We have elected a new president of the United States. Barack Obama is the first person of another color (African American) to hold that office. He made a lot of promises and received 53% of the popular vote, the largest for any Democrat since LBJ in 1964. However, I believe that 90% of the public will back him for at least the next 3 to 6 months.
We all realize that the problems we face are herculean, but this is a man who came out of nowhere two years ago and had Hillary Clinton voting for him for President of the United States. He defeated a qualified candidate, John McCain, in a fairly clean campaign. Studying the campaign I have come to a conclusion. He is a magician. We are going to need his magic touch for the next two years. So we are all praying for Obama – the Magician.
Here are some of the problems he will face. Iran, which is Shiite, will be watched very carefully by Saudi Arabia, which is Sunni. They have the oil. Iraq was politicizing over our troop withdrawal for local consumption. This was putting President Bush between a rock and a hard place. Now that they realize that the Magician is in: they are running scared. They need our support. Aren’t you glad you don’t have this problem? Don’t forget the A-bomb and Israel.
Europe is another soft spot. NATO is weak and Russia knows it. The bear is back. They play dirty. They supply Euro land with natural gas. They threaten to turn off or diminish the natural gas supply if they don’t get their way. Especially Germany, the backbone of the European community, and Chancellor Merkel is being blackmailed by them. They love the magician right now.
Russia is trying to bluff its way on the world stage, but economically they are a short sale. Business will stay away from them because they are undependable. Ask British Petroleum. Any country that threatens to turn off a heat supply to another country in the middle of winter cannot be trusted.
Then there is China, which is imploding. They are competing with Russia and India for the vast energy fields located in the Former Soviet Union. The Chinese are a very polite people and have a high regard for honor. The Magician better listen carefully.
The price of oil is dropping and soon will go down below $50. Partly because of the pending global recession, partly because when the price rises too high, everyone on earth hunts for a better solution. Just drive in the country and look at all the wood piled up for heat. Utilities are spending money on solar power, wind farms, and atomic energy.
Then there is Brazil, a friendly nation to the south of us. They have discovered one of the largest oil fields off their coast line, and it is light sweet crude. They were selling concessions for geographical blocks, in which oil companies accept the risk in return for the rights over any oil and gas they may discover. The hit rate was 100% for the first 15. Now the government realizes the potential and has stopped issuing concessions. The conservative estimate is that it contains over 100bn barrels of oil. That should start coming on stream between 2010- 2012. Those estimates are considered to be conservative too.
I wonder what we will find off our coasts.
Take all these situations, jumble them in the Magician’s hat and see what he pulls out. Don’t sell Obama short just yet. Remember he whipped Hillary and she is still smiling.
Our domestic problems are immense. Will he have the same problem that Bush had in controlling his party? We have a very serious problem on our hands. The depression happened because of too much easy credit and financial leaders who had the wrong idea of what to do. FDR’s programs were a bust. Thanks to the Japanese, they created full employment and a pent up demand. The tight credit of the 1930’s was dropped into the bucket December 8, 1941 and our economy rebounded that very day.
Today we face a similar problem, but with a big difference. We have Dr Ben Bernanke as Chairman of the Federal Reserve. He received his doctorate degree from M.I.T. on the great depression and how to avoid another one. It is considered the bible among financial theologians.
Some states are facing huge deficits and instead of cutting programs and urging belt tightening as a true leader would, they plan to raise taxes which just takes money away from the consumer who would spend it. This will hurt and slow any recovery in that particular area.
As some of you know I started being a stock broker in 1960. I was the youngest broker by 15 years and I found it very difficult getting started because “I had not been through the crash.” So I learned all about it from first hand reports from the floor of exchanges and pillars of the business to men who lost their homes or stood in line for a welfare check.
This stock market will bottom out only when the sellers stop selling. As real estate prices come down and people are force to sell to save their homes – sellers will abound.
One buys a home to live in it long term. Land speculation can be disastrous and real estate is illiquid. There is no stock exchange for houses and land. Land and homes should be bought for long term investments – not for a short term flip. Those days are over.
I would like to explain how our credit implosion happened. It took decades. In their greed to show higher earnings, financial institutions of all types started lowering their standards for loans. 10% down payment looks easy in a rising market. If the asset goes up 10% you have doubled your money. If it goes down 10% you are wiped out. That is how this mess started, and once in high gear our leaders were afraid to pull the plug hoping the next guy would have the problem. It is not just sub-prime loans; it is most hedge funds, derivative transactions (what I call funny money) credit cards and their usury rates, and automobile loans to name a few. Get the picture?
Now throw in the stock exchanges with rules to help the big guy and wound the individual investor. The role of the specialist on the floor of the New York Stock exchange is now history. His function was to maintain a fair and orderly market. The computer has replaced the specialist with quicksilver speed. To protect the market place against bear stock raids the Uptick Rule was instituted in the 1930’s, June 2007 it was rescinded. That is exactly when the high volatility came into the market. I am not of the Democratic party persuasion, but dear reader, if any of you have opportunity to communicate with the President- elect staff, he should replace the members of the Securities Exchange Commission (SEC) now. If President Bush means his “seamless transition” then he should submit Obama’s choices now.
This market is a long way off from bottoming. This is a credit crisis, and it has to be worked down. Thieves have to be convicted, brokerage firms and certain types of investments abandoned and the mechanics of the market place improved or reformed for the common good.
I was taught many, many years ago never to trust the government when it came to investments. They don’t have your best interest at heart– only theirs.
We might see a tricky maneuver when it comes to your IRA. Most IRA’s are down substantially from their August 1st valuations. Now the government might offer you your August 1,2008 valuation and you can dump it in our social security system. That is called spreading the wealth around. They are going to use a carrot to entice you to give up your independence. Magic-poof!! If they really want to fix the system, they should rescind the Congress retirement package and put them back on Social Security. Right now they can retire at full pay after serving only one term!
When stock markets top out it’s done stock by stock. Only when 50% or more stocks are down do people realize that they are in trouble. The same is true when the market bottoms. Individual stocks bounce around like a rubber ball. A good way to find these gems is when stocks have a really bad day – see if there are any up a half point or more. That tells you that some investors are afraid it is going to go back up so, out of fear of missing the upturn, they are buying back in.
I spotted one of these beauties. It is a Canadian company trading in US funds and Canadian funds. The current ratio is a strong 2.13-1 and no funny money. It is selling around 4 times earnings and yielding over 24% paying monthly. (Even if they cut the dividend by ½ it would still yield 12%). It is in the waste management field and its business is diversified in oil recovery, metal and mining recovery and the automotive industry plus others. Its business is all over Canada plus the western United States. It has over $400,000,000 in sales. I can’t figure out why it is down so much, but maybe one of you can. You may check it out for your self at www.newalta.com.
If you plan do to business with me sometime in the future, due to Homeland Security, it is best to get the paperwork done ahead of time so you don’t miss markets. This is a way of making sure honest and friendly funds enter our market place.
In the meantime, stay liquid, calm and cool.
Cheerio!!!
Richard C De Graff
256 Ashford Road
Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
860-208-0256 Cell
[email protected]
This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. I do not receive any remuneration or fees for writing this letter. I do it for the love and truth and the sheer joy of expressing my opinion. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller. The opinions expressed in this letter are mine and not necessarily those of Coburn & Meredith.
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