Accountability? hahaha

From an investor newsletter - don't ask me which one - there are so many: "After receiving hundreds of billions of dollars in taxpayer-funded federal bailout money, the biggest U.S. banks say they can’t track how that money is being spent. Some of the banks are outright refusing to discuss the matter, a new study has found." Isn't this attitude just like the one that got us in this fine mess to begin with? Where's the government when you need it? Where is that famous bully pulpit I keep hearing about? Who is accountable? Hello? PLEASE. That photo shows a pressed wood violin. That's what the financial system is now made of - PRESSED WOOD. It used to be OAK.

Who knew??

A Congressional hearing into the workings of the S.E.C. is scheduled soon. People want to know how it was the S.E.C. failed to heed warnings about scammers on Wall Street. Were these smart people just duped??? I don't think so. I believe they chose to look the other way, just like Enron's auditors. Remember them (Arthur Anderson.)? Remember the Kansas City building inspectors and the New York City building inspectors who ignored problems in structures that later failed? Same thing. I once asked a CPA friend how it was that Mexico enjoyed such a high level of corruption in government if the books were audited? His response: "The auditors are in on it." OBVIOUSLY. This woman is looking the other way, but I'm pretty sure she's not an auditor.

Hemlines again

Again, I must say I told you so. I'm no guru when it comes to investing but you just have to know that when prices are low, that's the time to buy. The following is a quote from an investment advisory but I forget which one: "The stock market is presenting you with one of the great buying opportunities of your lifetime – perhaps the greatest. Stop trying to pick the bottom." That's what 41-year market veteran Steve Leuthold, of the Leuthold Group, just told his clients. "The most difficult decision is not what to buy," he says. "Just buy!" Leuthold is one of our favorites, primarily because he doesn't follow the crowd... even when it's to the detriment of his own business. For example, for much of the last decade, he's been bearish on stocks. Clients don't line up to give you money when you're bearish. But Steve launched the Leuthold Grizzly Fund in June 2000, near the top of the stock market bubble. The Grizzly Fund is up nearly 80% this year. He was right to be bearish this decade. As he told his clients, stocks lost as much over the last 10 years as they did from 1929 to 1939, which was "the worst 10-year performance in U.S. stock market history. " Also, if you must be certain, observe hemlines - they're not coming down so that means the stock market is gearing up for a spectacular rise. Need I say more???

Microsoft shares

As I've been saying for many weeks now, buying is fun.... This is an abbreviated article from an everyday investor newsletter. Enjoy....

By Porter Stansberry: As longtime readers of my advisory can tell you, I haven't been bullish on the stock market in years. In fact, for the last couple years, I've been warning that stocks, in general, were vastly overpriced. Investors were too complacent. They had too little fear. It turns out that was very close to a huge top in asset prices. Stocks, bonds, commodities, foreign currencies all peaked over the next several months. It was easy to see this peak coming with three key points: the number of stocks trading at reasonable prices, the amount of insider buying in the stock market, and the spread between emerging-market bonds and U.S. Treasury bonds. Reviewing these key data points today shows we're building an important bottom in stock prices. And it's why I'm telling everyone I know that this is one of the great buying opportunities of the last 30 years. Looking through the list of cheap stocks, several great businesses jump out: ExxonMobil, Wal-Mart, Microsoft, Johnson & Johnson, McDonald's, etc. Any reasonable evaluation of the market would find plenty of safe and cheap stocks... thousands more than you would have found a year ago at the market's peak. What about insiders? Brian Heyliger covers insider buying and selling for my firm Stansberry Research. He follows corporate insiders on a full-time basis. Throughout this bear market, the ratio of buys to sells has been steadily increasing. In June, the ratio was in the high thirties – anything over 35% is bullish. But since then, the ratio doubled, hitting 63% in October... a level I've never seen before. What about that lack of fear? My favorite measure of fear is the spread between emerging-market debt and U.S. Treasury debt – the so-called "risk spread." Institutional investors consider U.S. Treasuries a "risk-free" asset. Emerging markets have much lower credit ratings, higher inflation, and a much greater risk of defaulting on their debts. Investors normally demand much higher interest rates from emerging-market economies. But... in big bull markets, near the very top, investors become so complacent, they begin to assume holding emerging-market debt is tantamount to holding U.S. Treasuries. Looking back historically, you can see this spread is a great indicator of global tops and bottoms in stock prices. In about a year, we've moved from a period of complete complacency to absolute terror. Paradoxically – and this is hard for most people to understand – you want to be a buyer of equities when everyone else is panicking. None of these factors mean that stocks have to go up or that they will. No one can predict the future – but you don't have to be perfectly right to do very well in the market. Yes, our economy is struggling right now with huge problems. Enormous risks threaten America's leadership in the world, the dollar's status as the world's reserve currency, our energy supplies, the rule of law in this country, etc. But all of these risks – all of them – existed a year ago, when stocks were almost 100% higher, on average. And all of these risks will exist 10 years from now, when stocks have gone up three or four times from their averages now. To do well as an investor, you have to buy when stocks are cheap. And stocks only get cheap when most investors are afraid. So you have two choices: You can r refuse to invest in stocks, or you can learn to buy stocks heavily when their prices offer you a reward for taking smart risks. That moment is right now. END OF ARTICLE

You might recognize the lady at the left - she didn't need to buy stocks, she used to own Monaco.

Stocks

Take a good look at the man in this picture. One can almost feel the same relief he is feeling at seeing the numbers go up on the board at the NYSE. I hope you bought lots of stock when I advised you to buy a few days ago. I knew the market would go up soon - it simply couldn't go down any further. I will never hesitate to tell you "I told you so." The economic troubles are not solved by any means, but at least the market has been stabilized. The other side of the coin is that the government has gone into debt. That will cause problems, but not for another two or three years. Enjoy the upturn, and don't forget to save as much as you can.

Hemlines coming down

So, what happens now??? This is turning out to be a bigger financial mess than anyone ever anticipated. The bailout bill has been approved, the Federal Reserve is stepping in with huge amounts of money to help bolster the credit markets (the banks), President Bush is making speeches to reassure the public and still the market tumbles. Am I the only one who has not panicked??? Fear is gripping the populace - big investors are playing it safe. Huge sums are going abroad. I have said it before - there is absolutely no reason to panic. What everyone of you should be doing is buying huge amounts of stock - now that they are so cheap. They can only go up. In the meantime, since the economy is drifting downward, so will hemlines. I don't know if I like that.

FEAR

So, the stock market is still falling despite the bailout legislation? The country (and the world) is saturated with economists - some great and famous - yet, only a very, very few predicted the credit disaster. Those who did were not paid attention to. Credit is driven by confidence and trust. Everyone knows that. When confidence wanes, leaving a vacuum, fear starts to take its place. People see doom and gloom behind every tree and around every corner. Politicians are scrambling to settle things down. Even the State of California is asking for a bailout. It seems nothing was learned from Great Depression days. I believe things will actually get better, but what will now happen is that people of all stripes will look to government for solutions. That means government control and power will grow tremendously. Here, it will be liberal power - sharply toward the left. The virus is in Europe also. There, the power will shift toward the right. That's my best guess. What do I know? Get a second opinion.

Timid Reporter interviews Jimmy Cayne

TR: Good afternoon. Are you Jimmy Cayne?
JC: Who are you?
TR: I’m the Timid Reporter. I have an appointment.
JC: Since when? Nobody told me anything about it. Are you with the media?
TR: Yes, sir, the Coffee Club Newsletter.
JC: What is that, a financial paper of some sort?
TR: No sir, it’s the company in-house newsletter for coffee drinkers and subscribers.
JC: That doesn’t tell me a thing little man. How many readers do you have?
TR: Eight.
JC: This must be some sort of joke. Get out - I have a very important bridge game to play in an hour.
TR: But, don’t you care what happens to your company?
JC: What company? I have all my money in European stocks.
TR: Bear Stearns.
JC: Oh, that company. I’m no longer in charge. Go talk to Alan.
TR: Alan who?
JC: Alan Schwartz. Don’t you know anything?
TR: Yes, of course. Mr. Schwartz. I tried talking to him yesterday but he sent me to you.
JC: I don’t have any time for this. I have nothing more to do with Stearns. Leave now or I’ll have to call security.
TR: I’m not leaving – the butler told me how you win at bridge.
JC: Ok, sit over there. I’ll give you ten minutes.
TR: I just need five. I don’t have enough questions for ten. I do want a couple of beers please.
JC: Sure, I’ll have James bring them. Push that red button on your chair to summon him.
TR: Ok.
JC: Now, back to your questions.
TR: My readers would like to know how it is that while the company is losing so much money, there’s always enough to pay all the directors huge salaries.
JC: That’s not hard to answer. Do you know anything about hedge funds?
TR: No.
JC: Good. How about short-term un-liquid periodic indexed debenture funds?
TR: No.
JC: Good. We call those STUPID funds, for short, by the way.
TR: I’m with you.
JC: Well, in the banking business, we’re constantly playing one set of funds against another. It’s sort of like betting the red and the black at the same time.
TR: I don’t understand.
JC: Don’t you ever gamble?
TR: No.
JC: No wonder. Let me try to explain. The reason we get paid so much money is that we are the only ones in the world who can handle the ultra complex processes of money management. I have barely scratched the surface and you are already at a loss.
TR: In more ways than one.
JC: Well, on top of that, there’s thousands of funds and hundreds of types of funds. On top of that, the game is on a global scale.
TR: So, it’s a lot of work?
JC: You have no idea, my friend. Do you ever invest?
TR: I have a savings account.
JC: You need more than that. If I had time, I would share a good tip with you.
TR: I’ll talk to the butler again if you don’t tell me. I want to make some money.
JC: Ok, ok, but you can’t print any of it.
TR: I won’t.
JC: Look up Mr. Octavian Shin in the Paris phone book. He is listed.
TR: Then what?
JC: Tell him client number 13 sent you. He will then give you the code for a Russian energy stock that pays 790%, guaranteed. You’ll be a millionaire in no time, especially the way oil has been going up lately.
TR: How much should I put in?
JC: Ten thousand to start.
TR: I only have two hundred.
JC: Well, I can’t help you there.
TR: You can lend me the difference.
JC: I don’t make personal loans. Talk to Alan - he’s the risk taker.
TR: You’re the one who cheats at bridge.
JC: Ok, ok. I’ll write you a check.
TR: The check won’t bounce?
JC: It’s not a Bear Stearns check.
TR: I am grateful to you, Mr. Cayne.
JC: Remember, you just have to know where to park your money.
TR: I think I learned a lot today.
JC: Please give my kind regards to your eight readers. Have a nice day, sir. James will show you out.
TR: Thank you.

Guillotine time

As the market gets shakier and shakier, people wonder more and more what went wrong. All these smart people in charge of the entire economy - less than two dozen people was all it took to bring things to a fine mess - the credit market at a standstill. We now know that even the biggest businesses and the biggest banks were living from paycheck to paycheck. The aura and charisma of success was all just a veneer. I think the biggest and wealthiest American investors will soon start putting their money into Europe, China, and even Russia. How cool is that? As Sir Winston said, "Never have so few owed so much to so many." The Timid Reporter will post his interview of Jimmy Cayne here soon.

Lehman Brothers

Lehman Brothers is a New York based financial services bank which is about to go out of business, like Bear Stearns and Fannie Mae and Freddie Mac before it. That's what happens when you play fast and loose with money, just because you want to maximize profits (i.e., when you get greedy). Lehman had been around since 1850 and had been buffeted by bad turns of events - including bad management and the Great Depression - many times. It had survived by merging or striking deals with other firms - Goldman Sachs, E.F. Hutton, and American Express among others. Now this. It's up for sale if you're interested. I predict another Federal bailout. Who will bail out the Federals?