State Of The Dis-Union (Part 1)

It's THAT time of the year for us politicos.  Annual report time for America Corp., also referred to more popularly as "The State Of The Union" address, delivered by our President and Chief Executive.  George Washington delivered the first one in 1790, Barack Obama just orated the most recent one, Tuesday evening.

If snap opinions poll results were the appropriate guide of success, President Obama hit a grand slam. Reportedly, more than 90% approved of the ideas proposed in the speech and more than 80% said they supported the economic plan laid out  http://www.politicsdaily.com/2011/01/26/obamas-centrist-tone-hits-right-note-state-of-the-union-ratin/?icid=main%7Chtmlws-main-n%7Cdl1%7Csec1_lnk3%7C197372.   For a President whose party suffered the most stunning mid-term defeat in history, this has got be one helluva shot in the arm.

If, for some reason, you weren't a part of those majorities, I have VERY bad news for you.  According to the President (who, apparently is trained as a psychologist): "Mr. Speaker, Vice President Biden, members of Congress, distinguished guests, and fellow Americans, nearly two years into our recovery from a recession that left our financial system on the verge of collapse, I stand here today confident that America is on a path to a better tomorrow, despite all the nutjobs and lunatics out there whose behavior is, honestly, kind of weirding the rest of us out."  (http://www.theonion.com/articles/obama-aside-from-all-the-weirdos-and-freaks-around,18929/).

Maybe if Dr. Obama would prescribe us nutjobs some psycho-tropic drugs, we could see the nearly two year recovery, too!

Did he REALLY say 2 years into our recovery?  The same 2 years in which the economy has lost 8 million jobs?

Well, then call me one BIG-TIME lunatic who's "weirding you out"!  At least, I have good company.

It seems you could also count the Federal Reserve among the lunatics.  Concluding a 2 day committee meeting, they left interest rates at ZERO and recommended ANOTHER $600 Billion in bond purchases:  http://finance.yahoo.com/news/Fed-says-economy-needs-600B-apf-204644297.html?x=0&sec=topStories&pos=main&asset=&ccode=.  Only in the last 2 years, have they had to employ a desperate tactic popularly known as "Quantitative Easing", by a Chairman, who has said that money might have to be thrown out of helicopters.  Figuratively, of course.

Perhaps the problem is nothing but semantics.  If one could re-define a few of the criteria for a 2 year economic recovery as:

1.  Near 10% unemployment;
2.  A "cash-based" budget deficit running at $1.5 Trillion;
3.  Municipalities and States teetering on defaulting on their debts;
4.  Massive "Quantitative Easing";
5.  Record bailouts and "Troubled" Asset Purchases; and
5.  Record home foreclosures,

then the economy must be in one helluva nearly two year recovery! 

Maybe the time has come for us lunatics to run the asylum!  Remember Candidate Obama?  He kept telling us how horrible the economy was when we had 8 million MORE people employed.  The budget deficit was half, local governments were still solvent, the Fed wasn't running the presses overtime and more homes were occupied by owners.

Candidate Obama was right!  Unfortunately, President Obama who attempted to enact Candidate Obama's policies, has run out of time to blame George Bush.  The only option is for President Obama to declare victory by altering the definition of victory.  Hell, if you set the bar low enough, even "Mini Me" could become an Olympic gold medal pole vaulter!

In Part 2, we will do a thorough "Marko's Take" analysis of the proposals set forth and run them through our proprietary "Take-Meter".

In order to deal with the issue of understanding very confusing phrases such as "nearly two year economic recovery", we have prepared a special Candidate Obama/President Obama Dictionary for those aren't fluent in both.

Marko's Take

It's A Mad, Mad, Mad, Mad Market

It is the best of times.  It is the worst of times.

There are a smattering of data points that suggest that the global financial and economic arenas are slowing making progress toward a legitmate recovery.  That doesn't exactly get us to the BEST of times, but by comparison to 2008, it's practically utopia.  We don't wake up every day to the news that some major company has gone bankrupt or some huge financial institution has become insolvent. 

Unfortunately, the smattering is nothing more than a smattering.  The vast, vast majority of data suggests that markets are at a top of significance akin to 2000 or 2007. 

Investors are convinced that it's the best of times.  When they do, the worst of times immediately follow.   Nothing compares to the madness of crowds at market extremes! http://markostake.blogspot.com/2010/12/psychology-of-investing-part-1.html and http://markostake.blogspot.com/2010/12/psychology-of-investing-part-2.html. 

According to Barron's weekly survey (http://online.barrons.com/public/page/9_0210-investorsentimentreadings.html), the crowd is as mad as a hatter.  Bullishness is at historically extreme low levels.  Only 19% of newsletter writers currently identify themselves as bears (http://www.market-harmonics.com/free-charts/sentiment/investors_intelligence.html).  Coincidentally, the identical readings were measured at the market peaks of 2000 and 2007.

Americans in general think it's just about the worst of times according to Gallup, with only 19% satisfied http://www.gallup.com/poll/145610/Satisfaction-Remains-Near-Month-Low.aspx.  This crowd seems quite sane to me.

The trading behavior of the markets itself are mad.  The last two trading days have been outright schizophrenic.  According to Yahoo Finance, as the indices were making new multi-year highs, and after a run of 7 straight weeks of advance, an unbelievable 4% of issues traded on Friday made new LOWS!  Huh?  Would someone pull the DSM-IV off the shelf and sit this market down on the couch?  Maybe hand it a Kleenex?  Prescribe it a boatload of psycho-tropic drugs?

NOT mad are investors in the commodity and precious metals arena.  Despite the massive runup in gold, silver and the companies that mine them in 2010, sentiment is anything BUT extreme.  According to Gold sentiment analyst Marc Hulbert, gold "fever" has fallen to very reasonable levels since October, as prices have remained in a trading range http://tradersnarrative.wordpress.com/2011/01/13/gold-sentiment-more-pessimistic-while-price-close-to-highs/.  This suggests that healthy skepticism remains and thus that any pause in the action is likely temporary, or that any correction in prices ought to be fairly mild. 

In this tale of two markets, investors have two choices:  Follow the crowd which is sometimes mad but nearly always wrong, or follow "Marko's Take", which is sometimes right, but nearly always mad.

Marko's Take

Eleven Predictions For 2011 (Part 2)

After turning in a decent, but not spectacular, C+ performance in 2010 http://markostake.blogspot.com/2010/12/eleven-predictions-for-2011-part-1.html, "Marko's Take" shoots for the blog honor roll in 2011.

2011 is shaping us as the year in which we may experience things that we never could have imagined before.  And, in the United States, of all places.  In no particular order, here are just a few of the events the world is going to have to deal with:

1.  A Global Stock Market Beating.   While our bearish posture was very premature, we continue to believe that the stock markets are making MAJOR historic tops.  The Dow Jones Industrial Average ought to drop below 8,000 sometime during the calendar year.  For a more thorough recent stock market analysis, click here: 
 http://markostake.blogspot.com/2010/12/hindenburg-sightings-overtake-elvis.html.

2. Increased Global Militarism.  What better way to deal with a crummy global economy than to jump-start spending with a good ole fashioned war?  It's that simple.  Oh yeah, and let's not forget the ongoing tensions in the Middle East with Iran and nukes and terrorists.  North Korea, anyone?  For some of the latest thinking on how War is defined and conducted, click here:  http://markostake.blogspot.com/2010/11/world-war-iii-continuesconducting-war.html.

3. Rapid Global Economic Downturn.  The tepid worldwide recovery is now running out of gas as the stimulative benefits of all the bailout programs have pretty much been absorbed by the system.  The Federal Reserve is out of power and out of bullets.  Wanna know why?  Here's your answer:  http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.

4. Short-term Interest Rates Remain Low While Long-term Rates Move Steadily Higher Throughout The Year.   The reason?  Increasing signs of simmering inflation leading to hyperinflation throughout the year.  More on this topic come.

5. The Precious Metals Markets Will Continue Strong Though The Year.  The question is how strong?  We continue to maintain our long-held belief that Gold will reach or exceed $5,000 per ounce with Silver heigh-ho-ing its way to at least $250.  Any target for year-end would be nothing but a sheer guess.  Some recent thoughts and ideas on how to play this bull market can be accessed here:  http://markostake.blogspot.com/2010/10/gold-and-precious-metals-miners-set-to.html.

6. Martial Law.  Yes, you read that correctly.  My reasoning for this is contained in this piece:  http://markostake.blogspot.com/2010/09/independence-day-2011-will-not-be.html.  While the dark scenario portrayed in that essay has veered a bit, I still stand behind it and hope to death I'm wrong.

7. Civil Disobedience.  It didn't happen in the United States this year as I had forecast, but it happened all over Europe in response to budget cutbacks.  So, why would someone think it can't happen here?

8. European Sovereign Debt Implodes.  The troubled European issuers of sovereign debt will only have bought time through the ill-conceived bailouts and budget austerity programs.  By this time next year, everyone will wonder how on Earth anyone with a brain could have possibly bought these bonds yielding anything under 10%. 

9. Global Financial Crisis.  Whether it starts with a Sovereign Debt Crisis or a currency crisis or the discovery of an entire new layer of bad, overmarket assets in bank balance sheets, the global financial system can hardly withstand an accident, let alone a Chernobyl.  If some number of trillions of dollars thrown at our financial system didn't really get us out of the last mess, what weapons do we have left?

10. Dollar's Slide To Second-Tier Status Continues.  Just last month, China and Russia decided simultaneously to abandon the USD http://www.dailymail.co.uk/news/article-1332882/China-Russia-abandon-dollar-new-bilateral-trade-agreement.html.  In its favor, the Dollar has only a few better alternatives, like this barbaric relic called Gold.  At this time no paper alternative possesses the liquidity and stability to repace the Dollar as a bona-fide reserve currency.  Unfortunately, China and Russia's actions means one thing's for certain.  A probably Gold-back new reserve currency will be created.

11. Big Bonuses At Government Sachs.  So what if you played a key role in wrecking the global economy and financial system?  So what if your clients lost all their money?  The reason these guys can get away with anything, you ask?  Well, here's your answer:  http://markostake.blogspot.com/2010/07/sec-no-match-for-government-sachs.html.  But if you really need some additional background, this video explains the nitty gritty:  http://www.youtube.com/markostaketv#p/u/0/k-kBRC7yoVc.

2011 kinda feels like a bunjee jump, doesn't it?   Here's to hoping that our elastic straps hold!

Marko's Take

Eleven Predictions For 2011 (Part 1)

While it's fun to speculate on the future course of very unpredictable world events, it's much less fun to review how one's past forecasts have turned out. 

About a year ago, we did a special outlook on 2010 putting forth what we expected to see: http://markostake.blogspot.com/2010/01/10-predictions-for-2010.html.

How'd we do?  Well, it depends on how one grades oneself, but let's be brutal, shall we?  After all, we've "Taken On" Goverment Sachs, Al Gore, Barney Frank, Barrack Obama, Warren Buffett and many, many more.  We've also lit fuses under the collective behinds of virtually every major financial and political figure.  Virtually no one came out unscathed.

So, what happens when "Marko's Take" takes on "Marko's Take"?

Predictions that were basically good include the ones about Republicans seizing control of both House and Senate.  While they did NOT get the Senate, the prediction of the landslide was made on January 16th, 2010, well before the dissatisfaction with everything Obama took the Democrats for a political car-jacking. 

We were skeptical that this country would see Obamacare.  That, too was a good call.  That god-awful piece of socialist legislation was not and NEVER will be enacted, although it did pass Congress.

Interest rates remained at very low levels all year.  Dead on!

The Dollar is beginning a process of being relegated to second-tier status as China and Russia are now transacting in Gold and alternative currencies.  Touchdown!

The stock market did indeed rise and sharply in 2010, but we can't do "chest bumps" about that one.  Many times during the year, citing everything from astronomical phenomena to arcane and rare technical indicators, we became extremely bearish WAY too early.  That crow soup we've been eating is starting to get old.  Mea Culpa! 

"Marko's Take" has maintained an ultimate target of $5000 per ounce for Gold and several hundred dollars per ounce for Silver.  Our bullish stance was overall correct, even though I would have thought that $2000 for Gold would be the existing price level today.  Nonetheless, this one goes to us.

Things that didn't happen:  Civil disobedience from shortages of staples like food and water, a collapse in Commercial Real Estate led by strip malls, no "Windfall Profits Tax" on oil, the economic recovery did NOT sputter by the 2nd quarter and residential real-estate prices did NOT rise.

Overall grade?  How does C+ sound?  Not Summa Cum Laude performance, but certainly enough to be at the top of the Delta Tau Chi fraternity in Animal House.  No need to be put on "Double-Secret Probation", yet!

Part 2 will present our new 2011 forecast, will 11 new surprising, shocking, scintillating predictions.  Same Bat Time, Same Bat Channel.

Marko's Take

High Economics (Part 2)

If the first economic argument for legalization of marijuana (http://markostake.blogspot.com/2010/12/high-economics-part-1.html) didn't pursuade you, there are many more. 

Incarceration for marijuana offenses is fairly small, accounting for less than 1% of the prison population, but it does still keep about 60,000 inmates supported at taxpayer expense.  It is believed that the annual cost is on the order of $1.2 billion.  That does not include scarce court time, legal resources or police time which is allocated to enforcing an unpopular and needless code of law.

Then there is the medical aspect.  Marijuana is now used to treat nausea from chemotherapy, anxiety, pain, glaucoma and insomnia.  But is it safe?  Remarkably so.  Of all the causes of death monitored by the Food and Drug Administration, marijuana comes in DEAD LAST, with NO fatalities (http://www.economicsjunkie.com/annual-drug-related-deaths-in-the-us-marijuana-ranks-last-with-zero/).
Even aspirin, which many doctor recommend be taken daily, accounts for thousands of deaths per year.

But, despite overwhelming societal and economic benefits, Proposition 19 did NOT pass in California.  What are the arguments against?  The main objections to legalization are focused on the belief that marijuana use is addictive, a "gateway" to more serious drugs and a factor in greater crime.  There also exists the fear that once legalized, we'd become a nation of Cheech and Chongs.

The U.S. Drug Enforcement Agency (DEA) has issued this position piece outling the arguments against:  http://www.justice.gov/dea/ongoing/legalization.html. 

The addiction argument is absurd in light of legal alcohol, cigarettes, soft drinks and prescription drugs, all of which are far more injurious to the user and most importantly, can be FATAL to abusers and second-parties.  Caffeine is addictive.  And, to some, so is shopping, sex and gambling.  So is reading "Marko's Take"!

The crime argument is equally absurd.  Marijuana is a sedative.  How many stoners pull off a bank heist or hold up a 7-11?  And, should marijuana become legal, the price would certainly drop.  So, the notion that one has to go rob a gas station for a few joints becomes preposterous. 

According to federal statistics, nearly 100 million Americans, or 1/3 or the population, have, at least at one point in their lives, imbibed.  Cigarette smokers make up about 25% of the adult population, while drinkers make up more than half.  Experience with both prohibition and other countries experimenting with legalization have shown that very few NEW people will  become  users.  And, so what if they do?

Merry Christmas!

Marko's Take

High Economics (Part 1)

Few national political issues are as clear-cut as the growing movement toward legalization of Marijuana.  The reasons for supporting this NOW are numerous and quite financially substantial.  With a few more votes and the stroke of a pen, we can take a major step toward trivial matters such as balancing the budget.

According to recent article in Time Magazine, more than 500 prominent economists agree that the legalization case is a no-brainer (http://economics.about.com/od/incometaxestaxcuts/a/legalize_pot.htm).
Odd, that "Marko's Take" was not consulted.

Public sentiment is growing tired of the vestiges of persecution for those involved in minor possession.  Recently, a jury in the conservative state of Montana could not be assembled because of the virtually unanimous sense that it was an utter waste of private and public resources  (http://billingsgazette.com/news/state-and-regional/montana/article_d6b1aaca-edfc-527f-ad11-f1691fdc6e3b.html).

Marijuana is a massive industry even when compared to other substantial agricultural industries.  The largest countries growing, apart from the United States, are clustered in Central and South America  (http://edition.cnn.com/2008/WORLD/americas/11/25/paraguay.mexico.marijuana/index.html). 

In the United States, California is dominant, with nearly 50% of national production totalling a paltry $12 billion per year (http://www.drugscience.org/Archive/bcr2/domstprod.html).  Think citrus is big?  According to recent data, the total annual production of Florida's ENTIRE citrus crop is a mere $9 billion  (http://www.ehow.com/list_7344390_states-large-amounts-citrus-fruits_.html).  California is number 2 in citrus meaning that marijuana is twice as big as this state's citrus industry.

So, let me get this straight.  We have a $12 billion industry which is NOT paying taxes, hiring people who are NOT paying taxes and selling a product which has NO sales taxes.  And, we have a state budget problem which is forcing cutbacks everywhere.  And, one recalls a ballot proposition to legalize that LOST?

So, if I you ever hear someone affected by the state cutbacks complain to you, ask them how they voted on the California referendum to legalize marijuana.  If they answer that they voted no, please send them this blog so they'll shut the hell up!

But legalization doesn't just stop with selling the plants for medical or recreation use.  The fibre of the cannabis plant, known as hemp, has an amazing variety of uses from clothing, to paper, to biomass, to medical to even jewelry (http://en.wikipedia.org/wiki/Hemp).  The estimated size of the domestic market for hemp-based products is on the order of $500 million.

But, the benefits hardly stop there.  In the next part, we'll discuss more fully the medical and criminal aspects, either of which, alone, would be enough to warrant its legalization.

Marko's Take

The Educators Are The Ones Needing Education (Part 3)

You didn't think the multi-part series on financing education would end with an endorsement of school vouchers, did you?  There actually exists an even better "Marko's Take" solution.

To get up to speed on the issues of financing public and private education, the prior two blogs can be accessed here:  http://markostake.blogspot.com/2010/12/educators-are-ones-needing-education.html.

If we all agree that an educated society is in everyone's best interest, then the only issue is how to finance it.  Just a few of the key economic benefits of a better educated populace include higher employability, income,  productivity with a much lower crime rate and dependence on the public dole.

We can take this logic much further.  If I earn an additional $1 million lifetime dollars as the result of public generosity, than wouldn't it be much FAIRER if I SHARED some of that with the people who financed me as I actually earn it?   Of that extra cool mill I just made, why not pay as I go as long as I earn?  This can be done through a small income tax surcharge which is earmarked specifically for future students.

This plan would also accomplish eliminating all the dead-beats who borrow and NEVER pay the loans back.  According to recent data from the Department of Education, student loan default rates are soaring:  http://www.ed.gov/news/press-releases/student-loan-default-rates-increase-0.

The stated default rate is actually believed to be much, much higher than the 7% official rate.  Many firms have been set up to keep a defaulting student from officially being characterized as such to protect credit scores and bank balance sheets. 

The really sad thing about student defaults is that the majority have the capacity to actually pay the loan back but rationalize non-payment because it's government-guaranteed and little enforcement mechanism exists. 

The IRS, I think we'd all agree, is far better at collecting debts than the Department of Education.  But, another solution would be to use the present value of loans to offset future Social Security liabilities.  The thought here would be to eliminate future public liabilities in exchange for funding some level of education.  A higher income earner would certainly have a greater capacity to actually SAVE for retirement!

Now how simple would this be?

For more on the Social Security system, we have two videos which explain the system itself, as well as a "Marko's Take" solution.  They can be viewed here:  http://www.youtube.com/markostaketv#p/u/3/twFn9XyP2rI and here: http://www.youtube.com/markostaketv#p/u/2/7Rl6XtobFpE.

Marko's Take