The US House of Representatives passed a cap and trade bill yesterday by a slim vote. The bill was watered down so that most of the stiff taxes from the bill will occur 10-20 years from now.

I dont’ think this will matter too much. First, since it barely passed the house, it will likely fail in the Senate, since the Democrats will need a 60-40 margin, and many moderate democrats are against the bill. Second, since most of the legislation’s stiff guidelines do not occur until later, there is a good chance they will never actually be implemented, and some sort of other legislation will prevent this bill from putting the economy in a tailspin.

Our idiot president claimed it as a jobs bill, saying it will create a ton of green jobs, just like Spain’s cap and trade bill did. Spain’s unemployment is now over 18%. For every ‘green job’ it created, it destroyed two regular jobs due to the taxes and inefficiencies created. Splendid.

Over the past couple of weeks, not much has occurred. Economic data has been about expected. Bond yields started soaring but have since retreated some. The S&P 500 can’t seem to break through 950 and is at 910.

Most believe that we are not in a deflationary spiral, but some believe we are just going to be flat from here on out. There are others that believe a wave of inflation may take over. There is also the risk of a double dip recession, which may just be similar to being flat.

I don’t think we will have robust economic growth, as the Obama administration expects. Because of this, I foresee huge budget deficits over the next few years, and I don’t think the market will look kindly to it. Thus, I think there is a risk for a double dip recession or perhaps inflation, since I think there’s a good chance the Fed will monetize things.

I don’t think it will take too long for this to happen…we’ll likely see some sparks fly by next year.

In my previous post, I mentioned contrarian indicators that the recession may be softening. Now, my contrarian indicators seem to think things will get worse.

If I chat with my cousin in college or my personal trainer, all the talk assumes that the economy will be back to normal near year-end. That’s a pretty rosy assumption…isn’t that the same assumption everyone made last year?

I don’t see a repeat of last fall happening…a banking crisis, market meltdown, strong dollar….it’s almost too lame for the exact same thing to happen. I think the key will be the US treasury bubble bursting. With the $2 trillion+ in debt we’ll be issuing, there just may be no buyers. The world may simply not have the money to fund our lavish governmental expesnes. When will it happen? I don’t know. It may be early 2010 or it may be a slow bleed. But once it happens and the government has to pay 8% to borrow money, bad stuff will happen. No one can borrow then, everything will freeze up and the recession will deepen. That or the Fed will print money to lower rates and we’ll have inflation. We’ll have our choice to make.

The government has been acting like deficits don’t matter for a long time. Strange, that’s how people with subprime loans acted. Who cares? Just charge it to my credit card…or we’ll refinance the house and make money off of that! The US government is maxing out our credit card it seems. With Medicare about to burst and California going under, there are plenty of triggers to set these wheels in motion. It’s not a matter of if but when in my opinion.

It is said that once the mainstream media catches on to a financial crisis, the peak of the crisis is over. In other words, once the mainstream media has said ‘STOCK PANIC,’ that’s when you buy stocks.

It’s difficult to say when the mainstream media has or has not done something. But one thing is for sure, once negative economic news starts making its way into fast food and car commercials, you know it has hit.

The clearest example of this was Chrysler’s $2.99 gas guarantee this past summer. Remember that? Instead of getting a standard MSRP discount, suckers who took this deal were guaranteed $2.99 gas for life. Well, if they just waited a few months, the standard price at the pump would be less than half anyways. People who bought this deal were essentially hedging against rising fuel costs (so basically buying oil) back when oil at its peak of $140 a gallon. Bad bet.

Now, we have a few commercials talking about the recession. My favorite is Hyundai’s Assurance Program, which basically says that if you get laid off, you can return the car at the price you paid for it. Hyundai’s basically betting against unemployment rising that much. People who take Hyundai up on this are hedging against themselves losing their job (basically buying that unemployment will go up a lot). Sounds eerily similar to Chryler’s $2.99 gas guarantee doesn’t it?

Then there’s Jack In The Box’s commercial that talks about the recession. This isn’t making any guarantees or anything like Hyundai, but it does highlight that the recession is front and center in the mainstream media.

The stock market plummeted yesterday and then rocketed back today. Financial stocks, in particular, led the charge both days. Financial shares dropped 10-20% yesterday, only to see 10-30% gains today.

Talks of need for more government money and bailouts is what rocked the financial shares. Many were worried the banks were in even more worse shape than people thought and that the government would end up wiping out common stock shareholders ala AIG/Fannie Mae type bailouts. This would particularly be the case for Citigroup and perhaps Bank Of America.

Today, as these fears subsided, shares came back. Then, on news of insider buying, such as Jamie Dimon’s 500k shares of common stock purchase of JP Morgan, financials came roaring back.

It seems like financials, particularly BOA and Citigroup are at the tipping point. Citigroup is at $3.67 a share, even after today’s surge. This is down from $50 a share from just a few years ago. It’s hard to see Citigroup staying below $5 a share for an extended period of time. Either this stock will come roaring back or common stock shareholders will be wiped out. I don’t see it stagnating between $3-$6 for long.

Ever since Yahoo stupidly spurned the $42 billion takeover bid by Microsoft, the company has been in a freefall. Shareholders have demanded Jerry Yang’s head, the former CEO and founder of the company. Since he has stepped down, Yahoo has been looking for a new CEO.

Who did they come up? A 60 year-old woman who is a former CEO of a software company. No experience in internet advertising or search. Somehow, I doubt this is the answer to Yahoo’s problems.

One of the areas I thought yahoo had a chance was with their Yahoo Publisher Network. While fewer people may use their search engine, webmasters may be enticed to use that ad service if they gave a better revenue share/customer service than Adsense and other alternatives. Yahoo seems to be incompetntly running that service though. No new applications have been taken and the service has been in beta for over 3 years now.

When the prospects of a recession first came about, some speculated that the casino sector may be insulated, thinking gambling was a recession-proof business. Their reasoning was that either gambling was addictive so people did it no matter what or people would try to ‘win back’ their portfolio and other losses at the dice table. Boy were they wrong. Vegas has seen a huge drop in wagers; gambling was the first thing consumers cut out of their spending. Stocks like MGM Mirage and Las Vegas Sands (who owns the Venetian) are down close to 90% from their highs.

I recently went to Vegas and saw this first hand. I gamble quite a bit and will play for high stakes at the casino. The first thing I noticed when going to Vegas was that the room rates were down considerably. At the Wynn and the Venetian, where a Saturday night stay was often sold out or room rates were $400-$800, a Sat night stay over New Years could be had for $160. Needless to say, if you haven’t been to Vegas and were thinking about going, room rates now are better than ever. You can stay at the Wynn for the same price it used to cost to stay at the Flamingo.

One thing I wondered about is if the casinos changed their comping policies. It’s difficult to tell. For example, how much easier would it now be to get your room comped than in the past? If you think about it, it should be considerably cheaper since the room is now worth less. Comping a $170 a night room means a lot less than comping a $400 a night room in the sense the casino is losing out on less revenue.

On my recent stay, I initially stayed at the Venetian. They sent me out a mailer offering me a free hotel room over New Years, so I went ahead and took them up on it. Three nights into it and down about $3500 with an average bet of well over $500 and 5 hours of play at the craps table, I asked if they could extend my stay a few more nights. Also, I might add, I was very annoyed with the casino’s taxi valet. It’s a long story, but I was shocked at how rude casino employees could be, given at least in the Venetian’s case, the company is on the brink of bankruptcy and the last thing they should do is offend any customers.

At this point, the casino host was pretty curt with me and acted like my play wasn’t  that much in of itself to guarantee a few more free nights and that he couldn’t do anything about the rude taxi valet. I was pretty shocked they wouldn’t bend over backwards to keep me there, since there weren’t that many people gambling ofr high stakes. The casino was fairly empty, so they risked losing a valuable customer (I go to Vegas 3-4 times a year) to keep a room for a few nights.

I told the casino host peace and went to the Wynn. With less play and a less loss, they happily comped my two nights there. At least the Wynn gets it.

The stock market rallied this week. It was largely a relief rally since it has been pummeled so much lately, but many are hopeful the recession may not be as bad as some feared.

Early results indicate that Black Friday sales were up 3% this year compared to last. People are apparently looking for more bargains now than ever. Whether Wall Street finds this to be bullish on Monday remains to be seen.

When the economy does well and businesses do well, most people in general do better. As more businesses demand workers, competition for workers increases, so wages and perks go up. New sorts of jobs are created to assist the newly rich. For example, do you work as a personal trainer, high-class hair dresses, personal shopper, wealth manager, waitress/manager at an upscale restaurant, or even exotic dancer? Chances are, your clientele, or at the very least your best clientele, tend to be wealthy individuals. When there are more wealthy individuals, there are more demands for these sorts of jobs that service the upper class.

While recessions hurt all economic groups, the current one has, more than anything, been associated with a huge drop in the stock prices and other assets. Who owns the vast majority of stocks? Rich people, duh. In the recent election, politicans harped about how to help the middle class the most. This is because, after all, most voters are middle class. No politican was going to sing a sad song for the rich people; Obama often targeted rich people as being ‘greedy’ and needing to have their ‘wealth spread around.’

Most people think they’re immune to the plight of the stock market and rich people in general. If anything, it brings them joy to see Richie taken down. Guess what? When Richie goes down, you go down too. Here are the sort of middle class jobs that will be affected the most by the stock market crash and the decline in rich people in general:

1. Do you work in a service business that in any way caters to rich people? I mentioned a list before, such as personal trainers, people who work at high-end restaurants and shops, and financial institutions. Step back and think for a second. Who gives you money? Does it come from a rich person? Guess what, rich person has less money, they have less to pay you. If you work at a Gucci store and don’t think the stock market crash affects you, you’re living in a dreamland.

2. Do you work in a business that services a business dependent on rich folk? For example, if people are eating less steak, not only are the steakhouse chains going to be hurt, but beef producers in general are hurt. Are you a lawyer? Less rich people, less legal wrangling/business in general. Good chance it will find its way to affect you.

3. Do you work for a small business? By small business, I mean an LLC of any sort. With Obama and the democrats pledging tax increases, good chance this will affect your boss. Your boss may decide its time to cut back even more, and this means your job may be gone soon. Furthermore, with credit being difficult to get and fewer rich people out there to make loans, your company may have a harder time staying afloat.

If you’re a government employee or work for a toothpaste manufacturer, chances are your job is safe. But don’t expect any pay raises soon. With all of the unemployed out there from these other industries, they are looking at your job with envy. Try haggling for a raise and you may soon find yourself replaced.

The perfect example of how trickle down affects the workers is what is happening with the automakers. While the UAW thought it scored a huge victory for its workers originally by getting their retirees health benefits and huge severance packages, this ultimately made the American car manufacturers uncompetitive. Since GM, Ford, and Chrysler can’t turn a profit, they are now facing bankruptcy. If these car makers go bankrupt, not only will the auto workers not have those nice health care perks and pensions, they won’t have a job at all!

With the economy as weak as it is, it’s difficult to consider letting a major employer and symbol of US manufacturing go bankrupt. To let any of the Big 3 just fail would be horrible. However, a prepackaged bankruptcy, allowing the car manufacturers to still operate effectively and rebuild, may be best for the long-term.

The reason the car manufacturers are in the position they are in is due to high labor costs. Not just the hourly wages they currently pay, but the pensions and the healthcare costs of many of their retired workers and their families. While it may seem nice that the car makers were so ‘generous,’ this has made it practically impossible for them to turn a profit. It is estimated that each car GM makes costs an extra $2,000 compared to a Japanese automaker. Automakers just can’t compete in the long-term with those sorts of costs.

These costs didn’t come out of the blue. What happened was that the UAW was able to extract very generous deals out of the Big 3 back when things were going well for the carmakers and the contracts persist to this day. To quell possible strikers, management well over a decade ago decided to give virtually unlimited healthcare benefits to its workers, retireers, their families, and also alloted huge severance packages.

While this avoided the short term problem of a strike and didn’t increase costs much at the time, the long-term impacts are now clear. Due to both rising health care costs and just by having more retirees now, the big 3 are paying obscene amounts for labor. The average hour of labor for GM costs $75 an hour! That is 3X the national average…three times! They cannot just stop paying the healthcare costs for its retirees and their pensions without violating their contract. They cannot mass fire workers since it costs about $100k to fire an individual worker due to the contracts the union negotiated.

Combine these high entrenched labor costs with a huge economic slowdown and it’s no wonder that the automakers are in trouble. The automakers were losing money back when the economy was doing fine; no wonder they are on the brink now!

There are four main arguments for the bailout. First, letting the carmakers fail could cause a cascading process that drives the country into a depression. I agree with this, which is why we can’t let the Big 3 fail. However, a prepackaged bankruptcy, where the companies still operate, should avoid this. The point still stands that a prepackaged bankruptcy does keep this risk on the table more so than a direct bailout.

The second argument is that no one will buy a car from a bankrupt company because they will be afraid the warranty won’t be valid. I don’t necessarily agree with this. The perception of the Big 3 is so bad already that I don’t think putting an official ‘bankrupt’ label will make things much worse. Plus, the government can guarantee all warranties. Anyone who buys a GM car can have the warranty through GM and/or a 3rd party, which is guaranteed by the government. So this is an argument I just don’t buy.

The third argument is that a bankruptcy may be too complex to deal with. I’m no bankruptcy expert, so I have no ability to fully assess this argument. This sort of bankruptcy has seemed to work for the airlines though.

The final argument is that the automakers will be able to turn themselves around, so we should give them a chance. I find this a bit optimistic. While they claim they will be able to get costs more in line by 2010, the only thing they will be doing is reducing the cost of new hirees to be in line with Toyota. Their existing workers and legacy costs won’t go away. Again, these carmakers were in huge trouble even when the economy was doing fine and people wanted huge gas guzzlers that the Big 3 were known for. Why should we expect anything to be better? Throwing $25 billion at them means every taxpayer is giving a loan of well over $100 to the Big 3; a loan with very little hope of repayment.

There’s no reason to believe Americans can’t produce cars. The American automakers compete just well abroad. For example, they are beating out the Japanese in China. The reason though is that their cars abroad are not produced by American workers, so the UAW contracts don’t apply. This allows the American manufacturers to compete against foreigners without the huge handicap of the labor contracts.

By allowing a prepackaged bankruptcy to happen, the Big 3 can get out of these contracts and rebuild from the start. They can pay their workers normal wages and not be responsible for health care for everyone and his dog in Michigan. To be viable businesses, the carmakers need to be profitable companies, not a mechanism for welfare payments.

Big Labor is desparate for the bailout. If the Big 3 fail, it pretty much spells the end for the UAW. But it’s clear that the UAW needs to fail. By making it impossible for their employer to turn a profit, they ultimately hurt both the shareholders and the employees in the long-term. Workers and management are ultimately on the same team, something the UAW never quite grasped.