The genie is indeed out of the bottle; and the point when it became clear to me that it’s an evil rather than a benevolent genie was when the captains of the securities industry stood before a Congressional Committee and had the temerity to announce that their industry was the “backbone of the American economy.”

Once upon a time, a broker was a facilitator and nothing more. He was someone who was in a position to bring a willing buyer and a willing seller together and help them effect a trade. At that time, bringing investment money to enterprises in need of capital was constructive and deserving of the label of, if not the “backbone of the economy,” certainly its enabler.

Even after 1792 when those 24 brokers, meeting under the buttonwood tree at the foot of Wall Street, formed the New York Stock Exchange, the ability to assist investors desirous of owning shares in one or another company could be considered a wholesome service—but not for very long. Realizing that they could make more money from investors than from investments, the securities industry pioneers guided their industry down a path that took it from constructive investment to gambling, from earning money with one’s money to seeking something for nothing.

Financial innovation has been a characteristic of that industry; and, as the years have passed, the public has been duped into thinking that trading—short term speculation on the movement of the market itself—was actually investing, deserving of the same respect as the part-ownership of thriving businesses.

The genie’s name is Credit. At first reserved for fiscally responsible purposes—collateralized leverage that could produce revenue and income more rapidly than could resources limited to what existing assets could afford, financial innovation carried credit beyond its constructive business use and found justification in encouraging home ownership, collateralized to be sure, but by a home, an asset of substance but one which produced no income.

Eventually, such innovation carried it beyond the point where it was used solely for business and major purchases of valuable assets to the point where, today, credit is used for expendables and to satisfy the self-destructive trend toward converting luxuries into necessities: now the overheating engine of our economy. Like a Ponzi scheme, our society’s misuse of credit has an ultimate dead end. Credit is simply an obligation that extends into the future. And the future is not infinite! As it is, we have already mortgaged our own futures and those of our offspring; and we are well into committing the lives of our grandchildren to satisfy our own cravings for material things to which we are not entitled by virtue of our own productivity.

So, like the Ponzi scheme or chain letter, the trend must end. And just how chaotic and traumatic that end will be depends, unfortunately, upon the courage and intelligence of our elected representatives.

General Stanley McCrystal is an accomplished warrior, a great pick for the job he was charged with. And, as a former Marine, I gotta believe that his allowing the most radical of media access to his inner thoughts and his staff’s was deliberate and not simply careless or stupid. He was just too good an officer for that!

That scenario never would have happened, had either of the Commanders-in-Chief following the attack on the WTC on 9/11 shown the wisdom and courage that a former Missouri clothing salesman once had when in their shoes. President Bush should have made it clear to those hostile tribes that our enemy is anyone who so easily sacrifices innocent lives—including their own. Especially when they use themselves, their women, and their children as weapons of mass destruction. And he should have given his theater commander the go-ahead to act accordingly. Read more…

Our nation's birthday.

On this anniversary of the birth of our republic, it’s only fitting that we reflect a little on what we won in the Revolutionary War. Just what did we get in return for the sacrifices made in that conflict? Did we really get a republic? Or has it turned into something else?

Populism is a political model that would have the government champion the “common man” and satisfy his needs and wants. Many definitions of this term refer to the struggle of the lower class against the elite. Prime examples of this are Bolivia or Venezuela, where Evo Morales and Hugo Chavez, respectively, have been elected by the people to act in their best interests. And, in those nations, it is a neglected, indigenous population or an underprivileged underclass that has placed their trust in these demigods—someone whom they believe is “one of them” but who, they think, has the ability to act as capable steward of their nation. Read more…

Now comes our Congress, eager to feed the public’s lust for punishing the banks for having done our economy so much damage, and ready to impose a new bunch of regulations on that industry so as to protect the consumer from…. From what?

Here’s what the public really needs protection from:

1. Its own ignorance. This is certainly number one! Had the public been at all intelligent or educated about borrowing, they would have known better than to expect either the government or the lenders to protect them against borrowing beyond their means for homes they couldn’t afford. The first issue is financial literacy, which is sadly lacking in our society, our schools—and especially our Congress to begin with! Read more…

This old bull stood on the hill and watched the herd mindlessly careen first in one direction and than another—spooked once again by some irrational fear. It was a sight to behold! And the dust they raised will probably take a good while to settle.

As things were going, it was beginning to take a little effort for intelligent investors to find worthy buying opportunities, what with the herd commencing to trust the recovery (without a clue why) and beginning to again overvalue some of the good companies.

But, thanks to their skittishness (and cluelessness), we’ve got another fire sale going on and part-ownership of those good companies is once again affordable for the educated, business owner-aspirant.

For rational investors, whether Greece hits the skids or the Dow tanks, the value of your portfolio is what it is—which is no different from what it was. And it is still not as valuable as it will likely be in the future, assuming you used the appropriate care in picking the companies to own whose operations generate solid earnings growth for their owners. What counts is not the herd’s perception of its value; it’s your recognition of its real value: its rational value.

If you use Investor’s Toolkit 6, the Rational Value can be found on each portfolio’s “Overview” page. If you don’t have the software, you can easily calculate it. For each company, simply multiply the trailing 12 months’ earnings per share by the company’s “signature PE” and that result by the number of shares. The sum of each holding’s rational value is the value of your portfolio, based on what investors will pay when they’ve come to their senses.

You’ll never lose any money—ever—if you can hold onto your shares until the market comes back to its senses, which it always will. Even if you can’t for some reason, if you take out only the minimum you must, it’s likely that the limited loss on those withdrawals will be more than compensated for by the return on what remains.

Watching and listening to the Congressional inquisitions this past week, I had to believe that the Academy Awards needs to add a new category called Best Congressional Performances. Of course it would be difficult to decide whether the performances should be considered under Comedy or the Drama categories.

The righteous indignation and wrath displayed by the key players was great theater, of course, and played well to those political populists who still don’t understand that it was this very same Congress that forced these institutions go into the sub-prime mortgage business against their wills in the first place! Read more…

Here’s just a quick note to let you know that the political campaign I’ve entered is going surprisingly well, considering I’m not much of a politician.

I’m running against corruption and cronyism in my town and county. Someone “up there” must be watching because my opponent and his supporters just made an incredibly imprudent blunder and left themselves wide open. The newspapers are full of it; and, even though I started with no name recognition (and a refusal to clutter up the landscape with signs), we’re starting to make some headway.

The campaign is short—election’s on March 9th—and then, if all goes well, the fun really begins.

Thanks to so many of you for sending your good wishes. I’m looking forward to getting back into harness after that, with this blog and the radio shows, and trying to make a difference here again.

Occasionally I run into some comment that makes too much sense to keep to myself. Such a comment is this one I read on WorldNetDaily.com.

I don’t mean to be any more of an alarmist than necessary; but it’s getting pretty dicey; and, the huge gulps of money we’re needing to borrow in the short term, just to pay the expense of running the government look to be the last gasps of healthy capitalism in this country.

I know I said  I was going to take a break…and I am. But you need to read this and find a way to run our politicians out of Washington and back to fiscal kindergarten!

As you’ve noticed, occasionally I drift off topic (investing, lest you forget) and indulge myself in writing about things that may touch on my core interest but are only indirectly related to it: current events, the economy, politics, etc.—things about which I have strong feelings and which current events compel me to comment.

As you know, I’m disgusted with the obvious absence of financial literacy, responsibility, and just plain common sense that’s displayed by so many in elected office, from the top of our government institutions to the bottom. And I’ve railed about it time and again, wishing that some able folks would get off their duffs, take the bull by the horns, and give up their comfortable complacency to act instead of just talk.  Read more…

The Herald, South Florida’s major newspaper, headlined the unthinkable this past week: Jackson Halts Dialysis of Poor Patients .  One of the nation’s top-rated hospitals, Miami’s Jackson Health System had to adopt a policy that would deprive some 175 indigent patients of critical, life-saving care because it could no longer afford to provide it.

Hardly a decision taken lightly by the hospital administration, the financially strapped institution finally had to draw the line on life. Fortunately for those patients , some of the other area hospitals volunteered to take up the slack for all but about 4o. These would have to seek care in the city’s emergency rooms, where the law requires the hospitals to provide critical care regardless of the financial condition of the patient—or the hospital!

This, to me, is a tragic and stunning case in point that illustrates a simple fact: no matter how humane and compassionate the issue, the ultimate truth is that there simply ain’t no free lunch. As much as we would like to characterize medical care as a right rather than a privilege, without the funds to provide it, it vanishes.