Poor Richard’s Report

Poor  Richard’s Report            over 300,000 readers 

Federal Reserve will take Charge of the US Treasury Department

These are exciting times we are now experiencing.

We will have a new president who was one of the most liberal US Senators.

We have a global economy that is heading into a more pronounced recession.

We have a stock market that is the most volatile in US history.

The president-elect is really pulling some magic tricks out of his hat in naming some of his advisors. The conservative media is having a field day comparing some of these cabinet picks to advisors of the past presidencies of Lincoln, Wilson, and Harry Truman. Not a bad group to be identified with, in my opinion.

The way I see things, Obama really wants differing views so that he can be fully informed. He now represents all the people of this country, and as president he will only know what his advisors tell him. He is going to be one busy fellow. The last thing he needs is a bunch of back slappers wanting to please him with empty praise.

Our foreign adversaries will be in a quandary- there will be no record- so no one will know how big a stick this Magician carries. The Iranians thought they would be better off with Reagan instead of Carter and Saddam Hussein totally misjudged GW Bush. Does the Magician have a wizard’s wand or just a big stick?

What really intrigues me is the appointment of Paul Volker as head of his economic team. He has been on the White house staff since President Eisenhower. He was President of the Federal Reserve Bank of NY in the 1970’s.  That is the most powerful of the reserve banks. The President is automatically Vice Chairman of the FOMC (Federal Open Market Committee). All members rotate and the chairman is appointed by the President and approved by the Senate for a six-year term. The Vice Chairman position belongs to the President of the NY Federal Reserve Bank. All fed trades are done through this bank. Currencies, bonds, money supply – you name it. All central banks know and respect the President of the NY Fed.

So when William G. Miller, the Federal Reserve Chairman under Jimmy Carter, was flooding the world with US dollars to compete with OPEC, they eventually realized they were getting worthless inflated dollars. So they demanded that they be paid with a basket of dollars. One problem, there was not enough currencies to match the US dollars. An economic apocalypse was right around the corner.         

             En masse they went to Jimmy Carter and demanded Paul Volker. Miller resigned on a Wednesday and Carter named Volker.  The US Senate approved Volker by voice vote on Thursday and the new Fed Chairman flew to Brussels that night to assure the central bankers. Saturday he returned and announced that the Federal Reserve would now tighten the money supply until inflation was beaten. He then raised the Discount Rate, which is the rate at which banks can borrow from the Fed.

                While in Washington fighting inflation, the Federal Reserve Chairman rented a dorm room at Georgetown University. On weekends he would go to NYC to spend time with is ill wife.

                He is a no nonsense man and everyone knew exactly where he stood and respected him for it.

                When his term was up under Ronald Reagan, the then Secretary of Treasury, Donald Regan, wanted a republican as a fed chairman. Volker was a democrat.  Miffed, Volker named Alan Greenspan. That was mistake #1. The fed is supposed to be non-political.       

                When Greenspan would testify before the Congress he had a special way of dealing with them. When he didn’t know the answer to a question, or if he did not want to answer it, he would talk all around it and confuse everyone. It became known as “Greenspeak”.

                The individual who replaced Volker had to be above reproach, for he was the one banker everyone should have been able to trust.

                However, a scandal was breaking about the bankruptcy of Long Term Management that was made up of several Nobel Laureates who would bet millions of dollars on a 1/32 change in a government bond. When the press released the names of some of the shareholders it read like a who’s who of Wall Street. The first press release had the name of the NY Fed President. All other press releases omitted his name, but the damage was done and his career at the fed would soon be over.

                In about a year he was replaced by a boy wonder who quietly took over the job and avoided public appearances until he matured.

                His name was Timothy Geithner. He graduated from Dartmouth College in 1983 with a B.A. in government and Asian Studies.  He studied at John Hopkins School for Advance International Studies with a M.A. in International Economics and East Asian Studies in 1985. He has studied Japanese and Chinese and has lived in East Africa, India, Thailand, China and Japan. 

                Geithner joined the Treasury in 1988 and remained there until November 17, 2003 when he became President of the Federal Reserve Bank of New York. He is 43 years old and The President elect has named him to be U.S. Secretary of the Treasury. This will be the fifth administration he has worked for. It is ethics, not politics. He has been vice Chairman of the FOMC under Greenspan and Bernanke. I believe the Magician has pulled a genie out of his hat with this choice.

                Now we have Federal Reserve Ben S. Bernanke, whose doctorate at M.I.T. was on the Great Depression: what went wrong and how to avoid it. It has become a bible for economists.     

                I have written many times in the past that the Federal Reserve can do anything it wants to improve the economy. It has a bottomless checkbook to create or destroy money.  It can buy or sell anything financial it wants. No corporation is bigger than the Fed. They can freeze the assets of whatever and who ever it wants. The Fed Chairman can only be recalled by Congress by a ¾ vote. That means 75% of the Congress has to vote against him. Now you can understand that when Paul Volker went before Congress and stated with a grin, “I am here only as you wish, you are my boss.” It was a needle because they all knew they could not raise 75% against him. He was going to send the economy into a severe recession until prices started coming down. All the Congressmen could do was grin and bear it.

                Now we have the most powerful financial triumvirate ever assembled to fight a global crisis.

                The bottom line is that the Federal Reserve has taken over the Treasury Department of the United States of America.

                The Fed is trying to liquefy our banking system so that they will issue letters of credit, which will be accepted by foreign banks and visa versa.

                Now, one the first rulings that must be changed is to reestablish the UPTICK Rule for stock traders. July 2007 it was rescinded. Since then we have had, according to Dorsey Wright Associates, 11 days where the Dow Jones Industrials rose or declined by 5%. Prior to 2008 it has only happened 14 times since 1961.

                If you want to measure the volatility by a 90% rule it is even worse. 90% rule is when 90% of stocks move in the same direction plus the volume has to move by 90% in the same direction. Since July ’07 we have had 33 90% down days and 14 90% up days. Talk about uneven playing fields!  EGADS Charlie Brown! Come Jan 20^th when our new Magician, Barack Obama, becomes President the Fed should do something to stop this foolish and unethical trading. Traders die by the sword. Meanwhile the Fed has guaranteed deposits up to $250,000 for savings banks. US Government Money Market funds are also safe in my opinion.

                When the three “angels” come down to fix the crisis they will come down hard and people will scream and whine as they go to financial hell.

                When everyone is running around willy-nilly it might be wise to look to the north of us. Don’t completely throw in the towel of despair. Look to our friends – Canada. Oh Canada. They have fields of ever-lasting grain, oil and natural gas, Gold, Silver and diamonds, steel and forests of fine timber. They have everything to survive a deflationary and inflationary environment. Their markets are down along with everyone else’s, but they don’t have the foolish ghouls meandering around like ugly vampires sucking up the last drop of blood money.

There is value up North

                There is one company that you can investigate all by your lonesome. Newalta Income Fund, which will change from an income fund to Newalta Corp (www.newalta.com) January 1, 2009. They will be paying their last monthly distribution January 15 of 18 ½ Canadian. Then they will pay 20 cents quarterly after that. That means 5 dividend payments in 2009 for a total 981/2 cents. A six dollar price brings the yield to 16.4%. It is in the Waste Management field with a diversified business mix, they are not dependent upon one industry. The Current Ratio is a healthy 2.13 – 1. They do no have any of the funny money on their balance sheet.  Clean! Clean! Clean! They are selling at just above three times earnings.

                Buying a stock that is already down is less risky because you have less to lose. It is better buying a sound company at 6 than buying one at 160. There is not much risk left in the stock. It is not dirt cheap – it is stupid cheap.

                Everyone is trying to pick a market bottom, and they are relying on stock market charts that have worked in the past, but today is a new beginning and common sense will provide better rewards over the long term.

                We have three highly educated, street-smart men that are on salary, who are on a marvelous mission to bring financial stability to our country and the world. They are risking their reputations and a positive place in history. They are holding all the cards and when they are dealt – watch out.

 

This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. 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.