Crony Capitalists/Politicians
Research for Online Investors

by John Dalt

7/23/10

From the "Can't we all just get along" department.  CNBC reported Wednesday that Lloyd Blankfein of Goldman Sachs (GS) and Jamie Dimon CEO of J.P. Morgan Chase (JPM) were not invited to the Financial Regulation signing ceremony.  Executives from Citigroup (C), Bank of America (BAC), Barclays (BCS) and Morgan Stanley (MS) were all invited.

Blankfein nor Dimon had any comment on the snub, but rivals at other banks said this was seen as punishment for “crossing the White House” by lobbying and publicly criticizing aspects of the bill.  “It looks a bit like crony capitalism—the White House playing favorites and rebuking companies that don’t instantly agree that every policy coming out of the Democratic caucus on Capitol Hill is the most brilliant idea ever,” an executive at one of the companies whose chief got an invitation said.

Three executives that spoke to CNBC said ‘they feared White House retaliation if they were identified for the (CNBC) story.’  CNBC could not get any comments for their story with attribution.

Goldman Sachs employees were the second largest contributors to Obama’s presidential campaign, and Jamie Dimon was once described as Obama’s ‘favorite banker.’ Dimon is a democrat and contributed to Rahm Emanuel’s congressional campaign before Emanuel became Obama’s Chief of Staff. Don’t you love watching ‘the smartest guys in the room’ learning not to trust a world improver? It reminds me of a tiger eating it’s young.

We have traded Citigroup (C) in the Swingtrader service in the last 30 days, but are on the sidelines with financials at the present time.  The financial regulation bill hurts the big banks, small banks and we believe consumers in the long run.  It is better to wait for a little more clarity before investing here.  Ford (F) President/CEO Alan Mullaly told CNBC this morning that Ford cannot issue bonds backed by consumer loans at the present time because provisions of the Fin Reg bill expose credit rating agencies to liability.  The Wall Street Journal has an updated article on the SEC actions concerning this issue in the last two days.  Who knows what evil lurks in the bowels of a 2300 page bill?

Within the next 24 hours, the U.S. and South Korea are commencing joint military exercises in international waters.  North Korea has promised a “physical response” to these drills.  The N. Koreans stated the joint military exercises are a threat to their sovereignty.  New trade sanctions by the international community took effect this week.  Secretary of State Hillary Clinton said the current belligerence of N. Korea makes it impossible for the U.S. to return to six party talks.

The U.S., along with other countries, wants N. Korea to stop developing nuclear weapons and return to negotiations for economic aid.  North Korea has criticized the new sanctions as “hostile.”

Japan is sending four military officers as observers of the Navel drill.  This is the first time Japan’s self-defense forces have participated in a U.S.-South Korea exercise.

Sec. Clinton is in Hanoi for the 17th Association of Southeast Asian Nations Security Meeting (ASEAN).  Less than half of the 27 countries at the meeting were willing to condemn N. Korea.  According to Reuters, they don’t want to anger China.  China condemned the U.S.-Korea drills, and will launch their own Navel exercises off the country’s eastern coast.

It might be an interesting weekend.  Professional military men will not allow this to escalate, but N. Korea is unpredictable.

Today's chart illustrates the inflation-adjusted S&P 500 since 1900. When adjusted for inflation, massive bear markets similar in magnitude to what occurred in the early stages of the Great Depression are actually not all that uncommon. The secular bear markets that concluded in the early 1920s and early 1980s were of similar magnitude. The inflation-adjusted S&P 500 is up 550% since 1900. This equates to an average annual return of 1.7%. Currently, with the S&P 500 trading 41% off its inflation-adjusted year 2000 peak, the S&P 500 trades very much near the center of its century-plus upward sloping trend channel.

To the mailbag:  Deflation? Restaurants in the Indy area are lowering prices to attract new business.  Does that mean I can go back to a 10% tip?---paid up subscriber J.P.

John’s reply:  Don’t be so tight!

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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