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Research for Online Investors

by John Dalt

10/20/11

The market looks weak this morning on reports of disagreement on how to use the expanded EFSF to prop up banks and countries that are under pressure.  French President Sarkozy flew to Germany yesterday to meet with Angela Merkel and the IMF.  After the meeting, all were grim faced and no statement was made to the press.

This morning, protesters are rioting in Athens, and it appears the meeting of eurozone leaders on Sunday may be delayed.  Jennifer Lee, an analyst at BMO Capital Markets observed, “With only a few days left before the much ballyhooed European summit takes place, expectations of something concrete being hammered out are disappearing on talk of France and German disagreements on key issues.  Again, why there should have been any expectation of a miraculous foolproof plan to be agreed upon is astounding.”

The market fell all morning.  Then over noon a joint statement by Germany and France said that no decisions would be made this Sunday BUT there would be a “definitive agreement” by Wednesday on rescuing Greece and recapitalizing banks.  This was enough to cause adrenaline to course through trader’s veins.  The “BUY” button just felt like the right thing to do!

Buy they did.  The market rallied from down 115 on the DJI to up 75 points before some traders took their profits off the table.  Never has so much been made of so little!

We are in the camp of interested observers.  It is hard not to get drawn into the excitement, except I don’t know what to be excited about.  France and perhaps Germany are going to borrow money until they lose their AAA credit rating to save Greek public worker’s retirement benefits?

I would be excited if the U.S. government borrowed more money to guarantee California Public Workers Jobs and benefits.  Oh wait, we have already done that.  Stimulus one and now the Jobs Bill being pushed by the administration.  Spread the wealth around.

California owes almost $374 billion dollars, almost $10,000 dollars for every man, woman, child and illegal alien. After writing yesterday about the dangers facing the U.S., and the lessens our national legislators and executive branch should learn from the fiasco in Europe, I realized the immediate danger was not with U.S. debt.

The “take-down” on the U.S. will probably start with a state.  What better state for the bond vigilantes to go after than California.  They are addicted to spending and giving away more entitlements when they are already broke.

Last week they came up with an original idea.  Somebody must have been watching the Republican debates.  Rick Perry was attacked over Texas’s law allowing in-state tuition for illegal aliens.  This program is promoted as a fair thing to do.  Children are brought into the U.S. by their parents, grow up here and should be allowed to attend college in the state they grew up in.

California did one better.  They passed their own version of the “Dream Act” as in if you can dream of a stupid program they can pass a law.

California wasn’t happy to just allow the children of illegal immigrants to go to school.  The state will grant them access to financial aid through Cal-Grants and other public aid.  Cal-Grants provided aid to more than 370,000 low income U.S. citizens last year.  The California Dream Act also provides for tuition waivers at community colleges.

California has a A- credit rating, the worst of all 50 states.  They will be the first to come under scrutiny by the bond vigilantes.  Like any predator, they look for the weakest to pick off. In Europe it was Greece, in the U.S. it is California.  The Golden State Bear is broke.

The mailbag:
What would happen if all the people that are out on strike in Greece right now, went back to work, found that their employers had no cash to operate with?—subscriber J.P.

John’s reply: Many of them work for the government or on government contracts.  They obviously do not understand what happens when the government runs out of money.

Quote:
We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union.-- EU President Herman Van Rompuy

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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