From the I-Told-You-So Department

California faces financial meltdown as debt grows by $1.7m an hour

The California budget situation is completely out of control. Raise taxes and you'll drive the last few productive people out of state. Slash spending and you'll add thousands of layoffs to an already bleak economy.

Arnold Schwarzenegger destroyed California with his reckless spending during the boom years:

At the time Mr Schwarzenegger promised an end to California’s tax-and-spend policies and runaway expenses, yet over the past four years of his administration the state’s budget has grown by 40 per cent to $144.5 billion.

How will this play out? I predict a huge federal bailout for California and any other states that need it. If we are going to throw away hundreds of billions of dollars on single companies like AIG and Citigroup, we can certainly spare tens of billions for the states.

A Senator who gets it

Jim DeMint:

“If you look at where we’re going, we’re not on a sustainable course as a country,” DeMint said. “Frankly, GM is in a better financial situation than we are as a country. The only difference is we can print money. But as other countries around the world lose confidence in the value of a dollar – that’s going to come home very shortly.”

How do you value a donut?

Stock market yammerers talk about stocks being cheap right now. Earnings on the S&P 500 are expected to come in around $67 this year, meaning that the P/E ratio is around 13 at today's 873 close. 13 may sound cheap to someone who grew up in the 90's, but compared to the last century, 13 is an average-to-high P/E. Ratios at major stock market bottoms are usually in the single digits. Put a common trough multiple of 7 on those earnings, and you get S&P 473, or about Dow 4600.

That's just the multiple; what about the E in the denominator? Is 2008's $67 the trough for earnings? Wall Street analysts think so, putting a $85.56 estimate out there for 2009 earnings. Wow, 26.6% earnings growth in what everybody keeps saying is the worst recession since the Great Depression! I can't imagine how you get there, but that's why they don't pay me the big bucks.

Let's pretend for a moment that earnings might not jump 26.6% year-over-year. Some bearish types are even suggesting that earnings might actually decline in the greatest recession since the Great Depression. But even they may be too optimistic. There's no law of physics that says that corporate profits have to be positive. Aggregate U.S. corporate profits in fact did go negative in... drum roll, please... the Great Depression. How do you value a donut?

I'm not saying that negative earnings in 2009 are likely. But earnings might be closer to zero than to glue-sniffing analysts' $85. Put a 7 multiple on $40 earnings. How does that fit?

This is obviously a bearish scenario and not the most likely outcome. But you could have said the same thing in Japan in 1993 with the Nikkei down 50%. Fifteen years later, it's down another 50%. And remember how we wagged our fingers at Japan that they wouldn't let their banks fail? That's why American capitalism was healthier: we didn't bail everybody out or let them hide bad debts on their balance sheets.

This surprised me a little bit

I was surprised when I tuned in to Obama's press conference this morning and heard him begin by saying, "I did not have [political] relations.....with that Governor....Rod Blagojevich."

Boycott the Bailout Babies

The sleazy Detroit automakers are trying to blackmail Congress into preventing a bankruptcy, claiming that the public would not buy cars from a bankrupt company (which is nonsense. The Feds would guarantee people's warranties, and the automakers would continue making and servicing cars. Do you know people who refuse to fly United because they've been through bankruptcy?). The real reason is that in bankruptcy, stock and bondholders lose money, management loses pay packages and/or their jobs, and workers lose their overly generous benefits. So this isn't about keeping the automakers alive; it's about taxpayers bailing out investors, management, and unions. When you invest in a bad company, you're supposed to lose money. That's the way capitalism works. You're not supposed to go crying to the government that your industry is special so you deserve a handout. Bankruptcy is ideal for this situation. They shed the crushing debt, the unmanageable pension and health care costs, and they become leaner, more efficient companies.

I drive a new Ford and and old Buick. I am happy with them. But if these bloated companies manage to steal my tax dollars for their stupid and greedy investors and overpaid unions, I will never buy another one of their cars. Toyota and Honda and Kia hire American workers to make American cars in American factories, and they don't leech off the taxpayers.

Please join me in this pledge to boycott bailout beggars, and call/fax/e-mail your Senators today to let them know.

Not our new Pet Rock President (elect)? Not him. Impossible

From this Chicagoan....I'll include more detail when I edit this post later, but our IL governor Blago, arrested on federal corruption charges, cut his political teeth as a staff member in Ed Vrdolyak's office. Ed V was convicted on Federal corruption charges. So it seems Blago learned from the one of the best.

But...3 of the chief political strategists who worked on Blago's first campaign to become Governor, back in 2002, were Obama himself, Rahm Emanuel, and Emil Jones (Obama calls him his political mentor). Then, in 2005, Blago was already under federal investigation. Everyone in the state knew it b/c the Chicago Tribune put it in front page headlines. All the state politicians already knew how Blago did business. "Pay for Play".

And yet, in 2006, as Blago was under federal investigation, Obama AGAIN worked for Blago's re-election campaign, giving stump speeches for him, etc.... why would a squeaky clean uber-man like Obama ever support a known-to-be corrupt politician? Further, why would he actively work FOR that man?

One of the things Blago's in trouble for doing is trying to get his wife a higher paying job by means of Blago's connections and bribery. That's the way it's done here in Chicago and elsewhere, I'm sure. So am I allowed to even ask how Obama's wife got her $300,000 job as Vice President of "Community Affairs" at the University of Chicago? A job she only got AFTER Obama was elected Senator, where he'd have the power to dole out precious earmarks?

Tony Rezko's currently in Federal Jail for facilitating for Blago the VERY same kinds of deals Blago has now been caught doing (Keep in mind the FBI only began taping blago 8 weeks ago! imagine what he might have been up to in the 6 years before that). Rezko was also a BIG financial supporter of Obama's and worked with him on many issues and events and deals.

Am I to believe that in his work for Blago, Rezko committed MASSIVE corruption, but in his work for Obama he was some kind of PURIST? Does Rezko have a split personality disorder?

I'm just asking. Vrdolyak-to-Blago-To-Obama, Rahm Emanuel, and Emil Jones...it's not hard to follow. You'd think maybe the AP might have at least looked into all this sometime before November 4th. You know, maybe just assigned an intern to it or something...No? Oh, maybe that's unreasonable of me.

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