The Golden Rule? Gold Will Rule

More metal talk today. There's been more buzzing about the mining companies shedding their gold hedges. From Briefing.com:

"However, the industry has clearly realized this and gold companies have been de-leveraging, and thus are once again drawing investor attention due to the potential for earnings acceleration as the price of gold rises."

"While prices are expected to rise more moderately this year compared to 2006, the bullish gold fundamentals will likely drive prices even higher in 2008."

This bodes well for those invested in mining companies. Just as rising oil prices benefit oil exploration companies, rising gold prices benefit mining companies. And why would the price of gold rise? Well, in addition to an increasing demand, the supply of gold is decreasing:

"On the supply side, production has been curtailed due to the absence of new discoveries as well as environmental activism in North America and Asia, and political and labor turmoil in hot spots such as Venezuela and Angola."

Ah what great news that is. At the beginning of the month I recommended a couple of mining companies. This month I recommended a few funds that are derived from various mining companies. I shed the mining funds last week due to volatility, but I'm retaining the two giants: Newmont Mining (NEM) and Barrick Mining (ABX). Not invested yet? There's still time; gold hasn't exploded yet.

The Bears are Breaking the Banks

Forbes.com has a great article on the bears ruling banking stocks. Tom Van Riper makes some very sound arguments for that reasoning:

"Investors in major U.S. brokerage stocks haven't seen the last of the sell-off. Not with bank funding for merger deals slowing as credit gets more expensive. Wider spreads in the junk bond market, where so many deals are done, mean the costs of issuing securities are higher, as are the risks for doing so."

I cannot disagree with logic. And for just these same reasons, I'm waiting to see what happens before taking my profits. When Goldman Sachs fell below $200, I was tempted to cash out. Of course, I did not. And when Goldman Sachs broke through the $200 dollar mark last week, I was regretful. I waited and saw GS lose even more value. For that reason, I'm holding off on covering my short. I think we've got a ways to go before banking stocks begin a recovery. Mortgage rate resets have yet to reach a peak, while overall business credit is trending tighter and tighter. The Chrysler deal is a great example. With every new story coming out of the financial main stream media, psychological factors will push banking stocks lower. And if Hank Paulson has his way, the federal deficit will crowd private investment even more, but that's for a different post.

Of course there are some people who will disagree with me. Here, James Altucher of The Street wonders why Goldman Sachs is so cheap. He even goes so far as to say that the company might be subject to a private buyout. Here, Mr. Altucher continues his faulty reasoning by indicating that investors should buy Goldman Sachs, as well as JP Morgan, and Citigroup, all of which I've indicated at sell or short sell status. At least James didn't try and convince investors to buy Bear Stearns. Ha!

I may be wrong about this next point, and if that's the case, then call me out. I think the credit cycle is at least as easy to predict as the housing market. Why is this? Because the credit (ie: banking) industry moves at a pace that is similar to the housing market. Complete cycles in both sectors take years to complete. As soon as one realizes that the credit cycle downturn is beginning, a savvy investor would take bank stock shares from Mr. Altucher's account and sell them short. When the credit cycle peaks as high as it has this last go around, the drop should act in symmetry. What does this mean? Big money for "danger-seeking" investors who know how to play the game.

Subprime's Other Victims??

Give me a break! I found this article from the NY Times:

"You’ve gotta feel for him. John Devaney, United Capital’s chief executive and a one-time master of the mortgage market who has been taking it on the chin lately, has put his yacht up for sale — for $23.5 million. According to TheStreet.com, he is selling his 142-foot Trinity yacht, dubbed Positive Carry, and his $16.5 million second-home, named Sardy House and the home of the nation’s largest living Christmas tree."

This is a great example of the fact that the entirety of the media only exhibits a persona recognized by the upper class. Does the NY Times really expect me to feel sorry for this 'poor' guy?

I could feel sorry for the guy, except for the fact that he has to sell his 23 million dollar yacht and his 16 million dollar second home. I wish I owned a first home! This is a pathetic piece of journalism, only representative of the most upper class of citizens. Yuk!

Edward Kennedy: Working for the Poor Man

This weekend there was talk of the Democratic Party attempting to raise the minimum wage above nine dollars per hour. I applaud that attempt. What's more important is this:

"There is also a possibility the wage would be indexed to inflation or some other measure of the cost of living. Ten states already have index adjusted-minimum wages. They provide for automatic increases to the wage in the same way Social Security or Congressional salaries factor in inflation and costs of living."

The wage NEEDS to be indexed to inflation. Currently, the Federal Reserve has more control over inflation than one might think. The obvious and glaring reason has to do with the fact that the FED doesn't include food or energy into their calculation of CPI, the index used to measure inflation. In addition to this point is the fact that the Federal Reserve has the ability to increase the money supply at a whim. If the money supply were to increase, this would cause inflation. Inflation causes prices to increase, but prices don't really increase; rather your dollars are just worth less.

We should note that different wages have different values among regions:

"Liana Fox of the labor-backed Economic Policy Institute said part of the reason for Kennedy's initiative is that by July of 2009, when the federal minimum is $7.25, 12 states with their own minimum wage law will be over $7.25."

"We've never had a situation like that before," said Fox. "It will increase pressure at the federal level."

Thank god for states' rights. And thank god for the rights of the city governments to go one step further. Take San Francisco for example. The minimum wage is already at $9.14 per hour. When you consider the cost of the town, you're still not in the livable wage arena, but at least the city government is making the effort. Again, from CNN:

"Raising the wage to $9 an hour 'would cause a lot of trouble,' said Edwards. 'There are huge differences in local economies. $9.50 an hour in New York and $9.50 an hour in Kansas are two different things."'

It's true that there needs to be an indexing to livable wages, instead of setting a national minimum wage. The nation consists of many different economies, which constitute many different minimum wages. We need to create a system that can peg the different wages to the regions in which they're located. This is definitely a problem, one that could be cured by instituting regional economic centers that monitor the price increases of their respective areas. Conservatives and Republicans will certainly rail against this idea as it would only expand the bureaucratic system currently in place. But it needs to happen.

NY Times: Homebuilders See Inventory Value Decline

On Friday, the NY Times posted a story explaining that the homebuilders have seen major declines due to a devaluation of inventories they hold:

"D.R. Horton, one of the nation’s largest home builders, posted a third-quarter loss after writing down the value of unused land and warned there was no recovery in sight for the troubled housing industry."

"Another home builder, Beazer Homes USA, which faces federal investigations of company practices and personnel, also said it swung to a loss in its fiscal third quarter after cutting prices to spur sales and taking charges to write down the value of unsold inventory."

My prediction has come to fruition. I reported this last month:

"Their respective inventories will continue to decrease in value as the housing bust runs its course and prices subside. Inventory makes up 73 percent of total assets for KB Homes, 77 percent of total assets for Lennar, and 83 percent of total assets for DR Horton. As inventories decrease in value, so should the stock prices."

This will continue to happen over plenty more quarters. The losses reported will get deeper and deeper and unlike my thoughts last month, some major homebuilders will file for bankruptcy. This has to do with the fact that homebuilders began forecasting future projections based on super-inflated numbers and made speculative bets based on those inflated numbers.

Of course there are those people who think it has nothing to do with fundamentals; rather, it has to do with psychology:

"'It's a psychological problem right now, more than anything else,' Hovnanian said on CNBC's 'Squawk Box.' 'Job growth is good. Interest rates are still really, really good. Demographics are good so it will come around.'"

"'We've been through these cycles many, many times before,' he continued. 'When it's bad everybody thinks it's going to be bad forever, and that’s not the case. It is going to come around.'"

I agree with Ara about the fact that it won't be bad forever, but I do think that there are some homebuilders that are extremely overextended. Ara insists that interest rates are low and job growth is good, but he fails to see two points:

(1) Job growth means nothing without wage growth. We can create millions of new jobs, but if they're all minimum wage jobs, then what's the point? It wouldn't bode well for the housing market unless they feel like making more subprime mortgage loans.

(2) Interest rates are at historical lows, but they're not low if you look at the last eight to ten years. The reason homebuilders and the housing market were able to persist after the recession at the turn of the century can be attributed to Alan Greenspan and his psycho-crazy idea of setting interest rates below the rate of inflation. He saved the economy temporarily, while putting off the major recession until later.

To recap, I think the recent housing downturn has more to do with fundamentals of the economy than it does with the psychology of the average prospective homebuyer. I think that the value of land will continue it's slide for years to come, creating lower book values for homebuilders who are overextended, which in turn creates downward pressure on homebuilder stocks. Don't miss out on this easy opportunity.

Leisure Time

I'm tired of talking financial and economic news all the time. I'm going to be posting leisure items in addition to weekend video (which doesn't always address leisure items). The first 'leisure time' is of the boxing nature. I just got done watching ESPN Friday Night Fights. The main bout pitted Andre Berto vs. Cosme Rivera. The fight was trending towards Berto until the sixth round, when Rivera scored a knockdown. Unfortunately for Rivera, the knockdown only awakened the beast in Berto. The subsequent rounds were devasting for Rivera, including one in which a nasty cut appeared under the right eye of Rivera.
Ultimately, Berto won the fight unanimously by a wide margin, but Rivera was only the third boxer out of 19 to go the distance with Berto. Andre Berto is now 19-0 with 16 knockouts. Rivera, although he lost, should feel proud. He was a part of one of the most entertaining fights of the year, and the only fee I had to pay was for cable. Splendid!

(I've got plenty more to say about the financial news of the day, but it will come later. For now, I'm enjoying leisure.)

Dow(n) Drops Another 200

Stocks took another deep hit today as the Dow dropped another 200 points. Amazingly, the bulls decided that a better than expected GDP growth report wasn't enough to quell the risky fundamentals. From Yahoo:

Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. It was the Dow's worst week in nearly five years.

The credit squeeze is on. Investors are facing the hard fact that homeowners and businesses alike are seeing a tightening lending trend. For months, investors ignored the fact that the mortgage rate reset was going to get worse and worse this year. The reset chart has been available on the internet since the beginning of the year. It wasn't hard to find with Google. And there have been news reports warning of the looming problem. On July 10th, there was an article on CNN Money warning that October of 2007 was to be a record month.

Despite that the Dow surged up to 14,000. Psychology was trumping fundamentals. Now, the tide has turned.

Gold Funds That Make Sense

One of the purposes of this blog is to educate myself. I have been educated. I'd like to address the issue of gold funds right now. I recently suggested three gold funds that I thought were good buys: XAU, HUI, and GDX. Apparently, they are more sensitive to price changes than the previous ETFs I suggested: IAU and GLD. I made a mistake. To illustrate, let's look at the return (or loss) from both. Here's the first group:

I recommended XAU at a price of $158.26. Since then, we've seen a drop to $147.25. That equates to a loss of 6.95%.
I recommended HUI at a price of $368.93. Since then, we've seen a drop to $345.79. That equates to a loss of 6.27%.
I recommended GDX at a price of $42.99. Since then, we've seen a drop to $40.30. That
equates to a loss of 6.26%.

Now let's look at the losses incurred by the second batch over the same time period:

IAU's closing price on the same day of the recommendations was $67.43. It closed trading today at a price of $65.67. That equates to a loss of 2.61%
GLD's closing price on the same day of the recommendations was $67.47. It closed trading today at a price of $65.65. That equates to a loss of 2.70%

What I see here is that the first two funds I recommended seem to be much less susceptible to the volatility seen in the precious metal market. The first three funds lost much more equity than the last two. For this reason, I recommend that the funds I first suggested be the ones to focus on for your portfolio. I hate flip-flopping so soon after recommending them, but sometimes it only takes a few days to analyze the implications. XAU closed at $147.25. HUI closed at a price of $345.79. GDX closed at a price of $40.30. Reallocate your portfolio to reflect removing those funds and place the diminished proceeds into IAU and GLD; over the long term, gold will continue to rise. I will record the losses of the other three in shame. (And here I thought I was making progress...at least I have the homebuilders)

Mortgage Deliquencies: Destined to Rise

A headline I saw today: "Mortgage Rates Could Soar". Could is not the word I would use. From the story:

"The already poor performance of many mortgage loans will worsen substantially through the rest of the year, according to an analysis released Thursday by Moody's Economy.com."

"The worst-hit loan category will be subprime adjustable-rate mortgages (ARMs). Economy.com expects foreclosures for those loans to hit 10 percent of that group by mid-2008. The foreclosure rate for that group is currently 4 percent and was as low as 2.5 percent in 2005."

When you consider the looming mortgage rate reset that's just starting out, it's illogical to think mortgage rates could soar. Could implies that it's a possibility or even a probability. It's way passed that. Mortgage rates will soar, perhaps into the realm of federal bailout. There will be a lot of people who will need a lot of financial help in the coming months and years and there will be a lot of people who lose their home. The population's current financial IQ is poor at best and it's something I think that will be a huge hindrance to our future economic growth.

Homebuilders Tank; Dow(n) Jones

Two homebuilders reported earnings today. Unfortunately, they weren't earnings; they were losses. And they were much worse than people thought they'd be.

"For the three months ended June 30, the company posted a loss of $123 million, or $3.20 per share, compared to a year ago when it earned $102.6 million, or $2.37 per share." "The result was significantly worse than estimates on Wall Street, where analysts projected a loss of 32 cents per share, according to Thomson Financial."

Significantly? That's an understatement! The loss was 640 percent worse than analysts expected. It's frightening how far off the analysts expectations were. Millions of investors base their picks on what these analysts report.

What about DR Horton? From Yahoo:

"D.R. Horton Inc., posted a third-quarter loss Thursday as one of the nation's largest homebuilders wrote-down the value of unused land and warned there was no recovery in sight for the troubled housing industry."

"With the write-down charge, Horton said it lost $823.8 million, or $2.62 per share, in the quarter, compared with a gain of $292.8 million, or 93 cents per share, a year earlier."

"Analysts surveyed by Thomson Financial expected losses of 35 cents per share."

Analysts were 648 percent off with their DR Horton expectations. The evidence is here: people are vastly underestimating the severity of the housing downturn. The problem will still get worse before it gets better. The more days that pass, the more I think that the recovery won't happen in 2009. This could take many years to iron out.

The news helped to spark a 300 point drop in the Dow. Apple is the only stock I've seen rising. For now, the bears rule the world. Are you covered?

Hank Paulson: Don't Single Out an Industry!

Henry Paulson came out today to criticize congress' attempt to impose working tax rates on hedge fund investors. I agree with his view that we shouldn't single out an industry for imposing a tax rate:

"'I want to avoid responding to the headline of the moment, singling out an industry,' Paulson said. 'I don't believe it makes sense to put in a special provision aimed at one industry today.'"

What industry would that be? The hedge fund industry? And what industry do they engage in? Let me explain the problem I have. Hedge fund managers are managing other people's money. A guide for determining the tax rate:

(1) If you're managing your own money, then you should be taxed at fifteen percent.
(2) If you're managing somebody else's money, then you should be taxed at thirty-five percent because you're essentially acting as a money manager.

A Bad Omen: Subprime Defaults Drop the "Sub"

It's not just a subprime problem anymore. Countrywide has reported that mortgage defaults are now starting to affect quality borrowers:

"The subprime mortgage meltdown has begun to spread to prime loans as even credit-worthy borrowers have started to fall behind on payments."

"'Unable to afford their own homes, [borrowers] turned to increasingly risky mortgage products,' said Amy Klobuchar, a member of the House of Representatives from Minnesota, speaking Wednesday before a hearing of the Joint Economic Committee examining the national foreclosure crisis."

"Some home buyers, caught up in red-hot markets and afraid of getting locked out of homeownership forever, overpaid for houses."

Home prices rose so high in the early part of this decade, that most people couldn't afford a traditional 30 year mortgage. Well, I guess they couldn't really afford non-traditional mortgages either.

The inability to live within your means and to recognize the limits of your means is going to make a relatively small problem (subprime defaults), a very big problem. This is the kind of widespread problem that could wipe out the middle class in this country: going into a loan based on highly inflated property values that then begin to deflate. As mortgage rates reset, more and more families will find themselves upside down in terms of property values versus loan balance. That will not be easy for the economy to iron out.

But wait, there's more:

"Analysts said the trend could continue, particularly in areas of the country that have been hardest hit by job losses in general or seen a decline in speculation-driven construction, such as South Florida, parts of California and Las Vegas."

Job loss? Rising mortgage payments? Rising energy costs? Rising food costs? This doesn't sound very good, considering consumerism accounts for over two-thirds of our economy.

More Horrible Housing Numbers

The bad news in housing gets reported as if it's a surprise. Consider the headline: "Existing-home sales fall to 5-year low". Did anyone REALLY believe that sales wouldn't drop to that mark? Did someone think that housing would rebound? From the article:

"Sales of single-family homes plunged at a 30% annual rate in the second quarter, the steepest decline in 28 years, the National Association of Realtors said Wednesday. Sales of single-family homes were down 12% in June compared with a year earlier."

"Even with a significant 4.2% drop in the number of homes for sale, the supply remained at a 15-year high at 8.8 months' worth of sales."

Any of that information would have made much bigger headlines than the one Market Watch used. Sensational headlines, in fact. We saw the steepest decline in 28 years. DR Horton is reporting earnings tomorrow. Anyone wanna make any bets?

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Update 07/25/07 5:55 PM: It should also be noted that Beazer Homes is expected to announce earnings tomorrow as well. Analysts have pegged them to report a loss of 0.46 per share. Look for their stock to dive some more if they miss that expectation.

Serious Reading: 1920s Style

I've been reading some chapters from a book that gives a synopsis of the 1920s and I've found that the last chapters have offered some chilling parallels to our times. I'm not done reading, but I think the comparisons are scary. Market Oracle alerted me to the publication. You can find it here. I'm reading (per M.O.) the eleventh through the fourteenth chapters: "Home Sweet Florida" through "The Aftermath" are the ones to focus on. I'll review with full quotes and comparisons in a day or two.

Take Your Profit

I'm recommending selling oil and taking the profit. I realize this would have been a great move on Friday, but I'd rather lose a few percent from a price decline than lose ten or fifteen percent from selling too early. It seems that OPEC is willing to increase supply if needed:

"Iran said on Tuesday Opec would inject more crude oit to the market if it was needed, the official IRNA news agency quoted Javad Yarjani, head of Opec affairs at Iran's oil ministry as saying."

"'In case the oil market needs it, Opec will inject more oil into it,' Yarjani said."

OPEC knows a few things. First of all, the members know that increasing energy costs cause slower economic growth. Slower economic growth means OPEC would sell less oil, albeit at a higher price. But if economic growth were to grind to a halt, OPEC would sell virtually no oil. In addition to this, OPEC realizes that if they increase supply which creates downward pressure on prices, then the people will buy more. This could lead to greater profits than selling less oil at a higher price. Of course, this is all me hypothesizing about their intentions.

I recommend selling your crude and wait for a jump in point at the end of the year or the beginning of next year. As of this writing, crude futures are selling at 73.28.

iPhone Estimate: iWasRight

Earlier today, AT & T reported the number of iPhone activations for the first weekend. From Yahoo:

"The nation's largest provider of broadband Internet and land and wireless phone services said Tuesday that 146,000 subscribers activated new iPhones in the first 30 hours of sales as the quarter closed"

Sales estimates ranged as low as 100,000 units and up to 750,000 units. Here's what I said way back on June 25th:

"I think the iPhone will sell closer to 150,000 units over the first two days. The longer-term sales expectations should be easier to meet as prices go down and as people's wireless contracts end."

My estimate of first weekend iPhone sales was within three percent of the actual activation total. After taking all of the factors into account (phone price, only one service provider, high cost of service, etc.), it was hard for me to believe that sales in the first weekend would be much more than 150,000.

Of course predicting demand for a product doesn't necessarily make investors money. What makes investors money is predicting stock prices. I should have rode the wave of hype and enthusiasm until unit sales figures were published, instead of following my gut feeling that the stock is overvalued. Bulls will be ostriches until hard sales figures are known. Now that the numbers are in, the price should fall, creating a possible buy opportunity. We shall see

I stand by my long-term sales expectations for the iPhone.

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Update 07/25/07 5:25 PM: I realize that there were only 146,000 activations in the first two days. But I find it hard to believe that nearly half of the supposed 270,000 units were unable to or failed to be activated within the same time frame. Had I purchased an iPhone, the first place I would have gone is home to activate it. It serves no purpose if it's not activated. I guess the same confusion over company expectations for the device have carried over to reporting actual sales numbers.

Hundred Dollar Oil - Sooner or Later?

We should all be prepared for oil/gas getting more expensive in the future. What we might not be prepared for is the fact that it could happen much sooner than people expect:

"'We're only a headline of significance away from $100 oil,' said John Kilduff, an analyst in the New York office of futures broker Man Financial Inc. 'The unrelenting pressure of increased demand has left the market a coiled spring.' New disruptions of Nigerian or Iraqi supplies, or any military strike against Iran, might trigger the rise, Kilduff said in a July 20 interview."

A military strike against Iran is highly unlikely, though I'm not discounting the possible threat they pose. But oil will climb to a price of or above one hundred dollars by the summer of 2008. Oil has been a volatile commodity and will continue to be for as long as the BRIC (Brazil, Russia, India, China) countries are growing. I previously said that oil will exhibit an upward trend, while at the same time offering buying opportunities about once a year. I believe this is based on seasonality:

"On January 18, 2007, the price of crude was $50.20. Today, June 14th, oil traded at $67.69 per barrel; that's a 35 percent increase since the winter months. Seasonal cyclical patterns are apparent in the short term."

I find it hard to believe that we're at the seasonal peak right now. Although oil pulled back today, it should be temporary. The Market Oracle offers a great visual representation of oil's summer peak last year. Oil peaked at a price just above $78 in September; although last summer seemed to have more conflicts last year, I would estimate that the world demand for oil this summer is higher than last summer. I would suggest taking profits if oil tops $78 dollars (16.5% profit) this summer and wait to jump back in during the winter months, which generally offers more jump-in points. Of course, I wouldn't recommend anything until the event happens and I issue a recommendation; oddities in the world could trigger unusual spikes and a savvy investor would much rather take more profits, even if the risk increases.

More Metal ETFs and Indexes

Gold and other metals are poised to rise. Here's a few more recommendations for cashing in:

XAU: "The XAU is an index traded on the Philadelphia exchange. It consists of 11 precious metal mining companies."

HUI: "The AMEX Gold BUGS(Basket of Unhedged Gold Stocks)Index represents a portfolio of 14 major gold mining companies.The Index is designed to give investors significant exposure to near term movements in gold prices."

GDX: "Global Markets Vectors tracks the Amex Gold Miners Index, which includes a total of 37 large-, mid- and small-cap U.S. stocks and ADRs. It is heavily weighted with two Canadian firms, Barrick Gold at 14.45% of assets and Goldcorp at 9.45%, followed by Newmont Mining at 9.51%."

As the dollar continues to weaken and adjustable mortgage rates continue to reset (leading to more bad mortgage-backed securities), gold and other metals will continue to rise. And because mortgage-backed securities are illiquid, the bull market should be slow, long, and drawn out. Over time, a bubble could develop.

XAU ended trading at $158.26; HUI ended trading at $368.93; GDX ended trading at $42.99.

Sirius/XM Plan Gets Overhauled

In another attempt to attract the blessing of the FCC, satellite radio companies Sirius and XM have announced a new plan:

"'Our definition of the public interest,' Karmazin explained, 'is that [the merger] will result in more choice and lower prices for consumers.'"

The pricing plans announced Monday range from $6.99 per month for 50 channels from either Sirius or XM, to a $16.99 per month subscription, which would allow customers to keep their existing service and cherry-pick channels from the other provider's service.

For me, I'd be able to get the music channels I want and then add Howard Stern and the NFL. If I don't want to pay for the Martha Stewart channel, I don't have to. If I don't want to pay for the NHL or MLB channels, I don't have to. If I don't want twenty different rock channels, I don't necessarily have to pay for them all. How would this arrangement harm the consumer? The only problem would be the possibility that the existing customers would have to buy new radios:

"To subscribe to the “à la carte” plans, consumers would have to buy new radios."

I was under the impression that previously, this was one of the concerns of the FCC. And that could pose problems. I only paid $25 for my radio. I'd be happy to buy a new one; the lowered cost of my subscription plan would more than pay for it over a few months. Others have paid considerably more and that's where the problems would arise. As I said previously, I seriously doubt the merger will happen. But I have hope.

The Case for Ron Paul: Part One and Two

I think it’s important for us to examine where our true priorities are. The first thing I’d like to say is that, unless unusual circumstances come to pass, I’ll be voting for whoever the Democratic candidate is. That being said, I’d like to examine what the election in 2008 should ultimately be about.

The election in 08 is about the Iraq war. That’s been the biggest issue separating our Democratic leadership in the senate from the Republican leadership. While we’ve been fighting to redeploy our troops to Afghanistan and other more urgent areas, our Republican counterparts have been filibustering to protect their president and his Iraq war policies. Since we’ve held the congressional majority, we’ve been unable to pass meaningful legislation that would do so. Obviously, we need to get out of Iraq.

The election in 08 is about the Patriot Act. Since 9/11, the Patriot Act is the single most damaging piece of legislation to our nation. The Patriot Act is responsible for the telephone wiretaps, and the expanded ability of the Feds to conduct searches. The Patriot Act is responsible for stripping the people of the right of habeas corpus. The Patriot Act is the legislation that gives the government the right to access our library records (if you’re lucky enough to have a library). The Patriot Act is the law that allows increased monitoring of our internet ‘clicks’. And of course, the Patriot act allows for secret searches and searches without a warrant. But most importantly, the Patriot Act EXPANDS PRESIDENTIAL POWER.

If you’ve had the courage to read this thus far, then let me explain why I feel the way I do. There are four democratic presidential nominees who have voted in favor of the Iraq War, as well as the Patriot Act. These are individuals who should be admonished within our party. Biden, Clinton, Dodd, and Edwards all voted for the Patriot Act, as well as the authorization for force in Iraq.

The problem I have with these four candidates is that they didn’t have the conviction to turn down these laws. Either they were afraid of losing elections or they believed that the executive branch should have the authorities that these laws allowed for. So what happens when they become president? Does this mean that Hillary will fight to keep the powers that she voted to instill the president with? If you are afraid of 'big brother', would you be equally afraid of 'big sister'? Why should we trust Edwards or Biden or Dodd now? Since they're running for president, don't they have something to gain? Should we allow them to pander to us now when they wouldn't stand up for our beliefs four years ago? We have candidates in our own party running from president who have voted to EXPAND PRESIDENTIAL POWER. Am I the only one who sees a conflict of interest? This is a serious problem. We need a president who has exhibited the foresight to say “NO”. Imagine if we had a candidate in either party who was bold enough to say “NO” to his own party? A candidate who has never voted to EXPAND PRESIDENTIAL POWER…Would you vote for him if he were running for president?

Blindly following party lines is exactly the problem that has kept us from redeploying our troops out of Iraq. So why should we, as progressives, exhibit the same characteristics? Partisanship is the problem. Voting for the candidate based on party affiliation rather than qualifications and voting records is a serious blight on our democratic society.

Ron Paul is the antithesis of our current president; he’s further from the president and the Republican Party than some of our own candidates. Labels should mean nothing in this election. Issues should be paramount. That’s why I’ve been advocating for Ron Paul. He’s a serious long shot to win his party’s nomination, but if the unusual were to happen I would have to seriously consider his candidacy. Were he to run against certain Dem candidates, I wouldn’t think twice. I’m sick and tired of expanding presidential power and the war in Iraq to the point where I could be blinded to all other views. Labels are nothing; issues are everything.

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Part Two:

I realize he has his shortfalls. But you must remember a few things:

(1) We're all but assured of having solid majorities in both houses of congress. If the war in Iraq persists through the 2008 election, it's guaranteed. Furthermore, we would have a president in the White House who believes that there are THREE equal branches of government. What you're thinking is that we'll have another Bush Republican in the White House issuing signing statements and claiming unrealistic executive privilege at every turn. If you examine Paul's record, you'll see extreme consistency. If Paul were president, we would be OUT OF IRAQ and there would be NO PATRIOT ACT.
Thus, if we had a stronghold on the congressional branch, we'd have a serious check on the White House.

(2) If Hillary is being truthful in her speeches, as president she'd keep residual forces in Iraq. If her voting record is truthful, she'd claim the same authorities as president that Bushie has. Why wouldn't she?

(3) Ron Paul is a firm believer in state's rights. When you transfer rights from the federal government to the state government you have a much purer form of democracy. Your vote means more at the state level than it does at the federal level, no? If we're not paying federal taxes, does that mean we don't have to pay state taxes? Does that mean we don't have to increase state taxes? Does that mean we won't have more money for state taxes?

(4) Number four ties into number three. Ron Paul is in favor of abolishing the Federal Reserve and returning to a gold standard. What that means is that our dollars would have intrinsic value. Each dollar would be worth a certain amount of gold. As our current system stands, our federal government is essentially a counterfeiter. Whenever it feels like expanding the money supply, it can. All it has to do is keep interest rates low and print more money. What happens when the money supply expands? It causes inflation. Inflation isn't a problem for those who are rich, and when I say rich, I mean top five percent income level. For the rest of us, it causes our money to become less valuable. At the same time, we have no hedge because we have a limited amount of dollars.

Recently, the stock market hit the 14,000 milestone. Have you wondered why that happened despite an ailing housing market, a massive credit bubble, and rising food and energy costs? It's because the FED has the ability to expand the money supply. That money has to go somewhere; thus, it enters the financial markets. Money entering the financial market will create upward pressure on prices (inflation), despite the fact that the fundamentals are poor. It's simple supply and demand. The money has to go somewhere. People will refute this argument by saying that quarterly profits are up, but the quarterly profits are only up among business to business transactions. Look at retail numbers (besides Walmart, where everyone will start to shop when they're poor). They're down. Way down.

So when I hear people talk about Ron Paul's bathtub being smaller than Grover's, I laugh. It's a view that's too simplistic and it's a view that buys into the corporate mindset.

Extremist views? Yes. Isn't that what America needs? Aren't we too complacent with the status quo?

Finally, I'd like to discuss the last reservation I have, which wasn't addressed in my diary, nor in the comments. That is, that his Supreme Court nominees will be conservatives. The views I just laid out before you, were they really conservative views? I realize he has a problem with homosexuals and I realize he might hold some prejudices. But do you really think that a man as honest as him, a man who respects ALL THREE branches of government, do you really think he'll nominate more Bushie candidates? Or do you think he'll nominate individuals who deserve to serve on the highest of courts? If you think otherwise, then please let's see some proof. Prove it with his voting record. Prove it with his public statements. If you can't do so, then you're just as partisan as the people you oppose.

I'm always willing to change my mind. All I want is evidence.