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Monday, August 08, 2011

Tea Parties and Stock Markets

All weekend I keep hearing how this is the Tea Party Default. Those vile wicked tea partiers forced S&P to downgrade the US debt by digging in their heels on the idea of new taxes in the budget and debt ceiling argument. I am pretty sure they did exactly what their constituents asked them to do and dug in their heels on taxes and spending. I have no problem with what the tea party did in the negotiations. In fact I wish they had dug in harder,. The compromise bill is joke and the spending cuts will never happen. I love that “spending cuts” in DC speak means increase by less than we originally planned. There will be no cuts forthcoming from the magic compromise committee. Next year is an election year and both sides will bluster and posture for political purposes.

The fact is we need a viable third party. The ultimate solution would be no parties and perhaps people would once again think for themselves instead of just pulling a level.Absent that the national discussion has to be broadened beyond partisan lines. A third party of sufficient size would help accomplish that. The two party system is a disaster. We are falling behind in education, science, culture, life span, children’s health and just about every other social measurementyou can imagine. Thanks to the two party system we are engaged in two wars and one military action. We have troops scattered all over the globe at enormous cost to the taxpayer. We have entitlement programs that have swelled far beyond what even their creators could have ever imagined and under no scenario are viable on the long run. We see corporations exert far more influence that they should be in our day to day life and they seem to just be able to elect who they wish to direct the proper benefits in their direction. Our tax code is ridiculously complex and has more to do with controlling the behavior of the population than balancing the budget. The simple truth is that a 20% income tax on individuals and corporations as well as 15% VAT would balance the budget. There is no power in such a structure so we don’t have one.

I do not care if you are a liberal or conservative, if you step back and are objective both parties have lost their way. We spend more time worrying about who is doing what with whose groin and who gets what based on skin color and gender than we do on the very serious questions that face our aging republic. The great head fake of misdirection by throwing out boogey men and benefits while they plunder our rights and pocket books has been in play for some time now. People laughed at Eisenhower when he warned of the military industrial complex consuming the nation but it has happened almost exactly as predicted.

“Crises there will continue to be. In meeting them, whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties. A huge increase in newer elements of our defense; development of unrealistic programs to cure every ill in agriculture; a dramatic expansion in basic and applied research -- these and many other possibilities, each possibly promising in itself, may be suggested as the only way to the road we wish to travel.

But each proposal must be weighed in the light of a broader consideration: the need to maintain balance in and among national programs -- balance between the private and the public economy, balance between cost and hoped for advantage -- balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between actions of the moment and the national welfare of the future. Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration.”

We were warned. In the name of saving the globe and providing benefits we could not afford in order to secure votes by the two parties we have arrived in the very place we were told we must avoid. We need a viable third party to help us reassess our goals and purpose as a nation. The “tea party downgrade” needs to become a starting point for open discussion of solutions to the problems we face as a nation and what are role in the world should be. My fear is that is just becomes an excuse to dig the heels deeper into the sands of partisan politics.

My own thoughts on what it takes to return to being the land of the free and home of the brave are pretty well known. We need to stop being the worlds policeman, bring troops home and let the world know we will act with fierceness and totality to protect our interests. No more politically correct wars, police actions or interventions. We want peace and trade but if you harm us we will DESTROY you. We cannot protect the children of Somalia or the women of Afghanistan and from the reaction of the world they do not really want us to try. So just stop. The goals are seemingly noble but notattainable and ,of greatest importance, the problems are not ours to solve.

We need an immigration policy that makes a lot more sense than what we have now. We refuse the poorer immigrants so they sneak in. Then we give them drivers licenses and social benefits while they pay no taxes. Give us your hungry , your tired and your huddled masses indeed. Let’s find a way to let them come here, pay taxes and be productive members of society. Then any that are here illegally right now should be given a choice. Serve in the military or social services for two years and you can stay. Otherwise go the fuck home and thank you for playing. Your ability to breed inside our borders does not grant you or your offspring citizenship. Your benefits end here unless you are willing to become a useful, productive, legal member of our society.

Stop punishing the successful. The idea that doing well means you should pay a higher percentage is not only stupid it is evil. If I make more I pay more anyway. If we are all in this together then let’s all pay the same percentage. No more asinine deductions for certain behaviors, no more exemptions for being productive at giving birth, or incentives to buy cars or use certain energy sources. One rate across the board and we all have more in our pockets at the day.

Capital creates jobs. Quit taxing it. That’s idiotic. Make capital gains on asset held more than five years nontaxable and less that that ordinary income, and not only do you create businesses and jobs galore, you stabilize your capital market by encouraging long term investment. Do you think we would have had a real estate crisis if you had to pay full tax on housing gains on properties held less than five years? Would investors cash out their mutual funds every time Bernanke farts if long term investments escaped taxation? Don’t tax long term capital investment.

Quit teaching ot the lowest common denominator in the classroom and teach to the highest. To help the lower level kids catch up fire half the administrators and replace them with teachers to reduce class size. We do to need the level of administration to reach our education goals, We need teaches who give a shit about the kids and have a passion for teaching, smaller class sizes and parents with the balls to turn the television off.

Now let’s move onto other subjects. The current turmoil in the markets is creating some opportunities. Any type of corporate disappointments is leading to a steep and drastic sell off. Right now foreign banks are god-awful, point of maximum pessimism cheap. I like two of the larger Japanese banks, Mitsubishi UFJ (MTU) and Mizhou (MFG). Both sell at a fraction of tangible book value and for an investor with a time horizon of five years or more should be very profitable. The same is true for Royal Bank Of Scotland (RBS). The stock is at 40% of tangible book and management has a solid plan to de-risk the balance sheet and return to profitability. As a final foreign excursion the shares of Dutch insurer Aegon (AEG) are also very, very cheap. They have repaid the Dutch government for the emergency funding and should pay a dividend again starting next year.

Here at Home Hudson City Bancshares (HCBK) have sold off sharply. After the reorganization of the balance sheet the bank should do very well going forward and at a discount from tangible book and yield of 4.40% it’s an attractive long term investment. First Bancorp (FBNC) is also cheap and replacing the TARP funding with Treasury Small Business program funding will be an enormous boost to the bottom line. Locally Shore Bancshares(SHBI) has been a severe disappointment as loan losses have continued to mount. I am going to hold that name and add Severn Savings (SVBI) at this price. I have a lot of faith in the Hyatt families’ strong desire not to lose the millions they have invested in the bank. Insiders have been buying so it’s worth a shot at one third of book value.

Force Protection (FRPT) missed earnings and is now trading at very cheap prices. This company should have sold out last year and now I think it is just a matter of time. They have a decent business but will function better as a division of a larger defense contractor. LB Foster has decent earnings but there is a product liability claim with Union Pacific involving 1.6 million rail road ties. The question becomes is that worth the 50% of market cap the stock shed? They will be a huge winner when we finally get all this crap behind us and pour economy is once again growing to the point that infrastructure spending resumes. Demand for computers and other tech products may be slow but it will come back when the economy does. That makes Micron Technology (MU) a screaming long term buy at 75% of book value in my opinion.
I like the idea of buying a small package of mortgage REITS here.

I would buy a little Anally (NLY) and a little Invesco Mortgage (IVR) here with the idea of building the position over an extended period of time. You are likely to get a chance to buy lower based on conditions and volatility in the bond markets going forward. However they are cheap and the yields of 15 and 20% respectively make them worth a shot here.

It is confusing challenging time. We are seeing inventory created for value investors but as we have seen recently it always pays to keep some powder dry. Cash may not earn much right now but it aint losing anything either. I would move slow and stay small but start to build potions in very cheap stocks.

I thought about including a season to date update in the Oriole here but it is just too early to start drinking.

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