What Obama needs to keep in mind while in Russia

President Obama is visiting Russia today. First time as a President of USA. Over the last week or so both Obama and Putin (the guy who still seems to pull the strings) have exchanged a few light verbal blows. However, both are suggesting that partnership will be good for both countries. I do agree with this approach and do hope that the 2 countries put their differences behind them and grow their relationship. I believe together they will be much more successful in fighting economic problems, terrorism and dealing with countries such as North Korea and Iran.
In my view however, US needs Russia a bit more right now as opposed to the other way around. US is powerful due to its army and economy. The latter is in shambles. Though Russia has not been unaffected by the crisis, in my view they did create more strong relationships during this time, especially with the rest of BRIC countries. I think it might be appropriate to say that it is US vs. the New World these days and let's be honest US can not go against the world alone anymore. US is not the same power as it has been a few years back and their 'opponents' have taken an advantage of that.
I would advise President Obama to listen carefully to Russia and perhaps lose out on some propositions in order to huge ally over the pond, which will likely provide more crop down the road.

Madoff does not deserve to be in jail

After the 150 year sentence was pronounced many victims and others exhaled and smiled. They were cheated and in many cases lost everything. They were happy that the the 'evil' was punished. But hold on...is this really a punishment for Madoff for what he did? They guy is 70 years of age. He spent the last 20 years+ enriching himself by cheating others. Now he will be in jail for the rest of his life where he will be fed, provided with clothing and shoes, provided with cable and gym, provided with health care...and all of it once again will be paid by the victims (tax payers)
The more appropriate punishment is for him to live in jail, work for victims (cleaning homes, cooking dinner, washing dishes and cloths...) , get paid pennies and buy food for himself and pay for health care himself (that is if he can afford it) and pay for his cell. This will show him what life is all about for many he cheated.
This whole thing shows that the guy is smart. He understands that, now at 70, he does not need much and will be OK living in jail and reading books and maybe even write a memoir. Why do you think he did not confess before?

Republicans got the wrong Russian

I saw an article the other day. It said that one of the top Republicans has compared Obama to Putin. It was suggested that some of the Obama's policies resemble the style of the Russian politics. I have to say that I do agree with the resemblance, however I think republicans got the wrong Russian to compare Obama to. The most appropriate Russian leader would be Vladimir Lenin. Remember that guy, who led the revolution in 1917 and basically set up Communist/Socialist USSR. Putin is different in my view. I think he did whatever was necessary to put Russia back on the political/power map and let's be honest he did succeed. Now he's even got the backing of China. It is true that the only reason Russia is a power again is because of its rich natural resources, but hey you've got to use whatever is at your disposal (and that is the capitalist way).
Keep in mind when revolution of 1917 happened workers (primarily lower class) became 'majority holders' of factories and land. Now in 21st century's US, the union (workers) became the majority holder of the General Motors.
So, given the fact that Americans apparently still do not like Russia (for some crazy reason), Republicans are playing the right card, but they need to get their facts straight.

Half a year report and new forecast

Hello everyone,
I have been slacking off again, not writing for a while. Well, that is because markets have been on fire and times became busy again. I hope all of you were able to recoup some losses from 2008 and actually make a hefty profit in some instances.
Back on December 24, 2008, I decided to make a little market forecast of my own and here are the results so far:
Oil call: $50 by April - I believe on April 1st it was $49.75
Best performers call: Investment Grade Corp and Small Caps, so far Investment Grade has been on the tear.
Best sectors call: commodity and financials - well, financial have got to be the best with commodities running in in the top 3
Currency call: at first I suggested that EUR was to outperform GBP and USD, but a few weeks later I said GBP would be the outperformer. So far, I am right on the dot.
So, am I a great forecasters or what!?!?! (just bragging)
In any case, I do not think these were calls that were hard to make given the mood back in Q4. But now that I got the bragging part out of my system, perhaps it is time to make a new forecast. So here it goes:
S&P 1000-1100; Oil: $80-$90 (not revised since my December call); GBP should be the overall winner vs USD, EUR but do not expect much currency movement from current levels; Market to sell off by August (from late June/early July) and resume in October/November (unless US gov't decides to announce huge tax increases)
So here are my humble investment suggestions: take profit or at least half of it and go to cash, more buying opportunities will be coming. Allocate more to Asia/Eastern Europe, those are likely to continue to outperform US. High Yield and Investment Grade still offer great capital appreciation potential and income, but don't stay in US fixed incomes alone, other countries should do better. And last but not least REITs, which 'killed me softly' last year are interesting opportunities again. Happy investing and do not forget to diversify and cost average if you are a long term investor.

Stress test for banks - PR stunt by US government?

Hello everyone. I haven't posted much in the while. That is primarily because I was busy enjoying a market's ride up. I do hope that it continues, but I am realistic. Let's be honest, a lot has changed but a lot still needs to improve. Employment data is still dire, we had a big REIT bust (GGP), consumer still stingy and rightly so, home owners assistance will take a while to kick in...
One of the biggest tests for the markets that is coming up, besides earnings, is a stress test results. (yeah, right) Whatever it will be, it will be. I'm leaning towards the test being ok and here is why.
(another conspiracy theory of mine)
I think that the government would be making a big mistake if it announced results suggesting that some of the Big banks are still not well capitalized. This news may lead to a big sell off of the equity market and potentially dire consequences for the bank that did not pass. We might potentially have a somewhat similar situation to Lehman, though a bit less dramatic.
I think the reason for government being so publicly open about this test is that they already know that there will be no big negative surprises. Otherwise, it is just plain stupid. I understand that everyone wants to know who is in what shape but a public 'execution' is not the way to go.
So, I think the test is going to be nor very negative, nor too positive. Just enough to keep public calm.
(Remember government is in control and I doubt it wants to let it go, at least for now)

Why Obama is likely to succeed

You have probably noticed from my previous posts that I was not a big fan of Barack Obama. I do not believe he will bring the change that he promised (fixing budget, stand up to special interests...), but there is bound to be some sort of change.
However, I have to say that the guy will probably prove to be successful and chances are he will the re-elected 4 yrs from now (unless he makes a big mistake). The simple reason for my 'forecast' is the fact that America is very close to an economic, foreign relations...'bottom'. It is true he inherited a pretty bad economy and angry people, but those were already worked on to some extent before he was elected. Many things were done to fix the problem. Some helped, some did nothing, some made it worse. The fact is that there are not many options left. And because Obama became a president while the 'fixing' process was underway, he has a little time to try different things and therefore much lesser chance of not succeeding. One thing he seems to have a positive effect on so far is improving foreign relations. I just hope that the rest of the world does not have too high of expectations.

Only in America

Only in America do you get politicians who do not pay taxes and still have jobs (Geithner)
Only in America do you get politicians who are investigated for tax fraud but they still have a job (Rangel)
Only in America do you have politicians claiming residency in the other state for tax benefits (Sparks)
Only in America do you get politicians who were given preferential treatment and got very attractive mortgages (Dodd)
Only in America do you have government blaming everyone but itself (Frank)
Only in America do you have government that is working overtime to get back $165 million, while giving out $billions with not oversight in place (Congress)
Only in America do you get a president promising change and not delivering because apparently now is not the time for change (President Obama on budget full of earmarks)
Only in America do you have politicians bashing other governments for being dictators, but apparently being social dictators themselves.
Only in America...Democracy? Liberty? Freedom?

Why it may take longer for the recovery to occur

At one point I thought that economic recovery was very close and then I listen to Obama or Geithner...
Some how I have a feeling that even though government is trying to fix the problem it still spends a lot of time looking back and pointing fingers. I do not think it is time for pointing fingers and going over what has happened. What has happened is very clear...We all (consumers, banks, government, regulators, investors...) have screwed up big time. We need to move forward.
We need to stop attacking bonuses that were already paid or bail out money that was already spent inappropriately. I know it is not easy to do, but we supposedly have smart people in the government, who are getting paid to deal with tough situations.
It is a fact that some banks were pressured to accept the TARP. Well, if they want to give it back LET THEM!!! Only next time when they are in trouble do not help, and make sure they sign this understanding.
If AIG misused the funds, don't blame AIG, BLAME YOURSELF!!! Come on Mr President, you gave them My Money without putting watch dogs to oversee expenses?
I also do not understand why Goldman Sachs is all of a sudden a bad guy again because it received $13 bil from AIG due to being a counter party. Isn't this the exact reason why money was given to AIG in the first place, to pay its creditors, counter parties...to make sure that financial system does not collapse?
Once again I get the feeling that the US government has no idea what is happening, what needs to be done or where/how to use its resources. If that is true, I am afraid the recovery is not near at all.

Yet another example that 'Change' is not coming

I just read that the Congress passed the budget. The budget is a whopping $410billion and apparently is full of 'earmarks'. President Obama said that he will sign off on this budget but he is not happy with it and will set out new rules for the future. Sorry, Mr President, I am not buying it. You want to raise taxes and cut mortgage deduction now, because you want to act now for the future...so why is this different? Why not start NOW with the budget as well and not sign it, but instead have Congress, which is paid by US citizens, work day & night to trim it down. Why not look at this budget right now and discipline those congress people who have included unnecessary projects. Why wait for the next time? Well, you may say the government needs to be active, otherwise economy will blow up. And you might be right, but wouldn't the same argument work for raising taxes & cutting mortgage tax/interest benefits? At the same time you know that there is always something that will stay in your way.
President Obama, you promised change and we all know that change is never easy, but it seems that you are only willing to change what previous President has done. Come on, it should not be personal for you. You are representing all Americans now and you promised them change and so far you carry out change that is convenient for you.

Large Caps vs Small Caps

It might not happen today but markets will experience another bull run. At these depressed levels, where would you rather be, large or small caps?
Many began to predict recovery late 2009. As you may probably know (if not, search google) markets tend to recover well before economy does. What tends to shine during rebounds...Small Caps. This time might not be that different. Small caps did not suffer as much as Large caps because they tend to rely more on their own cash flow for growth, not credit markets. Smaller companies might have benefited in terms of market share as many well known larger companies have gone under (e.g. Circuit City...) It is easier for smaller companies to grow their businesses at double digit growth rates compared to large, mature businesses. Management of smaller companies may have more personal financial interests in success of the business (e.g. founders)
Even if GDP continues to be flat or negative, small caps can still generate a nice stock performance. According to Citigroup Global Markets, small caps returned an avg of 44% during flat or negative (-2%) GDP years.
The number one reason to consider Small Caps (my personal favorite) is the fact that Small Caps have outperformed Large Caps by about 6% annually since 1926 (according to many studies) and $1000 invested in small in 1926 would have amounted to $1,000,000,000 by 2007 (NYT article)
Some may say that this time it will be different and large caps will lead the rebound, but I think it will be small caps again to steal the spotlight. After all, what has happened likely affected businesses and reputation of larger companies to a higher degree, as they traditionally have closer ties to financial/credit markets.