OK don’t let the economic charts turn you off. This is important to understand and actually is very easy to get. This is a chart of what is referred to as M3. M3 is simply the broadest measure of money in our economy. It shows how much money is out there and available.

An increasing M3 typically accompanies inflation. However, in deflation (when prices fall), you see a declining M3. Now back in 2006, the Government said that it just was too expensive to continue publishing and measuring M3. Imagine that, the Government not doing something because of cost. Actually, I guarantee you that cost had nothing to do with it. They just didn’t want anyone to see the manipulation of the money supply by the government. So, the best solution is to not show anyone.

Fortunately, there are sites like www.shadowstats.com that does publish the calculation. The above chart is from their site.

There are various ways to interpret this chart. The bottom line is that a declining money supply is not good for an economy trying to recover.

Tags: Bob Brooks, economy, Government, M3

What would a 21% decline in income mean to you? This is what is happening to the US Government. Tax receipts, the money that pays for all of the irresponsible spending in Washington, is down -21% from June 2008 to June 2009. Individual income tax receipts are down -22%. Corporate income taxes are down -57%. You have to go back to the Great Depression to see these types of numbers. This also takes a hit on Social Security and Medicare. Tax receipts are down for Social Security and could drop for only the second time since 1940 and Medicare is on track to drop only the third time ever.

It is estimated that Social Security is on track to run out of money in 2036. Oh good, just in time for me to collect my benefits. Of course, Medicare is in worse shape.

The federal deficit now sits at $1.8 trillion. The national debt exceeds $11 trillion and the Government wants to spend more and more money.

…and the Government wants to pass a health plan that we really cannot afford as well continue to bail-out the world. The more disturbing aspect of this news is that the media is virtually ignoring it. After all, broadcasting this news all over the front pages of web-sites and nightly news casts would not bode well for the politicians and their quest to ramrod this health plan down the throats of Americans.

Where will all of this money come from to pay for all of the socialism in this country? Well, there are two sources. First, the politicians are betting on a robust economic resurgence. Well, let’s take that one off of the table. How about the second solution? Get ready, because taxes are going up for EVERYONE. Don’t be fooled by a campaign promise to only raise taxes on Americans making over $250,000. It will take a huge tax hike on everyone to stop the bleeding in Washington.

Over the weekend, the biggest economic hitter of the Obama Administration, Treasury Secretary Tim Geithner indicated that raising taxes is still on the table. Of course, the White House rushed to do damage control on Monday suggesting that President Obama would never go back on his promise. Things happen for a reason in Washington and Geithner’s remarks were no mistake. Timothy Geithner might not be smart enough to pay his taxes however; he knows what to say and when to say it.

Tags: Bob Brooks, Deceptive Money, federal deficit, health plan, income, Income Tax, Medicare, National Debt. Government, Obama Administration, politicians, President Obama, Prudent Money, raising taxes, Social Security, Tax hike, taxes, Treasury Secretary Tim Geithner, White House

One of the big problems during the housing bubble occurred when buyers and sellers were getting inaccurate or inflated appraisals. In many cases, the relationships between lenders, realtors, and appraisers became a little too cozy causing fraud to occur. A lawsuit brought on by New York State Attorney General Andrew Cuomo against Washington Mutual put an end to those relationships through the creation of HVCC or Home Valuation Code of Conduct.

The HVCC forces lenders to use appraisal management companies to handle appraisals versus the local relationships where one party can help out another. These appraisal companies are comprised of independent appraisers from all over the country. Since the appraisers are not familiar with the area, they will use computer models that incorporate distressed sales into the appraisal. The problem with having someone from another part of the country conducting the appraisal is that they don’t know the intangibles that can increase the overall value of the home.

Can you imagine almost having a deal closed and the appraisal coming back much lower than you expected? That has been happening, adding even more challenges to the real estate markets. Leave it up to the regulators to allow corruption to occur over a number of years and then go too far on the regulatory end.

If you are going through the buying/selling process, make sure that you have a good handle on the appraisal value of the home. Surprises at the closing table are not fun.

Tags: Andrew Cuomo, appraisers, Bob Brooks, corruption, Deceptive Money, fraud, Home Valuation Code of Conduct, Housing bubble, HVCC, lenders, New York State Attorney General, Prudent Money, real estate markets, realtors, regulators, Washington Mutual

New Stock Market Alert – The Bear Market had to be over…Right?

New Debt Tip – Night Line Busts these Debt Settlement Scams

The news is constantly reminding us that the Government is running up enormous levels of debt. A client of mine sent me a link to the US Debt Clock. In his e-mail, he described the site as “very telling.” Actually, it is downright frightening. This site calculates to the second all of these disturbing numbers that will haunt us and future generations for the rest of our lives.

As I watched all of these numbers increase, I began thinking about the job of a President and the most powerful career politicians. They can run up the U.S. debt for their own agendas because there are no consequences for them or their future.

Presidents and the most powerful of politicians will never experience the consequences of their actions. For instance, do you think that any one of these politicians will ever be on a waiting list because of the up and coming government run health plan? Of course not – What it would be like to do whatever you want and never reap the consequences?

Anyway…here are some stats:

Total U.S. National Debt…………………………11.6 Trillion
Average per citizen……………………………….37,861 per citizen
Dollars in Bailouts……………………………….11.8 Trillion
Estimated Medicare Fraud year to date……….34 Billion
U.S. Private Debt………………………………….7.2 trillion
Credit Card Debt………………………………….983 Billion
U.S. Debt per citizen………………………………23,675
Number of Foreclosures thus far in 2009……..1,271,043
Number of Bankruptcies thus far in 2009………611,310

The Scariest Number of All – the total amount of future liabilities (expenses that will come due in the future with no money to pay for it)…$57 Trillion Dollars

Maybe we could take away some of the benefits that these politicians get to pay for some of these expenses.

Tags: bailouts, Bankruptcies, Bob Brooks, credit card debt, Debt, Deceptive Money, foreclosures, future liabilities, Government, health plan, national debt, politicians, President, Prudent Money, US Debt Clock

I have been studying the book of Isaiah using some commentaries for insight- Calvin and Brueggemann.

The Scriptures often speak to me in whatever circumstances I find myself in. I found Isaiah 7 particularly relevant to current events.

There is a sense of unease with many that I talk to about the economy. Our nation has experienced problems in the housing market and lending institutions that has threatened to put a lot of banks out of business. Credit is tight. Fear and pessimism are high.

Our federal government has announced a plan to stimulate the economy that could cost taxpayers billions. The byproducts of a poor economy are more government spending, higher budget deficits and higher inflation.

What does Isaiah say to the believer in God’s control over all things in this world during this time? Two verses:

Isaiah 7:4, “Say to him, ‘Be careful, be quiet, do not fear…’”

Isaiah 7:9, “If you are not firm in faith, you will not be firm at all.”

We have a choice: to walk in faith or fear. What a great opportunity for believers to demonstrate that our trust is in Christ and not the fickleness of world economies. It is also a good opportunity to show that biblically based financial planning works.

What are the basic principles of biblical finance?

1. Keep your lifestyle much lower than your income stream.

2. Save and give a significant percentage of your income.

3. Work hard- use your abilities to serve God and others.

4. Diversify your investment assets- have a plan to manage principal and inflation risk.

5. Be organized- don’t leave your family with an estate mess.

6. Act in faith, not fear. Pray for the prosperity of the city you live in and be active in seeking the renovation of creation for God’s purposes.

What has been formed by God has been deformed by sin and needs to be reformed by Christ.

For God’s Glory,

Ashley Hodge

Tags: Ashley Hodge, banks, Bob Brooks, budget deficits, Christ, credit, Deceptive Money, economy, federal government, God, government spending, housing market, income, inflation risk, Isaiah 7, lending institutions, Prudent Money, risk, stimulate, taxpayers

One of the qualities I admire most about Bob Brooks (and there are many qualities to admire) is that Bob is an avid learner. He reads a lot and is always searching for ways to improve his knowledge and wisdom. Unfortunately, this quality can be rare in the financial advisory business. Many advisors and money managers repeat tired investment mantras without thinking through the issues.

Bob and I agree on many things. But naturally we see things from different perspectives. Hopefully I can bring a unique perspective through this week’s blog entries.

I was searching for a recent economic book to make sense of the 2008-2009 global financial crisis. I came across The Cost of Capitalism by Robert Barbera. The book is a great summary to understand how we got to the point we are at. And also a balanced view of why we need to understand and embrace a middle ground between the economic philosophies of John Maynard Keynes and Milton Friedman. I have a short review below if you are looking for some reading to understand the economic mess that we are in a little better.

Keynes lived and wrote during the Great Depression of the 1930s. He saw firsthand the folly of a hands off government approach during times of financial crisis. Milton Friedman won the Nobel Prize in 1976 for his work on monetary policy as being the crucial driver in controlling economic outcomes. Friedman believed in free markets and limited government.

Two economists– Joseph Schumpeter and Hyman Minsky- were familiar names to me, but I had not read their writings. Schumpeter and Minsky’s ideas were central to Barbera’s book.

One of Schumpeter’s main theories was that capitalism undergoes periods of creative destruction. Older, less efficient industries implode. As capital is reallocated, newer, more efficient industries emerge. Minsky was a student of Schumpeter and financial crisis. He observed that the economy often swings between robustness and fragility.

Deep recessionary pressures emerge when there has been an unsustainable level of debt build up. Minsky believed as Keynes did that the government must act as a lender of last resort to prevent financial crisis from becoming a full-fledged depression. He also believed that central bankers (FED) need to act not only to control monetary policy and inflation. But that they should also carefully watch credit spreads to prevent asset bubbles from reaching dangerous levels.

What I found particularly interesting about this book was the comparison of the Great Depression to the 20-year Japanese deflationary cycle from 1989- present. Many doomsday economists continue to predict a repeat of the Great Depression scenario for the global economy over the next 10 years. Japan is a recent example of why this will likely not occur. Even though the stock market drop in Japan rivaled the drop during the Great Depression, the unemployment rate never climbed above 6% in Japan versus 25% in the US during the Great Depression.

The key difference was Japan’s commitment to propping up their banking system– government bailouts/zombie banks. Although this is not a great outcome, it is a far better outcome than the deflationary debt cycle that characterized the Great Depression with many bank runs and failures.

The cost of capitalism according to Barbera is that we must accept at times government intervention; bailouts and increased regulation. The danger is that this sentiment overshoots and capitalism becomes socialism or worse. Capitalism remains the most effective economic system for increasing the standard of living and raising millions out of the devastation of poverty.

Barbera states that no one can accurately predict the future. But we must all make decisions daily with some speculation about what the future holds. The problem is that we have a tendency to project the recent past into the future. The reason this is a problem is that the future usually does not unfold in a way that mirrors the recent past. Barbera’s hope is that we can restore capitalism but can learn from the destructive effects of allowing asset bubbles to reach tipping points in the future.

Ashley Hodge

http://stewardshipmandate.com

Tags: advisors, Ashley Hodge, asset bubbles, bailouts, Bob Brooks, capitalism, Deceptive Money, deflationary debt cycles, economic philosophies, financial crisis, global economy, Government, Great Depression, Hyman Minsky, Joseph Schumpeter, money managers, Prudent Money, recession, regulation, Robert Barbera, socialism, The Cost of Capitalism

I recently finished a book called The Fourth Turning that was written in 1997 after loosely discussing the theme of the book with a friend. The book is a pessimistic guess on what the American experience might look like from 2000 – 2020. It has gathered attention because some of the predictions have materialized to some degree: war on terror and global financial crisis.

You can read a brief summary of the book here. The authors- Strauss and Howe- lay out three views for history:

1. Chaotic time: history has no path. It is just a series of random, meaningless events.

2. Cyclical time: there is a pattern to history. Just like the seasons of Winter, Spring, Summer, Fall, history follows a process of renewal (high), awakening, unraveling, crisis.

3. Linear time: time is a progressive story with a beginning and an end. There will be struggles along the way but ultimately mankind is on an upwards, progressive path.

From my understanding of biblical revelation, I believe there is a fourth option that Christians would adhere to:

4. Combination of cyclical/linear time: God has created a natural order. There is certainly a cyclicality to this order as we see evidenced in the seasons. God has also revealed a progressive redemptive plan. Mankind starts in a pristine garden (Genesis). We end up in a restored city (Revelation). The biblical story of Creation, Fall, Redemption and Restoration has a definite linear quality to it.

Strauss and Howe take the view that history is cyclical. They propose the theory that the US will experience crisis every generation (80 years or so). They point to: the American Revolution in the 1770s; Civil War in the 1860s; Great Depression/World War II in the 1930s/1940s to make their point.

In their view, we are due for a life altering crisis that will redefine our nation. History may look at this period of 2000-2009 as a significant enough crisis to qualify for their gloomy view. However, Strauss/Howe believe things will get much worse. They see a period similar to the 1930s and 1940s in store for us. They think we will experience political upheaval, potential world wars, economic distress and the potential collapse of American society.

It is scary stuff. What should a Christian do about these type of predictions? Some things never change. God has a plan that He is unfolding. We are privy to the end result but not the process. We are called to live a biblical lifestyle in every economic period- a balance between pessimism about the nature of man and hopefulness centered on the goodness of God.

I have a quote on my desk by John Kenneth Galbraith, “The function of economic forecasting is to make astrology look respectable.” Only God knows the future. It is a good future for those who have been called according to His purpose. We must proceed in faith, wisdom, hope and love.

America is going through a natural economic cycle of reaping economic distress caused by the carelessness of consumers and the greed/stupidity of policymakers. The results have been worse than I saw coming. But there is hope that if we return to prudence, stewardship and sound financial principles that we will recover and build a stronger tomorrow for our children. We seem to be at a crucial moment in our country’s history. We need to pray for God’s favor and for leaders to be filled with wisdom in navigating these problems.

More than anything, we (I) need to be reminded of this truth. It is a trustworthy statement that deserves full attention, Christ came to save sinners of which I am the worst of them- I Timothy 1:15. At the root of our nation’s problems is the same culprit of every problem: sin. Greed, addiction to leisure, presuming on tomorrow, selfishness, laziness, lust and pride. These things don’t remain unchecked for long. We cannot sow bad seeds and pray every year for crop failure. It is time to sow seeds that produce good crops: love for God and neighbor, unselfishness, generosity, humility, courage and goodness.

Trusting in God’s Plan,

Ashley Hodge
http://stewardshipmandate.com

Tags: American Revolution, American Society, Ashley Hodge, Bob Brooks, Christians, Civil War, Deceptive Money, economic distress, financial principles, Genesis, global financial crisis, God, Great Depression, greed, Howe, policymakers, prudence, Prudent Money, Revelation, stewardship, Strauss, The Fourth Turning, World War II

On the program the other day, I interviewed Senior Policy Analyst Pam Villarreal who is with the National Center for Policy Analysis.  We discussed the huge problem with Social Security and Medicare.  OK, make sure that you are sitting down when you consider this number.  

In her report, there is an unfunded liability of 107 trillion dollars.  If the Government had to pay out all of their liabilities that they owe just for those two programs, they would need 107 trillion dollars in the bank. It is not even imaginable.   

Currently, they take in money from payroll taxes and then pay it back out.  It is referred to “pay as you go.”  Social Security will work on that basis until 2016.  At that point, there will not be enough money coming into the Government to pay the Social Security tab.  Oh, and those trust funds are merely a myth.  Those were tapped a long time ago.

Actually Social Security is not even the current problem.  Medicare Part A is already underfunded. The Government has to go into the general fund just to pay for this.  There is not enough money coming in from payroll taxes to fund that program.  

So what is the solution?  Besides getting rid of all of the politicians (sorry just dreaming out loud), President Obama will be forced to go back on his promise not to raise taxes on the middle class.  Payroll taxes will have to go up.  Benefit periods will need to start later.  It is a combination of things.

Is it already too late to fix the problem?  Well Social Security and Medicare reform are not even on the agenda.  If the problem is not addressed soon, it will be a nightmare down the road.  There simply will be more people on benefit than people paying into the system.  

The Government is trying to figure out how to socialize the country and make sure that they pick up the tab for everything from health care to energy to running corporations of all types.  We have an unfunded 107 trillion dollar liability and the Obama Administration is coming up with program after program that will put us into more and more debt.  

The sad part is that we are so far past any solution now, when we are looking at trillions of underfunded liabilities.  

Consider this and put this in perspective:  I copied this information from an e-mail.

1 million seconds = 12 days, so a million seconds ago would be June 12, 2009

1 billion seconds = 32 years ago, wow, way back in 1977

1 trillion seconds = 32,000 years, approximately 30,000 years BC,
before Christ!  

Now multiply that by anywhere from 20 to 60!  Yes, Houston, we have a problem.

Tags: Bob Brooks, Deceptive Money, Government, liabilities, Medicare, Medicare Part A, Pam Villarreal, payroll taxes, President Obama, Prudent Money, Social Security, Tax Rate

I think that our current situation could feel like we are in a depression at some point.  However, I doubt that you could hardly compare this to the Great Depression. Michael Panzner wrote in his blog (www.financialarmageddon.com) a great illustration of those times.

“But then the world seemed benign enough in early 1931. It is the second phase of depression that does terrible things.

Roosevelt took over a country where the economic machinery had completely broken down. The New York Stock Exchange and the Chicago Board of Trade had closed. Thirty-two states had shut their banks. Texas had restricted withdrawals to $10 a day.

Few states could borrow on the bond markets. Illinois and much of the South had stopped paying teachers. Schools closed for months. An army of 25,000 famished war veterans squatting in view of Congress had been charged by troopers of the 3rd US cavalry with naked sabres - led by a Major George Patton.

Armed farmers threatening revolution had laid siege to a string of Prairie cities. A mob had stormed the Nebraska Capitol. Minnesota’s governor was recruiting Communists only for the state militia. Lawyers attempting to enforce foreclosures were shot. More than 100,000 New Yorkers applied to go to the Soviet Union when Moscow advertised for 6,000 skilled workers.

We forget how close America came to open revolt. Eleanor Roosevelt feared the country was beyond saving. Her husband kept the faith. He channelled the anger against Wall Street, diffusing it. “The practices of the unscrupulous money-changers stand indicted in the court of public opinion,” he began his presidency.

The Fed was an ideological deadweight. Bowing to pressure from Congress it began to purchase bonds in mid-1932 to boost the money supply, but then recoiled, before retreating into pitiful self-justification. A third of the rescue funds in Hoover’s Reconstruction Finance Corporation had been embezzled. “

Things could get bad enough for this time period to garnish its own depression label.  However, the Great Depression was not called “Great” for nothing.  Unemployment was 25%.

Tags: Bob Brooks, Deceptive Money, Depression, Great Depression, Prudent Money, Unemployment

I have heard time and time again that the Government has to do everything in its power to prevent a deflationary recession.  They desperately want you to think that we they are winning the fight against deflation.  What they don’t want you to know is that deflation is here and that battle has been lost.

The minutes from the last Federal Reserve Board meeting revealed some deep concern.  Their notes signaled that “the recession could be longer and deeper than officials previously thought, with unemployment rising into next year and inflation slowing substantially” (another way of saying deflation).

First, a few definitions would be helpful.

A normal recession is one in which the economy goes through a period of weakness and then bounces back and starts a brand new growth cycle.  The growth in the economy contracts for two quarters at a minimum.  There is some pain for the economy.  However, it is not that bad. 

A deflationary recession is a much bigger recession.   Deflationary recessions are characterized mainly by falling prices and values of everything.  Think of a normal recession as a Category 3 hurricane and a deflationary recession as a Category 4 hurricane.

We should not be hoping we avoid a deflationary recession.  We should be hoping that the deflationary recession that is already here does not take hold like the one did in the 30’s in the US and the 90’s in Japan or transition from a deflationary recession into a depression (Category 5 hurricane).

It is hard to understand how any economist can look at this current environment and not come to the conclusion that we are in a deflationary recession.  You can see deflation in the stock market, real estate, the destruction of credit, the unwinding of the debt bubble, consumer prices on retail goods, the price of oil, consumer confidence, etc.

The unemployment numbers that came out on Friday emphasize the problem that we are facing.  We lost 524,000 jobs in December.  They revised the numbers for the prior two months and added another roughly 160,000 in losses.  This made 2008 the worst year since 1945.  We lost over 2.5 million jobs in 2008 and that was after the Government estimated in their numbers that we had created 904,000 jobs.  The unemployment rate stands at 7.2%.  Unfortunately, I think that this unemployment rate will easily be north of 10% before this is over.

The work week is averaging 33.3 hours.  That is the lowest on record.  Another sign of deflation came out on Thursday with the consumer borrowing numbers.  In November, consumer borrowing contracted by 7.4 billion dollars (another record).

My biggest concern is that the investor is drinking the Kool-aid that the worst is behind us and this is the greatest buying opportunity ever for the US investor.  Financial media is acting as if this is a normal situation where everything is at the bottom and it only gets better going forward.  

Continue to be careful with the risk that you take.  It looks to me like the bear market rally that started in November ended at the end of December and we are heading back into the bear market again.  

Tags: Bob Brooks, consumer confidence, credit, Deceptive Money, deflation, Deflationary recession, Depression, detb bubble, economist, Federal Reserve Board, Government, inflation, jobs, Newsletter, normal recession, Prudent Money, real estate, recession, Unemployment, unemployment rate

The plan states that “two out of every three families – 68% – have been noticeably affected by the financial setbacks in America. Nearly one out of every four (22%) said they have been impacted in a “major way,” almost four out of ten have been affected “only somewhat” and about one out of every twelve (8%) say they have not been affected too much.”

George Barna, who conducted the study, stated that “the giving patterns we’re witnessing suggest that churches, alone, will receive some $3 billion to $5 billion dollars less than expected during this fourth quarter. The average church can expect to see its revenues dip about 4% to 6% lower than would have been expected without the economic turmoil. We anticipate that other non-profit organizations will be hit even harder.”

This is a critical time in the life of the church for many reasons.  First, this financial crisis affords the greatest opportunity to get people who are not saved into the church.  You would be hard pressed to find a time better than this to show people Christ.

Second, the timing of this financial crisis has been especially serious.  The fourth quarter and in many cases December see the biggest percentages given to non-profits and churches   What doesn’t make its way to church budgets in December will cause programs to be cut and church employees to lose jobs.

Finally, giving is where people cut first.  The impact could be enormous.  

As Christians, what steps do we take?

It is important to realize that salaries, utilities, and expenses are paid through giving.  Churches have budgets of expenses just like any company.  They depend on church members to give.  Sadly, a small percentage of most church memberships actually tithe.  Additionally, a smaller percentage of most church memberships give sporadically.  

If you are not giving, give something to the church this December.  If you are facing tough times and are a regular tither and/or giver, I would encourage you to pray about finding ways to continue giving at this very critical point.

Don’t make the mistake of thinking that a small amount will not make a difference.  Small amounts given by the masses would make a huge difference.

For example, let’s say that you had a membership of 1,000.  Of that, 20% or 200 people gave faithfully.  Let’s assume that half of those who do not give gave $50 in December.  That would amount to $20,000 of giving to the church.  That could make up anywhere from 10 to 15% of a church budget.  Yes, the large numbers of people giving makes a difference.

Finally, if you just cannot give anymore or give at all, pray for your church.  Pray for the finances of the church.  Most importantly, pray that the church doesn’t miss one of the greatest opportunities of evangelism that this country has seen in decades.

Tags: Bob Brooks, church, Deceptive Money, finances, financial crisis, Prudent Money

It seems that those companies that have helped contribute to the destruction of the US financial system just don’t seem to get the seriousness of their actions.  After all, the Government certainly isn’t going to let a business fail.  So, there really aren’t any consequences for irresponsibility.  Well, executives at these bailed-out companies feel as if they are as entitled today to the good life as they were before the crisis. 

Entitled to Christmas Parties

Lloyd’s of London had recently received 6 plus billion dollars from a Government bail-out.  They also announced the big Christmas party that will be thrown this year to the tune of 3.7 million dollars.  The company representative said that the employees deserved (read: are entitled to) a reward after such a tough year. 

Entitled to a Partridge Hunting Trip

AIG, the poster child for financial irresponsibility, held a big $440,000 retreat on tax payer money.  Then a few of their top execs went partridge hunting.  The trip cost a mere $87,000.

A reporter asked one of the execs about how they were holding up during the financial crisis.  The executive said, “The recession will go on until about 2011, but the shooting was great today and we are all relaxing fine.”  Well, that is good.  I would hate for AIG, who is one of the big reasons why investors have lost all of that investment money, to be stressed about business.

Entitled to Golf

Fannie Mae, just 22 days after receiving a bail-out from the Federal Government, took 14 executives on a golf outing.  That cost the taxpayers $6,279.26.

Entitled to Bonuses

There is a huge debate in Congress about whether or not these companies should pay millions in bonuses to executives.  Are you kidding me?  There should be no debate about it.

I guess we shouldn’t be surprised.  These companies have proven time and time again that they aren’t responsible when given other people’s money.  They especially aren’t responsibile when given taxpayer money that has no strings attached to it.  Yes, Congress basically handed over the money with little or no restrictions.

Tags: Bob Brooks, Congress, Deceptive Money, Fannie Mae, financial crisis, Government, Prudent Money

I had this sent to me and it really describes the mistake this country is about to make.  It comes from President Reagan’s speech prior to getting elected.

to quote from the first paragraph:

“During the presidential campaign last year, there was a great deal of talk about the seeming inability of our economic system to solve the problems of unemployment and inflation. Issues such as taxes and government power and costs were discussed, but always these things were discussed in the context of what government intended to do about it. May I suggest for your consideration that government has already done too much about it? That indeed, government, by going outside its proper province, has caused many if not most of the problems that vex us.”

And how about this zinger from later in the speech:

“The most dangerous myth is that business can be made to pay a larger share of taxes, thus relieving the individual. Politicians preaching this are either deliberately dishonest, or economically illiterate, and either one should scare us. Business doesn’t pay taxes, and who better than business could make this message known? Only people pay taxes, and people pay as consumers every tax that is assessed against a business. Passing along their tax costs is the only way businesses can make a profit and stay in operation.

The federal government has used its taxing power to redistribute earnings to achieve a variety of social reforms. Politicians love those indirect business taxes, because it hides the cost of government. During the New Deal days, an under-secretary of the treasury wrote a book in which he said that taxes can serve a higher purpose than just raising revenue. He said they could be an instrument of social and economic control to redistribute the wealth and income and to penalize particular industries and economic groups.”

Recognize anyone in that description?

Really nothing else to say. I am very concerned that there is no way out now that we have started down the path of the U.S.S.A – United Socialist States of America.

Tags: Bob Brooks, Deceptive Money, federal government, Government, politicians, President Reagan, Prudent Money

It really saddens me to watch this market fall apart at this speed.  It is not that I ever thought that things would not be this bad.  I just never dreamed that things would fall apart in this manner.  The speed of a drop like this will end up being a defining moment for this country. It unfortunately ushers in the creation of drastic rules and changes that would have never been considered in normal times.  Once implemented these new changes and rules that are created in a time of chaos become our new normal. 

I thought that it would decline like most bear markets in the past.  It took 22 months in the 70’s to decline 47%.  It took exactly 12 months to the day (October 9, 2007 was THE market high) to drop 42%.  The speed of this drop has been incredible.  Since the Great Depression, this is the worst 12 month decline on record.  This is probably the worst 7 day period in the market in history.  

Roughly 5 trillion dollars have been lost in retirement money in this country.  I think about many of my friends who are in my business that are facing some pretty horrific situations with their clients.   As an advisor, you would be in a pretty bad situation if you didn’t have your clients prepared ahead of time for this fall-out.

The stock market crash of 1987 was pretty horrific.  Today, this is no different.  It just took 7 days to do what the crash did in 1 day.  I would even suggest that this particular situation is much worst due to the fact that this has lasted for a year and the total drop is so much larger.

Going forward, it is hard to come up with much of a forecast.  All of my indicators are at record levels.  As a money manager, it is almost like managing money in the dark.  We are in as unprecedented times as they get.  All bear markets take 2 to 3 years to drop as far as this one has dropped in 12 months time.  Unfortunately, the only exception to that is the great bear market of 1929.  

I do think that we are heading for the bear market lows of 2002 which is 775.  That forecast has never changed. I just never believed we would get there so fast and I hope that we are not looking at it in the next week. 

The speed of a drop like this will end up being a defining moment for this country. It unfortunately ushers in the creation of drastic rules and changes that would have never been considered in normal times.  Once implemented these new changes and rules that are created in a time of chaos become our new normal.  Unfortunately, a new normal that we would have never volunatarily chosen.

I have written ad naseum about the changes this country needs to seek in the area of leadership.  I hope that this credit crisis opens up the eyes of the American people and a loud voice is heard in Washington changing the landscape of politics forever. 

The finger still points to Washington.  I hope that those campaign contributions from the companies that helped destroy are financial system were hopeful.  I hope that the politicians enjoy their endless terms on our dime. 

Tags: bear market, Bob Brooks, credit crisis, Deceptive Money, Great Depression, market, money manager, politicians, Prudent Money, stock market crash

I have been away from the office and out of town attending a funeral.  Funerals always provide the proper perspective of what is important and what really matters.  Being away also afforded me the opportunity to get away from the market and the computer screens and financial media.  I wanted to share a few thoughts with you.

(1)              These declines in the market have been worse than anything we saw in the last bear market between 2000 and 2002. 

This even includes 9/11.  I think that it is important to put the severity of this decline in proper perspective.  The indicators that I follow are at extreme readings.  These readings are more extreme than the crash of 1987 and any time period in the last bear market.  In fact, some of the indicators that I follow have set historical records over this past week.

(2)              This is not an ordinary time period in our country right now

William Straus and Neil Howe wrote a very fascinating book called The Fourth Turning.  In the book they describe a theory of American history as a series of recurring 80- to 100-year cycles.  Each cycle has four “turnings”-a High, an Awakening, an Unraveling, and a Crisis.

Basically, a country will start out at the bottom, experience growth, greed will take over, everything becomes imbalanced, and then crisis hits.  Once the crisis has ended, the country is back at the first “turning” again and starts over the progression through the four turnings.

Each one of these crisis moments has defined America.  The last crises have been the American Revolution, the Civil War, and the Great Depression/World War II.  Each one of these events has shaped the future of our country.  I believe that we are in such a crisis right now.   I do believe that this crisis we face will create change in this country. 

(3)              The Federal Reserve Board and the Treasury do not matter anymore

In my various writings over the past few years, I wrote that I felt a time would come when the Federal Reserve Board and the Treasury would not matter to the market.  Up until now, the Fed could decrease interest rates and the market would take off to the moon.  The Fed had influence over the markets.  Now, that influence has diminished.  They “over manipulated” the market.  Now their manipulation strategies have no influence.    

There is nothing there to support the market.  They are just about out of ammo.

(4)              Right now is probably not the best time to just dump stocks unless you have an alternative strategy in place

I continue advocating for anyone to reduce risk when it comes to investments.  At the same time, right now when the market is at these extremes, it is probably not the best time to do so.  Some of the biggest stock market rallies happen within bear markets. 

For instance, look at these stock market moves during the last bear market.

-  Between March and May of 2001, the S&P 500 went up 17%

-  Between September 2001 and January 2002, the S&P 500 went up 20%

There can be some big increases in stocks as the selling takes a breather.  The better time to reduce some of your risk in your investments is during those times when the market starts increasing. 

Put a system together to reduce your stock exposure.  If you are in a situation where the stress is eating you alive and affecting your health, I think that it is important to go ahead and consider getting out.  This is not an easy strategy.

If you are moving your investments in an active investment management strategy where the money would be managed, then it would probably make sense to make the changes based on your new money manager’s suggestion. 

Tags: bear market, Bob Brooks, Deceptive Money, market, Prudent Money, Stock Market