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Archive for the ‘Federal Reserve and SEC’ Category

One century ago Republican Theodore Roosevelt was elected president and instituted sweeping changes in government, including the establishment of an estate tax and the national park system.  What followed was an economic boom that lasted for years. Roosevelt knew the importance of circulating wealth in order to revitalize the economy by investing in key infrastructure, including the public education system.

Today fierce battle lines are drawn over whether or not the estate tax should be repealed.  On one side are Bill Gates Jr., Grover Norquist and the Wall Mart heirs and on the other side are Bill Gates Sr. and Chuck Collins.  This is certainly not a case of “like father like son.”

While Bill Gates Sr. has co-penned a book with Chuck Collins calling for increased exemptions but not abolishment of the estate tax, Bill Gates Jr. has been the prime funder of Grover Norquist as Norquist tours the country relentlessly advocating a complete repeal of the tax.  Like Bill Gates Sr., I believe the exemption should be raised to $5 million yet do not support a repeal.

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For several years now I have recommended adding short term Canadian Treasury notes to client portfolios, beginning when the Canadian dollar was roughly 62 cents to the US dollar.  The last of these positions mature in 2008, including those that already matured in July and another group set to mature in December.

Earlier this year the Canadian dollar peaked at 102 and today it sits at 82, implying a decline of 20 percent.  The Australian dollar has by comparison dropped more than 30 percent and the euro has declined 18 percent.  For quality foreign fixed income diversification I have prefered Canada with the notion that Australia is riding a commodity boom yet poorly manages its national finances and the euro is simply being sustained from new countries being added to the euro trading zone.

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Today is Columbus day, a day that celebrates Columbus discovering America.  Perhaps it is ironic that over the weekend America discovered Europe when it comes to guidance in dealing with our financial crisis.  The answer to the crisis is not to have the Treasury purchase vast amounts of worthless securities from troubled banks but rather to invest in non-dilluting bank stock to help weakened banks re-capitalize.

Thus far it appears that Paulson is still lost at sea because he is advocating purchasing preferred shares, which if done, need to pay interest, be convertible to common and also non-dilluting.  Non-dilluting means that if top execs issue more shares and the govt takes a 25 percent stake, the govt gets 25 percent of all new shares.  Absent this the stock market will clearly plunge again due to becoming overcome with exhaustion at the abject incompetence of Treasury Secretary Paulson.

Secretary Paulson and Christopher Columbus

Secretary Paulson and Christopher Columbus

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See two related videos by searching for parishinvestments at youtube.com.

The first video is titled “Clinton Tax Scheme” and the second is titled “Missing Clinton Financial Disclosure.” The purpose of this comment is not to disparage the Clinton’s but rather draw attention to the most astonishing tax loophole in 25 years.

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As the Presidential race narrows, it is worth examining the key economic advisers to each candidate. While John McCain and Hillary Clinton have both enlisted advisors who are largely the source of current market turmoil, Barack Obama is instead supported by a beacon of financial integrity, former Federal Reserve Chairman Paul Volcker.

McCain’s choice of John Chambers and Carly Fiorina is most unusual since they are the “poster children,” for abusive executive compensation and financial engineering, in particular that related to stock options and costly mergers that result in significant job losses and minimal long term benefit.

Hillary Clinton made the surprising choice of Robert Rubin, who waltzed within months from being Treasury Secretary to Vice-Chairman of Citigroup, making a $50 million signing bonus. Rubin was the primary advocate of deregulating the banking sector and is fondly known as the godfather of hedge funds in investment banking circles. Enough said perhaps? See related video at http://www.youtube.com by searching for parishinvestments.

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Today Eliot Spitzer announced his resignation as Governor and perhaps the two most ironic twists are his ill fated pilgrimage to the “Mayflower Hotel” and the name he used to check in, George Fox. George Fox, a hedge fund manager, is his close friend. Clearly Fox and the moral ethical desert embodied by hedge funds was a key driver in Spitzer’s demise. With friends like that, who needs adverseries.

Perhaps even greater than the shame Spitzer should feel is that of the traders at the NYSE that cheered his demise. As if these traders had no regard for Spitzer’s accomplishments and recognition of how many pensions were lost due to their blatantly illegal and criminal activities. They seem instead anxious to return to robbing investors with impunity.

What you won’t read in the press is the fact that Spitzer’s three greatest adversaries were Warren Buffett, Bill Gates and Rupert Murdoch, for reasons detailed below:

buffett gates and murdoch

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As the credit market continues to flush out Wall Street driven excesses, perhaps it is also a good time for the Federal Reserve to address a looming crisis of confidence with respect to money market accounts, beginning with Charles Schwab’s “government security money market.”

Most investors in the Schwab Government Money Market actually believe they are investing directly in government backed securities yet that is simply not true. In its September 30, 2007 summary of holdings Schwab disclosed that 74 percent of this fund was invested in commercial paper at major banks, including Morgan Stanley and others who are central figures in the unfolding subprime debacle. You say, impossible? Here is a an overall snapshot pictured below. Such investments are listed as “other.”

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