The Ignorant Investor

Tim Iacono points out something important today at The Mess that Greenspan Made:

One of the greatest misconceptions of our day is that home equity extraction is akin to an ATM - the "Housing ATM", as the mainstream media innocuously refers to it. Most people think of an ATM as dispensing money from their checking or savings account, when in fact the housing ATM is much more like a cash advance on a MasterCard or VISA - money that is borrowed and must be repaid.

Elegantly stated. I know that Wall Street bulls and the Treasury Secretary want to blur the distinction between debt and equity to provide a rosier picture of American wealth, but why do reporters have to play along so willingly? The only way to "extract equity" from your house would be to sell a portion of your equity to a third party. Taking out a loan and promising to give the lender your house if you default is just . . . borrowing money.

posted by Worker 17  # 11:27 AM 0 Comments

I don't follow the Federal Reserve closely, and I wasn't even aware that Federal Reserve Gov. Roger Ferguson resigned until it was pointed out to me in a comment in the blog.

Ferguson was appointed by Clinton years ago, and he appears to have had a good reputation among the financial community. The timing of his resignation seems a little odd because two new governors appointed by Bush were confirmed at almost the same time. However, he is at an age where a man thinks about accumulating great wealth, and this might have been a good time for him to head for Wall Street to cash in on his experience. Basically, we'll never know why he boogied.

On the broader question of the significance of the news, the financial press is pushing the angle that Ferguson's departure clears the decks for new Fed Chairman Bernanke to move the Fed towards inflation targeting in setting short term rates.

Personally, I think you've got to be an economist to be interested by the dispute over rate setting policies. Although there is an issue over whether inflation targeting is preferable to the current approach, it's not clear to me that Bernanke's viewpoint differs with traditionalists like Greenspan. Based on what I saw in the opening of Bernanke's book on inflation targeting (please, you expect me to read more than the first ten pages of an economics tome?), his approach amounts to the Fed publicly announcing that they're going to keep rates high enough to keep inflation low -- I can't imagine the target range will be over 4% -- while maintaining the discretion to stimulate the economy with low interest rates when they deem it necessary. Honestly, is that significantly different than the current approach?

At heart, I think the concern over Bernanke is that he'll be too dedicated to keeping inflation low instead of flooding the market with cheap money like Greenspan liked to do. Wall Street and Washington appear to dread the prospect of a steep recession, but Bernanke sees inflation as a greater threat than a slowdown. In his eyes, low inflation breeds economic growth over the long term, even though there may be shocks to the system over time. That's my view of the guy, anyway. Whether he can stick to that in the face from massive public pressure to do exactly the opposite is an open question. Hard to know how someone will face up to that until it happens. Some guys will dig in their heels and stop reading the papers, convinced that they're right. Others won't. They just crumble and look for the resulting accolades from the crew at CNBC.

Ferguson's spot is now open, obviously, and I'm very curious to see who Bush appoints to replace him. My odds are running 7-4 that it's a political loyalist over some highly regarded professor or a current, long-serving insider at the Fed.

Okay, back from vacation. I was going to reread the Lowry interview I linked to last week before writing this post. I pictured going through it point by point while sitting by the fireplace up in Vermont, but somehow the articles never made it into my bag before I left. As far as I'm concerned, that's a sign from my subconscious. Move on, it says. Whatever Lowry has to say in his interview speaks for itself without the need for further explanation from me. I've done my duty by noting it for the record here.

The only part of the interview that stands out in my memory a week and a half after reading it is the historical description of the way market tops have formed using the falling leaves analogy. It caught my eye because I've been watching usually stalwart stocks like GE (own it), JNJ (own it), and Intel (own it) dropping off significantly since the year began even as the Dow's been topping 11,000. Could we be in the intitial stages of one of those market topping tech signals, we asks? Are the first leaves falling?

Speaking as someone who's lived through a lot of New England autumns and therefore has some familiarity with the signs of approaching winter, I can honestly say sometimes leaves drop slowly and sometimes they come down all at once in what seems like a blink of an eye. I bet the stock market works the same way, even though Lowry's description has an elegant, convincing ring to it. That something sounds convincing doesn't convince me, simply because if the most elegant and convincing theories always turned out to be true, there'd be no need for experiments and falsifiable hypotheses and all the rest of the dreary apparatus of scientific methodology. Consider me skeptical but subject to the occasional doubt on my position here.

I'm filled with doubts these days. I've been sitting on a big pile of cash as the market has pushed upwards, wondering whether the decision to wait for valuations to come down makes sense. I could latch onto this Lowry piece for support, but I'm not going to. I keep going back to my gut. Terrible idea, I know. But . . . well, I don't know. I'm speechless here.

NEW YORK (Reuters) - For more than a decade, Tom Berquist enjoyed life as a software analyst at Goldman Sachs and then Citigroup, delving into the latest technology and rubbing elbows with the executives of new, fast-growing firms.

But next month Berquist joins the exodus of Wall Street's sell-side analysts when he moves to a small software company himself, becoming chief financial officer of closely held Ingres Corp.

The reason? Mountains of red tape imposed by the government in the wake of the Internet bubble, which he says limited his ability to gather information from small companies that were thinking of going public with an initial stock offering.

Jeez, Tom, maybe if the stock analysts out there had done their jobs properly the regulators wouldn't have had to step in. Maybe, just maybe, if the analysts had suggested selling stocks occasionally to the retail customer and had been quick to point out just how overvalued the market was in the late 1990s, analysts could be trusted with a little more freedom.

I got no sympathy for these whiners. They were pleased to get the big bucks for doing a crap job years ago, and now they're whining about the world their own perfidious greed hath wrought. There may be honest analysts out there, but if you read the article, what comes across is a kind of blame the victim attitude that is totally inappropriate given the history of the late 1990s.

Man, that article really pissed me off. I'm probably overreacting. But there's something smug about guys like Berquist that rubs me the wrong way.

I'm going on vacation this week and won't be able to post. Before I go, I'd like to point anyone who reads this blog to Barry Ritholtz's recent interview for TheStreet.com of Paul Lowry, a well known market technician. For those who aren't familiar with his work, Ritholtz is a hedge fund manager and the currently bearish author of "The Big Picture," an excellent blog that looks at big, macro-sized issues surrounding investing and the economy.

I don't believe in technical analysis and side with guys like Burton Malkiel and others who see it as something of a pseudoscience akin to phrenology. That many market professionals believe in technical analysis doesn't bother me at all. In the 19th century, phrenology (i.e., judging character by the shape and topography of the surface of the human head) was widely accepted by intelligent people as a perfectly valid tool for hiring employees and choosing a mate. We find it bizarre, but the practice could not have continued as long as it did if it did not sound plausible at the time.

Today it's no different with technicians in the investing world, who - lacking the ability to know the future- look to the past behavior of the stock market to determine patterns that repeat themselves in predictable ways. Faced with millions of dollars riding on bets made on the outcome of a future that no one can know, most traders latch on to the technicians' wealth of data, special terminology, and certainty like shipwrecked sailors tossed a rope from a passing ship. They almost have to believe in it.

Isaac Asimov outlined the situation well in reference to scientists problems in warning the public against a host of "miracle cures" and other forms of hucksterism years ago in the Skeptical Inquirer: "Inspect every piece of pseudoscience and you will find a security blanket, a thumb to suck, a skirt to hold. What have we to offer in exchange? Uncertainty! Insecurity!" So that's my view of technical analysis: it's a big warm blanket for the congenitally nervous.

Maybe I'm being unfair, and no doubt the technicians don't care about my opinion of them (for one thing, they're much better paid than I am). Maybe time will prove me wrong, and in the 22nd century investors will view someone like me the way we view phrenologists today, i.e., a symptom of early 21st century stupidity. In any case, part of the investment discipline I'm trying to follow these days requires occasionally listening to the other side of questions on which I've already made up my mind.

Lowry is described by Ritholz as one of the top technicians out there, and he doesn't seem like a crank or make incredible promises for what technical analysis can do. I'm going to read it again over my vacation and post more on what he says, but for now, the two-part interview is available here:

www.thestreet.com/markets/marketfeatures/10269345.html

and here:

www.thestreet.com/_tscrmb/markets/marketfeatures/10269355.html

WASHINGTON (AP) -- Americans' personal savings rate dipped into negative territory in 2005, something that hasn't happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.

The savings rate has been negative for an entire year only twice before -- in 1932 and 1933 -- two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.

You know, I wrote a post on this story a few weeks when it first came out but never posted it. It involved a long story about a young couple that lived next to my family as a kid for a year or two before their debts caught up with them and they were forced to sell their beloved house and move. It seemed like a nice parable for consumerist America, but I couldn't get the angles in the story right, and what the hell- I'm not Tolstoy and this isn't War and Peace. So screw it. Instead I'll be brief.

Besides the obvious significance of the news on the savings rate, I know that somewhere there is a very intelligent economist saying that this news is insignificant in the broader picture of our incredibly resilient economy- an economist who is arguing with a self-assured smirk that the savings rate doesn't take into account the new realities of global trade, or the merits of a highly developed credit system, or some other explanation that I don't begin to understand.

I'm not an economist, and I can't argue economics like an economist. But I have to ask myself: if they've been keeping track of this number since the 1930s, it's got to mean something. And whatever that something is, I can't imagine that it's a good thing. And if it isn't a good thing, why would this economist tell me that it is?

I know that Intel is losing market share to AMD, but the difference in stock prices between the two has grown ridonculous. Intel is trading at 14+ times earnings of $1.40 per share. AMD is trading at over 107 times earnings of $0.38. How does the market justify such a wide divergence for two companies in the same industry?

Sounds like somebody is heading for a crash. And I'm not just saying that because I own Intel. I can accept Intel at 14X earnings. But AMD's $40 share price assumes that AMD's management is going to be hitting balls out of the park not just this year, but for years into the future. It's going to have to take a tremendous amount of market share away from Intel. An amazing accomplishment if it happens.

It's conventional wisdom that the American consumer has been keeping the economy going for years now. This phenomena is a little unusual, from what I understand, because strong spending by businesses on capital equipment tends to kick in very early in the traditional business cycle. It then drives a growth in employment, which then gives consumers more money to spend and pushed profits higher.

Now that the consumers are becoming "stretched" or "tapped out" in the vernacular of the financial press, bullish members of the Wall Street community are looking towards businesses to step up to the plate and replace consumers in the spending frenzy. Cap-ex, I'm told, is going to shoot up and start driving profits. Stocks will move higher, and we won't see a recession in 2006 or 2007. Or maybe ever, if you believe some of these guys.

What I don't understand is why a business would invest in more equipment at this stage of a mature business cycle. The last recession ended years ago. If consumer demand is expected to fall, then current levels of cap-ex spending should be sufficient to meet the levels of production necessary to satisfy that demand. Who buys a new machine to make more widgets when everyone thinks that the market will want fewer widgets next year?

Basically, if businesses haven't decided to toss money at building new capacity over the past year or two, it's hard to accept that they'll change their minds now.

WASHINGTON (AFP) - Most single Americans are playing hard to get and are happy to dodge Cupid's arrow, new research says, despite the annual Valentine's Day splurge on chocolates and flowers.

Forty-three percent of adult Americans, or 87 million people, describe themselves as single -- but only 16 percent are looking for love, the survey by the Pew Internet and American Life Project found. . .

This is an excellent illustration of why polls are so useless at measuring elements of human behavior. Everybody wants to fall in love. It's instinctive. Built into your brain when you were born. You can't help wanting to fall in love, any more than you could decide that you weren't interested in going to the bathroom or that you wouldn't mind being eaten by a tiger. So when people say they aren't interested in falling in love, you know that something else is going on upstairs in the big, complex mechanism we all use for thinking. What better way to rationalize the irritation of not being in love by saying that it's not something that you're interested in at the moment?

So that's what Valentine's Day poll teaches us about investing: people lie to themeselves when considering the alternative is unbearable. So that might explain why, when polled, a huge majority of homeowners say that they believe their homes will increase substantially in value in 2006....

WASHINGTON - Consumers, lured to the malls by unusually warm weather and eager to spend their Christmas gift cards, boosted retail sales by a much larger than expected amount in January with sales outside of autos surging at the fastest pace in six years. . .

"Warm weather and consumers' willingness to spend every penny they have led to a huge increase in retail sales," said Joel Naroff, head of Naroff Economic Advisors. "Households may be tapped out and dipping into savings and wealth, but that still hasn't slowed them down one bit."

All signs point to consumers spending more because they see their homes as both a place to live and as a vehicle for savings. Who needs to save cash as long as one's real estate keeps rising in value?

For me, the gains I have in home equity don't count for anything until those gains are turned into cash. What my house is worth won't count for anything if prices drop significantly, and if there's one thing that the 2000-01 stock market decline taught us, it's that anything that goes up at a historically unprecedented rate can come crashing down just as fast.

Americans are feeling very optimistic, I'd say.

Analysts Brush Off Report Google Shares Could Be Halved, Say It Will Continue to Be Juggernaut

NEW YORK (AP) -- The idea of Google Inc. shares losing half of its value -- a whopping $50 billion -- was soundly brushed off Monday by Wall Street analysts who believe the company will continue to be a technology juggernaut.

...

However, analysts who cover Google said concerns pointed out in [a Barron's]story aren't anything new -- and certainly not enough to cause shares to fall by 50 percent, as the story suggested. In fact, a number of analysts even reiterated stock price targets that top $500.

I stopped listening to stock analysts years ago, but I recognize that the rest of the market does still believe their methods- fundamental, technical, ouji board, whatever- are sound. Google has had a bad week or two, and now the analysts are out in force pumping it up. They've had a chance to back off their $500 price targets for 2006, but they're not budging.

So let's agree to meet back here on Dec. 31st and see where Google is then. I'm going to pick $300 per share. If I'm wrong, I'll admit I made the wrong call. But if my estimate ends up closer to reality than their estimates, I get to take the elevator up to their well appointed Wall Street offices and be top dog for a day. You know, get to romp around on their furniture and lift my leg up and urinate on their hand-made Italian loafers while laughing at them for being out-analyzed by someone who doesn't know jackshit about economics, technical analysis, or how to suck up to one's superiors on the investment banking and brokerage side.

I guess if I wanted to really put my money where my mouth is, I could short Google. But I've never shorted a stock, and I'm not about to start now. That kind of thing is for professionals using other people's money. Instead I'm sticking with just shooting off my mouth.

. . . to look at the future of our economy without cringing. The level of cronyism in the Bush Administration has become astounding. Exhibit A:

Bloomberg) -- Most of President George W. Bush's nominees to the Federal Reserve have earned accolades from across the economic and political spectrums.

And then there's Kevin Warsh.

Bush's nomination of the 35-year-old White House aide -- a lawyer by training who would become one of only two members of the Fed's seven-member board of governors without a Ph.D. in economics -- has been greeted by criticism and bewilderment by some former Fed officials and economists. They point to his political connections and inexperience, and say the White House could have found a better-known, more qualified choice.

The republican chairman of the committee overseeing the nomination expects Mr. Warsh to sail through the process, naturally. Who would question the appointment of a 35-year old political flunkie to a board made up of respected economists with an average age of 58? Yes, if Wersh was a democrat that would raise some eyebrows on the committee, but this is modern Washington. Nobody cares about appointing people with demonstrated accomplishment in their area of expertise any more. It's all about the politics of the nominee. And Warsh has paid his dues at the White House. So now it's time for his reward.

Michael Brown at FEMA. Harriet Myers for the Supreme Court. That dude at NASA lecturing the scientists on the "big bang" when he hadn't even graduated college. There are probably a host of other cronyasmic nominations that we don't know about because they haven't been as blatant. Whatever the job is in the Bush administration, the only significant requirement seems to revolve around how good a republican you've been. Here's hoping Mr. Warsh never is asked to handle an important job. Let there be no financial Katrina's on his watch. Please.

LONDON (Reuters) - Prices of industrial metals were battered by a fresh round of investment fund sales on Friday, increasing jitters in markets that were still reeling from aggressive selling earlier this week.

[On the London Metal Exchange (LME), copper down 3.5 percent. Aluminum down 4.5%. Lead down 7%. Nickel down 6%]

"It is the end of the week and there is a lot of nervousness around. The general outlook is still good, but these markets needed a shake-out," an investment fund source said. Analysts said confidence in a stunning two-year commodity bull market had been rocked by a broad mid-week sell-off that started in mid-week, and sentiment was still nervous.

These kind of drops happen even in fantastic bull market. I'm not in the commodities thang right now(Indeed, I've only just heard of it, a full two years after it began--am I on top the situation, or what?), but the long-range outlook for commodities hasn't changed.

Provided you buy the story on commodities pushed by guys like Jim Rogers- i.e., demand outstrips supply for the next decade because production capacity was gutted by the last commodity bear market and can't be rebuilt for years, leading to a huge runup in prices- the recent price drops aren't discouraging. Rogers would say these metals are only going to keep trending upward, even if the moves are going to be volatile.

Do I believe that? Man, I don't know. I guess I do. But then, I've been suckered before.

There's a story in today's Wall Street Journal about maneuvering in the Senate over extending Bush's capital gains and dividends tax rate cuts past 2008 and on to 2010.

My opinion, it ain't gonna happen. Right now Congress and the White House have zero credibility on the deficit and spending. Someone's taxes are going to go up to cover the shortfall, and it's only a question of who's going to get hit.

Most low and middle-income people are participating in the stock market through tax-deferred retirement plans, if they're in the market at all. So the republicans can't work their "everyone wants a tax cut" mantra to build up support for their position on the cap gains and dividends tax issue. People with money in the market outside retirement plans, me included, can raise all kinds of reasons for keeping cap gains and dividends taxes low, but I don't see those carrying weight in Washington right now. Letting the Bush cuts expire is the parth of least political resistance towards bringing in extra revenue.

This gives me a reason to sell some individual stocks that have given me huge unrealized long term gains, among them GE, BP, and Glaxo, and move the money into various index products that I've been looking at. I can use the push, frankly. Right now I'm suffused with investor ennui.

Overall, I don't see a cap gains/dividend tax increase as a bad thing so long as its part of a deficit reduction program. We've got to get the deficit under control to maintain long-term stability and growth in the markets. At least, that's my own mantra. The one I hum to myself as I put my head down on the pillow at night. Beats the republican's "any tax cut is a good tax cut" mantra hands down, doesn't it?

No? You think it sucks? Oh, well. No pleasing everybody.

Seriously, I've got cash sitting in the basket, but when I look around I don't see anything around that looks cheap enough to be a bargain. Take a look:

Stock market- Frequently testing highs with no sign of multiple expansion. Even the broad international equity indices are trading at 17-18X earnings.

Bonds- Rising rates mean no capital gains for total returns, and interest paid is now barely above inflation.

Real estate- My God. . . My God. . .

Gold- High enough that gold bugs are giggling and arguing that it must break a new high this time around.

Commodities- Up a couple of hundred percent over the past couple of years.

I've seen arguments that all of these asset classes still have room to run, but most of the reasons given have the ring of rationalization and put me of the old "Dow 36,000" calls from 2000. Call me stumped. Anyone who stumbles across this blog and has an idea of a great as-yet-untapped opportunity that I haven't covered here should feel free to leave a comment. I'd love to hear it.

LONDON (MarketWatch) -- BP Plc on Tuesday reported a 22% increase in quarterly profit on the strength in oil prices and the demand for refinery services, though the rise fell shy of forecasts.

The U.K. oil explorer also said it could give up to $65 billion back to shareholders over the next three years if oil prices stay above $60 a barrel.

...[The] New York-listed shares declined close to 4%.

I've been a BP shareholder for many years, and so it was hard to see this headline come across my desk today. Just one of those examples where a company takes a hit from traders not because its losing money, but rather because it isn't making as much as people expected.

It's not just BP taking a hit at the time of writing. The Vanguard Energy Viper ETF (VDE) is down a couple of percentage points as well, so what we're seeing today is the energy market pulling back a little. I don't see it as a huge issue. Demand for oil is still looking strong over the near term (and despite what people say the near term is the only thing Wall Street really thinks about, I'd argue), and the factors I'm seeing cited by the press, stuff like inventory levels, warm weather, etc.- could lower the price for a barrel of oil significantly without returning it to anywhere near the low $20-30 range that oil investors fear.

But today's drop in oil stocks does raise my concern over being too exposed to energy. Given it's performance in 2005, both as an industry and as a driver of the S&P 500 aggregate profits, people like me are beginning to think of the energy stock as the solution to all of life's investing problems. The gift that will keep on giving year after year. That's a dangerous trap which I may or may not have the sense to avoid. Knowing when to pull money off the table and when to let it run is always a gutwrenching call for me, but it's especially hard when I'm dealing with a sector that is in the midst of a boom.

LONDON (AFP) - The number of British households declaring bankruptcy because of an unmanageable burden of debt hit a record high last year, according to official figures.

The total of 67,580 bankruptcies was 45 percent up on 2004 and the highest since the statistic began to be recorded 45 years ago.

Analysts warned the figure could hit 100,000 in the current year, a new rise of almost 48 percent.

What's the reason? Household debt levels grown too big to manage, including both mortgage debt and surging credit card use.

What's the significance to Americans? The British economy is, if you can believe analysts, about six months ahead of ours. It was roaring ahead but has recently slowed. So this story on bankruptcies gives you a taste of what's coming should we not maintain the pace we've set for ourselves here in America, where the personal savings rate is now less than zero. Banking on the good times lasting, both British and American consumers went into debt to finance their pleasant lifestyles. Now the British look to be faltering, and everything here in America depends on our economy continuing to hum along. One false move: BOOM. American debtors fall behind in their payments, and the harshest of harsh financial penalties kick in and ever greater payments are required (the ancient laws against usury were gutted years ago to increase economic efficiency, you see).

Next stop? Oh, man. It's too horrible to imagine. I'm going to drink a beer now to calm my frayed nerves.

INDIANAPOLIS - Sweeping past Indiana's steel mills and corn and soybean fields, the 157-mile Indiana Toll Road is often called the "Main Street of the Midwest" for its strategic role in linking the East Coast to Chicago and points west.

Now the highway across the heartland could fall into private hands.

Indiana officials hope to sign a lease this spring with a Spanish-Australian partnership that would operate the toll road for a profit for the next 75 years.

The company would keep all toll revenue. In return, it would be responsible for maintenance, improvements and other operating costs, and would pay the state $3.85 billion up front — money that would go toward other road and bridge projects.

I don't know why folks in Indiana want to pay a private vendor for a critical service like maintaining a road instead of just paying the necessary taxes. We tried private toll roads in this country before, and apparently people didn't end up liking them because they mostly disappeared long ago. Now we're heading back in that direction, selling out parts of our road network for cash up front.

It wouldn't bother me if this deal was for modest term of a year or two, or could be cancelled at any time. But a 75 year lease is about as permanent as you get, and it will be only the first step in what will be the eventual turnover of basic governmental functions into private -and most likely foreign- hands (people from overseas have more savings to invest than we Americans do, focused as we are on consumption). As we drain our savings to maintain our lavish lifestyles, what else is there to do but mortgage our state properties like the losing players in giant game of monopoly?

"At last, we can stop dreaming and start digging," Gov. Mitch Daniels said last week. The Republican has hailed the transaction as "the Louisiana Purchase of our time for Indiana."

Somebody should tell Gov. Daniels that playing the role of the French in the Louisiana Purchase is not something to be excited about.

WASHINGTON - The efficiency of American workers rose in 2005 at the slowest pace since the recession year of 2001 while a key gauge of wage pressures rose at the fastest pace in five years, the government reported Thursday.

If you've been reading about the economy over the past few years, you know that among bullish pundits, politicians, and central bankers, the answer to every worry about the economy or doom and gloom scenario has always focused on the tremendous improvements in productivity of the American worker. Productivity has become the Jeeves to our flighty, spend-thrift Bertie Wooster style economy. Always there to step in and set things right just as the situation seems to be collapsing into farce.

Well, today's report stuck the first shiv into old Jeeves. Wall Street is looking at his prostrate body, watching the paramedics work on him, and it does not like what it sees. Oil is up, commodities prices are hot, now wages rising.

Nobody knows whether we're entering the denouement of the current boom. War spending, oil prices, huge trade and budget deficits, global overcapacity and a cooling real estate market- the threads of this farce are coming together for the big final scene where Bertie Wooster always ends up with egg on his face, deeply embarrassed.

Where is our Jeeves, now?

President Bush gave his state of the union speech last night, and in talking about the necessity of making his tax cuts permanent, he said:

And our economy grows when Americans have more of their own money to spend, save and invest. In the last five years, the tax relief you passed has left $880 billion in the hands of American workers, investors, small businesses and families.

The part he left off was this: "and instead replaced it with hundreds of billions of dollars in debt to Asian bankers, a sum which you are all going to have to give back to them, with interest, over the next 10, 20, 30 years."

Here's my worry. The fact that we're addicted to foreign oil seemed to surprise him, because he announced that as though it was something the rest of us didn't already know. He could have made the same pronouncement at any time over the past five years, but he didn't. What better explanation for this statement is there than the possbility that he only just noticed this stunningly obvious fact? And if he was so clueless until now about the role foreign oil plays in our economy, what other well known facts could he have missed in his education and work experience?

Take the concept of government debt. Although he talks about lowering the deficit, he never actually manages to do it. Everyone knows that to balance a budget you either raises taxes or cut total spending. Yet he never makes any concrete effort to do either. So what the hell is going on with the man?

This question puzzled me for a while. And then the answer hit me: Because he does not know that you have to do more than just say you are going to balance the budget. Or that you can't just keep borrowing money to cover a loss of revenues. Apparently he never learned that you don't get to "keep" money that you've borrowed. That a debt is something you count against your assets on the books. See, maybe down in the world of Texas business he used to inhabit, a powerful man doesn't ever have to pay back the money he's borrowed for his business. Or maybe he thinks that after people borrow money, they can just declare bankruptcy and look for a new venture to run into the ground without ever giving the funds back. Would that be an unreasonable assumption given his record as a businessman down in Texas?

Someone has to tell him- right now, if possible- that the country can't just go bankrupt and move onto a new job that it's Dad has arranged with a few old family cronies. I'm sure he'd stop borrowing so much money and talking up his tax cuts if only he knew.