SubscribeA Miracle: Bush Parting the Bankrupt Sea
August 31, 2007
If the today’s economic story can be related to bible story, it would have to be the 
one where Moses parted the Red Sea. Back then, Pharaohs soldiers were chasing the Jews towards a dead end represented by the Red Sea. Then, after much hoping and praying, a miracle occurred. The Sea was parted and the Jews passed safely. Then, the soldiers were swallowed up and drowned as the sea closed around them.
Bush is now helping individuals who were moving towards a dead end by aiding financial companies that are closing in on the Bankrupt Sea. In this circumstance, the soldiers that will drown this time are Investors and Hedge Funds that went short on the homebuilders, banks and markets.
The flood that will kill them will be in the form of a short-covering rally initiated by several key economic results as well as the realization that there will be a governmental bailout if necessary.
According to news sources:
The President on Friday is to talk about several initiatives and reforms to help homeowners with risky mortgages keep their homes, a senior administration official said Thursday. Bush also is to discuss efforts to prevent these kinds of problems from arising in the future.
Bush also planned to:
—Urge Congress to pass Federal Housing Administration overhaul legislation that would give the FHA more flexibility in assisting mortgage holders with subprime mortgages.
—Pledge to work with Congress to reform the tax code to help troubled borrowers rework their loans.
—Call for rigorously enforcing predatory lending laws and strengthening lending practices.
Companies such as Countrywide (CFC), Bank of America (BAC), Toll Brothers (TOL), Beazer Homes (BZH), Bear Stearns (BSC), Lehman (LEH), Goldman Sachs (GSC) and the entire financial sector will surely get a huge lift from this move and short-covering. What stocks will get hurt today? Ummmmm, nothing that we can think of. This is a good move by our government for the most troubled borrowers(unless Bush does something really odd during his speech later today or Bernanke usurps President Moses Bush with comments that are at less than positive and supportive)
President Bush to speak at 11am and Fed Chief Bernanke to speak at 10am today
Horowitz & Company clients hold positions in some of the stocks mentioned in this article
The China Syndrome – Fact or Fiction?
August 14, 2007
The original movie, The China Syndrome, starring Jack Lemmon was a “fictional” story about one man’s mission to stop a nuclear catastrophe from occurring. The title refers to the taunt concept of an American nuclear plant meltdown that will dissolve everything in its path until it eventually reaches all the way to China.
One wonders if we are witnessing a political and financial firestorm that will help to create a modern-day economic China Syndrome. As manufacturers looked to save money, they found an amazing opportunity waiting in Asia and have now created an economic monster that may be looking to eat its creator.
“Dangerous products and demi-corruption, spreading eco-crisis…can China be fixed?”, are the opening comments from a recent Business Week “Cover Stories” Podcast. Tainted seafood, poison paint, fatal toys, crunchable cars, toxic toothpaste and even failing tires are the most recent headlines we are seeing in the news on a daily basis. Combine this with poor regulation and oversight within China due to political ladder-climbing which focuses on quantity over quality. There is also a high degree of nepotism at the local levels that has allowed for quality assurance to be a reduced priority.
The wealth that this has created by exporting and manufacturing to the consumer markets is amazing. These exports are largely the result of foreign investment by the world’s multinationals. Herein is the concern – will the companies which are providing the mechanism for growth by using cheap China labor and manufacturing look for other alternatives as they see growing fear over Chinese made products?
One wonders who is really at fault. Here is the question that needs to be answered: Is it the lack of a legitimate and honest regulatory environment within China or is it the push to reduce costs by the multinational companies that are pressing Chinese manufacturers and suppliers to cut corners in order to keep costs down. (and ultimately profits up)?
So, is an “economic” China Syndrome possible? As we see the continual headlines that are showing product deficiencies and even deadly ingredients, consumers will undoubtedly boycott anything that has Chinese labeling.
According to CIA World Factbook and the U.S. Census Bureau – Foreign Trade Statistics, the United States is the number one importer of Chinese goods. At the top of the list are computer accessories, household good and toys. The companies that produce and sell these products to US consumers will have to quickly reevaluate their desire to utilize Chinese components in the light of the recent discoveries. At this all important time of back-to-school and holiday shopping, there will surely be a major outcry and a knee-jerk reaction that creates a BUY-AMERICAN movement.
Now, far be it for us to look at any of this from a conspiracy angle. But for the fun of it, let’s speculate. Could this be a master-plan that utilizes a coordinated governmental attack on the Chinese manufacturers? The timing is curiously close to the heightened economic tensions between China and America. If this were the case, it would make sense that the reports of tainted products will reach a crescendo up until China caves in and agrees to Washington’s demands. Then, the reports will surely come out about the new and improved product oversight and the eventual sounding of the “all clear” signal.
Back in May, 2007, Chao Wang, an assistant government minister led a trade delegation to and discussed the trade imbalance issue with the USA. He said, “For the interest of both our countries, and the people, and for the benefit of every state in the U.S., cooperation must remain as the mainstream,” At that time, he also hinted that he was beginning to feel the effects of “trade protectionism.”
So, if there were dark forces at work, the argument for a covert operation to increase the worries of consumers who are continuing to ravenously purchasing goods manufactured in China would be a great idea. The effect could be easily regulated and timed to create an atmosphere ranging from concern to hysteria. The economic effect of this could cause a virtual shutdown of Chinese imports. This approach will not be viewed as a governmental move that begs for retaliation. Rather, it will be a slower process brought about by the consumer rotating away from Chinese products.
The end result would be a natural reduction of the trade deficit and the eventual need for the Chinese government to realize that they are not invulnerable. It will also require other companies to re-evaluate their decisions that allowed them to be exposed to risks associated with the lack of diversification. It also brings up another interesting point: who is the ultimate beneficiary?
If the trade deficit is reduced, does that mean that companies will look inward for domestic suppliers and manufacturers? Or, is it more probable that they will seek out other emerging countries that have the capability of providing inexpensive labor that will be more cooperative and attentive to US interests. (India, Mexico, Eastern European Block countries)
As conspiracies go, this one, if taken to the extreme would effectuate an economic China Syndrome. If we cause a meltdown of imports from China, they could see an economic disaster that would affect millions.
But, that is just a fictional account of the situation. Odd as it seems, I am sure there is a good explanation for the timing on all of the recent Chinese related recalls and warnings. It is probably the result of the fact that I am in the middle of reading, Confessions of an Economic Hitman….
BlackStone IPO may Be Delayed by Taxman
June 21, 2007
Waxman and Rangel are at it again….According to a news release on Reuters; “New York Democratic Rep. Charles Rangel, chairman of the powerful tax-writing panel, said, “We believe it is imperative that Ways and Means … conduct a hearing on the important issues surrounding private equity, carried interest and publicly traded partnerships.”
U.S. lawmakers are increasingly focused on taxation of the booming private-equity sector and the impending initial public offering of Blackstone Group LP [BG.UL], one of the nation’s largest private equity firms.
Citing concerns about the Blackstone IPO, Senate Finance Committee leaders last Read more
Cold Markets and Warming Rates
June 6, 2007
The thought of a a rate increase has sent a chill through the markets today. For some time, we have been high on a pedestal trying to shout out the fact that the FED is stuck in a corner with their back to a wall. Remember, there are several factors that have been discussed in podcasts and posts by us over the past month. Then, problems stemmed from the EU increasing rates in an attempt to slow that economy.
In his recent comments, Bernanke was leaning in the direction of a higher rate posture. Once again it seems that the need to cool the markets and give a lift to the dollar is paramount. The biggest problems will been seen in many of the sectors that are interest rate sensitive as well as the high-flyers.
Be careful here as there is a real possibility that the markets will move down aggressively towards their support levels. Remember, the recent run up in the markets did so in a rather short time period. In fact, only a few months ago the markets were flat. Even the best scuba diver needs to come up for air eventually. It is time for these markets to correct back towards more appropriate levels. Once there, they can look towards an upward trend if earning and economics look good.
Larry Flynt is a “Reel” American?
June 5, 2007
Here is a truth:
yesterday, Larry Flynt, Creator and Owner of Hustler magazine offered $1 million for political sex scandals. Flynt seeks evidence of illicit encounter with high-ranking official. Hustler magazine is looking for, as he says: “scandalous sex in Washington” again — and as usually, he is putting money up as bait.Talk about nerve! He took out a FULL page ad in the Washington Post that asked: “Have you had a sexual encounter with a current member of the United States Congress or a high-ranking government official?” The ad is explaining that anyone will receive $1,000,000 in return for documented evidence of illicit intimate relations with a congressman, senator or other prominent officeholder. A toll-free number and e-mail address were provided. The timing is interesting as it coincides with the opening of the 2008 presidentail election race.
This is not the first time he has done this type of thing either. Flynt offered Read more
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