The Geithner Countdown

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

It's been no secret that I am not fan of Treasury Secretary Tim Geithner. Long-time readers remember that I assigned a lot of blame for the collapse of Wall Street on Mr. Geithner when he headed the New York Fed. What I thought was unfathomable was how President Obama could possibly promote this man to a higher office when he basically let Wall Street explode with toxic assets and leverage, and then implode to the detriment of Main Street.

I said I would be shocked if he lasted four years and now it will be interesting to see if he even makes it two years. That was on my on list of 11 Shockers for 2010. Maybe Goldman Sachs hires him as a "thank you" for the tens of billions he helped them make as a result of the crisis? That would certainly be a shocker! And reverse the trend of former Goldman folks into powerful positions in the government.

I remember when the AIG bailout was being discussed and all of the moving parts involved. Bernanke, Paulson, Geithner, Blankfein, etc. Although I was in favor of saving AIG at the time, given the facts presented, I will clearly and definitely state that if I knew then, what I know now, AIG should have been left to fail.

The financial system and economy would have taken a tremendous blow, but one year later, we would have been on the road to a real and sustainable recovery, not this government sponsored, public rescue of the biggest institutions held together with duct tape and paper clips, much to the detriment of small business. With all good intentions, the Bush administration made a mistake in how AIG was saved. You can add that to the list of screw ups, like allowing five investment banks to leverage 40 times!

What reopened old wounds regarding Geithner was first, his comment on December 23 that "there would be no second wave of the crisis" and then one day later that the U.S. government would unconditionally support Fannie Mae and Freddie Mac. There's no way it was pure coincidence that he chose the quietest time of year when so many investors and media are tending to holiday matters to offer such important comments.

The fact that this man presided over the banks and investment banks and totally dropped the ball is the exact opposite of the meteorologists calling for 10-20 inches here and only getting light snow. Now, he says that another wave of the crisis can't happen? The skeptic in me has just raised the alert level!

Second, and even more infuriating, is something I mentioned during the nationalization of Fannie and Freddie in the summer of 2008. At the time, Paulson and the Bush administration said the cost of the rescue would be contained to $100B at first, with much less being initially deployed. But the more the press dug, the more the public realized that this could become a trillion dollar nightmare in the worst case scenario. I think I wrote about a potential $500B price tag when all was said and done.

Now Tim Geithner comes out and pledges unlimited support from the U.S. taxpayer for Fannie and Freddie? How can this be? Where does it end? Does it ever end? These government sponsored enterprises had admirable intentions when they were created, but they ended up poisoned by politics as they became the two largest hedge funds in the world that must eventually be unwound. For now, the government needs to find a way to slowly reduce the size of the entities and their role in the mortgage market.

Long before Tim Geithner steps downs, I fully expect trial balloons to be floated on his replacement. While former New Jersey Governor and Goldman Sachs CEO John Corzine may be the most qualified, it would be hard to believe that people would tolerate it, given the perceived favoritism Goldman has received over the past few years.

Please feel to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Under-weighted frozen seafood removed from stores

The Department of Consumer Protection in Connecticut and departments in more than a dozen other states Monday warned food shoppers that ice glazing on packaged frozen seafood such as shrimp, scallops and fish can undermine the amount of product that consumers get for their money.

CT Consumer Protection Commissioner Jerry Farrell, Jr. said his staff joined other states in reviewing packaged seafood from 20 different grocery locations statewide, including both major chain stores and smaller, independent grocers.

Connecticut follows National Institute of Standards and Technology (NIST) standards for verifying how much the actual seafood weighs (the net weight). Ice and glazing in seafood packages is not allowed to be counted in the net weight of the product.

“We tested 52 different seafood products and exactly half of them failed, in that the packages contained less actual product in weight than was labeled,” Farrell said. “Excess ice made up the difference, which on average was 4.5% per package. If you’re buying a 5-pound bag of shrimp at $6.00 a pound, but a quarter pound is just ice, you’re really paying $6.31 a pound for the shrimp you get.”

Inspectors removed all packages of the 26 failed product brands from sale for a total of 847 packages of short-weight seafood. The actual dollar cost of the shortages ranged from just two cents to $1.95 per package, state officials said.

“On average, a customer buying one of these short-weight packages would pay 50 cents on just ice, so the economic impact of just the 847 packages we removed was more than $425.00,” Farrell said.

Other states that conducted inspections were Alaska, California, Colorado, Florida, Illinois, Iowa, North Carolina, Kansas, Maine, Michigan, Minnesota, Missouri, Nebraska, New York, Ohio and Wisconsin.

The following brands failed inspection due to short weight:

· Great American Seafood Imports Co Seafood Medley (1 lb)
· Snow Crab Clusters 3 lbs or More (Store Packed)
· Gonsalves Carapau Chinchards (28 oz)
· Gonsalves Small Mackerel (24 oz)
· Stone Crabs (Store Packed)
· Sea Pearl 26/30 Easy Peel White Headless Shrimp (1 lb)
· World Classics Peeled & Deveined Cooked Cocktail Shrimp 71/90 (1 lb)
· World Classics Peeled & Deveined Cooked Cocktail Shrimp 71/90 (1 lb)
· Pana Pesca Calamari Rings (1 lb)
· Nantucket Supreme Wild Caught 10/20 Sea Scallops (2 lb)
· Price Chopper Cooked Shrimp 70-90 (2 lb)
· Price Chopper Sea Scallops (Store Packed)
· Price Chopper Sea Scallops (Store Packed)
· Tampa Bay Under 10 Sea Scallops (2 lb)
· Aqua Star Raw Seafood Mix (1 lb)
· Arctic Shores Uncooked Shrimp Deveined, EZ Peel 31-40 Shrimp (2 lb)
· Extra Large Bay Scallops (Store Packed)
· Northern Chef Farm Raised Bay Scallops (1 lb)
· Northern Chef Wild Caught All Natural Seafood Medley (1 lb)
· Cape Gourmet Raw Peeled and Deveined Tail-On Shrimp (2 lb)
· Captains Call Wild Caught 10/20 Scallops (2 lb)
· Octopus Pulpo Wild Caught Octopus (1 lb)
· Gold Star Seafood All Natural Bay Scallops (2 lb)
· Wal-Mart Medium Shrimp Peeled & Deveined with Tail Off 60-80 (14 oz)
· Nautilus Raw Shrimp 16-20 Easy-Peel (2 lb)
· Nautilus Raw Shrimp 31-40 Easy-Peel (2 lb)

"The Department of Consumer Protection is notifying the failed companies with our concerns about over-glazing and advising them to take immediate measures to comply with federal standards," Farrell said. “Once this investigation is completed, we may impose financial penalties on these companies.”

Ben Bernanke’s NOT So Finest Moments

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

As long time readers of my Street$marts newsletter know, I have been a fan of Ben Bernanke since early 2008 when then "Rip Van Bernanke" finally awoke from his long sleep to take desperately needed and historic action in the financial markets. While he certainly has to accept some of the blame for being asleep at the switch early on, I commend him for his outside the box thinking and action in attacking the crisis from all sides.

And while I wasn't surprised to see him vilified by several members of Congress during his reappointment hearing to send a very stern and strong warning, it's unreal that you have people like free marketer and fiscal conservative Jim Bunning on the same side of an issue as socialist Bernie Sanders. When was the last time the far right and far left agreed on anything, even the weather, let alone a serious issue? As Charles Dudley Warner so aptly said, "Politics makes strange bedfellows".

When I was reviewing my notes for this article, I came across some old comments from the Fed chief that don't exactly put him in the most positive light. Frankly, it makes Bernanke look like he and the Fed had their heads buried in the sand. But in his "defense", I don't believe that he would publicly offer warnings even if he did think something was coming. Not from the most powerful banker in the world. I debated listing them, but what the heck.

July 2005 - "I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit."

November 2005 - "With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly."

"The Federal Reserve's responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions."

February 2006 - "Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."

March 2007 - "The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."

May 2007 - "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

February 2008 - "Among the largest banks, the capital ratios remain good and I don't expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system."

June 2008 - "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."

July 2008 - Fannie Mae and Freddie Mac are "adequately capitalized" and "in no danger of failing."

In short, Ben Bernanke and his disciples clearly were asleep at the wheel during some critical moments leading up to and during the crisis. That's not debatable. But their actions during the darkest financial hours of the past 75 years, so far, staved off the second depression since 1900. Only time will tell if they really succeeded or just band-aided and duct taped the problem.

Please feel to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Bottoming Process Continues

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

The stock market continues to build a bottom to launch another leg higher during the second quarter. As I mentioned the other week, the highest volatility and largest declines are often seen right before the low, like we saw on February 4 and 5, so further weakness this month cannot and should not be ruled out. But price is much closer to the end (and maybe we’ve seen it) than the beginning.

I won't be shocked if Dow 9800 is revisited or even breached, although that should be the final bout of selling and maybe the perfect buy point if you want to try and time the optimal entry, something that won’t be easy.

At this point there is plenty of technical and sentiment evidence to support the bottoming process, such as the usually wrong, mom and pop option traders, various sentiment surveys from A.A.I.I. and Investors Intelligence, showing a dramatic shift to bears and short-term mutual fund traders running away from risk. Additionally, last week's decline showed a small slowing of downside momentum that usually presages the final low.

More technical measurements like the number of stocks advancing and declining, the volume in those stocks, as well as the number of stocks making new 52 week highs and lows also points to a market that is building a foundation for another rally above the highs made in January. My target remains in the 11,500 to 13,000 range by Labor Day, but I will update that next month.

The fly in the ointment (isn’t there always?) a little longer-term is that the investment grade corporate bond market, which peaked in September, is in danger of making lower lows, turning the trend to down. The riskier junk bond market, which assumed a leadership role for all of 2009 and made a new high in early January, has collapsed in recent weeks.

Couple the bond market problems with the fact that most sectors I follow have rolled over to the downside, the stock market certainly has the smell of living on borrowed time this year. That fits in with my theme that the next rally, as large as it may be, should be the final one before a much more significant correction or worse sets in later in 2010. The sector behavior is important because the more sectors that are healthy, the longer a rally can last. Key leadership is vital and unless something changes dramatically, I just don't see where it will come from without a full fledged correction.

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…


Paul Schatz

Conduct Your Own Insurance Audit

Many of us re-assess our finances or our health at milestones such as a new year or season. It is more rare that we step back and evaluate our insurance needs.

Lisa Lobo, vice president of personal lines underwriting for The Hartford Financial Services Group says a lot of changes can happen throughout the year that can greatly impact your insurance coverage, but when policies are out of sight and out of mind, we can sometimes fail to make the necessary adjustments to ensure we are fully protected.

Here are four areas that Lisa recommended paying attention to when conducting a self-audit of insurance:

• Take an inventory of your valuables and add personal articles coverage for customized protection;
• Make sure your life insurance coverage is adequate based on life changes;
• Adjust your auto insurance coverage as your needs change, and ask about additional discounts;
• Get renters insurance or update your current policy if you do not own your residence.
  

GET PERSONAL
If you received gifts or treated yourself to treasures such as fine jewelry, furs, golf clubs, and electronics. According to The Hartford, these items often are not covered under a standard homeowner's or renter's insurance policy.
"Often, the limit on yourt policy may not be sufficient," Lobo said, adding that it is always best to keep copies of appraisals and receipts. It can be more difficult to determine the value of antiques or one-of-a-kind items without an appraisal.
If you need more than $5,000 of protection for valuables, a personal articles floater allows you to list them and their value for more customized protection. This added coverage is well worth it if the items are damaged, lost or stolen.
"An insurance company will not pay beyond what you secured as coverage," Lobo said.

CREATE A LIFELINE
If you don't already have a life insurance policy, get one. And with each life change, your life insurance coverage should be reviewed as a simple way to save you and your beneficiaries time, frustration and money. If you recently welcomed a new baby, you should make sure that there are enough resources to provide for your child in the event that something happens to you or your spouse.
Other life changing events that can affect your coverage include getting married or divorced, becoming widowed, and changing jobs or being promoted.

DRIVER SECURITY
If you've retired, changed jobs, or sent a child to college, you might be eligible for increased discounts on your auto insurance. Once you retire, you aren't racking up as many commuting miles, which will likely result in a decrease in your rates.
 Telecommuting also can allow you to take advantage of low-mileage discounts. "There are often credits or discounts or special rates applied based on the way you use your vehicle," Lobo said.
The Hartford also recommends notifying your insurance company if you have a child that will no longer be driving a vehicle covered under your policy -- such as a child away at college -- as this could result in savings.
"There's always opportunities to look for how to improve the price you pay," Lobo said.

PROTECT YOUR PLACE
 If you own your home, you should reassess your coverage to make sure it's adjusting to accommodate changes in home value and to ensure current rates are competitive.
Also, it's a good idea to capture video footage of all the contents in your home and to keep a log of when your policies are up for renewal.
Lobo recommended securing enough coverage to replace your home if it is severely damaged by an act of nature or you lose it entirely in a catastrophic event.
"Also think about credits," for deadbolt locks or alarm upgrades, she said.
Finally, if you're a renter, remember that a landlord's insurance only covers his property, not the renter's contents within the apartment or condominium.
"Up to $15,000 is usually what we see as minimum coverage," Lobo said.
Most renter's insurance policies offer both protection of property and liability coverage - in the event someone is injured in your unit.
 Personal items can be costly to replace if you don't have the necessary coverage, so assessing coverage periodically and especially after you've made a major purchase is important. It's also important to update a renter's policy when a roommate moves out and you've co-owned personal property.
"The landlord is not responsible for replacing a renter's (personal) property," Lobo said.

January Indicators in Conflict

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Late last year, I contributed an article about the various year-end strategies, like the January Effect, and January indicators, like the January Barometer and Early Warning System. Now that January is over, let's review the last two that have some predictive powers for 2010.

The January Barometer was created by Yale Hirsch in 1972 in his annual book, Stock Traders Almanac, and essentially says that as goes January, so goes the whole year. According to Yale (and now his son Jeff), there have only been 6 major errors since 1950 with 2009 being one of them. January was down last year. Besides those 6, there have been a number of +4% to -4% years that the Hirsch's conveniently do not include in the accuracy calculations.

Detractors often point to these +4% to -4% years as well as the fact the research includes the January performance in its full year calculations when investors can't take advantage of the indicators until after January ends. A more robust system would use January's data but start the performance clock on February 1 for 11 months.

But overall, the January Barometer has done a decent job at predicting the year. And after last year's miss, the odds favor it being correct this year, (January was down -3.70%) which falls in the line with my own forecast for a best case scenario of very low single digit returns.

The other Hirsch indicator in January focuses on the first five days, called the Early Warning System. As you might guess, as goes the first five days of January, so goes the rest of the year. This indicator tends to work much better in up years than down ones with only a handful of full fledged misses since 1950. It correctly called 2009 and is also predicting an up year in 2010, which conflicts with the January Barometer.

Taking this one step further, there have been 17 years where the two indicators did not agree. The January Barometer was correct 9, Early Warning 6 and two flat years. That's not the overwhelming answer I was hoping for, but it is what it is. These indicators are also not something I would base my portfolio decisions on, but they are, nonetheless, interesting to keep an eye on.

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com

Until next time…

Debating Financial Services Reform

WASHINGTON, D.C. - The U.S. Senate Banking, Housing and Urban Affairs Committee Tuesday aired President Barack Obama's proposal to broaden financial services reform measures before Congress to include restrictions on the trading practices and market share of commercial and investment banks.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., opened the hearing saying that the financial meltdown "nearly toppled the American economy" which has lost more than 7 million jobs. "Billions of dollars in wealth and GDP are gone," he said, adding that such a crisis "can't happen again."

White House Economic Advisor Paul Volcker, also a former Federal Reserve chairman, testified before the Senate Banking pushing for prohibitions that would stop commercial banks, that both hold insured deposits and conduct investment activities, from engaging in high-risk trades.

"It's a question of what risks are going to be protected by the federal government," Volcker said, adding that the government and taxpayers do not have to shoulder risks that should be borne by shareholders.

“Hedge funds, private equity funds and trading activities unrelated to customer needs, unrelated to continuing banking relationships, should stand on their own, without the subsidies implied by public support for depository institutions,” he said.

President Obama surprised the banking industry when he signed on to Volcker's stance. Ranking Committee member Sen. Richard Shelby, R-Ala., said the crackdowns on speculative trading were "air-dropped" into the overall negotiations on financial overhaul that have been going on for months.

Shelby said the goal of final legislation should be to eliminate taxpayer exposure to private risk.

The American Bankers Association has come out in favor of establishing a systemic risk regulator that would not be involved in day-to-day operations and creating a mechanism to systemically unwind too-big-to-fail institutions, while keeping a narrow range of circumstances that would trigger government intervention.

Dodd said critics of reform proposals say the limits would not have prevented the crisis that took down Lehman Brothers. Volcker agreed but said stricter regulations would prevent future calamities.

Deputy Treasury Secretary Neal Wolin, who also testified Tuesday, supported a universal ban on all banks - not just commercial institutions - that would prevent using separate trading desks to speculate on commodities such as oil or certain securities.

President Obama's policy approach would "lay the foundation for a more stable financial system," Wolin said.

Regulatory changes discussed Tuesday were not a part of sweeping legislation passed by the U.S. House of Representatives in December. The Senate has yet to coalesce around a bill that would have to be reconciled with the House version before advancing to the President for signature into law, Dodd said.

Another hearing will convene Thursday with testimony from industry players and folks in academia, Dodd said.

Check back with Fi$callyFit for updates...