This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Sunday, April 19, 2009

Tea, anyone?

It certainly is lonely at the top. Just ask the Obama Administration. It is becoming increasingly evident that, as the president looks around, he finds himself among fewer and fewer friends. The reasons for this are many, from pushing spending bills through Congress that 70 percent of Americans oppose, to expecting China to continue buying U.S. Treasuries that can do nothing but decline in value.

Now, even government is beginning to hate government. Just ask Texas. Its governor rallied support for states’ rights and the 10th Amendment. And let’s not forget the Tax Day Tea Parties. Finally, Americans are becoming so fed up with obscene government spending that they are taking to the streets in protest.

But that’s not all. Who among us ever thought they’d see the day when banks that received government bailout money would turn against their savior? Talk about biting the hand that feeds you.

Goldman Sachs lately is leading the charge to pay back federal bailout money, stating that they can no longer tolerate the strings attached to funds they were forced to accept. On topics ranging from size and scope of business to executive pay, it seems that big banks are tired of the federal government’s meddling.

Of course, many of these banks, Goldman Sachs included, have rational support for increased autonomy as they have lately begun to show profits once again. These profits have been mostly due to changes in accounting rules, namely mark-to-market. The concept of marking assets on the books to their current market value is surprisingly new, having been instituted while the real estate market was doing exceptionally well.

When they were first put in place, they helped banks have record earnings, but since the collapse of real estate, the same rules have contributed to massive write-downs and corporate losses. Now that the mark-to-market rules have been changed back, banks have been, and should continue to, see better earnings. These earnings are due as much to the change in accounting rules as to an improving economic climate. However, they are almost certainly NOT a result of any of the government spending plans passed by Congress.

It seems that across the nation among individuals, companies, and even governments (aside from at the federal level), there is a resounding call for markets to be free and capitalist again. This call will, obviously, have implications in the global markets. Even more important will be how federal governments around the globe respond to this call.

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