Economic & Financial Review

What is Really Happening in today’s Economy

2006-10-04T22:28:00.000-04:00

Oil price are tumbling. The sharp rise that affected every product that we consume is now held at bay. Is this just a temporary stopgap before elections this November? Alternatively, is it a true economic trend? Some products within the market have even fallen or in reality found their true level. The Fed has held interest rates after a continuous rise to slow the overheated real estate market and rising economic growth. These are just a few of the indicators that make up today’s view.

The big question? Where are we going? I think the answer is really an unknown. Both sides of the fence can equally claim the way they see it, is the new direction. I say we are a point of wait and see. There are too many unknowns rite now. The elections, the war in Iraq, Iran’s refusal to stop their nuclear ambitions, the so-called peace in Israel with Ham mass starting a new buildup on the Lebanon border. Will oil price continue to fall or turn back upwards?

A best answered is, do not follow any one of the many promoters pushing their wares for their own gains. Wait, see, and let your judgment point you in the direction, you will see a true trend developing in the near future.

The Changing Economy

2006-01-15T01:27:00.000-05:00

The Changing Economy

With the continued growth within the U.S. economy, it seems only fair to review what is causing these changes, and how it has and will continue to affect us. When the economy grows the fed usually takes steps to slow its growth thru the use of fiscal and monetary policy. The fed has been slowly raising interest rates over the past year or so. This of course has not totally slowed the housing bubble everyone fears but you will notice thinks are slowing down substantially. Cities as New York have seen property values on housing peak and even fallen as demand has slowed.

The question is what has been the driving force for this bubble? One is the poor performance of the stock market. Two is the low rate of return for bonds and bank certificates of deposit. Three is the low value of the dollar in contrast to other world currencies. Four, is the low rate of long-term interest rates that made purchasing homes cheaper than renting. All these causes have led to the increased demand for purchase of real assets as real estate, gold, silver etc. . . . Usually the trade balances from which currency speculators price exchange rates would affect the economy, interest rates, and affect us directly. However, much has changed in the economy over the past few years.

The world market is now a single global exchange. Developing countries has found that it is in their best interest to support the large consumer based economies through purchase of their debt at moderate rates and increase their investment into these economies. The government debt ratio is rising so in reality the cost of money should rise. Nevertheless, many growing economies as China and India are finding that by subsidizing the economies as the U.S. with their newfound profits they are actually putting more bucks in their pockets. In addition, they realize their investment will continue to keep their local economy humming along. A true recession in consumer countries as the U.S. will only send the producing countries as China and India into a stall, limit growth, and send their economies into a recession.

In addition, the growth of large worldwide investment funds and hedge funds has expanded the availability of new dollars for investment into the United States capital markets. This will lead to a new up tick in stock prices, which has already begun, as well as greater availability of venture capital for smaller entrepreneurial companies. After the last dot com crash, the venture market had dried up.

Therefore, the basic premise from which we evaluate our economic future is now changing. Many economists will have to learn to factor these new realities into their market predictions. No wonder they have missed the mark in their projections for the economy and stock market.

Foreign Investment in Strategic Industries

2005-07-28T00:21:00.000-04:00

The media has attached itself to a new round of trying to convince us that protectionism from foreign investment is a real flag waver. The politicians find that it’s a great vote getter for them from the working class. Wave those protectionist fears and the common man will rally to their support.

Now is oil truly a strategic to our country particularly if the company under attack produces most of its production overseas for the world market. Is there not an ample supply of crude flowing from around the world that if China purchases a controlling interest in a domestic company as Unical or Chevron whose production is primarily overseas and sold around the world the U.S. will be strategically hurt. The communists have earned a great deal of profits from us and the free world. They are a major buyer of U.S. government debt securities in the government treasury market. I don’t see anyone in congress yelling to stop their purchase of government debt securities. I personally welcome their investment into U.S. based corporations for a couple of reasons. Firstly, it’s true the Chinese government does not love us. The powers that be are and will do things to hurt our system and way of life. But remember the more they invest in the free world and the America’s, the Chinese will begin to look differently. Capitalist are not born, they are created from success and wealth. The richer these family’s that govern china become the greater capitalist they will be. I feel most of these ruling families leaders are after continued power for themselves and their families. They see the writing on the wall and realize that communism is basically finished. The best way for them to perpetuate power for themselves and their families long term is through extreme wealth. The richer these families become the sooner they will accept democracy and free world markets.

Strategic products are ones that are domestic in nature, and would destroy us if we did not have a domestic supply available during a war. This is not the case when a domestic company’s main business is overseas and its products are sold primarily overseas.

The New Electronic World of Trading

2005-05-17T18:18:00.000-04:00

As most people already know the New York Stock Exchange is finally taking the plunge and merging itself with a fully electronic exchange. The New York has had an electronic component for many years. But they were not willing to let go of the lucrative specialist system until today, in which the other competitive electronic exchanges have forced their hand.

Surprisingly the system of specialist has their niche in the marketplace but not for most big board traded stocks where a large orderly market already exists. The market for specialists should be established for smaller less liquid stock offering of smaller less capitalized corporations. This could lead to a less volatile and less manipulated market for these lower cap companies. The exchange specialist can be electronic of course as opposed to one that is physical. Members would have to have minimum capitalization and adhere to a strict set of purchase and sale rules similar to that now held by stock specialist on exchanges like the New York etc. This in my opinion would attract larger capitalization greater liquidity, and reduced volatility to these lower cap companies stock. This type of regulated exchange would also eliminate much of the manipulation that has always scared away many investors from investing in this capital hungry market segment.

The market could in reality become an attractive tool to this capital starved arena. Venture capitalist tends to be limited in their scope of investment after the bust of that last go around. They are somewhat risk adverse which further limits the availability of cash to fund many realistic new enterprises.

The New Bankruptcy Bill / Who Does It Really Benefit?

2005-04-19T23:34:00.000-04:00

Most of us have heard on how congress is in its final phase of passing a new bill revamping the bankruptcy laws. We are told that the finance companies particularly the credit card companies are pushing for these legislation changes. They claim that if one cannot totally dispose of their debts that they will be less inclined to excessive borrowing. Also these easy credit purveyors claim that they will lower the cost of borrowing to all consumers if they do not have to take a full loss on bad debts.

Does anyone really believe that these restructured laws will benefit anyone but the credit card purveyors and their attorneys? I highly doubt they will lower the rate on consumer debt. The law will require some restitution during bankruptcy but this is a relatively small ratio of the balance owned to the financial industry. And I doubt the tactics used to market these easy credit instruments will be changed. The real problem with easy credit is that it allows many of us the opportunity to hope our present situation will change before we get into to much of a whole. Those who abuse the system will always find new angles in which to rip off the system. The real looser will be the average individuals and families that find themselves in a failing business or loss of jobs or income. These consumers use credit cards to survive thru tumultuous periods with the hope that things will improve. They have no interest in using this credit, accept to pass from point to point. The purchases they make for holidays or special occasions usually are done based on knowledge that they can pay off their purchases over a reasonable period of time. The downside is that the credit card companies look for every excuse to raise rates on these consumers knowing full well that they will entrap their customers into owing them endlessly.

I doubt this new law will benefit the economy. As more consumers find that the banks have additional power over their finances many will end up slaves to these institutions. Also the attorneys for the banks will be more vigorous into forcing the banks hand on consumers. All these powers will weaken the power of consumers and actually reduce the demand for goods and services. Consumer debt has help balloon the U.S. economy. If the interest rates on consumer debt do not fall which I’m sure it won’t, the banks will just be involved in enriching themselves at the expense of the economy and consuming public.

With this knowledge you again must ask, who really benefits from this new legislation?

The Big Squeeze

2005-03-21T06:10:00.000-05:00

We see a new round of price increases for oil in the world market starting to heat up again. What is the cause for these continued increases? How far will prices reach? Is there really a crisis or are the OPEC countries just playing with us? Why is the President and his cabinet taking this with such apathy?

Let us look at how these continued increases will affect our economy and lifestyles. Everything that needs to be transported requires use of petroleum. Therefore, many of our daily necessities use petrochemical. Included are gasoline, heating oil,plastics,pharmaceuticals,toys, cleaning products, housewares, computers, food products, cosmetics etc. The list is long and gets longer when you realize how many products are bi-products of petroleum or how many products use petroleum in their production. So realistically,as the price of oil rises, we will see a rise
in the cost of all products that we require for our daily lives. Incrementally the price increase will be based on the percentage of petroleum utilized for each product category.

Couple the increases in oil with the growth in the economy,the growth and demand for goods and services in third world and developing countries such as China,Imore comfortable environment for the user, and provide the user with a qualitatively new information experience. The processes of mediation (delivering information through media) and remediation (refashioning and enhancing media) are overlapping now, as in the historical progression of media each new medium has something of the old thus even the latest technologies resemble to some extent the original medium (e.g. Dürer’s window and Microsoft Windows, a frame of a painting and a frame of a computer screen).
�rer’s window and Microsoft Windows, a frame of a painting and a frame of a computer screen).

Taxes,Taxes, Taxes

2005-02-02T19:23:00.000-05:00

The election is finally over with the completion of the inauguration and the State of the Union address. Now let's get down to the business of making changes which Washington usually messes up anyway. The talk in our daily news is about changes in our tax laws. The folks in Washington are always playing with the system in some fashion. They are either reducing or increasing our taxes without any real long term objective. Of course, this depends on your point of view. So let's take a walk thru what taxes and economics can really produce if implemented properly.

In true economic theory, taxes are to be used as a tool for control of our economic health. The politics associated with it usually causes a chaos without correcting the problem it was designed to resolve. Most of our politicians use it for their own gains as opposed to what it's meant to heal. Taxes should be used to help the citizens of our nation as opposed to providing a gain to any one special interest group.

Don't get me wrong. I am not against tax cuts . Just the opposite,I believe that tax shelters for the corporations and the wealthy should be brought back in a managed form. Politicians choosing their own agendas is not at all what I'm discussing here. To illustrate the point, let's take a hypothetical example that could be a real world solution to some of our energy problems. Washington decides that for the immediate needs of the country we must increase production of biofuels to offset our reliance on imported oil imports. A lofty thought, I'm sure you will agree. Now what should be done in the tax system to materalize the increase in biofuels production?

The simple answer is to provide a large tax break for the wealthy and corporate investors to build and operate new production facilities that produce biofuels. In addition, provide incentives to the farmers who produce the crops from which the biofuels are produced. Put a reasonable cap on the number of years that this program will operate. The time period should be a sufficient period of time so that recapture of the investments being expended along with a fair return can be achieved. At the end of that period, the law will dissolve automatically and will have to be renewed. This will lead to a full review before any renewal of the law is implemented.

What will this do for our problem that requires balancing our imports of oil, and how will it effect our economy in general? The most simplistic answer is that if it is properly implemented, I believe, we can greatly reduce the amount of foreign oil imports. In a Wall St Journal article reported at least a year ago it found that we could increase our ratio of oil to biofuels for most late model automobiles without any real problems . Most of our cars are already using biofuels mixed into our gasoline to reduce pollution . The ratio is somewhere around 10 percent depending on where you live in the U.S.. Many industrial users , truckers,etc have been testing the use of biodiesel mixes in their operations. Secondly, we would spur growth in the building and operating of new plants to process biofuels. This means new jobs in everything involved from construction, materials, professional services, management, technicions and operational personel. It also would jump start parts of the farm industries that have fallen on hard times. This will help reduce our reliance on foreign oil, reduce our balance of trade, slow inflationary pressures, create jobs and jumpstart industrial growth.

From our example, you now can see how a well crafted tax break can translate into benefits to all citizens in the country. The next time you hear that Washington is discussing tax cuts, speak up, let your local representitives know that you want real benefits from tax law changes not limited political jargon.

Big Profits , Now What?

2005-01-05T17:46:00.000-05:00

The price of oil having hit its peak over the last six months has oil producers seeing their highest profits in recent history. With oil stock prices high, corporate coffers full , and cash just waiting to be invested and distributed to the stockholders, what's next for the oil producers? Let us examine a few investment ideas that may be considered by these corporations.

The large oil companies may begin a new wave of consolidations due to the low levels in world oil reserves. The small and medium producers could have a field day selling themselves off to the national oil companies. Wow! Won't the large producers pay a premium for good quality reserves in the oil patch. For the small and medium oil producers , it can be a double header this time around.The independents are earning record profits on new and existing production as well as selling themselves off at record prices to larger corporations. A second idea might be that the oil producers can try to find new fields as in the wild life reserves of Alaska , or maybe in new offshore sites yet undeveloped. The majors can invest with many smaller exploration companies who have had a greater success ratio and have been able to produce at a lower overall cost structure than the majors. Another alternative would be to diversify away from the oil patch or expand into related fields . Most of the majors are already in these related areas as pipeline transportation, chemicals, refining, direct sales thru gas stations etc.. Let's hope that as stockholders they don't stray too far from the energy business as was done in past go arounds.

Now that we are reviewing some new investment ideas that the the management of the large oil companies may be considering , let take a stab of some of our own ideas and recommendations. The large oil companies are in the business of providing energy for industrial production as well as providing fuel for the standard of life we are accustomed to living in the Western World. The oil industry has been expanding into diversified energy providers. Companies as BP have been in the forefront of this movement . They, as well as others, know that long term they must change their model in order to survive. Why then are they so hesitant to expand their operations into alternative fuels that can be mixed with existing hydrocarbons. Down the road other alternatives not yet perfected such as solar, and hydrogen , will stand on their own and futher change the way we produce energy. The need for hybrid fuels is now, not ten years from now, when true alternatives may carry their own weight. The biggest problem with ethanol, biodiesel and other biofuels is one of transportation. The major oil companies control and or influence.. the interstate pipeline and distribution systems of refined products. This is the crux of the problem. They have been reluctant to provide space in their piplines and open distribution channels that are not mandated by law. The government, of course, is a second problem in that no two states have the same standards in their mix of biofuels.

It seems that biofuels would be a great place for the oil profits to invest into for the immediate as well as long term. Oddly enough, this is a proven technology that would be beneficial to the oil companies, the security and economy of the United States as well as to its citizens. I know that I personally would be a buyer of fuels with a higher biofuel content. Biofuels may even give the oil companies a foothold into the emerging markets for alternative fuels as opposed to playing catchup later down the road. This could usher the oil companies foray into the next step of distribution and production of other alternative energy technologies.

The Falling Dollar

2004-12-14T18:25:00.000-05:00

We all hear in the news about the free -fall of the dollar in the world currency markets. So you may ask, how does this effect me? Personally, unless I am traveling to a country that does not have a favorable exhange rate, I really don't feel it. There are even claims that the terrorists are orchestrating the dollars free-fall. So let's take a hard look at what this all means to the investor both individual or corporate.

For example, let's see what happens as the dollar falls against the euro . As the cost of travelling to Europe becomes very expensive for the U.S. traveler, the number of American travelers to Europe decreases. Goods produced in Europe will become more expensive for export to the world markets. This will cause a slowdown in the countries where the exchange rate is higher than the U.S. dollar causing the balance of trade to turn favorably for the U.S..

For example, for those living in Europe, the cost of goods produced in the U.S. will amass a greater value. Consumers will have greater buying power if they choose American products. We are already seeing European travelers coming to the U.S. for vacations and shopping . This should increase our overall economy.

So let's go back to our original question. How does it affect the those investing in domestic investments, whether it be in the public or private markets? Many believe that the cost of money will go up and investors buying our dollars will demand a premium for purchase of treasury bonds which are financing our deficits and the war on terror around the world. By raising our cost of money in the treasury markets, the cost of money for businesses in the U.S. will rise commensurately. The demand for homes will fall, new construction and durable goods will stall, layoffs will increase, and domestic consumption will be reduced. The economy will spiral downwards. Secondly, since 60-70% of our oil consumption is imported, with the devaluation of the dollar the cost of fuel , a backbone of our economy will incease. This will further slow our economy.

The next question is what the terrorists gain by pushing down the value of the U.S. dollar? Their first interest is to discredit the dollar as the world medium for exchange. The second thought is to try to bankrupt the dollar by getting investors to fear the stability of the U.S. dollar thereby, demanding a higher and higher cost of money. The terrorists realize that if they don't try to destroy the U.S. economy while we are still reliant on Middle East oil, they will never have a chance to affect the dollar and the U.S. economy as militarily they are not succeeding.

The effects on the public markets can be expected to cause added pressure on the stock market forcing it downwards. The bond market will grow due to the higher yields that bonds will have to pay to attract funds. Real estate prices will probably tumble, since investors require a higher return to compete against alternative money instruments. Gold, silver and other precious metals will probably increase in price for fear of the U.S. dollar's stability. Additionally, the cost of carry will increase with higher interest rates for credit and mortgage rates.

The positive side is that we probably will see more funds invested into the U.S by foreigners. The euro, as in our example, will have a much greater buying power. Investors will flock to buy the cheap investments in the U.S. for the currency play alone. High oil prices will fuel growth in alternative fuels, as gasahol, solar, wind, coal gasification and hydrogen fuel cells etc. If anything, it should be an interesting time period for all of us to experience.

Any questions contact us at fiquestion@yahoo.com