HOW DID WE GET HERE

GOLD AS AN INVESTMENT

Is Gold a good investment? Over the 50 years of my investment experience, the potential for price appreciation of gold has always come into consideration by investors when the dollar is experiencing devaluation either through inflation or through excessive monetary policies of the Federal Reserve.  From 1970 when President Nixon took us off the gold standard until 1980 when Ronald Reagan was elected and Federal Reserve Bank Chairman Volker (more…)

Real Estate Short Sales a “Minefield”

June 27,2010:

Homeowners in Washoe County, Nevada, are finding out just how different the Nevada real estate laws dealing with foreclosure are from most other states.  When facing foreclosure, one of the methods being used by lenders to speed the foreclosure sale process is to use a method called the “short Sale”.  By taking this route to settle their mortgage debt, homeowners expect to stave off the negative effect on their personal credit that would occur if they went through a lengthy foreclosure and trustee sale of their property.  In 2009, almost a fifth of all private residences in the Reno-Sparks area received a notice of default, were in foreclosure or going through a trustee sale.  (more…)

A Look Back to see Ahead

It is difficult to develop high conviction that the recovery of the U.S. Economy has now passed beyond a point where it could still be impacted by the “subprime mortgage” phenomena.  Actually it is more than an impact. These securities had the financial sector of our economy by the throat and were squeezing with all the force imaginable.  What Congress thought was a benevolent idea to make home ownership readily available to the “working poor”, (their term, not mine), cascaded into a (more…)

Actions have consequences

Thursday, May 19,2010: Highlighting the failures of this administration becomes more and more redundant given the rising tide of better understanding by the American voter for just how dangerous this Presidency and his Democrat Congress really is. Continuing to Point this out may seem like trying to close the barn (more…)

THE DIMIZE OF THE BICYCLE

In the pursuit of our Reno Youth Bridge program to teach middle school students how to play the game of bridge, it has become apparent that 12-14 year old students no longer walk or ride bicycles to school. As I arrive at our schools to help teach their after school bridge activity, I am struck by the fact that of the 900+ students attending each day less than a handful, if that many, use the bicycle to get to school and return home. It is typical to see ten or more school buses lined up to carry the kids home and along side the school bus are 50-60 suburban vehicles, or other automobiles with parents or assigned care takers at the wheel, waiting to pick up their charge. I got to thinking the other day when I noticed (more…)

Its Nice to be Squeezed Except if you’re Short

March 9, 2010: Today we celebrate the bottoming of the market crash of 2008-2009. With Dow Jones Industrials Average index up 60% from that low, the experienced observer of market price appreciation in a recession is becoming wary that the underlying forces working in our economy like: The Government Stimulus($780 Billion most of which is questionable and is yet unspent), Open Market Strategy(buy all the mortgges any generator offers pumping money into economy) by the Federal Reserve, potential consequences of Federal and State fiscal (more…)

MARKET ECONOMICS VERSUS GOVERNMENT CONTROLS

This short attempt at humor infuriated those who think Tiger Woods’ “Mea Culpa” press conference last week closed the issue and future references to an action he or his wife actually or allegedly took that night in November should be off limits. Meet the Press Host, David Gregory; asked him “Do you expect people to take you seriously after making such a remark?” Adding “it was a comment thought by many to be in bad taste.” Other bloggers and certainly all those who are opposed to the Governor’s being a candidate for President in the 2012 election apparently agreed with him. The governor said that he thought the ” American people still enjoy a sense of humor” I thought the reference to a nine iron smashing the window of big and out of control government remark was pretty much on the mark. I also find it strange that these same critics had no comment regarding a Fox TV channel show that featured a cartoon character with “Downs Syndrome” commenting that “her mother was the former Governor of Alaska”. Personally I think both comments were perhaps insensitive but they did convey a humorous element and didn’t seem to be so outrageous as to cause such an uproar given the history of political verbiage.

Unfortunately, what was lost in the Meet The Press interview on Sunday February 21st was the solid logic of Gov. Pawlenty’s description of why the exploding budget deficits and unbridled increases in actual or proposed government spending are not sustainable. He said “its simple math.” Here he was on target yet there was no follow up by Gregory except to ask “Do you think the Stimulus program worked?” Pawlenty replied “based upon the goals of the Administration, I’d say no.” Gregory asked, “What about the 12,000 jobs created in your state?” Pawlenty said “Those were government jobs and you do not grow the economy by increasing the number of jobs paid for by collecting more taxes.” Actually there may be some multiplier benefit but whatever that amount would be will unlikely create any real or even nominal growth in the economy.

It is sad to see that when a person expresses a different perspective on what the role of government should be in America and how it may vary from how government programs currently operate, that the debate slides into questioning that simply seeks to confirm the status quo or to grant more entitlements to constituents and to give more authority to government to administer greater control over the economy. Pawlenty was the only one at the Governor’s Conference I heard say, “we are trying to solve a problem that exists because of a series of negotiations that took place between managements and labor over the period of the last forty or fifty years without a basis for sustaining them even in a growing economy.” Unrealistic entitlements are the problem and until the American people are ready to accept the reality that we must bring them in line with the economic ability to pay for them by constructive tax laws, contractual amendment, or God forbid, State bankruptcy, we face the potential for monetary and economic disaster of immeasurable proportion.

During the Governors Conference this week, the subject of health care was also discussed with far ranging views and opinions. One thing that demonstrated the differences in attitude was the Democrat Governors saying over and over: “these are our problems: 1. Insurance rates are rising by amounts that preclude individuals from being able to afford their premiums, 2. Insurance companies’ earnings have been exploding on the upside in part because of ill founded increases in rates. 3. Insurance companies are excluding those with pre-existing conditions. 4. Those that lose their job are also losing their health insurance. 5. We have to provide affordable premiums for those 20 plus million who have no coverage at all.
The only solution is to adopt a single payer system like Medicare or raise taxes on the wealthy to pay for it.

If you accept these as the minimum conditions for obtaining a health care bill, there will be no bill this year. Pawlenty uttered the following truism: “Healthcare reform is a great issue for this country. The system we now have is broken and we have to fix it. There is a way to do it but we must have consumers and markets in charge.” Now what does “markets and consumers in charge” mean? Consumers must have enough “skin” in the game to make it worth while to refuse superfluous medical procedures if they are going to have to pay for them while that medical service is not providing cure or improvement results for his illness. Today 20% or more of the cost of medical procedures allegedly initiated on behalf of the consumer are actually for the benefit of the provider, not the patient. We must incentivize the consumer to determine whether there is enough (or any), benefit to him to make him want to have that specific procedure. And that will be determined if it results in better health. To achieve this goal, and yet continue to protect the consumer from malpractice and still prevent the medical provider from having to order unnecessary procedures really only designed to protect them from lecherous law suits, we must have tort reform.

I was impressed by the strategies and proposals made be governor Pawlenty. He may become a valid conservative candidate for the Presidency in 2012.

One Man’s Opinion- Bud Brewer

It May be DeJa Vu All Over Again

February 11, 2010: Elizabeth Warren (1), the Chairwoman appointed by Harry Reid in the fall of 2008 to lead the Congressional Oversight Panel formed to oversee the Seven Hundred Billion Dollar ($700,000,000,000) Toxic Asset Relief Program (TARP), has been an advocate and champion for the “middle class working family” for the past ten years or so. Early this decade, she completed a study of how a family composed of a married couple and two children have actually become poorer during the period from 1970 to 2003. She has predicted the bankruptcy of the Middle Class family unless the problem of the “rich getting richer” and the middle and underclass becoming poorer is solved. This is called “redistribution of wealth” folks.

Looking strictly at the data she offers and the absolute changes therein, adjusted for inflation, it is difficult to dispute her conclusion. But, when you look at the real value of the progression of this so called middle class family’s struggle during this same period, there has been a ratcheting up of the quality of life. They enjoy the availability of everyday higher and higher advancements in technology that has given them automobiles and unparalled efficiencies in transportation, advances in media-entertainment communication, medical and pharmaceutical discoveries, better trained providers of health care services, improved opportunities for education, and of course the ability to see the whole world at your desktop computer through the Internet, etc., I believe her conclusion may be flawed. Nevertheless, I think we will be hearing a lot from Ms. Warren about how financial institutions requested by the consumer to fund these goodies are exploiting the middle class, notwithstanding their voluntary leveraging into more expensive housing. transportation and the questionable pursuit of life styles of the rich and famous.

In her new role as Chairman of the COP Committee, she is holding monthly hearings on the results of TARP and has begun to focus on the condition of the Commercial Real Estate Market and the potential threat that a new wave of foreclosures may be upon us beginning later this year unless someone (the Government) does something about it. This is almost certainly going to be the recommendation of her committee.

Here are some of the facts: According to Jon Greenlee, Associate Director of the Division of Bank Supervision and Regulation of the Board of Governors of the Federal Reserve System, Federal Reserve examiners are reporting sharp deterioration in the credit performance of loans in bank portfolios and loans in Commercial Mortgage Backed Securities (CMBS). Of the approximately $3.5 trillion of outstanding debt associated with Commercial Real Estate, including loans for multifamily housing developments, about $1.7 trillion was held on the books of banks and thrifts and an additional $900 billion represented collateral for commercial mortgage-backed securities, with other investors holding the remaining balance of $900 billion. More than $500 billion will mature each year over the next few years. In addition to losses caused by declining property cash flows (rents and lease income, etc.) and deteriorating condition for construction loans, losses will also be boosted by the depreciating collateral value underlying those maturing loans. These losses will continue to put pressure on bank’s earnings especially those of smaller regional and community banks that have a high concentration of them.

Before the 2007-2009 financial industry meltdown, securitization markets were an important conduit of credit to the household and business sectors. This market essentially shut down in mid 2008 causing the Treasury and Federal Reserve to create a program called “Term Asset-Backed Securities Loan Facility” (TALF). Entities in the financial industy were having to mark their assets to market under financial company operating regulations. Whether the loan was current or not the high leverage common in financial companies was causing capital to shrink if not disappear even among what were considered the more stable and successful banks or other financial institutions. TALF was an idea that if you could shift the so called “toxic ” assets requiring Mark to Market from the regulated financial institution to the portfolio holdings of large institutional or individual investors willing to take the risk inherent in the loans, this would go a long way toward stopping the technical implosion of the financial and banking system. The Treasury saw this as a plan by which they could guarantee or indemnify the TALF eligible investors from major loss by providing the financing for the purchase along with certain buy back guarantees for a percentage of the face value of the loan and the banks woul then be able to fund new auto loans, student loans, credit card borrowing, small business loans and even loans to larger businesses thus stimulate economic activity. If a loan purchased by the investor was not paid off or was sold below a certan minimum percent discount of face value thereafter, the investor would receive a high percentage of their loss paid to them by the Treasury. If the loan was paid, their wold enjoy a very high return. While the government guarantees in the TALF program did stimulate buying in TALF eligible securities holding these CMBS, the banks have been reluctant to loan the monies they received until they have a better understanding of what future risks are going to be. Now, market participants anticipate that CMBS delinquency rates will climb higher in the near term, driven not only by negative fundamentals, but by borrowers’ having difficulty rolling over those loans that are maturing.

What does all this mean? If we can believe Ms. Warren, the pending rising defaults in commercial real estate loans are going to cause another earthquake in the financial markets. The question then becomes, “will the Federal government step in with new guarantees or the funding of massive new programs designed to provide liquidity or simply will they fund a bailout of the 3000 plus small banks and the TALF investors that are holding these securities on their balance sheets”. Will the “too big to fail” concept be extended to the small and community bank? If it’s true that over 50% of the Commercial Real Estate loans are under water, I suspect that we will soon begin to hear about a new trillion dollar program that must be instigated before the November elections to save the financial system again. Perhaps it will even be a recommendation by Ms Warren who seems to have little confidence in capital market economics or just believes they are too punitive to those who are willing to take risks if they make a profit but cry for help when they fail.

Here is my take. If the Government thinks it is manageable to create another Trillion or so of Treasury debt to keep the small and midsized banks from failure and make good on their guarantees caused by the continued necessity to mark to market their assets to levels that cause their equity capital to fall below that required to be sustained by regulations, why wouldn’t it be in the American taxpayer’s best interest to just have the bank regulators go ahead and let the banks fail, go through bankruptcy, sell their remaining assets to new investors and reorganize with capital loans totally or partially guaranteed by the same partnership (Federal Reserve Bank and U.S. Treasury)? Given that these banks are going to fail because of poor due diligence and poor risk management, why should we be concerned that their current shareholders or owners have to suffer the consequences caused by their misjudgments?

One Man’s Opinion—Bud Brewer

(1) Elizabeth Warren (born 1949) is an American attorney and law professor. She is the Leo Gottlieb Professor of Law at Harvard Law School — where she teaches contract law, bankruptcy, and commercial law — and has devoted much of the past three decades to studying the economics of middle class families. In the wake of the 2008-9 financial crisis, she became the chair of the Congressional Oversight Panel created to investigate the U.S. banking bailout (formally known as the Troubled Assets Relief Program). In that role, she has provided a critical check on the U.S. Department of the Treasury and has been a leading advocate for accountability and transparency. In 2007, she also first developed the idea to create a new Consumer Financial Protection Agency, which President Barack Obama has advocated and Congress is now considering.[

Obama: “You Mean there’s No such Thing as a Free Lunch?”

Brad Schiller is an effective professor of economics at the University of Reno, Nevada’s College of Business. I say this because like most people, during my 50 years in the financial services business world, I have lost much respect for many teachers in our Universities twisting the minds of students about how the world really works. But Brad Schiller is an exception to that belief and in a column, written in of all places, the Reno Gazette Journal, Reno’s daily voice from the left. Professor Schiller hit the legendary nail on the head with his explanation of why Mr. Obama’s claim that his Bill to provide National Healthcare for everyone at zero increase in cost is and always was flawed. Take a moment to paste this to your URL line in your Browser and read it. http://www.rgj.com/apps/pbcs.dll/article?AID=20102030407

It seems clear to me that the rising disappointment in President Obama’s leadership is being caused in large part by the slow but steady realization by his most ardent supporters that this brilliant orator has little understanding of how a free market capitalistic based economy operates, let alone what the Government’s role should be relative to the nurturing of its growth. Let’s take his latest comments that he is going to increase employment by giving a $5000 tax credit to small businesses that hire another employee. Incentives are an important ingredient in the decision making process exercised by a business manager. But a one shot credit or even a one shot cash payment mean little to whether or not the hiring of that person will add to the success of that small business. The factors considered by managers to determine if hiring another salesperson, receptionist, service agent or where house employee, etc., are more likely to be based on whether or not his hiring will add value to the firm’s ability to increase revenues and improve profits. On the other hand, if the local or Federal Governments decide to eliminate a restrictive and costly regulation affecting his business or to reduce or eliminate annual fees or taxes on the business revenue, the manager may decide to invest the increase in resulting profit margin (cash flow) by adding personnel to open a new branch, or add new products or services for which there is a growing market. But a one shot tax credit of $5000 to employ one of the unemployed is not a real job creator.

If President Obama thinks his plans for increasing taxes on small businesses earning over $250,000 per annum (a figure that includes individuals organized as an S corporation, LLC, etc., the profits of which are taxable to the shareholder as ordinary income) will result in rising employment and economic growth, he needs a refresher course at the Harvard Business School (or maybe it should be somewhere else). President Bush’s “Tax Reduction for the Rich” legislation of 2002 did much to get the business community, big and small companies, to commit capital to exploit opportunities perceived to be available. The fact that both he and the Republican Congress from 2002 to 2006, urged on by the Democrat minority did little to reduce discretionary and entitlement spending in order to pay for the war in Iraq and neither the Federal Reserve, Security Exchange Commission, members of Congress nor the large underwriters on Wall Street recognized the risks developing in the Sub Prime Mortgage disaster, is not a basis for concluding that the 2002 “Tax Act” in and of itself was unfair or prevented the funding of in place entitlements for the poor and disadvantaged. In fact the Federal Personal Income Tax revenues increased from $1.8 Trillion to $2.25 Trillion, an increase of $400 Billion in the first two years following the across the board tax rate reduction and continued to increase at that rate until 2007.

Today’s economy, having been buffeted by the near financial meltdown and the Government’s action to keep large (Too Big to Fail) banks afloat with almost $800 Billion dollars to shore up their balance sheets, is suffering from a “deer in the headlight syndrome” of its small business sector. Big companies are generating cash by reducing inventory and aggressive cost cutting but the engine of the U.S. economy is the small, creative and dynamic businesses where the large majority of new jobs are created. Those managers that I speak with are reluctant to employ their remaining capital and their business plans project questionable profit potential given the uncertainty of Federal and local tax policy changes being considered.

In order for this economy and its interrelated parts of the global market to get back on tract, President Obama and the Democrats are going to have to give up on their plans to enact legislation designed to redistribute the wealth of this country’s most successful investors, entrepreneurs and businessmen. Fair taxation, yes but redistribution, no. He must give reasons for the consumer to once again develop a sense that the strength of our business community and a new found fiscal wisdom by our government will enable them to regain enough confidence in that government to begin investing again.

One Man’s Opinion – Bud Brewer