The Market Oracle contributors possess one common point of view (with the exception of the esteemed Mike Stathis) regarding the present nationwide controversial issue raging within the borders of the United States: reforming the US national health care system.

To be fair, the contributors to the Market Oracle have been correct with respect to the US banking crisis, the US housing crash, and predicting the US market downturn well in advance. I had also been on the correct side of these issues, warning of a wide scale banking failure leading to a Depression in my book, “If Everyone were Rich, who would make me Dinner?”. My clients have (with tongue firmly in cheek) taken to referencing my book as the “modern day Nostradamus” with respect to predicting these events in an easily understandable format designed for those who are not financially learned.

The common theme provided by Mr. Schiff, Dr. Paul et al with respect to health care reform in the United States is that the US simply can not afford another massive entitlement program for it’s citizens. The theory espoused by these well learned individuals rails against the flaws of deficit financing of such programs. The central flaw in the arguments proposed by these authors is glaringly obvious but yet remain to date unsaid on the market oracle: The present United States Health Care System is not driven by free market capitalism.

While Mr. Schiff and Dr. Paul have been very clear on this site and others that a free market, unencumbered by government intervention is the panacea to the ills that plague the US Health Care System, they are missing the one glaring component of an efficient free market system absent in the US Health Care System: anti trust regulation.

The purpose of anti trust regulation in the United States is to prevent business entities from monopolizing industries and thus, fixing prices. The US Health Care System, specifically the US Health Insurance Industry, enjoys a rare exemption from anti trust rules in the US, thus enabling the US Health Insurance Industry to be controlled by a handful of companies that control and fix prices across the industry. The absence of anti trust regulation has created a monopoly of greed that has eroded the fragile wealth of the American citizen, and has become the primary reason for bankruptcy filings in the US.

Medical insurance premiums in the US now the equal of the average monthly mortgage payment. Never in the history of the US have medical insurance costs risen to such levels as they are today. In fact, the US spends twice as much on health care for it’s citizens when related to health care costs in other countries around the world. The lack of anti trust regulation permits the US government to turn a blind eye on the price fixing monopolization of the health care industry that is crippling the financial condition of it’s citizenry.

The absence of free market capitalism within the US Health Care System has created a monopoly that can not be dismantled overnight. Accordingly, the need for a direct competitor equal to the monopolistic size of the US health insurance companies must exist for any meaningful reform to take place. A public option, self funded by insurance premiums paid by the US taxpayer, is the only viable reform that makes sense at the present time. A public option is a compromise that keeps the health insurance industry solvent, but allows the presence of competition in the “not-so free market” of the US Health Care System.

To be clear, a public option is NOT an entitlement program. The notion of a public option is to provide a competitive balance to an industry that presently exists without competition, while funding the program with insurance premiums paid by the US taxpayer.

The US economy has shifted from a manufacturing economy to a service economy over the past three decades. A major contributor to domestic manufacturing costs is the cost of health care for it’s workers. As the US health care industry has risen to 20% of the overall US economy, these ballooning costs have led directly to the inability of US companies to compete on a level playing field with companies abroad. Accordingly, US companies have turned to cheaper imports to satisfy domestic demand and have shut down it’s domestic manufacturing concerns, leading to massive unemployment of it’s citizenry. The erosion of employment in the US has now bled over to the service sectors of the US economy, whereby simple customer service call centers are now being outsourced to other parts of the world, again increasing the intolerable state of the unemployed in the US.

Massive US unemployment has led to larger government programs that are paid with borrowed money, further contributing to the massive US deficit, weakening an already battered dollar, and leading, inevitably, to an impossible state of simultaneous inflation and deflation.

A first step in the effort to right the ship that is the US economy would be the implementation of a public option for the US citizen’s health care costs, while removing the anti trust exemption enjoyed by the US health insurance industry. Only upon these changes can the US begin to cure the ills that plague the US Health Care Industry, and by extension, the US economy. If there is any merit to the expression “So goes the US economy, so goes the world economy”, then it is the interest of all nations to see the US Health Care Industry cured.

Generally, I do not trade securities often, but due to a really dumb stock purchase, I was compelled to trade my way back to respectability.  For a good laugh: I was watching CNBC one mid-July day (the kiss of death), when at 3 pm, Maria Bartoromo  announces that her “sources” told her that the company, CIT, would have a resolution “within the hour” to it’s cash flow problems.  It should be noted that throughout the day, CNBC had reported that the President was kept updated on the situation, and the Treasury Secretary was in day long meetings with CIT to, in theory, provide the company with financial assistance.  Let’s see…banks getting bailouts have moved significantly higher since the march lows, so why not take a shot at this one?  I mean…CNBC would not intentionally mislead an investor, would they?  So, at 3pm I buy a bunch of CIT at 1.64 per share.  My idiotic idea was to hold this security for 45 minutes, so what was I really risking?  Well, at 3:10, the stock was halted.  Couldn’t sell if my life depended on it.  Bartoromo and CNBC had sucked me in (as well as 7 million other shares that traded hands in ten minutes).

Needless to say, CIT did not open for trading until the next day, while overnight it was reported that CIT failed to get government assistance.  CIT opened the next day at…31 cents!!!  To the rescue came David Faber, the dogged “investigative reporter”, who gave report after report of the imminent demise of CIT.  Faber repeatedly reported the company was filing bankruptcy the next day.  The stock closed at 38 cents, where I sold half of the pennies I had left just in case CNBC actually said something truthful.  Well, Friday comes and no bankruptcy.  The stock rises as high as 90 cents, whereby our dogged investigative reporter Faber gets on the tube to assure the audience that the company will file bankruptcy over the weekend.  Each time Faber reported, the price of CIT tanked.  Like clockwork.  CIT closed that friday at 77 cents.

The weekend comes and goes, and of course, no bankruptcy.  Instead, CIT worked out a deal over the weekend with it’s largest bondholders, who provided the company with 3 billion dollars worth of financing.  CIT opened on the following monday at 1.31…Not to be deterred, the CNBC tag team (first it was Bartoromo, then Faber) had Stevie “I got my economics degree from the bubble gum machine” Liesman, to jump on the bandwagon to let the whole world know that the recently obtained financing was only an overpriced bandage that would not stop the cash bleed at CIT.  Every time Stevie spoke, again and again, CIT tanked.  Thanks, Steve.  Wrong-o again.  Not once did any of the Three Stooges opine that they had gotten it wrong, notwithstanding the millions of dollars that were lost by investors who actually looked to CNBC for the story.  The trifecta of baffoons at CNBC  had  whipsawed me out of most of my investment…

The story has a happy ending.  After studying some charts, it looked like CIT could trade down to 77 cents, so I sold my position at 1.30.  I put in a buy for the same number of shares at 80 cents.  The next day, sure enough, CIT traded down to 77 cents.  I sold at a buck, then bought some CIT preferred.  After some zig zagging, I sold out of the preferred with a profit.  I still hold a little preferred, just in case CIT makes it out of it’s cash flow problems.  I then had to trade securities repeatedly to make up the difference I had lost in CIT.  I bought some fannie mae at 1.23, sold at 1.90 for another positive step back.  It felt like I was pulling myself up by my bootstraps trying to recover from listening to CNBC,  It should be noted that CNBC paraded expert after expert in front of the camera to tell you fannie mae was worth zero.

After a month and a half of trading, I’ve recovered almost the entire loss from CIT.  I am long Tenet Health Care, Rite Aid, Citibank, Huntington Bank, Etrade and UNG, the natural gas ETF.  Nat Gas is a risky play, but I bought at 9.50 and think it’s upside is 14 in the short term.  I just can’t reconcile the difference between the large run up in oil while nat gas has tanked.  I’ve read all about the oversupply issues in nat gas, and the problems that ETF’s are having with the CFTC, but It still makes no sense, and my judgment is that the recent rip down in the price of the ETF was a final shake out for retail investors.  The key here is that nothing is certain.  I will be ready to get out of nat gas should the ETF resume it’s down turn.  I do not engage in short selling, as I believe short selling is immoral in that it (short selling) artificially increases the supply of a security on the open market by borrowing securities from unsuspecting investors who never knew their securities were being lent out for the purpose of bringing down the price.  A full 100% of the clients I have surveyed over the past 5 years do not know what short selling actually is, and how the securities that they own are being lent out to traders for the purpose of flooding the market with an artificially high supply that must lead to lower prices (see supply and demand/economics).  When the client is advised of how short selling actually works, each and every client is shocked that such trading is legal.  Such is the nature of markets…

The major markets have shown relative strength, but I would not get giddy just yet.  The long term downtrend of the market is still intact, so I’d hang in there but be ready to pull out completely.  The next level in the DJIA, 10400, is the time when I plan on exiting altogether.  This level is where the long term downtrend intersects with the short term uptrend of the market.  From a time frame standpoint, we have another month to go before the possible resumption of the bear market is upon us.  If the DJIA breaks through this barrier, I will stay in until the charts say otherwise.

Predicting market direction is tricky business.  I have spent much time reading and researching, applying technical analysis to investing, and am always looking for competent opinions. The hands down, most diverse source of market advice can be found at http://www.marketoracle.co.uk.  The market oracle provides a myriad of perspectives, from currencies to securities to commodities, from contributors residing in all parts of the world.  A fascinating array of opinions will give you a wealth of perspectives that can prove profitable to your portfolio.

The moral of the story is:  If you want to lose all of your money, follow the advice of CNBC.  If you want to make money in the markets, do exactly the opposite of what CNBC, Bartoromo, Faber, and Liesman tell you to do.  You will also help yourself immeasurably by stopping by the market oracle for real market analysis.

What I ask of you is to use simple common sense.

Look at the state of the economy.  Did CNBC ever tell you to get your 401K plan out of the markets and into cash before the Great Crash of 2008-2009?  No, in fact, all the way down the pundits on CNBC were telling you to “buy, buy, buy” instead of getting out.  Sure, CNBC put up a guest or two who warned of a bad market, but that guest was always offset by four or five stock market pumpers who told you to “buy now-it’s never been better”.  Psychologically, anyone actually believing CNBC was doomed, outnumbered by Stock Market Pumpers who fleeced you of your life savings.  The same exact scenario played itself out on Fox News.

The CNBC’s and Fox News channels of the world were dead wrong about markets-from real estate to stock.  The end result, if you listened to these wolves, landed you under water in your mortgage and no retirement.  If you followed Fox News and CNBC over the last decade, if you acted on their collective advices over time, you are insolvent and most likely contemplating bankruptcy. Why, on God’s Green Earth, would you listen to these wolves now-when they hysterically distort with lies and deception the President’s health care proposals?

CNBC and Fox News serve the interests of Wall Street and Corporate America.  It is in the best interest of Corporate America to keep the American middle class financially strapped. If the American middle class is forever strapped, we will always be working two and three jobs per household. This endless work ethic leaves us too fatigued, at the end of the day, to question the effects of Corporate America’s influence over public policy. Accordingly, CNBC and Fox News fall in line and follow suit.  As for the members of Congress and Senators that parade on these networks who continue to deny what 72% of Americans now demand universal health care, they are nothing more than paid off mouthpieces for the health insurance and hospital industry.

Last week, Wendell Potter, a former executive of Cigna, one of the nation’s largest health insurance companies, testified before the Congress of the United States that Michael Moore’s movie, “Sicko”, which depicts our sham of a health care system for what it is-was exactly correct.  We don’t have the “best health care in the world”.  In fact, the best health care in the world is located in countries that have embraced universal health care.  Mr. Potter goes on to tell Congress that CIGNA intentionally ran a media blitz public relations campaign distorting the truth of government run health care.  Mr. Potter’s interview with Bill Moyer of PBS is below. I urge you to watch this video, as it is very informative and sheds a real truth on the health care debate. Fascinating.

Members of Congress and the Senate do not pay for health care!  Do you really think those politicians really care about our health care costs?  No, plain and simple, they don’t.  These politicians have brazenly laughed in the face of the 72% of Americans by fluffing off the polling as “Americans don’t know what they want”.

Every single politician that gets on these networks have been bribed by the health insurance  and hospital industrial complex to keep costs so high that the American middle class will never retire.  Please remember this the next time one of these horrible excuses of human existence gets on these networks and distorts the truth about health care costs.

One thing’s for sure: if we took away the health insurance benefits from these paid off politicians from Congress and the Senate you could bet the ranch that each one of them would be screaming to high heaven about how every American citizens who pays for health insurance is the victim of greed and hubris by the health insurance and hospital industrial complex.  That’s really the answer-take away the lifetime health insurance benefits given to members of the United States Senate and members of Congress.  Only then will we see a real change.

AS A SMALL BUSINESS OWNER IN AMERICA:

Don’t let the media scare you.  The crushing costs and poor quality of health care in America continues to bankrupt the citizens of this great country.  Yesterday I received the health insurance renewal package for my small business, and the premiums have once again been jacked up another 20 to 25%.

My small business pays 24,000. per month for health insurance coverage.  Premiums range from $1,000 to $1,600 per month for family coverage and $ 300 to 500 per month for single individual plans.  Now the health insurance company wants 20% more for most likely, less coverage.  (Each year the “plan design” changes whereby the actual benefits of coverage of the plan are reduced).

Let’s do the math:

This year’s plan, $ 24,000. per month, at 12 months, is $ 298,000. per year.  That’s just this year.  Next year the costs will be almost $ 29000. per month, for less coverage.  Over the course of the year, my business will have paid another  $ 348,000. for health insurance (less) coverage.

Each and every year I have to do this dance with the health insurance companies that always end the same.  I am forced to review the “plan design” and seek a lower cost plan with much less benefits.  This year will be no different.  I will most likely switch “plan designs”, pay higher deductibles, just to keep the premium the same.  Either way the health insurance company gets their money-either through higher premiums or less payments for health care.  …and the beat goes on…with health insurance company executives buying more yachts on the backs of businesses like mine.  Since 2002, my company has paid over 2 million dollars -let me say it again- 2 MILLION DOLLARS FOR HEALTH INSURANCE PREMIUMS FROM MY SMALL BUSINESS ALONE-with almost 60% of the premiums going into the pockets of the health insurance companies after paid claims (good luck getting the health insurance company to pay a claim).

Since the staff contributes to their health insurance costs, each employee will have to make the hard choices along with me: pay more for less health care at a time when every dollar earned is critical in keeping the collective staff’s financial heads above water.  Over the past seven years, due to the rising costs of premiums, many employees have simply dropped their coverage and are now uninsured.  The only way to keep health insurance premiums level has been the cumulative effects of less employees participating in the plan, while those participating (including myself) are forced to cut benefits to maintain benefits.

In 2002, we had a choice of seven health insurance carriers. Each carrier gave you a choice of monthly premiums and benefits that ranged greatly.  We had a choice of coverage.   Since 2002, health insurance companies have bought each other out and have created a monopoly in the NY region of the United States. HIP plans of NY buys up Vytra Health, and GHI then buys up HIP, creating a monster company and a virtual lock on health insurance coverage in a region of millions of people.  What does this mean?  It means, in a market that was supposed to be “free”, we have a market of only a few health insurance companies that have resulted in much higher costs and little competition.  Health insurance premiums are now fixed at higher and higher rates, and by buying out their competition, literally nothing stands in the way of the health insurance companies from destroying what is left of America’s middle class.  What are the choices for my small business today?  I get to choose from the giants of GHI, Blue Cross & Blue Shield, Oxford Health and Aetna.  Aetna has been far and away out of control with their premiums, so that leaves the other three, whose premiums and “plan designs” are almost identical.  The bottom line in all this is that my company and the rest of small business in this country are held financial hostage by the health insurance monopoly that generates billions in annual profits while simultaneously bankrupting the American middle class.

THE BOTTOM LINE.

The argument that taxes will rise to pay for the President’s health care plan is bogus and deceptive-intentionally.  Conveniently, the bribed politicians and mouthpieces at CNBC as well as Fox News forget to tell you that YOUR HEALTH INSURANCE PREMIUMS WILL GO DOWN DRASTICALLY.  If a business such as mine, where my employees and myself pay nearly $300,000 per year in health insurance premiums will pay half in premium and a 1% surcharge in taxes, the net cost to my employees & myself will be $150,000 per year plus a $50,000, income tax surcharge, or $200,000. per year, compared to the $300,000 per year we presently pay the thieves known as health insurance companies.

The argument that creating a public health insurance choice will be bad for the economy is another laughable notion. One of the single largest costs facing business today is health insurance. Since American business must bear the cost of health insurance, such costs are factored into the cost of producing goods. Since most other industrialized nations that we trade with have universal health coverage, such a cost is not born on foreign competitors. Therefore, America is losing jobs to overseas companies who can produce goods without the cost of health insurance. If we implement a public choice of health insurance, American companies can be more competitive both in the United States and abroad, where our exports will increase as our cost to produce exports decrease. To sum it up, a universal health care system, or public option for health insurance would actually stimulate the economy by creating more jobs here in America as a result of an increase in our domestic and overseas manufacturing demand.

Another absurd argument being discussed in the media is that the health insurance industry will be put out of business, thus bad for capitalism.  Well, if health insurance companies would lower their premiums, they wouldn’t have to worry about going out of business.  The President’s plan actually attempts to bring back price competition to the industry-something that the health insurance industry worked so hard at eliminating.

The media distortions go on and on.  All I ask is for you to remember that the Senators and members of Congress that rail against the plan a) don’t have to pay for health insurance-for the rest of their lives, and B) these politicians have been bribed, or bought off by the health insurance and hospital industry complex via huge campaign donations.

The truth is all Americans will save significant amounts of dollars, even after considering the tax effects of the President’s plan.  Don’t let the bogus talking heads on television who pretend to be economists, pundits, politicians & university professors fool you.  Each and every one of these folks were wrong about the real estate market, completely failed to warn you of the demise of the stock market in 2008, and are consistently wrong about the President’s health care proposal as well.  Your taxes will not go up nearly as high as the health insurance premiums you will be saving.  You will also have the peace of mind that should you come down with the common cold, you won’t go bankrupt when you see the doctor.

Meeting with approximatly 1400 people and requesting their opinions on what we are fed by the media as to the current state of the economy has provided me the basis to make the following analysis:

By a factor of 1398 to 2, folks overwhelmingly disapprove of how the economy is being handled.  The taxpayer has reached a tipping point with regard to our Treasury Department’s approach to handling this crisis.  The very idea that we are literally giving trillions of dollars to billionaires in the hope to stop a downturn in our economy is absurd, at a minimum.  The absurdity rises to the level of outright theft when the Federal Reserve (a private consortium of banks not connected at all to our government) announces their intention to create massive inflation as a cure to the “economic crisis”.

The approaches taken by the Federal Reserve and the Treasury Department combined will result in the wealthy elite bankers and their Wall Street cronies enriched with trillions of dollars, while the rest of society is saddled with massive price hikes for everyday goods, massive unemployment, and a collapsed economy.  Regardless of whether we suffer massive inflation or deflation, the wealthy elite have been protected by receiving trillions of dollars of taxpayer money to carry them through the crisis and beyond.

We have heard the argument by the folks in the conservative media that President Obama is a socialist.  Well, it appears that the appointment of Mr. Geitner (who previously ran the NY Federal Reserve) insured that the socialist tag was correct with respect to the wealthy elite.  It appears that our President has adopted a policy of socialism for the wealthy-as Mr. Geitner’s trillion dollar giveaways at taxpayer expense prove.  We will never see a larger transfer of wealth in our lives than the transfer underway now.  Should the present policies instituted by Mr. Geitner and our President continue to fruition, our entire middle class will be wiped out.  The fallout to society will be a class system of the wealthy and the poor.

The media folks at CNBC and their cheerleading stock market hypers will have you thinking the economy is on the mend, that things are just jim-dandy.  Let’s look at the stock market of 1929 first and compare to today:

The above chart is the beginning of the worst economic collapse in recorded history.  Note the nearly 40% decline, with a bear market rally of nearly 29% post crash.

Now let’s take a look at a chart of the DJIA today:

Anyone notice the severity of the present day stock market collapse is significantly greater than 1929?  We can calculate the drop in the DJIA average in 2008 is greater by a factor of 22%.  Accordingly, should we implement a bear market rally measuring 22% higher than the 1930 rally, we arrive at the approximate point of  intermediate downtrend line intersection with the upward trendline of the present rally.  It would appear then that we have less than 30 more days  to this stock market rally, after which it (the market) almost certainly will get ugly.

The four year DJIA from 1929 to 1933 appears below:

Should we suffer an 86% decline post rally, the DJIA will fall to nearly 1250.

It should be noted that the government’s first response to the economic collapse in 1929 was to attempt to create massive inflation in 1931.  As we all know, that response failed gravely.

Let’s hope we come up with a better plan.  Perhaps we can simply let nature take it’s course and free markets correct things accordingly.

2009 is the year when we decided that in order to get ourselves out of debt, we borrowed three times more than we borrowed the year before.

2009 is the year that we decided that in order to provide assistance to the unemployed, we gave trillions of dollars to the wealthy.  See stimulus 101, bank bailout 102, and the 2 trillion dollar Geitner printing press.

2009 is the year we decided that in order to allow capitalism and free markets to correct real estate prices, we lowered interest rates to zero and pulled the plug on home foreclosure proceedings.

2009 is the year we ushered in a new president to change things, and his first major policy initiative was exactly the opposite of what he campaigned to change.  President Obama’s stimulus package is more of the “failed Bush policies” he so correctly campaigned against.

2009 is the year that the media tells us that saving money is bad for the economy.  Huh?

2009 is the year that the media tells us that we borrowed too recklessly and spent too much borrowed money to fuel the economic depression the country now faces.  Wait-I thought saving money was bad for the economy?  Now I’m really confused…

2009 is the year Washington decided to print enormous amounts of money out of thin air, creating enormous inflation that is supposed to stabilize our economy.  That’s right, folks, by raising prices 300% across the board with all this excess money chasing too few goods (the definition of inflation), we are supposed to be able to help those millions of folks who just lost their jobs and must live off their savings until they find another job.  Huh?

After speaking with approximately 265 people in the last two weeks, I have determined that 2009 will be the year we all finally get it-that Washington is totally wrong.  We finally get it that Wall Street and Washington have moved so far off course that we know something  smells very wrong with all this bailout stuff.  Every single taxpayer I have spoken with is against the bailouts, the stimulus package and no longer has faith in Washington.  Rightfully so, we have finally begun to take notice.

We have finally begun to figure out the end game here.  Each and every “initiative” introduced by Washington and the Federal Reserve has one end game-to erode our savings and eliminate retirement for the majority of the baby boomer generation.  We are finally pushing to the side social issues and focusing on the meat and potatoes of what keeps us working every day-money.  The good that is coming out of this is that all of us are finally realizing that the media-from CNBC to Fox News to MSNBC are full of crap and are not to be taken seriously.

That will happen when you take away every one’s pensions.  People start to really pay attention.

Today’s Bizarro World will lead to tomorrow’s world of close scrutiny.  2009 will bring an end to petty political ideology disagreements for the greater good of all middle class families coming together in unity of purpose.  The brainwashing of the media has begun to lose it’s grip on us, as we increasingly begin to think for ourselves.

2009 begins our awakening.  It’s a wonderful time to be alive.

Folks, even though we are in a distinctly different world today-far removed from the agricultural economy of 1929, there are similar stresses in our financial world of 2008 and 1929.  First and foremost, credit contraction-the literal shutting down of credit by banks in 1929 caused the market meltdown of that era.  When banks called in their markers in the stock market, stock holders were forced to sell, commencing a market collapse that dived 90% peak to trough.  The similar instances of bank credit contraction and bank failures are too large to dismiss as mere coincidence.

Our Federal Reserve has promised virtual unlimited backing of virtually every credit instrument on the planet to save our economy from the ravages of credit contraction.  The literal unlimited printing press of money has landed at our feet via the Fed, with guarantees of credit to all who have their hand out.  The notion that our money supply can multiply to such heights is quite scary, as such actions would lead to massive inflation if not held tightly in check.  In other words, for every dollar the Fed prints up to buy bad banks, bad mortgages, or bad car loans, they must find a way to retire a dollar presently in circulation to keep our money supply stable.  I believe the Fed will attempt to accomplish this feat by implementing a staged program out in time so that major monetary inflows will be accompanied by retirement of previous monetary inflows to limit the inflationary effects of it’s initiatives. Although this notion has a conceptual ideal, I do not believe it can succeed based on faith alone.  The Fed’s measures are unprecedented, and they themselves can not guarantee success.  Monetary policy has, in my opinion, been the genesis of the economic calamity we face today, and as such, expanding such a faulty monetary policy cannot be the panacea to correct the ills that plague our financial system.

Our new President has embarked on an aggressive stimulus plan to energize our sagging economy.  President Obama will attempt to stimulate our economy by providing three million infrastructure jobs that will return three million unemployed folks to work, and in theory, return three million people to the shopping malls and tax rolls.  The glaring elephant in the room, if you will, is that President Obama plans on borrowing the money to implement this plan.  The question I ask of you-if you were having financial difficulties, would you take out another loan and spend the proceeds on temporary, or consumable items to cure your finances?  I don’t believe any prudent individual would implement such a personal stimulus plan.  My point is, once the three million infrastructure employees have completed the roads and bridges and whatever else we happen to be fixing under the plan, what happens?  These employees are temporary by nature, thus they will return to the rolls of the unemployed after their jobs are completed.

I’m not sure that’s really a plan I want to get deeper into debt signing on to.

As for the markets, I don’t believe they will ultimately sign on to such a plan.  I believe the market will see this plan for it’s shortfalls and behave accordingly.  We are losing 600,000 jobs per month, and the effects of such staggering job losses on spending will continue to erode an already faltering economy.  Public companies will see further declines in profits as a result of the contracting economy, and their stock prices will continue to decline.  Although 1929 was 80 years ago, 2008 may prove to be deja-vu, with 2009 replicating 1930.  The similarities in economies are real between these two periods, thus the similarities in the DJIA performance.  I believe 2009 will be the year we all start to personally feel the effects of this economic downturn, from a loved one losing his or her job to more bank failures limiting our access to funds.

I hope I’m wrong on this one, folks, but I don’t see any way out of the present economic circumstances that are eroding our way of life but one-take the medicine.  When Washington and the Fed wake up and realize that a sharp depression allowing markets to adjust (it’s called capitalism), whereby the strong survive, thrive, and ultimately create wealth to hire the unemployed, will we see the end of this economic downturn.  Government intervention has never in recorded history enabled an economy out of a downturn.  Conversely, government intervention has always perpetuated and exasperated economic downturns.  This time should be no different.

This year I will stay nimble, in cash, and await opportunity should it arise.  I am out of the markets and will stay out until the charts deviate from their present course.  Expect the DJIA to end the year just shy of 6000.

Best wishes for a safe, happy and healthy new year.

The similarities are striking.  The conditions that existed in 1929 to create the downward action in the DJIA seem to have reappeared today, by viewing the nearly identitcal behavior in downside momentum.  I”ll leave it up to the economists to eventually come to a consensus, after the fact, to exactly why our pensions and investments, as well as the health of the middle class worker, will be severly econmomically compromised.  What I can surmise from the above illustration, is that the behaviors of the DJIA in 1929 and 2008 are almost identical.

Inserting the overlay of 1929 to 1932 DJIA chart performance with the July 2008 to December 26, 2008 DJIA chart performance, adjusted for time, portends a bleak two year outlook for our portfolios:

Again, using the 1929 to 1932 chart as a barometer, we have potential downside for the year 2009 of a 31% decline of the DJIA to 5875, and the elusive “bottom” not arriving until July 2011, when the DJIA falls to 1448.

The crosscurrents of economic theory create too many “what if” scenarios that alter outcomes of market projections.  One thing we know for certain is human behavior can be measured, and often can repeat itself (as evidenced by our first chart in the sequence).  2009 will be an interesting year to be sure.

Happy New Year!

The three week rally off the late November lows has broken it’’s short term uptrend as illustrated here.  The broken trend line forbodes a return to stock price declines.  Cash is king!

Merry Christmas, Happy Holidays & Happy New Year.

That’’s 86 million people.

The Dow Jones Industrial Average hit it’’s all time high on October 9, 2007 ( Filled with Baby Boomer 401K and pension monies).

The first Baby Boomer applied for Social Security benefits on October 15, 2007.

The significance of these seemingly unrelated events cannot be understated, as I believe they are directly correlated.

Baby Boomers and subsequent generations have been funding their retirements for 35 years, reaching it’’s peak funding on the day of the filing for social security benefits.  Peak funding for pensions is reached when the maximum amount of workers are funding pensions in the workforce.  The day the first Baby Boomer filed for social security represented the end to the gushing inflows of cash into the stock market 401K and pension plans.  From October 15, 2007, going forward for a generation, the stock market will pay out more in the form of penison plan withdrawals than is paid into the market in the form of pension plan contributions (inflows), resulting in net declines of our stock values.  It’’s simple supply and demand.  The more dollars entering into the market produces a heavier demand for stocks, thus the net long bull market of the Baby Boomer generation.  When the Baby Boomers retirement dollars cease to enter the market, the demand for stocks decline, thus increasing the supply of stocks, resulting in declines in stock values.

Let’’s repeat the opening statement of this column, as it’’s significance is extraordinary.

The Baby Boomer generation encompasses 86 million people.

That means the exodus of 86 million people from the workforce in the next 18 years.

What would happen to the workforce if 86 million people retired?  For the first time in our history, the generation preceding the  retiree generation is smaller in numbers, creating a theoretical shortage of labor in the workforce.

How could society continue the engine of our economy with such a disruption?  After all, with such a mass exodus of people from the workforce and into retirement, our workforce would need to expand, as it has in all previous generations, to care for retirees in their leisure and elder years.  Furthermore, a labor shortage (that supply and demand thing again) would force an increase in labor costs, which would lead to higher wages, thus the ability of the present generation of workers to retire sooner, creating labor shortages for generations to come.  The retirement of the Baby Boomer generation, if alowed to occur, would cause an irreparable disruption in the workforce.  Accordingly, significant changes must happen-and have happened, to thwart the retirement of the Baby Boomer generation.

We had to create a climate of low interest rates in order to insure that an individual who saved their earnings could not create a safe nestegg and live off the interest earnings of such savings.  By implementing low interest rate monetary policy, a worker would have to save much more dollars than the worker would under natural monetary policy, thus forcing the worker to stay in the workforce longer to save, or forcing the worker, once retired, to liquidate the worker’’s retirement trust at a faster pace.  Should the worker liquidate their retirement trust in order to survive, the worker would eventually re-enter the workforce.

We also had to create a climate of inflation, whereby everyday costs needed to rise faster than the increase in wages.  Low interest rate monetary policy, implemented in 2002 by the Greenspan federal reserve, created a 300% increase in real estate from 2002-2005, while the prices of food, clothing, commodities, and other necessities rose 100% from 2002-2007.  Oil, the most basic needed commodity, rose from $ 10 per barrel (1999) to $ 148. per barrel in July, 2008.  This single commodity rise lead the economy into severe recession beginning in December 2007.

The price of oil has since dropped from $ 148. per barrel to $ 38. per barrel in December 2008.  This drop in oil price, coupled with the correction of hyper-inflated real estate prices has given the Federal Reserve a platform by which to decry “deflation” (falling prices), and implementing a near 0% fed funds rate.  This destructive, horrific monetary policy attempts to keep real estate prices from correcting to affordable levels, while insuring 0% return on short term money market savings accounts.  The worker will now need literally millions of dollars to retire from the workforce, something that cannot happen given today’’s wage levels.

We also had to devise a way to eliminate or reduce the available funds to the Baby Boomer 401K and retirement accounts.  While the act of short selling artificially increases the supply of stock on the open market by permitting a stock trader to sell a stock the trader does not own (the act itself must cause the price of a stock to decline), in order to remove the the ability of the Baby Boomer to retire, short selling alone would not be a sufficient force to create a rapid decline in the market.

On July 3rd, 2007, the SEC eliminated the “uptick rule”, a rule implemented in 1934 to prevent the precipitous decline of stock prices.  The uptick rule required that if one wished to short a stock, they had to wait for the stock to tick “up” prior to commencing the trade.  The uptick rule did not prevent a stock price from declining, but it did prevent a stock price from collapsing over a short period of time.  The elimination of the uptick rule has led to the Dow Jones Industrial Average declining over 35% since it’’s all time high on October 9, 2007.  In fact, the pervasive short selling of banking stocks was so destructive that it threatened the ability of banks to operate as going concerns, leading the SEC to suspend the shorting of bank stocks for three weeks in October, 2008.

By removing the uptick rule, short sellers can literally steal the equity of stock values from retiree accounts.  Hence, when the Baby Boomer retirement accounts decline in value, the short seller’’s account rises in value.  The race is on to see how fast wall street can remove the pension funds from Baby Boomer retirees, forcing the retirees to stay in the workforce.

It is now universally accepted that our economy is bordering on a depression.  Please note, we did this to ourselves.  We allowed the Federal Reserve to manipulate monetary policy in order to devalue our savings and create rampid inflation.  We allowed wall street investment firms to create phony investments and deregulated our financial institutions, permitting our financial institutions to gamble away our savings. We stood by while the SEC eliminated the uptick rule, setting the stage for the great raid of our worker pension funds by wall street traders.  Now, we have permitted the Federal Reserve to print money, potentially increasing our money supply by a factor of seven, which may lead to a hyperinflationary environment the working class has never experienced.  Such an environment could lead to a seven fold increase in prices, which ultimately destroys our savings dollars.  To allow the Federal Reserve to intentionally destroy the value of our savings, and by consequence extinguish any hope the Baby Boomer and subsequent generations of workers hold towards retirement is criminal.  If left unchecked, the actions of our Federal Reserve (a private consortium of banks-not a government entity), will lead our citizenry into heretofore unseen abject poverty.