!
The latest in this cycle seems to be the big three US automakers. In principal, they want a loan of $25 billion to make it through the tough time. And then what? And then they will start producing fuel efficient cars? And then they will start to compete with Japan? And then there will be hybrids instead of Hummers? The big three auto makers should be dealt with my natural market forces. if you build a better mouse trap, you win and if you build Hummers and Expeditions when gas is $4 a gallon you lose. I do have compassion for the millions of people that will be out of work because of this however I believe that $25 billion in unemployment support is a better use of the money. It supports the taxpayers themselves and not inept management. The big three automakers have products that are not competitive on a global scale, have inferior quality to Japanese and European cars and waste energy. It does sound harsh but is this an industry worth saving?

We did it!

It was a nail biter up to the very end however we did it. Now the time for rebuilding can begin. The rebuilding of our economy, our image abroad, our stature on the global scale. We can also start re-paying. We can start paying down the immense amount of debt we have created- $11 trillion and counting. President elect Obama has some huge tasks facing him. How to appropriately end Mr. Bush's endless war in Iraq, refocus and already stretched military back to Afghanistan. How to fix an economy where everything seems to be broken and where everyone is asking for an hand out. It is truly a scary time however it is time for hope and I believe in Obama.

On the verge of history

It is truly a remarkable feeling knowing that by tomorrow night at this time history will have been made. We will either have the first black president or the first completely incompetent female vice president. Whichever, we'll be a part of that history in the making. Whichever the outcome, I hope that this election is decisive. I hope that there is a clear cut winner and a clear cut not winner. I hope that there is no contesting the election, no hanging chads, dimpled chads or the like. I hope that the supreme court is not dragged into this fight and determine who will be in office for the next four years.
Most of all I pray for hope. Hope that we end the war in Iraq in a timely fashion, that we bring our brave men and women home safely. That we can redirect that $10 billion we spend there monthly on our own needs and not the needs of an ungrateful nation. I hope that we can address the issues of poverty and hunger in this nation. I hope that we can provide some basic form of health insurance for those in need and i hope that we as a nation can heal the wounds that have been caused by the last eight years.
George Bush leaves a path of death and destruction in his wake. American service people killed in a seemingly endless war, our economy in tatters and increasing infighting and backbiting amongst the American people. I truly hope that next four years see the removal of Karl Rove from politics and a return to civility in the USA.

How to play this market

Previously you have seen commentary on my blog about the market. I felt it was time to revisit the issue. Our last discussion was about $100 a barrel oil. Funny how it feel short of the actual issue, which became $147 a barrel oil. Now with oil lurking back around $60 we can further examine the incredible impact that very rich and powerful 30 somethings can have on the financial markets. There are several reasons that the market is in a tail spin however we need to focus on the impacts of the rescue packages to determine where to invest going forward.
The markets rapid decline is indicative of how leveraged the various hedge funds and other investors were. By this I mean that they were able to make investments far in excess of the capital that they actually had on hand. When the market turns against them they must rapidly unwind their trades and liquidate securities regardless of what the price is. This is another clear indication that the forces working on the price of oil were not simply supply and demand but people speculating in the energy markets and driving the price of the futures contracts up higher and higher despite them never actually taking possession of a single barrel of oil.
My call on oil is that it ultimately see the mid-$40's per barrel before now and the end of the first quarter of 2009. The traders still trying to bid up the price of oil are grasping at a defunct reality and the fact of the matter is that the slowing global economy has massively decreased the overall demand that we have for the commodity. As more and more hedge funds face forced liquidations as nervous investors ask for redemptions, further activity will be forced in the oil market to push the price down. Further, the traders on the short side of the oil equation will reap the most rewards on oil's demise as i think it is still about 25% overvalued. So my call is oil at $45 a barrel before it stabilizes. For that reason I also suggest being short oil and oil services companies. There is no way that they can sustain record profit runs on cheaper oil and disappointing earnings reports will be factored into models and investors will take a good chunk out of the likes of Exxon. My call is Exxon at sub $50 per share by start of second quarter next year. The shorts here will benefit greatly.
The real area that investors need to be focused on right now is inflation. No, I am not crazy, but inflation is inevitable. The equation is simple. The US government just pumped an unprecedented amount of liquidity into the marketplace in the form of the TARP. If you include the green backs exported to foreign economies, it is roughly $1 trillion. That money will have to come home to roost in the future and it will come here. In times of high inflation people must get out of fixed income securities and move into things like gold, the traditional hedge against inflation. Then believe it or not, real estate, will provide convenient cover as well. The ugly, untold secret of the TARP is that by next year at this time, interest rates will begin to climb and that by middle of 2010 the feds will have to rapidly raise interest rates to cool off the economy. My call on this is gold, gold, gold. I suggest buying gold now and riding it all the way up. We will see gold back at around $1000 an ounce over the next few years so getting in in the mid $700's will be profitable.
Another call I want to make is the financial industry. I feel that the business is completely over sold and there are really unique buying opportunities here. For those of you that are not individual stock pickers, the XLF ETF (exchange traded fund) is a good place to be. I have been buying XLF for a few months now and suggest it for the foreseeable future. For those that are looking for some individual stocks to buy, my recommendations are BB&T Bank (BBT), Bank of America (BAC) and Citigroup (C). Both have significant recovery potential after being oversold.
In the currency arena, the might US Dollar is the place to be. No question about it- the United States is going to have power the world out of this slow down and the world will continue to put its faith in us. This is still comforting to know. So people should be long the Dollar and short the Euro and the Pound. My predictions are that the Euro will fall back below parity with the US dollar. My target is that one Euro will buy about $0.95. Further the Pound Sterling will continue to weaken as well. My target for the British Pound is $1.25 to the pound before things stabilize.
So there you have it. Some predictions for the next 24 months. In summary, be long: banks, the Dollar and gold. Be short oil, oil companies, the Euro and the Pound. We'll come back in a few months to see how we are doing with these picks. Have a different opinion, let me know. Make a bundle on these calls? Let me know as well.