Nanny State 2008: Clinton wants $5,000 for every newborn!

Via the AP:

Clinton: $5,000 for Every U.S. Baby

Democratic presidential candidate Hillary Rodham Clinton said Friday that every child born in the United States should get a $5,000 "baby bond" from the government to help pay for future costs of college or buying a home.

Clinton, her party's front-runner in the 2008 race, made the suggestion during a forum hosted by the Congressional Black Caucus.

"I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home," she said.

The New York senator did not offer any estimate of the total cost of such a program or how she would pay for it. Approximately 4 million babies are born each year in the United States.

Clinton said such an account program would help people get back to the tradition of savings that she remembers as a child, and has become harder to accomplish in the face of rising college and housing costs.

One way of building a stronger economy, she said, is "more savings, starting with the so-called baby bonds idea where every person born in this country would be given that kind of account because we want to make an investment in America's young people."

The economic implications of something like this are simple. If you give every newborn $5000 to invest in a college fund, college tuition goes up by $5000 because now everyone can at least afford that. This twisted logic seems rudimentary and baseless in any free market society. This also does not take into account the already negative savings rate by the average American. Why save if the Government will just give us college tuition? Maybe we should have even more babies. Not to mention that by todays birth rates this would cost about $20 billion a year. Can you say Nanny State in 2008?

Video of The Day: Cramer Goes Nuts

This is in reference to my rate cut post yesterday. Always a good laugh and eye opener for those who haven't seen it.

Its Official: The Dollar Index Has Hit An All Time Low

While you may not find any news agencies reporting this; the widely measured US dollar index hit an all time low against 6 other major currencies today and continues to fall rapidly. Even the tame inflation report that came out today had no effect on slowing the rapid decent of the Dollar versus other major currencies. As stated previously, the last time the Dollar had been near these lows was in 1992 when the Economy was just coming out of recession. After 1992 the dollar managed to climb all the way to 92 in November of 2005.

The index now sits at 77.92, over a 15% fall in less than 2 years. This has drastic effects for the average consumer and the economy as a whole, specifically rampant inflation and a lower purchasing power for foreign goods. This also makes US treasuries less attractive to foreign investors which in turn lowers our ability to pay off our government overspending by increasing our debt. Eventually foreign countries will not want to purchase an investment that is being debased by US policy. Its the equivalent of a Company printing more stock shares and putting them on the market, this then lowers the value of every share held and eventually no one wants to buy the diluted paper.

As a reference and for the chart of the day, I give you again the US dollar Index provided by ino.com:

Tell Me Again Why We Needed A Rate Cut?

Via CNBC.com: 2nd Quarter GDP grew 3.8% and Jobless Claims Tumbled

"The economy rebounded with a good head of steam in the spring before a credit crisis raised new fears about longer-term business health. The Commerce Department reported Thursday that the economy grew at a 3.8 percent annual rate in the April-to-June quarter, the strongest showing in just over a year."

Ok, so the Economy grew from a stagnant .6% in the first quarter to a 3.8% rate in the second quarter; the highest in over a year. In the following months we got a 50 point bases cut by the FED which "surprised" most Economists and those on Wall Street and led to a 350 point rally in the Dow the same day.

Forgive me for seeming naive but does this strong GDP number and "tumbling jobless claims" seem like it is deserving of a 50 point rate adjustment? Now I understand credit has tightened, and housing has worsened, but unless we are looking at a negative GDP number in quarter three I see no need for a rate cut at all unless....

"Merrill Lynch May Write Down Assets by $4 Billion" via Bloomberg

"Bear Stearns 3Q Profit Falls 62 Percent" via CNBC.com

"Morgan Stanley Profit Falls More Than Expected" via CNBC.com

"Lehman Net Falls 3%" via WSJ online

Oh, nevermind.

I guess all the screaming from Jim Cramer about his Hedge Fund buddies was all we needed to make Bernanke and the FED get to steppin'. God forbid that the likes of Lehman, Morgan Stanley, et al have to show net losses for a few quarters. And all because they made bad bets with over-leveraged hedge funds on a real estate bubble that was created with their loose credit. We will have none of that!

We have to make sure those bonuses make it out on Wall Street come this Holiday Season.

Harumph, Harumph, Harumph!!!

"Mr. Obama, pressed by Mr. Russert on his lack of experience, said he believed he could 'bring the country together.' 'We need someone who can take on the special interests [emphasis added]. I have consistently done that,' he said."

"We need someone who can take on the special interests." Wow. This sounds like something that I should support. The term special interests sounds bad; it has a connotation of selfishness and that is bad. The verb to "take on" implies that these special interests are all powerful and imposing themselves on us helpless Americans. If they were just a nuisance we could simply ignore them and not have to "take them" on. I should find out how I can get involved in taking on these special interests.

But first lets take a deeper look at these so-called special interests. What are they? At least two people who feel similarly about a particular issue organize into a formal group in the hope of attracting others to their cause and affecting government. Ok. But who are these people that make up the special interests? American voters. Ok. But why do these groups think that they have the right to peaceably assemble and to petition the Government for a redress of grievances? Oh yah, the first Amendment to the Constitution.

Special interests are us. Mothers Against Drunk Driving is a special interest. Our political parties can be considered special interests. In a representative democracy or any democracy there will always be special interests. Why does a politician need to take these groups on? What will he save us from: ourselves? Democracy? How will Barack Obama take on these special interest groups? Why would he bite the hand that feeds him? Who does he think keeps his campaign afloat?

This is just typical political speak targeting the unsuspecting and lame-brained. This is Barack Obama's way of saying that he has no respect for the intelligence of Americans. But then again, should he?

CPI Data is a Lie

From Bloomberg:

"The U.S. consumer price index continues to be a testament to the art of economic spin.

Since wages, Social Security cost-of-living increases and some agency budgets are tied to it, the government has a vested interest in keeping it as low as possible.

Yet your real cost of living -- what you keep after taxes, medical bills, college expenses and other household costs -- is probably much higher than the 2 percent annual rate the government reported in July, showing a slight decline."

I am glad to see that someone other than economists are examining how much of a farce the CPI data is. With gas, groceries, health care, housing, tuition and just about ever other everyday purchase going up, its amazing to me that the US Government can continue to spout this incredulously low CPI number.

I guess since the only real things we buy are big screen TVs, computers and imported Chinese goods than everything is A-OK.

Aren't you glad that they can vote for their own pay raises?

"The Senate voted 72-25 to pass a resolution condemning a MoveOn.org ad that referred to Gen. David Petraeus, the commander of U.S. forces in Iraq, as 'Gen. Betray Us.' The liberal group's full-page ad appeared last week in The New York Times. "

In the venerable halls of Congress the distinguished Senators of our country are completely wasting our time. Why debate silly issues like immigration policy or the war in Iraq when time can be spent attacking the point of view of a ridiculously partisan organization of rabble-rousers?

Meanwhile, state and local governments are busy doing the work of the US Congress.

More on REITs

An excerpt from a Wall Street Journal Online article addressing the positives of REIT investing in our current housing environment:


"TWST: Is this downturn in the single - family home market really going to benefit this space [Real Estate Investment Trusts]?

Mr. Goldfarb: Assuming that we continue to have jobs and GDP growth, we think it will. For example, let's take San Francisco. There people used to buy a place in Modesto and commute for two hours. That is no longer happening, one, because the ability to get the financing to buy the homes isn't there because standards are much stricter and also people are much more hesitant to make that jump to buy that home in this current environment. It favors the REITs because they tend to be located closer to the business districts and tend to be in more infill markets as opposed to out in the open expanses of where the homeowners were. So assuming that GDP continues to grow and we continue to get jobs, which is what UBS anticipates, then we think that it will be a net positive for the apartments.

http://biz.yahoo.com/twst/070919/zew804.html?.v=1

Chart of The Day: National Home Prices

From AP:

"The decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index released Tuesday.

Home prices have fallen by more every month since the beginning of the year."

It looks like the decline in home prices has rapidly accelerating downward through the summer months and will probably continue through the fall and winter. This will have a major effect on Mortgage Equity Withdrawal (MEW) , new home purchases and the mortgage values held by the banks. With the foreclosure rate increasing as well, this does not look good for the overall residential real estate market.

In a related note, homebuilder Lennar post a large loss and Lowes warns of lower than expected earnings.

Video of the Day: How Banking and Money creation really works

Most people do not understand truly how are banking system works or how money is created. This series of videos helps to explain it and the history behind our banking system. I think you would be astonished to know how it really works.

The Banana Blues

I was playing a rousing game of Balderdash on Friday night when I was asked to explain why Frank Silver was famous. I felt certain that he invented the slinky. It turns out that he did not invent the slinky, but was responsible for the smash single, "Yes! We Have No Bananas." I thought the makers of Balderdash were, like the participants, making this stuff up. It turns out I was wrong.

"'Yes! We Have No Bananas' is the title of a novelty song by Frank Silver and Irving Cohn that was a major hit in 1923, and one of the top songs of the 20th century. The song was recorded by Billy Jones, Arthur Hall, Irving Kaufman and others that year, and covered later by Benny Goodman and his Orchestra, Spike Jones & His City Slickers and many more. It also inspired a follow-up, 'I've Got the Yes! We Have No Bananas Blues,' recorded by Jones and others in 1923."

http://en.wikipedia.org/wiki/Yes,_We_Have_No_Bananas

Please enjoy some lyrics from "Yes! We Have No Bananas:"

He,he,he,he, ha, ha, ha whatta you laugh at?
You gotta soup or pie?
Yes, I don’t think we got soup or pie
You gotta coconut pie?
Yes, I don’t think we got coconut pie
Well I’ll have one cup a coffee
We gotta no coffee
Then watta you got?
I got a banana!
Oh you’ve got a banana!
Yes, we gotta no banana, No banana, No banana, I tell you we gotta no banana today
I sella you no banana

It is only fitting to follow up the success of "Yes! We Have No Bananas" with "I've Got the Yes! We Have No Bananas Blues."

I would think that the blues would have set in upon first learning that there were no bananas, but, alas, I would be wrong because the melancholy that one experiences from a lack of bananas only happens during the sequel.

Is nuclear energy not scary anymore?

"Power producer NRG Energy Inc. will submit the first application for a new nuclear reactor in the U.S. in nearly 30 years, the company's chief executive said Monday."

"Nuclear regulators expect Tuesday morning to receive NRG's application for two new units at its facility in Bay City,Texas, about 90 miles southwest of Houston. It will be the first complete construction and operating license submission the government has processed since before the Three Mile Island accident in Pennsylvania in 1979."

http://biz.yahoo.com/ap/070924/new_nukes_nrg.html?.v=9

"The average cost of nuclear-produced electricity was 1.72 cents per kilowatt hour in 2006, compared with 2.37 cents for coal-fired plants and 6.75 cents for natural gas plants, according to the Nuclear Energy Institute, a trade group."

This is a hopeful sign for the future of nuclear energy in the US. Now if we could only get over our fear of reprocessing the spent fuel, we may save a polar bear or two.

What's up shorty?

"The prostitution trade, long centered downtown, has increased in recent years in several neighborhoods across the city, police and residents said. Prostitutes often meet johns on street corners, at bus stops or outside convenience stores and fast-food restaurants. Then they head out to have sex in nearby alleys and parks or on quiet streets -- sometimes even back yards."

http://www.washingtonpost.com/wp-dyn/content/article/2007/09/23/AR2007092301280.html?hpid=moreheadlines

"If you're out there and prostituting, you are going to jail," Contee said during a recent weekend sting. "If you're a john and you're coming here for sex, you're going to jail. That's the bottom line."

"If you're out there and prostituting, you are going to jail," warns Robert Contee, a police officer in charge of the 6th District in DC; a warning that, I am certain, will successfully put an end to prostitution in the District and serve as a model for other districts suffering from similar ills. The sarcasm is pretty thick because it should be.

Human beings love sex: seems to make perfect sense too considering the difficulty we would have existing for very long without it. We are also extremely hedonistic: take drugs, alcohol, McDonalds or any other indulgence in which we regularly partake for no other reason than because we can and because it feels good.

Government has not made selling a hamburger illegal; it has not made producing or selling alcohol illegal. It has, however, put restrictions on these activities. Burger King must meet certain conditions with their products and restaurants; Anheuser Busch can produce alcoholic beverages with impunity if its products and processes follow certain guidelines.

Prohibition of alcohol didn’t work and neither would prohibition of happy meals: sorry California, but good luck trying to stand in the way of a Big Mac and an American's mouth. Consequently, why do we need a prohibition of drugs and the selling of sex? Regulation seems to work pretty well with alcohol and hamburgers. Wouldn’t this seem to indicate that it might work pretty well with drugs and sex; especially considering that prohibition has been so ineffective.

PS. Shouldn't Pro-Choice advocacy groups defend prostitution? After all, prositution involves a woman's right to choose what to do with her body.

Is this not the greatest stock on earth?

"Altria, for instance, hasn't bought back any stock for the past four years because it wanted to forestall legal challenges to the spinoff of either Kraft or Philip Morris International. By refraining from share buybacks it built up its book equity, which is important to the courts in evaluating a company's financial strength. Altria now has a great balance sheet, with net debt of just $1 billion and annual pretax cash flow of $15 billion. With those numbers, it could comfortably support at least $30 billion of debt.

Both new Altria and Philip Morris International are likely to begin buying back stock aggressively once the breakup occurs. New Altria could repurchase $10 billion of stock and Philip Morris International $25 billion within 18 months. Altria's current market value is around $141 billion. "

http://www.smartmoney.com/barrons/index.cfm?story=20070921&afl=yahoo&hpadref=1&pgnum=2

For a layperson this stock seems like a Godsend. Altria is what you will find in the dictionary under "Cash Cow." Tons of cash; market dominance; a planned second spin off in less than a year that will slim down Altria even more and squeeze more value from Altria and the new Philip Morris International; a potential massive share buy-back.

I love smokers.

My daily stroll down Diatribe lane...

http://www.washingtonpost.com/wp-dyn/content/article/2007/09/19/AR2007091902503.html

Much has been made of the apparent lack of oversight and accountability of private security contractors working in Iraq. The number of security contractors is estimated to be between 20,000 and 50,000. This educated guess further illustrates the fact that few know much about the security contractors in Iraq.

Blackwater is the crème de la crème of security contractors and treated as such by the US government. Blackwater works for the State Department and not Defense like most of the contractors. This makes perfect sense considering Blackwater is tasked with protecting State Department officials. The problem lies, however, in the fact that the security firms working for Defense – although immune from prosecution under Iraqi law – are subject to US military law and regulations. Blackwater, which works for State, is not.

The lack of soldiers in Iraq trained for specialized tasks such as dignitary protection combined with the overall privatization trend in government makes the existence of Blackwater types a sensible and unsurprising trend. However, like many trends associated with the Post-September 11th environment, Blackwater is asked to operate in an uncertain environment with uncertain rules. Like the military and CIA with enemy combatants and the NSA with monitoring domestic phone calls, Blackwater is asked to blaze new trails in the name of national security without clear restrictions.

September 11, 2001 changed everything: we know. But six years later we are still making the same mistakes and bumbling along no closer to resolution in Iraq or the struggle with Islamic fundamentalism. It doesn’t matter whether Blackwater is contracted by State or Defense; whether they are private contractors of US soldiers. The problem is a lack of leadership in the United States government: both the executive and legislative branches. We are asking our military, our intelligence officers and our private citizens to participate in an unprecedented struggle with an indefatigable foe, but we have not clearly defined the rules in which they must operate. The failure of US legislators and the President to bring our war on terrorism within the scope of US law has served to undermine our efforts to protect our nation from threats. It is no wonder that we have so far been unsuccessful.

Chart of The Day: BofA ARM reset schedule

This is the Bank of America monthly ARM reset schedule by sector. And by sector they mean how crappy your credit is, with subprime being the worst and usually the shortest time until your rate resets. The chart shows the reset schedule of all adjustable rate mortgages (ARMs) until the end of 2009. Now call me crazy but it looks like we still have a long way to go before it really starts to get ugly.

For All those who are preaching that the worst is behind us for foreclosures and real estate prices, this chart tells a very different story.

Video of The Day: Ron Paul Addresses FED Chairman Bernanke

What is the moral hazard of completely devaluing the dollar? According to Bernanke there is none. And in case you didn't know, Ron Paul is running for President.

REITs please.

"The Fed action was meant to address the crisis of confidence among lenders," said Robert Bach, senior vice president of research and client services at Grubb & Ellis (AMEX:GAV - News), a commercial real estate firm. "Maybe there will be a bit of a cooling, but fundamentals are strong. Vacancy rates are low. Rents are increasing. Tenant demand is strong and, perhaps most importantly, construction (or overbuilding) is not an issue."

http://biz.yahoo.com/ibd/070920/etf.html?.v=1

Call me dull, but I like REITs as a long term investment vehicle: particularly owning individual small and mid-cap REIT stocks in a tax sheltered account or purchased systematically through a Direct Purchase and Dividend Reinvestment Plan. REIT funds are good options too because they can offer greater diversity, however, most REIT companies are large enough to cover a significant portion of the country and most are involved in retail and commercial ventures.

Sure REITs are about as exciting as women's basketball, but its hard to argue with consistent dividend growth and their importance as a hedge during periods of inflation: especially considering that "REITs are financed primarily with long-term, fixed-rate debt," said Lou Taylor, a REIT analyst at Deutsche Bank.

Everyone in America wants to own real estate, but few can afford an investment property let alone their personal residence: here is your chance!

Go ahead, learn you somethin'! -- http://www.investinreits.com/learn/investguide.pdf

Chart of the Day: US Dollar Index

Chart via ino.com

Here is the 2 year US Dollar Index versus a basket of other currencies (EURO, British Pound, Japanese Yen, Canadian Dollar, Swedish Krona and Swiss Franc). I hope no one was planning on traveling overseas anytime soon. FYI we are about 50 cents away from the all time low set in 1992. But hey, at least those imported Flat Screen TVs will be cheaper.

Welcome

Welcome to Pulp Finance, a site dedicated to Finance, The Economy, Politics and whatever the hell else we feel like talking about. Were just a couple of guys trying to make sense of it all in a laid back, Joe Six Pack kind of way. We don't claim to be experts or prophets but intend to call it as we see it and provide a little humor along the way. If you want to learn more about the general economy, politics and whatever else may be on the homepage of your favorite news website you have come to the right place. Hell we might even cover some pop culture along the way, because who doesn't love bashing Britney a little bit now and again (except this guy) We just CAN'T leave her alone!

I hope everyone out there enjoys the site and we look forward to taking any suggestions on content and topics. I will be back later today with a relevant post on the latest FED decision and K-Feds reactions. -PoPaZao