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Sunday, January 13, 2008


Hillary, McCain Back on Top

As expected, Senator McCain easily won the GOP primary in New Hampshire, driving Gov Romney to the brink of elimination. Romney will make his last stand in Michigan, where I predict he will lose despite the popularity of his family there. Meanwhile, Huckleberry managed a third place finish, not so bad really, but South Carolina has become a make or break state for him, and if, as I expect, the McCain tide whips him there, the last men standing will be the Senator and Mayor Giuliani, who long ago set up Florida as his Maginot Line. That strategy made sense for him, since it is really the first important state. If he survives Florida, he will pin his hopes on Super Tuesday, and if as I expect we are down to a two man race in the GOP by then, that day will determine whether the convention is a scripted event or a suspenseful one.

Giuliani took a lot of hits from the press and from his opponents of both parties for his personal failings and that has depressed his poll numbers vs both Republican opponents and potential Democratic ones. The good news for him is that all of those stories will be old news if he makes it to the general election, not unlike Hillary about whom everything is already known.

Not so with Obama, and Dems became almost panicky before New Hampshire when it looked like Hillary could lose another primary. There were even some ridiculous stories printed that her supporters were wondering if she shouldn't pull out of the race if she lost New Hampshire. Anyone who believed that wasn't really watching Bill Clinton in 1980 who persevered despite almost daily scandal revelations and several primary losses. Or watched him stay the course despite a White House scandal that would have caused anyone else to resign immediately, and led to his impeachment (but not conviction). The Clinton's are determined and imperturbable; for them, achieving power is all that matters. So Hillary is not going anywhere.

This is unfortunate for Republicans who would dearly love to make the race against Obama, not Hillary. Dems know this and that the one sure way for them to snatch defeat from the jaws of victory in 2008 would be to nominate the rookie Senator from Illinois. So they encourage Edwards to stay in, even as a Hillary attack dog, to divvy up the anti Hillary vote and make sure she gets more delegates than Obama. One wonders what the payoff will be - certainly not VP since Edwards is already a failed VP candidate and provides no electoral help for Hillary. At least Richardson would provide regional help and secure the Latino vote. Maybe Edwards would be Attorney General - a thought that must have corporate America quaking - the ultimate capture of governments legal arm by the plaintiff bar.

The stock market is in full scale retreat at the moment, and I suspect we will spend the first six months of the year under water. One of the problems with the country going into, or even near recession, is that every silly crackpot proposal you can think of "to stimulate the economy" gains credence, and it's only worse in an election year. We are hearing some real doozies, but I guess people forget that the Clinton stimulants did nothing. It was only when taxes were lowered and government spending REDUCED (through welfare reform and the peace dividend i.e. starving the defense sector) that both Wall Street and Main Street responded. Making the current tax rates, especially the dividend and capital gains rates permanent is so obviously the right policy, we don't need to discuss it here, but there are other tax cuts that would also be of help, and we should start with the AMT. And the two solutions there are either get rid of it, or better yet, establish the AMT as the ONLY tax system, while raising the thresh hold limits and indexing them for inflation. The benefits of this policy include simplification, lowering the top marginal rate, removing the lower third of the income earners from the Federal tax system entirely, and eliminating all of the needless deductions and tax welfare items from the system that distort it in one fell swoop.

Once we solve that, then it's on to fix social security and medicare. But who would have the political courage to lead these efforts as President and in Congress? We are about to retire the President who had the courage and the will but totally lacked the political know-how and the media support. Will a President McCain have the necessities, or a President Giuliani? Maybe. But a President Clinton? These are not solutions that would appeal to her or any other Dem in the field. That's reality.


One thing Musings was pretty sure of early on was that Countrywide was never going to make it, so the takeover by BankAmerica should be seen as a necessary rescue. There will be a similar rescue of Washington Mutual, another ineptly managed financial (in Musings' opinion) that is now in probably desperate negotiations with Morgan Chase. If you review the archives, you will see that we predicted the exit as Bear Stearns CEO of Jimmy Cayne, though we don't revel in that since his otherwise great career has been sadly tainted. (besides, he is a world class bridge player). Not that these downfalls were difficult to predict. The mortgage problem has actually been UNDERSTATED by the financial press, and especially by Wall Street analysts, who have refused to accept that the foreclosed homes will ultimately see their value discounted by 30%, not 5-15%. That's why we are looking at a slow economy for all of 2008, and a slow stock market for at least the first half of the year.


Of course, that won't stop me from buying at these depressed prices, especially since we are sitting on all this cash we raised closing out ANDW in November and BRLI in January. So on 1/7, I bought another 100 shares of Genessee Wyoming RR (GWR) at 22.14. Then on 1/9, I went back to the well on American Dental Partners (ADPI),buying 300 more at 8.88.

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