In my opinion, there are no reasons to continue on with the Electoral College System, as we have the technology to create a popular vote.  Living in Arizona, my vote for Barack Obama has little chance of making a difference in this Red State.   Although, it is pink today.  Al Gore would have been President 8 years ago and history would be different.   With that said, here is a more informed opinion to think about this important issue, although I would disagree with William’s conclusion, he lays out the arguments fairly.

The Pro’s and Con’s of the Electoral College System

There have, in its 200 year history, been a number of critics and proposed reforms to the Electoral College system – most of them trying to eliminate it. But there are also staunch defenders of the Electoral College who, though perhaps less vocal than its critics, offer very powerful arguments in its favor. 

Arguments Against the Electoral College

Those who object to the Electoral College system and favor a direct popular election of the president generally do so on four grounds:

• the possibility of electing a minority president
• the risk of so-called “faithless” Electors,
• the possible role of the Electoral College in depressing voter turnout, and
• its failure to accurately reflect the national popular will.

Opponents of the Electoral College are disturbed by the possibility of electing a minority president (one without the absolute majority of popular votes). Nor is this concern entirely unfounded since there are three ways in which that could happen.

One way in which a minority president could be elected is if the country were so deeply divided politically that three or more presidential candidates split the electoral votes among them such that no one obtained the necessary majority. This occurred, as noted above, in 1824 and was unsuccessfully attempted in 1948 and again in 1968. Should that happen today, there are two possible resolutions: either one candidate could throw his electoral votes to the support of another (before the meeting of the Electors) or else, absent an absolute majority in the Electoral College, the U.S. House of Representatives would select the president in accordance with the 12^th Amendment. Either way, though, the person taking office would not have obtained the absolute majority of the popular vote. Yet it is unclear how a direct election of the president could resolve such a deep national conflict without introducing a presidential run-off election — a procedure which would add substantially to the time, cost, and effort already devoted to selecting a president and which might well deepen the political divisions while trying to resolve them.

A second way in which a minority president could take office is if, as in 1888, one candidate’s popular support were heavily concentrated in a few States while the other candidate maintained a slim popular lead in enough States to win the needed majority of the Electoral College. While the country has occasionally come close to this sort of outcome, the question here is whether the distribution of a candidate’s popular support should be taken into account alongside the relative size of it. This issue was mentioned above and is discussed at greater length below.

A third way of electing a minority president is if a third party or candidate, however small, drew enough votes from the top two that no one received over 50% of the national popular total. Far from being unusual, this sort of thing has, in fact, happened 15 times including (in this century) Wilson in both 1912 and 1916, Truman in 1948, Kennedy in 1960, and Nixon in 1968. The only remarkable thing about those outcomes is that few people noticed and even fewer cared. Nor would a direct election have changed those outcomes without a run-off requiring over 50% of the popular vote (an idea which not even proponents of a direct election seem to advocate).

Opponents of the Electoral College system also point to the risk of so-called “faithless” Electors. A “faithless Elector” is one who is pledged to vote for his party’s candidate for president but nevertheless votes of another candidate. There have been 7 such Electors in this century and as recently as 1988 when a Democrat Elector in the State of West Virginia cast his votes for Lloyd Bensen for president and Michael Dukakis for vice president instead of the other way around. Faithless Electors have never changed the outcome of an election, though, simply because most often their purpose is to make a statement rather than make a difference. That is to say, when the electoral vote outcome is so obviously going to be for one candidate or the other, an occasional Elector casts a vote for some personal favorite knowing full well that it will not make a difference in the result. Still, if the prospect of a faithless Elector is so fearsome as to warrant a Constitutional amendment, then it is possible to solve the problem without abolishing the Electoral College merely by eliminating the individual Electors in favor of a purely mathematical process (since the individual Electors are no longer essential to its operation).

Opponents of the Electoral College are further concerned about its possible role in depressing voter turnout.Their argument is that, since each State is entitled to the same number of electoral votes regardless of its voter turnout, there is no incentive in the States to encourage voter participation. Indeed, there may even be an incentive to discourage participation (and they often cite the South here) so as to enable a minority of citizens to decide the electoral vote for the whole State. While this argument has a certain surface plausibility, it fails to account for the fact that presidential elections do not occur in a vacuum. States also conduct other elections (for U.S. Senators, U.S. Representatives, State Governors, State legislators, and a host of local officials) in which these same incentives and disincentives are likely to operate, if at all, with an even greater force. It is hard to imagine what counter-incentive would be created by eliminating the Electoral College.

Finally, some opponents of the Electoral College point out, quite correctly, its failure to accurately reflect the national popular will in at least two respects.

First, the distribution of Electoral votes in the College tends to over-represent people in rural States. This is because the number of Electors for each State is determined by the number of members it has in the House (which more or less reflects the State’s population size) plus the number of members it has in the Senate (which is always two regardless of the State’s population). The result is that in 1988, for example, the combined voting age population (3,119,000) of the seven least populous jurisdiction of Alaska, Delaware, the District of Columbia, North Dakota, South Dakota, Vermont, and Wyoming carried the same voting strength in the Electoral College (21 Electoral votes) as the 9,614,000 persons of voting age in the State of Florida. Each Floridian’s potential vote, then, carried about one third the weight of a potential vote in the other States listed.

A second way in which the Electoral College fails to accurately reflect the national popular will stems primarily from the winner-take-all mechanism whereby the presidential candidate who wins the most popular votes in the State wins all the Electoral votes of that State. One effect of this mechanism is to make it extremely difficult for third party or independent candidates ever to make much of a showing in the Electoral College. If, for example, a third party or independent candidate were to win the support of even as many as 25% of the voters nationwide, he might still end up with no Electoral College votes at all unless he won a plurality of votes in at least one State. And even if he managed to win a few States, his support elsewhere would not be reflected. By thus failing to accurately reflect the national popular will, the argument goes, the Electoral College reinforces a two party system, discourages third party or independent candidates, and thereby tends to restrict choices available to the electorate.

In response to these arguments, proponents of the Electoral College point out that is was never intended to reflect the national popular will. As for the first issue, that the Electoral College over-represents rural populations, proponents respond that the United State Senate – with two seats per State regardless of its population – over-represents rural populations far more dramatically. But since there have been no serious proposals to abolish the United States Senate on these grounds, why should such an argument be used to abolish the lesser case of the Electoral College? Because the presidency represents the whole country? But so, as an institution, does the United States Senate.

As for the second issue of the Electoral College’s role in reinforcing a two party system, proponents, as we shall see, find this to be a positive virtue. 

Arguments for the Electoral College

Proponents of the Electoral College system normally defend it on the philosophical grounds that it:

• contributes to the cohesiveness of the country by requiring a distribution of popular support to be elected president
• enhances the status of minority interests,
• contributes to the political stability of the nation by encouraging a two-party system, and
• maintains a federal system of government and representation.

Recognizing the strong regional interests and loyalties which have played so great a role in American history, proponents argue that the Electoral College system contributes to the cohesiveness of the country be requiring a distribution of popular support to be elected president, without such a mechanism, they point out, president would be selected either through the domination of one populous region over the others or through the domination of large metropolitan areas over the rural ones. Indeed, it is principally because of the Electoral College that presidential nominees are inclined to select vice presidential running mates from a region other than their own. For as things stand now, no one region contains the absolute majority (270) of electoral votes required to elect a president. Thus, there is an incentive for presidential candidates to pull together coalitions of States and regions rather than to exacerbate regional differences. Such a unifying mechanism seems especially prudent in view of the severe regional problems that have typically plagued geographically large nations such as China, India, the Soviet Union, and even, in its time, the Roman Empire. 

This unifying mechanism does not, however, come without a small price. And the price is that in very close popular elections, it is possible that the candidate who wins a slight majority of popular votes may not be the one elected president – depending (as in 1888) on whether his popularity is concentrated in a few States or whether it is more evenly distributed across the States. Yet this is less of a problem than it seems since, as a practical matter, the popular difference between the two candidates would likely be so small that either candidate could govern effectively. 

Proponents thus believe that the practical value of requiring a distribution of popular support outweighs whatever sentimental value may attach to obtaining a bare majority of popular support. Indeed, they point out that the Electoral College system is designed to work in a rational series of defaults: if, in the first instance, a candidate receives a substantial majority of the popular vote, then that candidate is virtually certain to win enough electoral votes to be elected president; in the event that the popular vote is extremely close, then the election defaults to that candidate with the best distribution of popular votes (as evidenced by obtaining the absolute majority of electoral votes); in the event the country is so divided that no one obtains an absolute majority of electoral votes, then the choice of president defaults to the States in the U.S. House of Representatives. One way or another, then, the winning candidate must demonstrate both a sufficient popular support to govern as well as a sufficient distribution of that support to govern. 

Proponents also point out that, far from diminishing minority interests by depressing voter participation, the Electoral College actually enhances the status of minority groups. This is so because the voters of even small minorities in a State may make the difference between winning all of that State’s electoral votes or none of that State’s electoral votes. And since ethnic minority groups in the United States happen to concentrate in those State with the most electoral votes, they assume an importance to presidential candidates well out of proportion to their number. The same principle applies to other special interest groups such as labor unions, farmers, environmentalists, and so forth. 

It is because of this “leverage effect” that the presidency, as an institution, tends to be more sensitive to ethnic minority and other special interest groups than does the Congress as an institution. Changing to a direct election of the president would therefore actually damage minority interests since their votes would be overwhelmed by a national popular majority. 

Proponents further argue that the Electoral College contributes to the political stability of the nation by encouraging a two party system. There can be no doubt that the Electoral College has encouraged and helps to maintain a two party system in the United States. This is true simply because it is extremely difficult for a new or minor party to win enough popular votes in enough States to have a chance of winning the presidency. Even if they won enough electoral votes to force the decision into the U.S. House of Representatives, they would still have to have a majority of over half the State delegations in order to elect their candidate – and in that case, they would hardly be considered a minor party. 

In addition to protecting the presidency from impassioned but transitory third party movements, the practical effect of the Electoral College (along with the single-member district system of representation in the Congress) is to virtually force third party movements into one of the two major political parties. Conversely, the major parties have every incentive to absorb minor party movements in their continual attempt to win popular majorities in the States. In this process of assimilation, third party movements are obliged to compromise their more radical views if they hope to attain any of their more generally acceptable objectives. Thus we end up with two large, pragmatic political parties which tend to the center of public opinion rather than dozens of smaller political parties catering to divergent and sometimes extremist views. In other words, such a system forces political coalitions to occur within the political parties rather than within the government. 

A direct popular election of the president would likely have the opposite effect. For in a direct popular election, there would be every incentive for a multitude of minor parties to form in an attempt to prevent whatever popular majority might be necessary to elect a president. The surviving candidates would thus be drawn to the regionalist or extremist views represented by these parties in hopes of winning the run-off election. 

The result of a direct popular election for president, then, would likely be frayed and unstable political system characterized by a multitude of political parties and by more radical changes in policies from one administration to the next. The Electoral College system, in contrast, encourages political parties to coalesce divergent interests into two sets of coherent alternatives. Such an organization of social conflict and political debate contributes to the political stability of the nation. 

Finally, its proponents argue quite correctly that the Electoral College maintains a federal system of government and representation. Their reasoning is that in a formal federal structure, important political powers are reserved to the component States. In the United States, for example, the House of Representatives was designed to represent the States according to the size of their population. The States are even responsible for drawing the district lines for their House seats. The Senate was designed to represent each State equally regardless of its population. And the Electoral College was designed to represent each State’s choice for the presidency (with the number of each State’s electoral votes being the number of its Senators plus the number of its Representatives). To abolish the Electoral College in favor of a nationwide popular election for president would strike at the very heart of the federal structure laid out in our Constitution and would lead to the nationalization of our central government – to the detriment of the States. 

Indeed, if we become obsessed with government by popular majority as the only consideration, should we not then abolish the Senate which represents States regardless of population? Should we not correct the minor distortions in the House (caused by districting and by guaranteeing each State at least one Representative) by changing it to a system of proportional representation? This would accomplish “government by popular majority” and guarantee the representation of minority parties, but it would also demolish our federal system of government. If there are reasons to maintain State representation in the Senate and House as they exist today, then surely these same reasons apply to the choice of president. Why, then, apply a sentimental attachment to popular majorities only to the Electoral College? 

The fact is, they argue, that the original design of our federal system of government was thoroughly and wisely debated by the Founding Fathers. State viewpoints, they decided, are more important than political minority viewpoints. And the collective opinion of the individual State populations is more important than the opinion of the national population taken as a whole. Nor should we tamper with the careful balance of power between the national and State governments which the Founding Fathers intended and which is reflected in the Electoral college. To do so would fundamentally alter the nature of our government and might well bring about consequences that even the reformers would come to regret. 

Conclusion

The Electoral College has performed its function for over 200 years (and in over 50 presidential elections) by ensuring that the President of the United States has both sufficient popular support to govern and that his popular support is sufficiently distributed throughout the country to enable him to govern effectively. 

Although there were a few anomalies in its early history, none have occurred in the past century. Proposals to abolish the Electoral College, though frequently put forward, have failed largely because the alternatives to it appear more problematic than is the College itself. 

The fact that the Electoral College was originally designed to solve one set of problems but today serves to solve an entirely different set of problems is a tribute to the genius of the Founding Fathers. 

by William C. Kimberling, Deputy Director
FEC National Clearinghouse on Election Administration

Something became clear to me in a moment of randomness.   After posting the Hawthorne affect on my blog and then watching “A Divided Classroom”  I realized that productivity is mostly a contribution of self-esteem and confidence.  Beyond productivity, success is an affect of self-esteem and confidence.   In the Hawthorne affect, peoples belief that something special was happening to them for them.  Then in “A Divided Classroom” the students washed their prejudices away and realized that  blue eye are not better than brown eye and visa versa.   Thereafter, an unforeseen explosion of aptitude among the students created the same affect as the Hawthorne.  She was able to create self-esteem and confidence in 24 hours.   Thereafter, much like the Hawthorne affect, it created instant results among participants after the exercises or test.  

What does this mean?   I am going to take a closer look at this as it may be one reason the US has been so resilient as a melting pot.   We believe we are entrepreneurial, innovative, and risk-takers.  We create these Hawthorne and Divided Classroom experiences artificially and our confidence levels are key to the success of our economy, currency and expectations.   The expectations create results as we put the right energy into what we are expected to do based on our own confidence and self-esteem.   Is this the secret to success.   Can we learn from eliminating our prejudices and understand that confidence is our success.   On a day, when Barack Obama projects more confidence than his opponent, prejudices will be put aside.   We all want to look up to a leader, like him or her and believe in a future.  

Look for more insight into this as this sparks some interesting thoughts for me…

In 2003, we had Fed Funds rates at 1%, at a time when prices were rising and the economy was still boiling even rebounding from the Internet Bubble and 9/11. This fueled irrational exuberance (as coined by Alan Greenspan) and fueled by his policies pushed money into a market that started taking bigger and bigger chances.   This is the first sign of a changing market, Greenspan was focused on the stock market and the dollar, which he needed to as we were in a new post 9/11 world.   The dollar was weakening among foreign currencies and dollars and investors started to flow to new markets as it became easier and easier with the new connectivity of markets globally.  

Stateside, this created an over-heated and irrational sub-prime mortgage market as well as the largest expansion of home ownership in US history.  So now, we are back to 1% Fed Fund rates as of today, which is the right move to create the velocity of money to move throughout the system as we see many deflationary signs and need to get consumers spending some of their monies.   These deflationary signs such as lower gold, oil, housing prices and right now it is tougher to get a loan than it has been for over 25 years.    So the Fed Funds rate could go even lower.   We definitely have all been educated in the stock market and how it connects with the credit market and how our greater global market now works together.   

So today we can celebrate low Fed Rates and also know that they played a major part in getting us here.  It gave a lot of reasons to buy a new home, pay interest only and buy twice the house as you could afford, roll in your credit cards and start over.   The affordability index is something to watch, which Phoenix, California and a few other markets have fallen to their 15 year average affordability.  Places like Boston and Dallas have lower than average affordability.   This was all a Great economic stimulus in a boom time, now we better understand the aftermath of such policies.  

Bottom line, home prices increased faster than incomes, which caused everything to really be unaffordable from the crazy financial products in the market, arms, interest only, etc.   Then came the foreclosures, which drove down prices in many markets back to affordability.  Another thing to look at is home prices compared to the cost to rent. We still have a ways to go for the market to flush everything out.  In a positive look, if I took all the articles and commentary out there, there is more and more optimism appearing in the short term.   In the long term, we live in a new world that we will continually see how it unfolds and make adjustments.  We have a lot to learn about everything around us, it is really all new.  In 2003, there was not one person standing up trashing Greenspan policies, now there are quite a few.   Hindsight is 20/20.

As the world continues to globalize, we will continue to localize.  

Resources will be polarized as community gardens and farmers markets will start to appear in your neighborhoods and exotics will become more scarce.   The cost of moving goods around the globe is unsustainable as the reliance on oil becomes more of a burden.  We will eventually create communities seeking sustainable solutions even if oil becomes cheap.   We now have a better understanding of climate change, sustainability and green technologies.   We better understand the individual choice and impacts we can make and the incentives are starting to line up for a huge green movement.   From hydro solutions to solar farms to wind farms, community gardens we are enabling innovation and basic sustainable solutions.   Alternative solutions from public transportation, Zipcars and tele-commuting workforces move us in the right direction.   Grid-lock will be freed by self-sustained master planned communities with energy and food being by products of a community.   The world can green and rebuild the inner cities and suburbs with cooperative and sustainable living.   

From Escape from Suburbia, Beyond the American Dream:

• Power down industrial system, removing CO2 emissions from production
• Relocalizing economies, work/live/play
• Reducing transportation, Zipcars, Public Transportations and new communication tools
• Living closer to work or tele-commuting will become more and more the norm (virtual-enterprises)
• Using less energy in agriculture production
• Eating food grown closer to where we live, community farms and farmers markets

The problems we have are enormous, yet we have the innovation and now many reasons to take action on our future.  Action creates optimism, look at the “We can change” climate campaign led by Al Gore. 

What does a sustainable localized economy need?

A Sustainable community has the capability to provide food, water, energy, shelter, healthcare, education and transportation for its citizens.  Localization is happening in smart communities.  The local citizens need to get the City Government, School Board, Chamber and its members and even Local News involved in the movement.  Participatory democracy – people interact with the experts and let the people make the decision.  The alternatives of sharing resources, bicycling, providing free public transportation and Zipcars (my new favorite company).   The power can be created from solar, wind, tidal, geo, bio and hydro.  We are able to upload and download energy to the local grid, this creates less leakage.   Wifi for entire cities and communities, connecting alternative fuels and the entire grid together to communicate.  The distributive grid creates homes using 90% less energy and create sustainable solutions for local communities (not reliant on oil from around the world).

So in my mind sustainability has to start with your community.  It is really the only way you can make an impact.  So reduce, recycle and reuse the resources.

What makes America great?   Free Enterprise, Rule of Law and Meritocracy

So we must understand how an economy works.  Can we make tax cuts, spend on energy, healthcare, social security and heal the wounds of a global credit crisis in the current environment?    Can we pull out of the crisis and solve all these issues?

We need a revolutionary way to look at our future.   A new way to tax, a new way to manage our government.   Let’s create an annual report and run it like a company with oversight and so that we can actually congress can vote directly on the issues.   Beyond this, we could even sell shares in the US as a revenue source and use all the financial instruments available to companies today.   This is a radical thought and definitely needs to be challenges, yet the efficiency of taking the US public would create lots of revolutionary opportunities and in a time of change, we can do it.  

Issues like Immigration (aren’t we all immigrants), Education (isn’t this fundamental the way to advance an economy?) and Social Programs (what do we need and we should have abundance with a new structure like this?) have fallen to the wayside.   Free trade is fundamental to global growth, we cannot hide from globalization and creating the most efficient economy is best for all. We are the world economy, part of it and mixed in with it.  So I encourage thinking about and challenging these thoughts.  I do not think I have the answers, yet by thinking about these things in a new way, we might be able to spring some new thoughts together and make some smart decisions.

Tax Cuts for the middle class and rich = Flat Sales Tax, 25% of $13.8 Trillion Known GDP although more to be considered when foreign monies in the US economy = $3.45 Trillion in Tax Revenues compared to $2.1 when we had outlays of $2.7 Billion.   The float of government revenues would be monthly instead of every April.   Also, for the benefit of the people, luxury and other socially negative items will have extra taxes like tobacco, alcohol, drugs and gas which should yield another $1 Trillion dollars.   In the meantime, all subsidies, tariff’s and other taxes would be eliminated.   So the IRS could be eliminated, $10 Billion savings there. 

The other political issues have really fallen by the wayside including abortion, gay marriage and religion in the White House (shouldn’t the government stay out of the bedroom).  These are all really non-issues or should be politically.  Then there is gun rights (NRA should protect peoples right, yet not for Uzzi’s), then there is the environment, energy, foreign policy and homeland security.   All can be solved with a good economy and as Al Gore puts it, the economy, energy, climate change and national security all become part of the solution with focus on sustainability and eliminating our reliance of foreign oil.  Lots of money needs to be invested in green energy, green jobs, green economies and a new green way of life.  Along with a green initiative, we need investment in healthcare as the biotech and healthcare is fundamentally changing from proactive from reactive.   It is an interesting way forward as I see incomes shrinking and people living within their means more, yet I see quality of life rising and rising fast.  

To take a close look at how we spend our money now (2007 dollars), here is some information from the Treasury department.   All this information and more can be found on the Treasury’s site: http://www.fms.treas.gov/annualreport/

• National defense—This function includes those activities directly related to the defense and security of the United States.  This amount encompasses Government spending for conventional forces, strategic forces, atomic energy defense activities and other defense related activities.  National defense outlays for fiscal 2007 increased by $38.2 billion, to $560.1 billion. 

• Education, training, employment and social services—These programs assist citizens in developing and learning skills to expand their potential opportunities and job placement possibilities.  Outlays for this function were $89.7 billion for fiscal 2007, a decrease of 24.2 percent or $28.6 billion from fiscal 2006 outlays. 

• Health—The Federal Government helps meet the nation’s health care needs by financing and providing health care services, aiding disease prevention, and supporting research and training.  Outlays for this function were $266.3 billion in fiscal 2007.  This represents an increase of $13.6 billion over the prior fiscal year. 

• Medicare—Through Medicare, the Federal Government contributes to the health and well being of aged and disabled Americans.  Outlays for this function were $375.4 billion in fiscal 2007.  That is an increase of 13.8 percent or $45.5 billion over fiscal 2006 outlays. 

• Income security—Income security benefits are paid to the aged, the disabled, and the unemployed and low-income families.  Included within this classification are programs such as general retirement and disability, public assistance and unemployment compensation.  Outlays for these benefits were $367.4 billion in fiscal 2007, an increase of 4.2 percent or $14.9 billion over the fiscal 2006 level. 

• Social security—Through social security, the Federal Government contributes to the income security of aged and disabled Americans.  This function’s outlays were $586.2 billion for fiscal 2007.  That represents an increase of 6.9 percent or $37.6 billion over fiscal 2006 outlays. 

• Interest—This function includes interest paid by the Federal Government offset by interest collections from the public and interest received by Government trust funds.  Net interest outlays are very sensitive to both interest rates and the amount of debt outstanding.  Net interest outlays increased in fiscal 2007 to $237.9 billion.  This is a 5.0 percent increase from the prior fiscal year. 

All of these issues and the buyout plan (not bailout plan) can be afforded with a fiscal responsibility.  Government needs to get healthy and the US Hegemony can remain in tact.

1. Money market desk – are banks starting to lend?   Capital has to be increased in companies and banks so that banks will lend to companies and banks will lend to banks and companies can survive on the cash at hand or get credit from banks. 

2. LIBOR - is a daily reference rate based on the interest rates at which banks offer to lendunsecured funds to other banks in the London wholesale money market (or interbank market).

3. TED Spread -  the TED spread was the difference between the interest rates for three-month U.S. Treasuries contracts and the three-month Eurodollars contract as represented by the London Interbank Offered Rate (LIBOR).

[youtube=http://www.youtube.com/watch?v=BZFN5cXJ3rg]

How do we really free the flow of money into banks and through banks, so that they take risk?   When depositors are withdrawing everyday?  Do the deposit guarantees really create risk taking and free up credit?  Can we audit the cash reserves and move banks together consolidating an industry in risk, while keeping the government out of the risk?    How do we stabilize banks to move out of a credit crunch?   Considering that there are lots of unknowns and many more defaults to come, many more runs on the bank (estimated 110-120 bank failures this year, according to CNBC report), and many more movements and possibly movement back into stocks as they bottom out.   This would extend the credit crunch and move the stock market back all in the same time.   The intertwined markets create natural volatility even if we did not have the Treasury and Fed acting out to control the markets. 

As mentioned in some past blogs, the credit market is the problem, not the stock market.   Their is huge value in the market, oil is dropping as demand drops, gold is flopping as money moves in all directions not directly into gold (this should change) and look for retail, small business, restaurants, hotels, airlines, autos and oil companies to be the big losers.   Fundamentally, it is the industries where discretionary monies go, although there could be some winners in each of these industries as companies react differently.  With the abundance we have lived in during our Bull Market, we have created a ton of over-capacity.   Winners will be the banks that survive, pharmaceuticals, the Walmart’s of consumer goods, alcohol, low-end cosmetics and generic providers of goods as demand for lower priced products will rise as income gets squeezed. 

Now we need to look at consumer spending and unemployment figures to wade through the future instability of the markets.  The opportunity is now, we are close to 50% off our highs, so our economy has lost 1/2 of the wealth and most of those monies are sitting on the sideline.   Right now, is a great time to buy and hold.  Define a duration that you are comfortable with and value cost average back into the market or dollar cost average as we begin to find the bottom.   This will mitigate the risk of going back to the market.  

Look for companies with cash, cash is KING.   Get comfortable with volatility, it may trend lower, yet will still be a psychological affect for individual and professional investors alike.  The bottom line, right now, if you have cash, you have lots of opportunities with all the movement.  For every bear market finding the bottom, 30%+ has bounced back in the following 40 days.   Other things to consider is hedge funds still trading downward and failing from capital extraction.   There is also lots of uncertainty in the marketplace, so look for bouncing both ways to the bear and bull.   Although, what are the fundamentals, the earnings and the future of each stock in the market.  Is everything a bargain?   The future will tell.

The G7 and G20 need to agree to support a coordinated effort:

1. Liquidity in Interbank – banks need to lend to each other to create money supply.
2. Recapitalize Institutions – create money supply and liquidity so banks take risk and lend money, not just pad their own balance sheet to avoid runs on the bank.
3. Use authorities to support Institutions that are systemically – companies like Lehman Brothers needed to be supported as the effects affect all banks in the system.
4. Deposit Insurance – we need to secure monies across liquid asset classes in accordance to the risk of each deposit.
5. Mortgage markets and illiquid assets – we need to refinance the entire mortgage industry, potentially nationalize it, lowering interest payments and creating opportunity for quick healing. This will create a huge profit center for the US government and can then be sold off in a market within 5 years.

After a great period of deregulation, wealth and economic growth, we need to move to a short term period of regulation and get back to economic fundamentals of job, spending and lending growth. We need to avoid getting back to a credit card culture and over-spending. In theory, our quality of life will continue to rise, although real incomes will not. We definitely need to heal our mortgage, real estate and credit businesses or they will never come back. In a global economy, we need to understand how to get by with less and focus on education, healthcare and the communities we live in. In a funny way, globalization is creating localization.