Top Ten Signs the US Economy is in Trouble

Here are my top signs the US economy remains in trouble. These are in no particular order, just the way I wrote them.

1. White House economist Christina Romer noted the stimulus provided a jolt, but the unemployment and slowed growth is likely to return. Not a surprise and second fall, like coming down from a Mt. Dew high is likely to be worse than the original fall.

2. Unemployment continues to go up. Numbers for September showed 531,000 more people are receiving unemployment benefits. Not good, but even worse are states such as Michigan were unemployment is at 15%.

3. The State of California is as close to complete collapse as a state economy can get. Riddled by sky rocketing unemployment in the farming sector, caused by government regulation, and out of control spending, California is a disaster. Add it to Michigan and it is hard to imagine a recovering economy with two major states in economic disarray.

Fannie and Freddie Are Worthless

It appears the spiral downward continues for Fannie Mae and Freddie Mac. When the bank crisis hit in 2008, there were many voices yelling that the main player was Fannie and Freddie. However, driven purely by political reasons, those voices were drown out. The reason is simple,exposure of the truth would have destroyed the public approval of the bailout plan.

The process was as follows.

Politicians pushed for mortgage loans to the "underprivileged" guaranteeing a large segment of the population would vote in a specific manner. To accomplish the goal mortgage approval had to eased and this is where the large banks entered the picture. Fannie and Freddie, established as mortgage companies were used as quasi purchasing agents for the government. The banks approved the loans, sold them to Fannie and/or Freddie, for a profit and continued rolling in the mortgages and sending out the cash. As the process grow wildly out of control and the bad mortgages piled up faster then they could be sold, the bubble started to burst. When the real estate market sank and oil prices sky rocketed the banks were in trouble. The banks were left holding loans nobody could pay and they were stuck. Thus, the bubble burst. Enter the crisis talk, the bailout plan, the scare tactics and rush to fix the problem.

The end result is the American taxpayer is paying for two things; 1. Politicians buying votes 2. Large banks abusing a system and taking advantage.

Not Your Grandfather's Wall Street

Wall Street, poster child of free market. The place where capitalist have gathered over the years, with one goal; create wealth.

This perception could not be more wrong. Since it's conception, Wall Street was an exclusive club and the game of control began. J.P Morgan was perhaps the master of this game, building a billionaires club and in 1907 building a monopoly for his firm, using what else; fear and the government.

Now fast forward to the present and the imagine of Wall Street today. Although it certainly has created billions of dollars of wealth for even the average American, Wall Street remains and thanks to the aid of the federal government, the controlling economic power of this nation.

Let's take a look at the recent bail out or TARP. It simply seems impossible to believe that Henry Paulson, the former Secretary of Treasury and Goldman Sachs Chairman just conveniently established a plan benefiting his firm. GS after receiving $10 billion dollars of relief, recently reported record profits, but perhaps even more telling is the fact that Lehman Brothers, a rival of Goldman Sachs was left to die, while Goldman Sachs and it's partners were bailed out.

Now the process continues. The House recently passed Cap and Trade Bill, which is aimed at controlling emissions from industry. Interesting, that a bill laced with regulation and back door tax increases, received the needed votes from East Coast Republicans. Of course this leads to the question of why would a Republican vote yes on a bill perceived as being a liberal concept? The answer again is Wall Street.

As the credits for polluting are stock piled by companies, a market will quickly emerge, a market built on selling and buying credits. Large industries will rapidly buy up the credits for two purposes. First, having will ensure production and second the more credits controlled, the less their competitors will have and thus the less they can produce.

As the stock pile grows, credit traders will form investment groups, many made up the some executives running the industries. They will buy the credits for a low price from the industry and trade them on the market, creating billions of dollars.

Many people will say so, good for them. Certainly that would be the case, if this wealth was created by the market and private money. The cost of the buying the credits from the government will come from consumers, that debate is over (as Al Gore loves to say). The middle class family, the same one all politicians proclaim to help, will suffer from higher prices on all goods, creating an economic burden on the majority of Americans. While the Wall Street traders, Goldman Sachs et al, will be reaping in the wealth on the backs of the people and with the aid of Washington.

Of course the idea for this bill is to eventually decrease emissions so dramatically that the above mentioned market will dry up. This will not happen, thanks to endless thirst for cash.

Let's not forget the lessons of the past, Wall Street has money, politicians need that money, Wall Street gives to both sides and therefore Wall State is controlling Washington. The dirty little secret that nobody is willing to tell is this.

The main players on the Street love larger government. Greater regulation means more tools to control the market. So the next time someone proudly declares Wall Street is the symbol of capitalism, correct them and proclaim that Wall Street is the center the centrally controlled economy, with Washington as their controlling arm.

Insurance Compaines: A good short play for Investors?

Health care, it is the buzz word of the day for politicians. Of course, health care reform has been tossed about for numerous years, the most memorable being the early days of the Clinton, a battle that altered the Clinton administration and turned them right.

Now it is Barrack Obama's turn at health care and the debate is already on. The Senate has started the process, but not surprisingly it has already come to a grinding halt. Despite all the objections, all the talk, look for a plan that creates a government funded system along with the private sector health care insurance.

In the long term, any savvy investor understands that government v. private will end up being only government. However, in the short term, my spider sense is telling me that major insurance supplies will drown in a grand windfall.

The following is pure speculation, but it is based on observations of the past and a logical conclusion of the future. With those two tools, I believe the following scenario is likely to play out.

In today's business world of stock prices and stock holders, business has become about the short term, lifting up profits and the stock quote on Wall Street. CEO's have taken note of this, because an unhappy major stockholder means an unemployed CEO. When the government opens this new segment of health care, one created not to compete, but to supplement the private sector it will create an opportunity the big boys will simply be unable to resist.

The opportunity for investors is this; an astronomic rise in profits. It will play out like this. Person A is a risk, they have a pre-exisiting condition, health care bills are high or could be high. This person will be delegated a high risk and pushed off to the government plan. How? By creating skyrocketing premiums that the company or individual is unable to pay and left with no choice. While person B, the healthy 30 year old, will continue paying the same premiums, but seldom if ever taking benefits. The end result will be the same amount coming in for companies, but far less going out.

When this begins to happen, and IMO it will, profits will soar, stock prices will follow and investors will reap the windfall.

Of course the common person, the one politicians are so concerned with helping will be getting hit twice. Their premiums will remain the same if they stay in the current policy, yet taxes somewhere must go up. Those that are forced out, will suffer through the bureaucratic nightmare that is Medicare or any government program, while paying higher taxes. Higher taxes will happen, ignore those saying otherwise.

In the end the government will eventually liquidate private insurance companies, but not before creating this initial windfall and then dropping billions of subsidies into the hands of private insurance companies to ease the crunch of high risk patients being pushed to the new government medical system.

So the purpose of this column? Pay close attention to the health care debate. Watch how the the insurance lobbying groups act (if they don't the above is even closer to happening), investigate the insurance giants (for the biggest, best and the ones closely connected to Obama) and consider jumping in on this potential windfall. But buyer be ware, the long term position of holding insurance companies is a bad play.

Money Flooding Out of Ohio

I currently live in Ohio, a state that is for a lack of better terms; a wreck. Like many of its neighbors' Ohio is struggling economically. The tax burden continues to increase, groups point fingers at each other and many people believe that business is destroying Ohio.

This is an interesting concept; business has destroyed Ohio. Yet, when businesses were numerous in Ohio, manufacturing was rampant, Ohio was a booming state. After so many years of demanding, taking money and lobbing personal attacks, the free market opened a new sector of competition, while become ever more increasingly a close market. With new options, businesses flooded out of Ohio, running for environment's that offered more freedom and room for progress. This has left Ohio a barren land and the people very disgruntled.

So what is my point? Business are the single must important commodity for any community, state or nation, Ohio's current situation is the proof in the pudding. This seems to have been lost on disgruntled masses and politicians. Now the mob is taking the entire nation down a disturbing road.

As individual investors, it is prudent for us to investigate states and communities' and the business environment they have created. There is money to be made, but finding business friendly environments is becoming increasingly more difficult.

For those like you, buy gold and silver :)...Oh yeah consider moving.