How can you spend more than you have?

Consumer spending advanced 0.5 percent in February, as expected, from an upwardly revised 0.1 percent reading in January. Spending was buoyed by solid retail sales and a sharp rebound in expenditure on durable goods like cars, Commerce Department data showed.

Personal income gained 0.3 percent. Analysts had forecast personal income to climb 0.4 percent after it slumped 2.5 percent in January, but those numbers were distorted by a massive Microsoft dividend payment in December.

Freddie Mac 2004 Profits Plunge on Derivatives

Freddie reported 2004 net profit of $2.8 billion, or $3.78 per diluted share, compared with $4.8 billion, or $6.68 per share, in 2003.

It blamed the drop on losses related to derivatives that were bought as part of ordinary trading activity to hedge against interest rate risk. Unlike derivatives used as a hedge against fluctuations of assets or liabilities value, a drop in value of these derivatives is accounted for in the income statement and reduces income. Freddie, based in McLean, Virginia, said that while its derivatives can lead to big earnings swings, the instruments remain important in managing interest rate risk.
By the second quarter of 2006,

Freddie said it aims to register its stock with the Securities and Exchange Commission -- a voluntary move for the government-sponsored enterprise that would force it to disclose more. Fannie Mae (FNM), Freddie's sister GSE and the No. 1 U.S. mortgage finance company, registered with the SEC in 2003.

Freddie ended 2004 with a surplus of capital that exceeded its regulatory target by $3.5 billion. That, analysts said, could give the company room to grow or offer higher dividends.

Freddie said legislative changes may make it impossible to both support the housing market and serve the interests of shareholders.
"Legislative or regulatory limitations on our ability to conduct these activities, through restrictions on portfolio size, debt issuance or otherwise, could require us to significantly alter our current business activities and could adversely affect our future profitability," Freddie Mac said.

Credit Suisse First Boston Not First in Junk Anymore

There is a 5 way race for first place, but whoever emerges on top at year-end, no one will dominate the junk bond market the way Drexel Burnham Lambert did in the 1980s, before its leader, junk bond king Michael Milken, went to prison for fraud and his firm crashed and burned. Milken now devotes his time to his philanthropic pursuits.
Drexel led the $25 billion leveraged buyout of RJR Nabisco Corp. by Kohlberg Kravis Roberts in 1988 - a takeover immortalized in the book, Barbarians At The Gate.
That was underscored Thursday, as one-time high-yield bond overlord Credit Suisse First Boston (CSR) was ranked just fifth in the first-quarter underwriting league tables for new high-yield issues, as tabulated by Thomson Financial. The showing, though respectable, followed its second place finish for all of 2004, its first time out of first in a decade.
JP Morgan Chase (JPM) was tops in this year's first quarter, while last year, Citigroup (C) took the crown away from CSFB in a victory that was very sweet for the firm. Citigroup's former Salomon Brothers high-yield group had battled CSFB's ex-Donaldson Lufkin Jenrette's junk bond team all during the 1990s, with DLJ always ending on top.
DLJ and Salomon battled for primacy at a time when commercial banks were forbidden to underwrite corporate securities. That changed in 1999, when the federal government loosened restrictions, and commercial banks muscled their way in. Salomon was snapped up by Citigroup, DLJ by CSFB. And Bankers Trust, another comer in the junk bond market, was taken over by Deutsche Bank (DB).

World Bank OKs Wolfowitz as New President

The Pentagon's No. 2 civilian official was the only nominee for the World Bank job, which by informal agreement is headed by an American, while the top post of the International Monetary Fund usually goes to a European.

But Wolfowitz's nomination was assured despite private disquiet among Europeans who opposed the U.S. invasion of Iraq but who are hoping Washington will support their candidates for top jobs in other international agencies like the World Trade Organization.

The outcome had already largely been decided in the capitals of the bank's major shareholder governments when the 24-member board met in a vote that was conducted by consensus, despite quiet misgivings by some members over the deputy defense secretary's role as the Bush administration's architect of the Iraq war. Maybe the next time around they can appoint me as head of that bank.

Oscar Vs. Dr. Vlado

Over the last few months, a debate has been raging regarding the economic future of the US, the world and the investment climate encompassing this. As editor and blogger, I am neutral/Bullish on the future of the US into the Year 2010. Dr. Vladovich is more concerned about the next two years and feels a greater threat to the U.S. Economy It is very clean that the world economic growth is more mired now in a ponzi-setup of every growing populations and income levels, using more and more debt to finance present consumption needs. If you have a retracement in growth of population or declining debt ratings, any system will fail to the inequities of the "reverse ponzi" Japan has been stagflated/deflated for some time due to "low" consumption" and a nation of aging people. The U.S. entitlement system, such as the Social Security system is another clear example of the ponzi system, where the U.S. government has admitted that soon there will only be 2 workers supporting one retiree... This last case is why the US no doubt is in some respects allowing the borders to thrive with illegal immigrant crossing. Dr. Valdo agrees with this all encompassing view. But our timing for a period of future volatility is different.

Oscar 1) In my experience in business, and trading the capital and derivative markets I have seen world governments and super economic banking enterprises move to remediate issues that come up. I go back the Russian Rubble Crisis, the Asian Currency crisis (97), Long Term Capital, and to a lesser extent currency implosions in S. America; Each and every time the "market makers" and governments step in to stop the crisis. My view is that any future issues the US economy may face will be met with this type of management.

Dr. Valdo 1) The personal Debt of American's is over 9 Trillion Dollars, growing at a clip of 300 Billion a month. This debt exceeds the normal admitted 7+ trillion debt owed by the US (which is in turn owed by the taxpayer citizens of the US). No where is history has personal debts exceeded government debts. The majority of this personal debt is in auto loans (GM and Ford Debt is near junk status), unsecured credits (credit cards, signature loans) and Home Mortgages (new estimates put 30% of those newest purchases under the speculative category) A third of all new mortgages (sales and refi's) are in the Adjustable category. My numbers are indicating at a maximum of 12+ trillion personal debt and 150 basis point move in the mid term credit markets, and the consumer will have a huge problem services his personal debts.

Oscar 2) The new "gilded age" is propelled by Debt. The buying power of the baby boomer in some ways is being matched by the Gen XYZ's easy credit environment. My numbers indicate these new "Americans" can sustain higher debt loads because many have dual sources of income, and small businesses expansion (self employed) is at a record pace. Many folks do not fully report income or are using other means to keep the tax man at bay. So true income is not in the non-farm payroll reports as once thought. Unemployment figures also are not as important as they were 15 years ago. Asset inflation in leveraged products has transferred from the NASDAQ 5000 to the Real Estate Market as well.

Dr. Vlado 2) The mortgage industry is in a frenzy that is near the end. Fannie Mae and the like are indicating problems. The asset backed securitization has created an industry that cannot police itself. Underwriters may sometimes look the other way just to get a deal funded or fib documents to get the Auto-Approval from an underwriting system. Who cares, that loan will be sold down the river attitude runs rampant some industry circles. Excessive fees to minority and Black borrowers even have the likes of Ford Motor Credit facing lawsuits. There also seems to be a new discovery that many loans outstanding have been doctored and may not truly reflect the credit risk that a bank may be undertaking during the underwriting process. The newest batch of innovative mortgages assure that this and future generations will be "leasing" their homes. If the underlying asset does not continue to rise in value, the US consumer may not have further spending power. Inventories will build up, building permits will fall and in many of the Coastal US areas, there will be room for price depreciation. Those leverage will find themselves underwater. This will clearly spell the end of the rope for the US Consumer.

Oscar 3) The US Consumer will continue to spend into 2010 because Real Estate is a very local proposition. Some cities, such as Las Vegas, NV are experiencing this pre-bust cycle but in trading we have an old saying "tops take longer to form then bottoms". Inland areas will continue to climb and allow breathing room for the speculation to continue. Those of higher net worth in the coasts will be able to bear a deeper depreciation because theoretically they are not as leveraged as the common US consumer. Fiat consumption has some time to go till it busts

Dr. Vlado 3) Single Family Housing foreclosures are at a 30 year high. The average household owes more money than it pulls in during the year. The carry trade that many headgefunds and money center banks have placed will have to unwind as the Fed grind the short rates to the upside. This unwinding is causing the yield curve to flatten (and if inverted signals a recession forthcoming). The cost of money will rise and so will the debt servicing. Debt exceeds saving by 700% or more...

Oscar 4) I agree in the threats and reality of monetary policy but the Federal government is applying many Fiscal processing (taxation of repatriations corporate profits for instance) to bring a further infusion of capital back into our shores. We will start to witness the "powers" create new "programs" to further fuel the liquidity in the US economy. A failure to keep the consumer confidence up can bring the system to a grinding halt. My biggest issue in threatening this comes from the price of crude (who is truly costing the consumer an inflation rate of 8-12% a year rather then the reported CPI). If crude Breaks 60+ dollars a barrel (which could happen if the dollar declines vs. Euro/Yen/Lb.) and moves into the $65/barrel range, the American SUB will end up on the side of the road. Big selling at the $57+/barrel range is keeping the prices down. Lots of resistance in this area. If its shorting, those short will get crushed if they run out of bullets. I am diametrically opposite to the thinking of regarded minds like Ken Fisher, who correctly state petroleum is only accounting for about 6% of economic GDP in our service economy. One only has to extrapolate the number however, to find that every increasing prices create an exponential costs addition to the economy. AND....The carry trade should get unwound without big issues in my view. Furthemore Corporate spending accounts for a great majority of spending in the economy..

Dr. Vlado 4) Corporate profits have been squeezed as many companies have taken on new debts in M&A activity and non-performance investments. The US Stock Market may be overvalued in some repasts and this could also hurt the equity value that much public/private debt is financed with.

Oscar 5) Implied Volatility and the VIX indicator are at historic lows. From a high at 42 in the September 11th attacks, its down to about 12 today. Speculation of movement is almost nil. The calm before the storm. Being we had recent NYFE breakout failures and broken ascending wedges in the chart patterns of many widely held indexes, I concur with this view. I also subscribe to the Austrian Business cycle theory and Wave Principle (Robert Prechter, among others). The length and severity of the probably recession depends on the dislocations and imbalances that have accumulated in the economy during the preceding boom. The NASDAQ had no business trading at 5000 in 2000. The final issue with the future lies with entitlement payements, healthcare costs rising inflation in coumption goods (not investment goods)

In our upcoming edition, we will explore ways of protecting yourself from what could happen in the future. Happy Easter

SQUELCHING INFLATION???

Indeed, the core CPI has been marching higher. Over the 12 months ended in February, core consumer prices are up 2.4 percent. While not high by historical standards (This does not take into account the fact that the CPI index is not calculated now as it used to. The CPI used to include things like real estate prices), it still marked the sharpest 12-month gain in 2-1/2 years. Inflation has been on the rise even though wage gains have been tepid, meaning workers continue to fall behind. When adjusted for inflation, average weekly earnings are down 0.8 percent over the past 12 months.

``We are seeing price pressures, especially non-energy components, working into the retail level,'' said Richard DeKaser, chief economist, National City Corp. in Cleveland. ``More broadly, we are seeing the inflationary pressure from a weaker dollar and increasingly taut economy.

I personally believe personal CPI levels for consumers are running 8%+ CPI numbers are used by the government to settle entitlement payments of all types INCLUDING Social Security. I doubt the government is interested in producing high numbers there.

GM Says WON'T go Bankrupt

Lutz told reporters the threat of bankruptcy at GM was "absolutely out of the question -- totally out of the question" and said GM was "taking the necessary steps to right this ship."

"An across-the-board competitive health-care plan for salaried and hourly employees could literally save us billions," Cowger said. Health-care costs, added Lutz, are "a huge albatross hanging over American industry today."

But the company, which has about $300 billion in outstanding debt, said on Wednesday it was in talks to sell a stake in its GMAC Commercial Mortgage unit after potential investors expressed interest in the unit.

GM, which last week cut its earnings outlook for 2005 by as much as 80 percent, posted a 6 percent drop in U.S. sales for the first two months of the year. GM's U.S. market share fell to about 25 percent, far below its share of 27.5 percent for all of 2004. What kind of American Revolution is this??

HP and tech's Go After Hispanic Small Business

The Numbers: Growth Potential: --Hispanic-owned businesses today: 2 million --Projected number by 2010: 8 million

IT Market: --Information technology market for small- to medium-sized businesses in the U.S.: $145.6 billion. --Hispanic-owned business share: $14.8 billion Breakdown: Hardware: 39 percent; Software: 24 percent; Services: 37 percent

Concentration: --80 percent of revenues from Hispanic-owned firms are generated in Florida, California, Texas and New York.

HP (Hewlett-Packard) believes a more personal touch is necessary to capture and hold on to the Hispanic market. I agree, with the emphasis that the English and Spanish speaking markets are a bit different, Spanish speakers needing more of a relationship then English ones. There are roughly two million small- and medium-size Hispanic-owned businesses in the United States, according to HispanTelligence, a market research firm hired by HP to study trends. Those companies generate about $270 billion in sales per year.

"More than 50 percent of those businesses are expected to invest more in technology in 2005 than they did last year," said Marcilio, who is based in Houston.

US Strongest Economy Around

The United States is faced with a huge budget deficit that makes foreign investors nervous about holding dollars. But as a percentage of GDP, that deficit isn't that much worse than those in Europe and better than the one in Japan, the homes of the two major competing global currencies. In addition, the U.S. economy is growing faster than those of Europe and Japan, and our budget-busting demographic burden isn’t as serious as those faced by the Europeans and the Japanese.
If foreign central banks stopped buying dollars entirely, Wall Street estimates, the dollar would have to drop another 30% and U.S. bond yields would have to climb by 4.5 percentage points to attract enough private capital to fill the gap. For example, even today, the yen makes up only 5% of central-bank reserves because Japanese government bonds yield almost nothing and because the attractiveness of the yen is dampened, shall we say, for anyone who understands Japan's impending budget meltdown. The same with the euro, where euro-denominated bonds yield less than U.S. treasury's, making diversification out of dollars and into euros prudent in the long run but painful in the short run. Closing that dollar/euro yield gap doesn't seem to be in the cards, either, because raising interest rates in Europe would slow those slow-growing economies even more. the United States, thanks to its faster economic growth rate, has more room to raise interest rates -- without producing a recession -- than the economies of its currency competitors. Thanks to Jim Jubak for the article. US investors should have some exposure to international equities. Foreign currency movements are accounting for more then 50% of gains when translated back to dollars. And it serves as a diversification tool. Closed end and country funds are one option

Fed HIKES rates to 2.75%

Discount Rate 3.75% The markets don't like the medicine, but the faulty CPI index is starting to climb, and real inflation is running WAY ahead of what the government is really disclosing. Cheap money is coming to an end. IT is time to consider recasting your own debt and try to get fixed rates if possible. Although the long side shouldn't climb too much, there is risk of rates heading a bit higher. I am sure the debt markets will continue to find ways to innovative and create new types of lending products. This should stem the future payment shock many think will unravel this house of cards. My estimates for a stormy front lie at about the year 2010.

US Multi-Nationals Bringing the bacon HOME!

For all this recent posting I've done on some of the bad going on, there are things always trying to keep the future positive. HOW??:
The American Job Creation Act, which allows multinational corporations to repatriate -- during the first taxable year after Oct. 22, 2004, which for most companies is 2005 -- foreign accumulated profits that would normally have faced double taxation. Under this law, U.S. companies may elect an 85% dividends-received deduction from a foreign subsidiary, with the remaining portion taxed at the 35% corporate rate, to leave a total 5.25% tax rate on the transaction.

What will happen when profits held overseas find their way home? For global capital flows, the expected magnitude is huge. Investment bank forecasts seem to be settling in at the $350 billion mark. A Feb. 11 report by JP Morgan already identified $112 billion in slated repatriation deals, including $38 billion by Pfizer (PFE), $14.5 billion by Hewlett-Packard (HPQ), and $10.7 billion by Procter & Gamble (PG), alongside Johnson & Johnson's (JNJ) widely publicized $11 billion plan.

Of course, CFOs are paid to push the limits on IRS rules, and we at Action Economics estimate that less than half of the $350 billion in repatriation will finance domestic investment plans that wouldn't have happened otherwise (the IRS claims that their review of each plan will guard against this). But if companies channel even half the $350 billion into the list of acceptable investment strategies for newly initiated projects, you're talking real money. Consider some of the biggest potential consequences:

Foreign exchange: Investment banks estimate that the majority of foreign subsidiary holdings are in dollars. Yet, we might assume that the flow to dollars in the foreign exchange market will reach $100 billion to $150 billion this year, making it about half the magnitude of 2004 foreign central bank intervention to prop up the dollar. THIS WILL STEM THE LOSSES THE DOLLAR IS SUSTAINING, AS THE CHART INDICATES

This shift in cash from foreign to U.S. books will increase debt supply abroad, though a portion of this supply rise would likely be in non-U.S. denominations. The upshot: The program will depress U.S. market yields but raise yields abroad. THE FED CAN CONTINUE TO MOVE SHORT RATES HIGHER BUT LONG RATES WILL FLATTEN AND SO WILL THE YIELD CURVE

The U.S. current account deficit: The Bureau of Economic Analysis is still determining how it will treat these jumbo dividend payments in the U.S. current account and GDP reports for 2005. It appears likely that the bureau will publish a statement alongside, or within, the 2004 fourth-quarter current account release on Mar. 16 that dictates the procedures it will apply for incorporating the repatriation payments. THE MONEY COMING HOME WILL OFFSET THE TRADE DEFICEIT.

BOTTOM LINE: this will add more wind to the US Economic sails. Look for some positive forces against the nightmarish bubble economy..... O

Bubblenomics: A window into 'home' economics

A contrarian chronolog by Bill Fleckenstein appearing recently shows the perspective of a Hedge Fund Trading head and the apex of a turn soon coming. The Fed, he feels transferred the Collapsed Market of 2001 into the Real Estate Bubble that doesn't have much more to run. A great article that sites more follow up information. His other article specifically connects the dots and talks about the "GM" financing cog that also plays a roll in this process. I am in some agreement with this gentleman. However the run has more to go and I see the "powers" fueling this with many new tactics for the next few years. The collapse I feel won't be like the stock market was (abrupt) but rather a HIV+ conversion of the economy as our currency falls further and Crude pricing takes it toll on the dying fish.

Social Networking Internet Acquisitions soaring

The newest internet game, dubbed "social networking" is creating a mini acquisition spree as the big players grab on the the technologies to move into this space. Some of the leaders like myspace are seeing the likes of Google and Yahoo move in. Yahoo's completed acquisition of Flickr.com gives the company a property that directly integrates into the Blogger property owned by Google. Flickr is a service that I use regularly. We shall have to see if the relationship with Google continues however. On a note, my usage of myspace to promote my other web properties leads me to believe that about 30% of profiles (if not more) are phony or duplicates. The page views this company generates do not really reflect the number of eyeballs out there. And the "type" of web surfer on that service doesn't convince me as a heavy purchaser anyway. Those are my personal thoughts.

Barry Diller Can't Resist

IAC/Interactive media (owners of Ticketmaster.com/Match.com and more) just announced they will take the number 5 position in web portal searchers (AskJeeves.com) and compete against the big titans of the internet (Google.com, MSN.com, Yahoo.com, etc). The deal is valued at 1.85 Billion in stock, with a repurchase agreement. "Global search is the gateway to everything," said media mogul Barry Diller, chairman and chief executive of IAC.

Goldman Sachs, Morgan Stanley Profits UP

As a sharehold in both companies, I was happy read the performance results for both Goldman Sachs and Morgan Stanley. Stocks did trade up on the news. Goldman has been ramping up the commodity trading division and the results proved themselves. Morgan Stanley's Discover Card division also proved to turn a corner. Many operations finally exceeded performance benchmarks not seen since before the 9/11 attacks.

Banks Reach to Spanish Speakers

Banks all over the country are seeing growth of Spanish speaking immigrants who require banking services. Many are taking steps to capitalize on this lucrative niche market. With some modification to marketing, banks are seeing the success of this endeavors. An estimated 14 Billion dollars will flow to Mexico alone from those employed in the United States. That ranks 3rd, behind petroleum and tourism for income flows to the country.

Immigrant Women Entrepreneurs on the RISE

A recent article suggests the growing amount of minority and migrant woman are establishing businesses in this country. This seems especially true when I have attended recent women only conventions. Women everywhere are showing independence and motivation like never before. At the High School level, women are more engaged in these types of activities then their male counterparts. My observation suggests that woman are inherently better communicators and share more because of the nurturing abilities that they posses from being mothers or potential mothers.

3 Budgets, One Future

President Bush, The House, and the Senate are now ready to engage in the new Fiscal Budgets, but the numbers are very different. Bush's plan will not make it through both houses without each party having their way with constituency protection. Once the baby has had the bottle, he will cry if taken away.

New High in Crude

Contract highs in Crude around the world will hamper economic growth if the contract hits over 60 Dollars per barrel. This will happen especially if the Dollar Continues its slide, hurting US consumers more then international consumers of crude. Breaching and holding over $55.00/Barrel constitutes a technical breakout with price target of 60 next. Convergence of many bad economic mini storms may swell into a giant economic problem for the current administration and policy makers around the world.

US Economic Trade News and more.

News today shows the US Trade balance is at levels above what economists have estimated. 665 Billion dollars left our shores and returned as investments in securities and debt offerings during 2004. Can this continue? Its is hard to think so when the Dollar is weak and can potential break to the downside against other major currencies. GM also may be reporting some future losses and Ford's Financing Arm, (whose bond status is just above junk) is getting ready to offer almost 2 billion in debt. What seems to be keeping this going? A huge factor is the wealth effect of real estate, where new data is showing up to 1/3 of all purchasing occurring in the country may be due to 2nd homes (most of that for speculative investment purposes). There is still more potential for speculation in the Real Estate game, but the trick is to see how much higher things can go. This could lead to an economic unwinding the US hasn't seen in a while.

Wealth Expo in So Cali

I attended the Wealth Expo this weekend in Orange County, Ca. It was a great session and wonderful speaker from all over the country were on hand to answer questions. I found a few great resources from this expedition and will be posting some great video clips in my press section soon. Feel free to check out the links for resources available to you today!