Are We Headed for Another Middle Eastern War?

Long overdue, the UN finally agreed last night to create and enforce a no-fly zone over Libya, as well as preparing airstrikes and a potential military invasion to support the rapidly deteriorating rebel forces fighting against Muammar Gaddafi’s oppressive government. Unfortunately for everybody involved (except Gaddafi of course) this move is about two weeks behind later then it should have been, and now instead of coming in to finish off government forces on the tide of growing resistance, the international community has to come in and take over the bulk of the battle for the critically weakened rebel army. Now the Europeans and United States not are not only putting more lives in danger than was necessary, but they run the risk of once again being seen as invaders, and alienating themselves from the rebel cause.

Don’t get me wrong, I still think intervening in Libya is a good idea. Anytime a leader so openly snubs the international community and freely massacres his people, the developed nations need to put together some sort of meaningful response lest they risk losing any kind of credibility they still cling to as protectors of human rights. But Americans can rest assured that the last thing the White House wants to see right now is for the United States military to get involved on the ground of another Middle Eastern Nation, especially one where full-scale civil war is so likely. That being said, I do expect the US to participate in airstrikes, and possibly send peacekeeping troops in as part of a UN coalition, but I see it as highly unlikely that President Obama will make the decision to send a serious number of troops and supplies in for another “nation rebuilding” fiasco.

When all the potential outcomes are weighed, I give it a 15% chance that the United States get seriously involved in a ground war in Libya. The most likely causes for this would be the kidnapping of US reporters, some sort of terrorist attack, or if the Iranians decide to get involved in the battle. Minus any kind of serious change in the situation such as these, I believe the United States will try to avoid a serious ground war at all costs. The lessons learned in Iraq have shown that the United States does not have the money, nor the patience to put up with another long, costly war, and any politician who agrees to enter another war has little hope of getting reelected.

The next few weeks should be very interesting to see how the UN is able to handle this crisis. The UN’s mixed track record in dealing with rogue leaders predicts that this intervention could be a smashing success for the defense of human rights and the promotion of democracy, or it could be a catastrophic failure. Either way I wish the Libyan rebels, and the UN forces safe travels and may this situation be settled as quickly and easily as possible.

The Spending Battle Rages On

Once again Congress has extended negotiations on a new spending bill, on Tuesday agreeing to another stopgap spending bill that will last until April 8th and cut an additional $6 Billion from the budget. These $6 Billion were again taken largely from suggestions that Obama outlined in his budget and were composed mostly of cutting unspent funds for pet projects for lawmakers on the hill. Now that the House has run out of budget issues in which both parties agree cuts were needed, the debate will start to get dicey.

The first $12 Billion in cuts were easy, they required little debate and were just kicking the can down the road for the real battle. Expect the next three weeks to look a lot like the last few days of the NFL labor negotiations, with both sides arguing their case to the public while making no real progress. It’s possible the House will be able to muster up one more stopgap funding measure making cuts to some programs that the White House can stomach, but that will be the best they can do. My prediction is that we will be seeing a government shut down before the month of April comes to a close.

What Each Side Needs to Do

Thanks to the heated political atmosphere and the media’s love to over exaggerate and speak in absolutes, it may be impossible for both Speaker Boehner and President Obama to come out of this battle without seeing their public opinion ratings take a hit. Speaker Boehner is largely bound by the Conservative voice in the house calling for massive spending cuts that any attempt at compromise before a shutdown will be seen as capitulation and a weakness that could further divide the Republican Party. On the other side President Obama has drawn his line in the sand well below the amount of cuts the Republicans are calling for, and cannot go back on his commitments to veto any massive decrease in spending without angering the liberal left.

Even though I am a fiscal conservative, and truly believe our spiraling debt is going to be a serious problem down the road, I believe now is the time for compromise. The ideal situation for the nation is for both leaders to take a few lumps from their party base, and come to a compromise that inevitably will be palatable for the majority of both parties. Ideally the cuts are significant, and the spending bill comes with a serious commitment to tackle entitlement spending issues in the coming year. After all, elections are still over a year away, and for Boehner that means there is still plenty of time to cut find ways to cut back the President’s healthcare overhaul, reign in spending, and work with Republicans to create a reasonable solution to the growing budget for entitlements. For Obama, approving any budget measure below the $61 Billion in cuts the Republicans are calling for can be spun as a necessary measure to prevent a devastating government shutdown. While the media will mostly likely portray this move as weakness and a betrayal of his party, most voters will appreciate Obama’s realistic approach to the issue, and his reluctance to shut down the government just for political gain.

The Plea for Fiscal Austerity

Now I’m sure this article will bring heat down on me from both sides of the spectrum, as compromise does not seem to be the most popular route for either side on this matter. But consider this a plea from the younger generation of Americans who are seriously concerned about the path our government is going on. Despite what many claim, everybody involved in this matter all want the same thing, for the United States to be successful and the top nation in the world for as long as possible. It’s been said one million times before, but I’ll say it again; it’s time for the political pandering and needless arguments to stop. I urge lawmakers to get together and come up with a serious, legitimate plan for reducing our Federal spending over the coming years. Let’s be honest, even the $61 Billion the Republicans are proposing to cut is just the tip of the iceberg. While I applaud them for taking a step in the right direction, they know as well as I do that there will need to be many more cuts down the road, and that no government entity can be taken off the table. But for now, I urge both sides to create an atmosphere of compromise and come up with an agreement that everybody can stomach. It may not solve our issues now, but it certainly will make negotiations on the issue a lot easier in the coming years, when there are much bigger costs at stake.

The GOP Field Day Two: Tim Pawlenty

Today I will talk about my personal favorite candidate for the GOP presidential nomination, ex-Minnesota Governor Tim Pawlenty. Pawlenty (or T-Paw, as his Minnesota supporters like to call him) has yet to announce his candidacy for the presidential election, but his constant presence in New Hampshire and Iowa touting his "book tour" sends a strong signal that he will be throwing his hat into the ring sometime soon. Expect to see this relatively unknown, soft-spoken candidate ratchet up his rhetoric as the primary race heats up, as it’s the only way Pawlenty will be able to keep up with the likes of Sarah Palin and Mitt Romney.

Healthcare and the Economy

This is where Pawlenty’s biggest strength lies, due to his largely successful tenure as governor of blue-leaning Minnesota. During his eight years as Governor, Pawlenty has gained major acclaim for creating and maintaining a balanced budget in the state while providing basic services to his constituents. One of his most successful endeavors is his reform of Minnesota’s healthcare system. His system of market-driven healthcare reform and Medicaid overhaul effectively expanded coverage while cutting down costs to consumers in the state. With a little research you can learn more about his reforms, but politically speaking, the measures he has enacted are considered largely successful at both expanding coverage and containing costs in the long run. Unlike Romney, Tim’s plan contains few similarities to Obama’s national healthcare overhaul and is much more palatable for Conservatives to stomach. Expect this to be a major focus point of his campaign, especially when debating against men like Romney.

On budget issues T-Paw also has a fairly positive track record, providing a balanced budget in a blue-state with a House controlled by Democrats. Fiscal hawks will relish the fact that Pawlenty stuck to his mantra of fiscal responsibility when faced with tough opposition and moderate Republicans will look positively on his ability to work with Democrats to get a deal done that appeals to everyone. The key for Tim is to make his budget accomplishments known to the rest of the world, campaign on a mix of fiscal austerity and compromise that can appeal to a broad range of voters, and he will have a distinct chance not only in the primary but in a face off against President Obama as well.

The Social Issues

One of the most polarizing factors about Pawlenty is that he is an Evangelical Christian, and consequently a strong social conservative. Across the gauntlet Pawlenty is staunchly pro-life, anti-abortion, and strongly opposes both the recognition of gay marriage and the repeal of Don’t Ask Don’t Tell. While these stances will help him in the primary, where a large bloc of voters are Southern Evangelical Christians, his social views may make his bid to win over independents and moderate Republicans very difficult. I Expect Pawlenty to campaign hard on his social morality during the primary season, but if he manages to win the nomination there will be a major shift in his focus from social conservatism to fiscal conservatism for the general election. T-Paw’s best chance to win over the middle ground is to follow in Mike Huckabee’s steps when speaking about social issues, and focus the attention on family values and the strength of a household. If Pawlenty can keep the focus on rebuilding the traditional American family instead of paying direct attention to the issues of abortion and gay rights, he may be able to sidestep some of the criticism he will get from the left.

Jobs and Foreign Policy

On the topic of job creation, Pawlenty can once again turn to his tenure as Governor to highlight success. Early on during his first term as Governor, Tim advocated for “investing in the future of Minnesota”, which included a corporate tax cut, tax credits for Research and Development, and an increase in competitiveness in both the domestic healthcare sector and international free trade. The results of his jobs creation bill were very successful, and led to a passage of another bill just last year, using money from the stimulus package to lower taxes on businesses. In 2005, Pawlenty became the first Governor to independently meet with China, and as a result established a trade partnership directly between the state and the powerful nation, a move that brought jobs and investment to the state, which has helped it keep a balanced budget and get through the recession better than most.

Unlike most of the other candidates who make broad claims about decreasing taxes to boost spending, Pawlenty can use his track record to back up specific proposals to benefit the economy. I am a big fan of his idea to reduce the corporate tax on “repatriation”, which is essentially bringing money made abroad back into the United States. The United States currently has an average repatriation tax rate of 32%, well above any other developed nation (the average is 15%). Lowering this rate will increase government revenues, as more corporations will be willing to bring their money back to the United States, and studies have shown lowering the rate just 7% to 25% would provide almost $60 billion in additional revenue every year. Pawlenty has the advantage of already enacting a program like this in Minnesota, and can attest to its success when campaigning on the issue.

Strengths and Weaknesses

Unlike Newt Gingrich who has a dubious moral history, Haley Barbour and the concerns against his insensitivity to racial issues, or Sarah Palin who is a loud, polarizing figure, Pawlenty is one of the only candidates carrying no known baggage into the race. In fact, most people who meet him or hear him speak say his biggest drawback is that he is “too nice”, and he doesn’t have the fire in his belly to make a presidential run. Even though T-Paw seems to be a likeable fellow, his soft voice and laid-back demeanor puts him at a disadvantage, and many experts worry that he will not be able to raise enough money to go up against deep pocketed candidates like Palin or Gingrich. His current book tour will be an excellent indicator for his hopes in a presidential run. If he is able to generate some buzz and get some support in key states, then things bode well for the ex-Governor from Minnesota. If not, then Pawlenty has a long battle ahead of him. Only time will tell.

How You Can Help Japan

Hello ladies and gentlemen of the Mikeonomist. I'm going to start off today with a different article. As you probably all know, the situation in Japan has gotten worse than we originally thought. the death toll is estimated to be in the tens of thousands, and over 20,000 are still reported missing. The devastating earthquake and tsunami have left entire towns and cities in ruins, and food and gas have become increasingly scarce in many areas of the country.

As if that wasn't enough to deal with, the nine nuclear power plants that are scattered around the island are in danger of melting down. Two of the plants have already experienced hydrogen explosions, and nuclear officials from the United States and Japan are desperately trying to keep the core rods from being exposed. Officials are warning that it may only be a matter of time before one or more of these reactors has a complete meltdown, making large areas of Japan uninhabitable. This means there will be even more people out of homes and left with nothing.

I want to ask the readers of the Mikeonomist to show their support to the Japanese people. Whether it be your time, money, or just your prayers, now is the time to show our support for these great people. I myself have made a few donations the past two days, and will continue to look for new ways to help the disaster relief. If you are looking for places to donate, organizations like the Red Cross and the Salvation Army are always good, but I've found a few other organizations with a more focused cause, where even a small donation can go a long way:

Mercy Corps: The Mercy Corps is focusing all of its efforts on getting vital supplies (food, water, shelter, etc) and shipping them in by helicopter to the Japanese people. So far they have done excellent work:
https://www.mercycorps.org/donate/japan?source=55400&gclid=CJDtk6HL0KcCFQhy5QodmWo7Ew

World Vision: I really like World Vision because their main focus is on children and families who are affected by the disaster. In addition to supplies, World Vision also has men and women on the ground in the disaster areas, helping children find their families or taking care of them if they have nobody to go to. I have a major soft spot for kids, so knowing my money is going towards helping children is definitely a good thing:
http://www.worldvision.org/worldvision/eappeal.nsf/donation-item?Open&amt=50&num=371&campaign=113655219&cmp=KNC-113655219

I sincerely hope you decide to make a donation, however small it may be. Or at least take the time to pray for the Japanese people, because now more than ever they need the support of the international community.

Stock Pick of the Week: Under Armour

Last week I told you guys about a safe international investment in Australian government bonds. Today I'll turn my attention back to the stock market to talk about a stock that I believe has some decent growth potential in the next few years.

Under Armour Inc (UA), currently trading at $69.45 on the NYSE before the open on Monday, March 14th is a stock that has a considerable amount of growth potential. If you have never heard of Under Armour, tune in to the upcoming NCAA tournament and I'll guarantee you'll see quite a few commercials promoting their form-fitting, temperature resistant clothing that has become a staple for many athletes' wardrobes. CEO Kevin Plank and co. have done an excellent job cutting out a niche market in the retail sector, providing a unique product and establishing a brand name that is synonymous with high quality and performance.

A quick visit to their website can tell you everything you need to know about their cutting-edge technology, their top of the line innovation, and the bright future of new products they have coming down the pipeline. The bear voices on Under Armour have been making the same complaints for years, that the company’s product is easy to imitate, and that Nike could easily use its massive $41 billion market share to push them out of the market. Those predictions were being made since Under Armour’s IPO in 2006, and since then the company has done nothing but prove them wrong, with a nearly 300% increase in stock price since its inception.

Looking at the financials, UA is a solid company, well-run and with excellent cash flow. The company was one of the quickest to recover from the recession, posting increases in profits the past three years and solid revenues every quarter. The company’s gross margin is nearly 50%, above its competitors in Nike and Adidas, and has quarterly revenue growth of 35%, compared to Nike’s 9%. In addition Under Armour has a low debt to equity ratio for the industry at 3.21% and a considerable amount of cash stored away to fund new research and development programs. Overall, the company is run by a young group of directors who have proven themselves as able managers leading a company with growing sales and popularity.

On the public relations front, Under Armour has gone out and secured some of the most famous professional athletes to endorse their product. Last year NFL quarterback Tom Brady and Olympic swimmer Michael Phelps signed endorsement deals with the company, and at the beginning of this year, quarterback Tim Tebow signed on to the cause. In addition to promoting their most popular line of synthetic tops and sweatpants, Brady and Tebow will also be the spokesmen for the new line of cleats that Under Armour plans on rolling out within the next few weeks. This marks another foray into the footwear market, where the company’s original shoes have been decent revenue supports to their main apparel line. In addition to increasing domestic sales, Under Armour has seen revenue growth across the world, and is becoming a worldwide brand for athletes in all sports.

To sum it all up, it looks like Under Armour still has a few years of strong growth left in them, and is considerably undervalued because of all the naysayers who believe their product can be replaced. Ask any athlete who has ever used an Under Armour product and they will tell you there is nothing that can compete with their top-of-the line apparel. I estimate a target price of around $87-$90, so keep an eye on this stock and find a good time to get in before it is too late. As an aside, if you are worried about the retail industry as a whole, you can offset this risk by shorting another company in the industry. My suggestion would be Skechers (SKX), they have never had the revenues to support their current price of $19.65, and if the industry takes a turn they will be one of the first to drop. Going long crude oil may also be a good way to hedge against a rise in the cost of shipping.

DISCLOSURE: I do not own nor manage any portfolio that contains the stocks or commodities mentioned above.

The GOP Field Day One: Newt Gingrich

Today marks the beginning of our new special report, a breakdown of all the potential candidates for the Republican Nomination for the 2012 election. Every few days I’ll pick a potential candidate, give you the rundown on his views and what he stands for, and give you my personal opinion them. Our first will be the only candidate who has made legitimate first steps to pursuing a primary campaign, Newt Gingrich. Newt is certainly an interesting candidate in the upcoming elections, a long-time political insider who once fought a budget battle against President Clinton as Speaker of the House, Newt has considerable experience working in our nation’s capital, experience that may help him raise funds and garner political support but hurt him with the conservative anti-incumbent right. Gingrich also has quite a few issues to address in his personal life. But first let’s take a look at his stance on some of the major issues:

The Economy
          Like many of the fiscally conservative candidates considering primary runs, Gingrich has made it a point to go on record saying he has always opposed the stimulus package and the bailouts of the auto companies. Even before the Gingrich Congress of the mid-90s, Newt has been a staunch believer in low taxes, less government regulation and less public spending to let the economy grow. At a time like this, where the growing federal budget is on everyone’s mind and fiscal conservatism is the way to go, these Reaganesque views may serve him well in both the primary and the general election.

This current battle over the debt ceiling and the attempts to curb federal spending is hauntingly familiar to Gingrich, who found himself in the same position 15 years ago that Speaker Boehner does now. Newt’s eventual mishandling of the situation, and public complaining about President Clinton’s “insult” aboard Air Force One delivered a crushing blow to both his budget battle and his popularity at the time. Expect to see this mentioned a lot against him in the coming months. The key is to see how he handles these criticisms, is he able to spin the insults and turn the situation 15 years ago into valuable experience he would bring to the White House. I for one am skeptical he can overcome the negative image he exacerbated as Speaker of the House.

Education

In 2007 Newt Gingrich was recorded as saying America’s high schools are obsolete, that for a nation that spends so much money on education we are rapidly losing our competitive edge in the global sphere. Gingrich supports the creation of charter schools in areas where public schools are failing, and the use of private sponsored scholarships to help exceptional students get by in schools that are “hopeless”. He also supports a Constitutional Amendment for school prayer and proposes that only schools which allow prayer in school can be eligible for public funding. His ideas are party-line conservative and will serve him just fine in a primary, but in the absence of a new or cutting edge idea these views will not help him win over any moderates in the general election.

The only potential revolutionary ideas he has put forth for education is an incentive program he wants to test where upper-level students are given an economic reward for taking more difficult classes in math and science. The idea of promoting educational excellence will appeal to a broad base of voters, but may hurt him with the budget hawks. The idea is still untested and may not even be a factor in the coming campaign.

On the social issues, Newt is a party-line conservative. He is pro-gun, anti gay marriage, and pro-life. No big surprise there, it’s going to be extremely difficult for any moderate Republican to stand a legitimate chance at winning a primary with the menacing Tea Party force out there.

Ups and Downs

Gingrich has a few things working in his favor as he enters the field. He is a political insider, and has many friends on and around Capitol Hill. Because of this he should have no problem raising plenty of money for his campaign, and getting endorsements from other politicians and interest groups around the nation. He knows how to run a Federal campaign, and has not been known to flip-flop on many issues. There are also still some who were very pleased with his job as Speaker and would jump at the chance to support him in a presidential run.

While he may have the experience that comes with being a long-time lobbyist and politician, he also has the baggage that comes with public scandals that sour his past. Newt is on his third wife, and has not been faithful to the women he has been married to in the past. He can claim a conversion to Christianity opened his eyes all he want, he is going to have a hard time convincing the evangelical right that he is a moral individual. Compound that with his image of being a petty fool during the budget battle against President Clinton, and this could be a long eventful race for the ex-Speaker.  

Best Wishes to Japan

Terrible news out of Japan today. The nation has suffered the largest earthquake in over 140 years, an 8.9 quake that has caused utter devastation and killed hundreds. On top of that, the quake has caused a massive Tsunami that has wiped out entire coastal towns and caused a nuclear reactor to begin leaking dangerous chemicals, evacuating another city. There seems to be no end to the chaos that is enveloping the world.

Our thoughts are with the Japanese people who are stranded or lost at sea, and prayers are with the families of those who have lost their lives due to this catastrophe.

***UPDATE***
Naoto Kan, the Japanese Prime Minister has reported that none of the nation’s nuclear reactors have shown any sign of damage, and the towns surrounding them do not need to be evacuated. A small token of good news coming out of this horrible story, at least the worst seems to be over.

Want to Generate Short-Term Returns Without Sacrificing Safety? Australia is the Place to Go

The world is slowly spiraling down into chaos. The nations of the European Union are realizing that sometimes when you borrow money, you actually have to pay it back, and professional hitmen have more job stability than the leaders of the Middle East. The price of oil is all over the place, and the uncertainty has caused similar fluctuations in the stock market. In chaotic times like this, it is a natural reaction to turn to safe assets, despite the weaker return. Unfortunately, the United States Federal Reserve refuses to raise rates, and the returns on US Treasuries and bank CDS are so low, you might as well just be planting your money in the ground and praying a tree grows from it. So what is a cautious investor to do when the stock market is too volatile for comfort and US rates are extremely low? The answer lies across the Pacific. And no, I don’t mean China. I’m talking about short-term Australian Government Bonds.

Six-Times the Return

What would you say if I told you that you could get more than six-times the return on your two-year US treasury with another government’s bond? Your first thoughts would go to debt-ridden nations like Greece and Spain, or to historically unstable counties such as Venezuela, places where there was a legitimate concern that you would never see your money again. Luckily, you don’t have to trust your money to these risky nations to get the solid returns you need. As of March 10^th, 2011, the yield on a 2-year Australian bond is 4.92%, more than six times the measly .63% offered by the United States or 1.7% offered by the German government. Even a 30-year US Treasury is only yielding 4.52%. Now I’m a huge proponent of American Supremacy, but even I would admit, it’s far more likely that the US would default on its debt within the next 30 years than Australia will within the next two. A lot of things can happen in the next two years, but it is highly unlikely that the legitimacy of the Australian government will come into Jeopardy, considering the nation has a considerable history of NOT having a revolution every 10-30 years, and is not on any short list of nations to have their debt downgraded in the near future.

What About the FX Risk?

The first concern any investor should have when investing in securities not backed by the same currency they use is the foreign exchange risk, and investing in Australian Dollars is no different. The current FX rate for AUD is 1AUD = $1.0016USD (Bloomberg). The Australian Dollar is pegged to the USD, and therefore has a history of having an exchange rate that is very close to a one-to-one ratio. While history is no indication of future performance, barring runaway inflation (which is not a major concern for Australia), there is very little FX risk in investing in Australian securities at this given time.

If you’re looking for a get rich quick scheme, or are the type of person who believes the world is going to end in 2012, then this may not be the right investment for you. But if you are looking for a safe place to invest some extra cash and want to get a decent return without jeopardizing your retirement plans, then Australian Government bonds are a good place to look.

Much Ado About Libya

Today marks yet another day of a quickly escalating situation in Libya, as forces loyal to Muammar Gaddafi have stepped up their attacks on the rebel held oil town of Ras Lanuf. Gaddafi's forces have begun using airstrikes and warships to bombard the down in the hopes of driving Libyan rebels out of the vital oil-producing area.

Yet despite indusputable evidence of Gaadafi's massacre of his own people, and clear signs of full blown civil war breaking out in the nation, the International Community has still failed to do anything substantial to protect the Libyan citizens, or prevent the crisis from escalating.

The United States, humbled by their less-than-successful recent military forays into the Middle East have so far kept their finger off the trigger, and have done no more than discuss the possibility of creating a no-fly zone over Libyan airspace. But even on this proposal, the United States has been unable to muster any kind of support from a NATO that is in disarray, a United Nations binded by Russia and China who treat US prescence in the area like a direct assault on their homeland, and a European Union too busy keeping it's own constituents under control to worry about external affairs.

Surprisingly, France was the first nation to even pretend to show interest in ending the crisis in Libya before it escalates. The French minister announced today they were officially aknowledging the rebel government in Libya as the official government of the country, a purely symbolic move but a step in the right direction nonetheless.

Instead of dragging their feet amid worries of a repeat of Iraq, the United States needs to take an active stance to protect the Libyan people. In addition to following France's lead and formally aknowledging the Libyan rebels as the legitimate government of the nation, President Obama must enforce a no-fly zone around Libya. By doing this the United States can send a clear message to the world that violent oppresion of Democratic freedoms will not be tolerated, while at the same time reassuring the Libyan people and the rest of the Middle East that this battle will not be fought by foreign powers, and that this truly is "Libya's Revolution".

The United States has an ideal opportunity to both reassert their presence as a global force both militarily and diplomatically, and make a powerful statement that the spread of Democratic Ideals will be supported around the world.