Mid-First Quarter 2009
My Comments and Opinions

"The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." - Thomas Jefferson

Congressional Leadership

America needs CPR - Congressional Proof of Responsibility. "A trillion here. A trillion there. Pretty soon you're talking real money" is a popular phrase, misattributed to the late Everett Dirksen, (R) Rep. IL. I adjusted it for inflation. H.R.1, The American Recovery and Reinvestment Act of 2009, know alternately as either Spendiferous Porkulus Magnus, Hurry Up and Spend It, or Dear Grandchildren, We the Generation of Profligate Spenders Bequeath to YOU Our Debts, etc. was signed into law by President Obama on February 18, 2009, three days after Congress passed this Byzantine labyrinth of legislation. Instead of giving the American People the customary 48 to 72 hours to read the bill on-line, the text was available for less time than it would take to read a paperback novel. The 1100+ page bill was NOT READ by a single member of Congress. I'm not surprised. That's a lot of reading. It took me months to read my 1668 page edition of War and Peace. Were our devoted Senators for Life and Representatives of the People just too busy packing for their next get-away junkets to actually read what they voted into law? So, how was the weather in Italy? Sorry I couldn't go with you. I had to work. Bills to pay, you know. Maybe next time.

What is a TRILLION? In America it's a thousand billion, or a million million. It looks like this: $1,000,000,000,000. We are a nation of about 300 million people (300,000,000). If each one of us owed an equal share of a One Trillion Dollar Debt we would each owe $3,333. A family of four would owe $13,332. That would be bad enough, but the current debt of the United States is over Ten Trillion Dollars. Each child, woman and man (listed in terms of longevity) in America owes a total of over $35,000. Refer to the National Debt Clock on line www.deficitsdomatter.org if you want to watch an estimate of our national debt growing in real time, second by second. The total estimated unfunded future liability of Social Security, Medicare and Medicaid may be over $80 Trillion, which is more than six times the output of the entire U.S. economy. My source is: Storms on the Horizon by Dallas Fed Chairman Richard W. Fisher www.dallasfed.org/news/speeches/fisher/2008.

Regulation Declined

On Wednesday, February 4th I watched 'Live at the Capitol' a show I'll call The Mother of All Recent Congressional Testimonies. Harry Markopolos, CFA, CFE - Chartered Financial Analyst and Certified Fraud Examiner - (Mr. M.), presented to the U.S. House of Representatives Committee on Financial Services a detailed account of his nine-year effort to demand that The Securities and Exchange Commission (SEC) investigate the workings of the person who has been accused of the largest Ponzi scheme ever. Bernard Madoff, dubbed Mad Dog Madoff, was able to con individual and institutional investors into giving him as much as $50 billion to invest. It appears that he hadn't placed an honest trade in 13 years. Mr. M. testified that the SEC repeatedly refused to consider the evidence he presented to them for almost a decade. He accused the agency of being "over-lawyered and understaffed with experts who understand the inner workings of the financial markets." As reported in the Wall Street Journal 2/5/09 on page C-2, Mr. M. repeatedly criticized the SEC as being "both a captive regulator and a failed regulator." Had the SEC moved against Madoff years ago when the black hole had taken in only a couple of billion dollars, much could have been salvaged. Maybe Madoff was just too big to fail. Did he have low friends in high places? In the wake of this disaster, charities, individuals and otherwise sophisticated institutional investors have lost billions. It was classic Ponzi: Pay off the old investors with cash coming in from the new investors, stealing as much as you can without getting caught. IF the investors' assets had been placed with recognized public CUSTODIANS, such as Fidelity Investment's National Financial Services, the one I use through National Securities Corporation, or any of the other major Wall Street clearing firms, no fraud of this magnitude could have occurred. Legitimate CUSTODIANS are transparent. They have reputations to uphold. These companies have millions of client accounts. They are paid by brokerage firms and individuals to transact securities business with other legal custodians. The SEC and state regulators are all over us. Where were they when Madoff set himself up as his own custodian? He created fictitious portfolio statements. He was trusted. "Trust but verify." There's a lesson here.

The SEC was accused by Mr. M. of incompetence for leaving serious financial investigation to state Attorneys General. Finally, after many questions by slack-jawed Congressmen, he recommended a total overhaul of American financial regulation with one over-arching command and control agency that would coordinate information from the states and regions as well as the various market functions of American finance. Insurance, securities, commercial banking and investment banking would have one overseer. As the structure exists today, these agencies protect their own turf and don't communicate efficiently with other government agencies. The total of all of the various, often conflicting rules and regulations amounts to pounds of grit in the gear box of our economy. Five days after his appearance before Congress Linda C. Thomsen, Director of the Division of Enforcement for the SEC, resigned. Damning testimony was not limited to the SEC. Mr. M. had little kind to say about the Financial Industry Regulatory Authority (FINRA, the self-regulatory agency created by the merger of the former NASD and NYSE). His was a virtuoso performance.

Can you imagine? Several Very Important Persons made 'honest' mistakes and failed to report and or file taxes. Do Say! I do NOT recommend any attempt to deceive the I.R.S. I feel that for well-known public servants to do so is hypocritical to the max. They should be subject to the same laws as you and I. Quoting Leona Helmsey:

"Only the little people pay taxes." "O tempora! O mores!" - Cicero

THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD) reported "that for the seventeenth consecutive year the average rate of corporate taxation in non-U.S. countries fell while the U.S. corporate tax rate stayed the same. As a result, the U.S. corporate tax rate is now 50 percent higher than the OECD average." Source: Tax Foundation, August 13, 2008, article by Scott A. Hodge in Fiscal Fact No.136 www.taxfoundation.org. The Tax Foundation listed the 30 largest national economies in order of their combined corporate tax rates for 2008. In Gate Number One, sporting the highest rate is Japan's 39.54%. In Gate Number Two the local favorite to win is us, the U.S., with a combined 39.25% rate. The third horse in this race to the bottom is the ever-popular France (34.43%), followed by the Chocolate Mare, Belgium (33.99%) and then, O Canada! paying a combined 33.5% corporate tax rate. Sweden and the U.K. are both unlikely to win, place or show. They're #13 and #14 respectively. Corporations actually do not pay taxes. They collect taxes for the government by passing taxes through to their customers. We pay the corporate tax when we buy a product or service because the tax is generally built into the service or product we buy, as are all operating costs. Now you know.

People wonder why companies send jobs oversees. Profits, like people, go where they're best treated. If a corporation can find a better place to do business, the company will act accordingly. Businesses are not public welfare organizations. The stated goal of any sensible business entity is to produce a service or a product at a profit while benefiting the customers, workers and owners of the business. Should any of those three groups be ill-treated, the business will falter and could fail. Think of a well run company as one balanced on a three-legged wooden chair - customer, worker, manager. High taxes and burdensome regulation are like termites gnawing away the supports under our national commerce. Government is a net consumer of tax revenue. Private enterprise is a net producer of tax revenue. Government entities are called "non-profit" for a reason. If you tax something you'll get less of it. If you subsidize something, you usually end up with more of it. You only need to understand human nature to see how this works.

The Economy

January, 2009 was the worst January ever for the overall stock market. Unemployment hit 7.6%. The DJIA low of 1/20/09 was 7949.09. We are clearly in a recession. But to compare the current global economic stagnation to the Depression of the 1930s is not historically accurate. It's not even honest. The Great Depression lasted the better part of a decade. Unemployment hit 25% and remained high for years. Only after America entered World War II did the economy begin to recover as heavy industry began hiring. The huge spending package is, in my opinion, too much spending and not enough stimulus. If a little medicine can cure, too much can maim or kill. No one knows what the impact will be, when or if it will help and what the ultimate cost of adding trillions to the National Debt will do to our children and grandchildren. Debt got us here. Will more debt get us out? I believe we'll soon pay higher taxes and see a rise in the cost of living brought about by a huge increase in the money supply. Higher income taxes make double tax-free municipal bonds more attractive. Gold, other precious metals, real estate and yes, believe it or not, common stocks of the great companies of the world are traditional inflation fighters. Most of the companies whose shares are in the widely followed stock averages (DJIA, S&P 500, etc.) have been able to operate at a profit (in excess of their costs of doing business which includes a built-in cost of living adjustment) more often than not through the years. The Business Cycle is normal. Growth is followed by slowdown. Sometimes the changes from up to down are gradual. This time is not one of them. The suddenness of the recent economic stall and market decline put fear where optimism formally lived. Fear may depart when least expected.

There's a theory on Wall Street that the Dow Industrials can only turn up at the end of a Bear Market after it revisits a prior low. On Feb. 23rd the Dow Jones Industrial Average closed at 7114.78, an eleven-year low. Every economy in every place and time runs a race over rocks and fallen logs. Every once in a while the economy trips and stumbles. Recovery can be quick and easy or slow and painful. The journey of any life, company or economy is never smooth. There are starts and stops, ups and downs, joys and sorrows. Through it all the journey continues. Recovery in the financial markets will most likely occur before recovery occurs in the general economy. Stock markets look forward, anticipating an increase in corporate profits, just as they always have.

Wealth Redistribution

The following quote is from a pamphlet called The Ten Cannots by William J.H. Boetcker (1873-1962) German American Presbyterian Minister, influential religious leader and public speaker. The masculine reference is the form used during that time.

You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot help small men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor by destroying the rich.
You cannot establish sound security on borrowed money.
You cannot further the brotherhood of man by inciting class hatred.
You cannot keep out of trouble by spending more than you earn.
You cannot build character and courage by destroying men's initiative and independence.
You cannot help men permanently by doing for them what they could and should do for themselves.
--William J.H. Boetcker, 1916
(Often attributed to Lincoln)

DISCLOSURES

The views expressed contain certain forward-looking statements. Although they are forecasts, actual results may be meaningfully different. This material represents an assessment of the market and conditions at a particular time and is not a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any security in particular. The opinions expressed here are the author's and do not reflect any opinion of National Securities Corporation, my Broker/Dealer, or any of its Affiliates. Dow Jones price history, The Wall Street Journal, Newsletters of the Dallas Fed, The Organisation for Economic Co-operation and Development, The Tax Foundation and William J.H. Boetcker's pamphlet, The Ten Cannots, were used as source material for this letter.

Wishing you success,

Robert W. Brimmer, CFP™

BRIMMER FINANCIAL
rbrimmer@nationalsecurities.com
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