Saturday, November 29, 2008
Rushing to the stores and the malls at just after midnight on Thanksgiving has become the norm for many people as Black Friday ushers in the official start of the holiday shopping season. This is the time that stores look to kick off the most important time of their year,while shoppers look to get some great deals. Black Friday may be even more important this season, because stores are not going to have the same amount and variety of inventory that they have had in other years.
One reason for this is the fact that retailers are anticipating a weak season and don't want to get caught with excess inventory, while another is that many stores and chains are having trouble getting the credit and funding to buy the inventory. This could create an environment where procrastination results in a bare tree.
What Is The New Normal?
The strategy behind holiday shopping is tougher this year. Will the stores run out of inventory because the season is stronger than people think it will be? Will some of the best prices be just before the holiday's if the season is even weaker than people think it will be and retailers have to cut prices even deeper to dump inventory? That is this years question.
What Was The Price Of Black Friday?
What is the sale price that you can expect for the items that go on sale for a limited time when the stores open early on Black Friday. If it is a flat screen T.V. it may be a savings of $200 or more. Maybe it is an extra 20% off clothes already marked down 50%. Could be something that is impossible to find, and the store has 10 set aside for the customers willing to get there at 3:00 AM.
Or maybe, because stores will typically not have adequate crowd control or a system in place to maintain calm and order among people waiting for a long time to get something that one of their family really wants, the price can be the highest of all. The death of either an employee or customer. At a Walmart in Valley Stream on Long Island, that is exactly the price paid by an employee whose job it was to hold a crowd of over 200 people back. He was trampled to death as the doors opened and people rushed in to get the items on special.
Maybe, if store management is held responsible, in the future all of the potential negative outcomes will be considered before trying to get a huge crowd through one door.
The Who In Cincinnati: 1979
This was on a slightly larger scale, but the idea is the same. The Who was playing, seating was general admission, and 18,500 people (more than the venue could hold) wanted the best seats in the house. The doors opened, security could not control it, and 11 people were trampled to death. The cause was a lack of crowd management.
These were mostly kids that wanted to hear a great band. Black Friday are parents and grandparents typically with a higher mission, and maybe more desperation. The people at The Who concert would have gotten to hear the band any way. Some seats were better than others. In the case of Black Friday, for many people this item on sale may be their one opportunity to be able to get it for someone special in their lives. The people next to them in line are between that happening and not happening.
If stores want to create that type of atmosphere so that they can get a jump start on sales, maybe they should make all of the preparations necessary to make sure that something like this cannot happen again.
No flat screen, power tool, video game or anything else is worth someones life.
Friday, November 28, 2008
Why Is My Coffee and Bagel Still So Expensive?I started thinking about this question today as I was standing in line to buy my morning coffee at a local deli (definitely not a Starbucks), and it struck me that over the past months the huge run up in commodities prices had reversed, and prices have come down as hard as they rose.
Gas at the pump near my house is now down to about $2.30 a gallon (thank you New York State taxes for keeping the price up there), with the price tag to fill up my car now around $38 instead of the $60-$70 at the peak. That is definitely a good feeling. Talk about a wealth effect. Or maybe it is a less poor effect. Which brings me to my thoughts of the day.
When food, oil and all other commodity prices were running up, restaurants and food stores were talking about the debilitating cost of their raw materials, and how they would unfortunately have to raise their prices to account for it. Some said that they had been eating the costs up to this point, but now, with the relentless rise they would have to pass some of it along. They would hang up the newspaper articles so that customers would be aware of why prices had to go up, and shrug their shoulders and say that this was just an unfortunate fact of life. If they didn't need to do it, they wouldn't is what they would say.
The Charts Don't Lie
Now we have gotten to the point where this question needs to be asked. If you take a look at the chart of wheat below, the spike up and the significant move down are quite apparent.
Here is my simple question:
As consumers we understood the situation, the problem and the plight of the manufacturers of these products (my bagel and coffee beans turned into my coffee) as well as the retailers selling them (my local deli). Each cog in the chain had to resist the temptation of passing along all of their increased costs down to the link after them. The only ones that were benefiting at that point were the growers enjoying some of the highest prices for their crops.
Now that prices have enjoyed a fairly significant decline, the growers are no longer happy, the manufacturers and retailers seem to be happy having their materials costs reduced, and I remain unhappy paying these still inflated prices for my goods (bagel and coffee). Someone is enjoying the benefit of these lower prices, and I want some of it too.
Lower the prices of my food in the morning, and paste up the charts below so that I know why I am getting a break. Costs and prices can go both ways!!!
Thursday, November 27, 2008
As Opposed To Paulson and Bernanke Who Speak and Markets Tank
Wednesday morning the economic news was nothing special (in fact much worse than special), and the markets were down, weakened by the additional impact of Deere and Tiffany earnings. We had the potential of a pre-Thanksgiving bounce, but nothing really happened until Obama started speaking about the addition of Paul Volcker to his economic team.
The rally that started then, perhaps coincidentally and perhaps not, is in stark contrast to the sell offs that had become the norm when either Bernanke or Paulson would begin to speak. Maybe the market sees hope in the fact that Obama seems to be a pragmatist, and may move away from some of his campaign rhetoric and make the moves necessary to try and get the economy back on track.
On this Thanksgiving Day, let's give thanks for what we have and hope for the future to be strong.
A safe and very Happy Thanksgiving to everyone.
Wednesday, November 26, 2008
Record Drop In Mortgage Rates (not jumbo loans or corporate debt)
Rates on 30-year mortgages posted a record drop of 1-1/8 percentage point to 4-7/8 percent on Tuesday, after the Federal Reserve said it would implement a $600 billion plan to support the mortgage securities market. In what has been a frozen mortgage market, this move in rates is a great sign, although a borrower will still require a pristine credit profile.
The Definition Of Insanity
If the definition of insanity is to do the same thing many times and expect a different outcome, then nobody could label Henry Paulson insane because he is doing a wide variety of things. Almost a new thing a day.
In yet another new tentacle of the monster that is designed to rescue the economy, a facility will be created to provide loans to investors that want to buy credit card, auto and student loan backed securities. It's name: TALF or Term-Asset-backed Securities Loan Facility. This program, if successful, is designed to make credit available to consumers again. It is also open ended to the extent that it might be able to be used on other products as well, such as mortgages.
Courtesy of CNBC.com, these are the details point by point:
Following are details of the plan, called the Term Asset-backed Securities Loan Facility (TALF):
-Federal Reserve Bank of New York will lend up to $200 billion on non-recourse basis to holders of certain triple-A rated asset backed securities backed by newly originated and recently originated consumer and small business loans.
-ABS issuance in consumer categories such as auto loans, student loans and credit cards were roughly $240 billion in 2007 but essentially ground to a halt in October, according to the U.S. Treasury Department.
-The new Fed facility is intended to assist credit markets by facilitating issuance of ABS and improving ABS market conditions.
-The Treasury will provide $20 billion in credit protection to the New York Fed for the program. The Treasury will purchase subordinated debt issued by a New York Fed special purpose vehicle to finance the first $20 billion of asset purchases. The New York Fed will fund any purchases above that amount by lending additional funds to the vehicle up to $200 billion.
-The Treasury funds will come from the unallocated portion of the first tranche of its $700 billion financial rescue fund, known as the Troubled Asset Relief Program (TARP). The action leaves the Treasury just $20 billion in unallocated funds before it must seek Congressional approval to access the TARP's second $350 billion.
-All cash flows from assets in the program will be used to first repay principal and interest to the New York Fed, and second, to repay principal and interest on the $20 billion from the Treasury TARP fund. Any residual returns will be shared between the New York Fed and the Treasury.
-The New York Fed will apply a "haircut" to the value of the securities used as collateral for loans under the program, based on the price volatility of each class of eligible collateral.
-The New York Fed will offer a fixed amount of loans from the facility on a monthly basis.
Time will tell if this one will work.More Tough Economic News
In continuing indications of what we all already know, the economy really doesn't look very healthy. Tuesday morning the release of the GDP revision showed a decline of .5% in the 3rd quarter. The release of the Case-Shiller index showed a decline in the price of single family homes of 17.4% from the same time last year.
Trivia To Take Our Minds Off The Economy
Sometimes we all need something to be used as a diversion. Something that makes us say wow, besides the magnitutde of the numbers being thrown around in Washington. This is something that I found interesting.Where is the worlds fastest supercomputer that is used for science? It is at the Department of Energy's Oak Ridge National Laboratory. Let's look at the tale of the tape, although most of us have no idea about what it all means, as long as our pocket calculators still work:
- Cray XT
- Top500 rank: 2 + 8- 1.64-petaflops peak theoretical performance
- 1.059 + 0.205-petaflops actual performance on HPL benchmark program
- 182,000 processing cores- AMD quad-core OpteronTM 2.3 gigahertz processors
- InfiniBand network- Cray SeaStar network interface and router
- 362 terabytes of memory- 578 terabytes per second of memory bandwidth
- 284 gigabytes per second of input/output bandwidth- 10-gigabyte-per-second connections to ESnet and Internet 2 networks
- High-Performance Storage System scales to store increasing amounts of simulation data- Spider, a 10-petabyte Lustre-based shared file system, connects to every system in the ORNL computing complex
- Disk subsystem transfers data at greater than 200 gigabytes per secondsource: http://www.top500.org/
Tuesday, November 25, 2008
First, A Song For The Money Going To Citigroup and Everyone Else
I want to open this post with a throwback to 1932, when people who had gotten used to the working life, were suddenly relegated to standing in breadlines for food. Written by E.Y. Harburg during the Great Depression, the title reminds me of what is currently going on in the financial markets. The song is "Brother, Can You Spare A Dime", and here are a few of the lyrics:
They used to tell me I was building a dream And so I followed the mob.When there was earth to plow or guns to bear,I was always there, right on the job.They used to tell me I was building a dream With peace and glory ahead --Why should I be standing in line, just waiting for bread?
Once I built a railroad, I made it run,Made it race against time.Once I built a railroad, now it's done --Brother, can you spare a dime?
Once I built a tower, up to the sun,brick and rivet and lime.Once I built a tower, now it's done --Brother, can you spare a dime?
Citigroup Center: This Is Now The People's House
What do you think? Should we put our new house on the market? Should we throw the current tenants out and put new ones in? Just another decision to be made because we now have a stake in yet another public company.
The U.S. government will be guaranteeing $300 billion in Citi's toxic commercial and residential real estate assets with strings that have yet to be fully determined attached. They are also providing them with $20 billion of TARP funds with Citi giving preferred stock in exchange with an 8% coupon. This is on top of the $25 billion that was originally provided from the TARP. They will also provide warrants for common with an exercise price around $10 good for 10 years. Just more of the same old same old type of deal that has been provided to financial institutions before. A run on Citi which could have been in the cards has probably been avoided.
Darn Those Short Sellers
In yet another attempt to look for a scapegoat for the problem, once again the short sellers have been pointed to as one of the sources for the problems that caused Citigroup stock to fall as low as $3.05 on Friday (is short covering the reason the stock, which some say may be worthless is trading up to $6?). That the failure of management, corporate greed, lax oversight of the banks operations, government complicity and other factors are a minimal factor.
There is no question that some of the basic rules of short selling that have been taken away have made it far to easy to lean on a stock (re: SEC Chairman Christopher Cox). Two of the major rules are the uptick rule and the process of having to actually borrow the stock before shorting it. With neither of these in place, I can tell you from experience, shorting stock becomes a breeze.
There are also large institutions that apparently have the ability through the use of credit default swaps to substantially weaken a target company. I provide a Wikipedia definition of a CDS below, but that is not really the point.
The point is that the failings of the underlying companies are typically to blame for the fact that they find themselves in the position that they are in now. If they had run their company's in the way that some of the unscathed institutions did, the toxic assets that are on the books would not be there. Short sellers did not put them there. The company's did. Are some large institutions perhaps complicit in the speed with which the situation has developed. Perhaps. But let's put blame where blame belongs.
The federal government for providing the rules and liquidity, and the corporations involved for taking advantage of it and for not having any of the management or compliance oversight to keep it under control.
Credit Default Swaps
This is how Wikipedia describes a Credit Default Swap:
A credit default swap (CDS) is a credit derivative contract between two counterparties, whereby the “buyer” makes periodic payments to the “seller” in exchange for the right to a payoff if there is a default or credit event in respect of a third party or “reference entity”.
In the event of default in the reference entity:
the buyer typically delivers the defaulted asset to the seller for a payment of the par value. This is known as “physical settlement”.
Or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation. This is known as “cash settlement”.
While little known to most individual investors, credit default swaps are commonly used contracts to insure against the default of financial instruments such as bonds and corporate debt. But they also are bought and sold as bets against bond defaults — a buyer doesn’t necessarily have to own a bond to buy the credit default swap that insures it.
Banks and other institutions have used credit default swaps to cover the risk of default in mortgage and other debt securities they hold.
Monday, November 24, 2008
Hmmm. Primary adversaries, a choice with a huge political agenda, a politician that may carry her own message and not necessarily yours, a husband that may usurp your authority and create controversy and distraction in his many speeches around the world. Any way you cut it, this political quid pro quo carries some great risks for Obama, and by extension the American public. If you can't guess, I speak of Hillary Clinton and the extremely important job of Secretary Of State. A position where it is imperative that she and the administration, of which she will be part, speak with one voice.
The country is not cruising along in a time of peace and prosperity where the Secretary of State is merely an international ambassador, traveling the world spreading goodwill. We have crisis on a multitude of fronts, and need one Secretary of State, not a husband and wife team, who we can be assured have the voice of the administration, and not there own ambitions as motivation when speaking.
The dance was interesting to watch as an outsider. Former President Clinton saying he did not know if the job would be offered, and if offered if Hillary would accept it: you know, because she loves being a New York Senator so much and has no greater ambition than that. Hmmm. It was obvious that this was where she was angling to be when the music started.
As with everything in Washington, behind the scenes negotiations take time and everything has to be presented and leaked in a certain way. No more business as usual here, this is some real change from the new Obama administration, if only because while the Clinton's will still be power brokers, but they won't be living in the White House. President Obama has to be sure and set up clear ground rules: no showing up at their former house without an invitation.
The confirmation hearings should be extremely interesting to watch. The vetting that must have been done in advance of the position being offered one can only imagine was extensive. Consider also the investigations that have been done through the years. It is hard to imagine that there are still some stones yet unturned, but with the Clinton's you never know. The fact is, however, that all of the former controversies will provide some great fodder for the questioning by their political opponents.
Other Proposed Members Of The New Clinton, Sorry, Obama Administration
- White House Chief Of Staff: Rahm Emanuel
- Attorney General: Eric Holder
- Commerce Secretary: Bill Richardson
- White House Counsel: Greg Craig
Stay Tuned For More Announcements
Saturday, November 22, 2008
I have gotten used to E.D. commercials morning, noon and night when young kids are watching T.V., and they are wondering what an erection is, why it would last more than four hours, why the sink handle is falling off and spurting water into the air, why the couple is going into the bedroom and shutting the door, why these people are sitting in side by side bath tubs, naked, looking at the ocean and so on and so on. The people who censor and who are responsible for keeping these and other inappropriate things off of the airwaves must have been off work or in the bathroom when they discussed airing these. A micro second of Janet Jackson's breast during the Super Bowl raised a national uproar, but somehow these commercials are OK.
Two and a Half Men
This brings me to this show that is on T.V., again during times when kids are watching. I was getting ready to go out and the channel was on showing a re-run of this show, and I could not believe some of the things that are allowed on television. Not innuendos, but straight out references to sexual acts, body parts, incest, infidelity etc. I just had to comment on the fact that it appears that the breakdown in morality is complete, and standards in this country when dollars are involved has reached epic proportions. Worse, it appears to be getting done with the outright approval of the people whose job it is to make sure that what is shown, at least during times when children are watching, is appropriate.
Now don't get me wrong, I am not a prude and my children are old enough to understand, but for families with young children this should just not be allowed on air, unless it is after a certain time when kids should be asleep. Now I am not trying to pick on this show, but I went and looked at some of the titles of episodes, and while I have not seen them, I can only imagine:
Two and a Half Men (Episode List Season 5)
City of Great Racks
The Leather Gear is in the Guest Room
Kinda Like Necrophilia
Rough Night in Hump Junction (aka His Ugly Bundle)
If My Hole Could Talk
Waiting for the Right Snapper
Is Anyone In The T.V. Standards Department Watching? This Is Just Unbelievable?
Friday, November 21, 2008
More Ridiculous Washington Rhetoric: They Came In Private Jets
I am racking my brain to remember which congressman first asked the question Wednesday about the travel method the heads of the Big Three used to get to Washington for the hearings on an infusion of government money.
What I do remember after that is the drooling that I sensed around the beltway as well as the media, because they now had their new tag line, the new "it's not about Wall Street but about Main Street" to use incessantly for the TV cameras, blogs and the press. Why The Private Jets.
What are some of the quotes from the hearings:
- It’s almost like seeing a guy show up at the soup kitchen in high hat and tuxedo - Gary Ackerman of New York
- There's a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands... Gary Ackerman
- "Couldn't you have downgraded to first class or something, or jet-pooled or something to get here?" Gary Ackerman
- “I don’t know how I go back to my constituents and say, ‘The auto industry has changed,’ if they own private jets which are not only expensive to own but expensive to operate and expensive to fly here rather than to have flown commercial.” - Brad Sherman of California
- "I'm not an opponent of private flights by any means, but the fact that you flew in on your own private jet at tens of thousands itself dollars of cost just for you to make your way to Washington is a bit arrogant before you ask the taxpayers for money." - Patrick T. McHenry of North Carolina
Note: GM CEO Rick Wagoner and Ford CEO Alan Mulally are required by their companies to fly by private aircraft for security reasons, according to company documents filed with the U.S. Securities and Exchange Commission. -TradingMarkets.com
I will tell you the real irony here
Couple of things. The first is the continued sanctimony of the politicians who preside over one of worst economy's we have seen in decades, chastising the auto execs for their use of private jets. How many of these politicians travel in commercial jets, and how many, with dollars in the economy at a premium are prudent with the "peoples money" in day to day operations, campaign spending etc.. I would like to see congress questioned about their waste and contribution to the problems that are now costing over $1 Trillion with a T.
Anyway, the second point is that there is no doubt that in a public relations analysis, the auto executives should have seen that flying in a corporate jet while asking for help (I said help and not some of the other phrases being tossed around for what they are doing). They also should have had some of the answers to some of the questions that were asked that one might have assumed were going to be asked. We also don't know if this relatively small amount of money will actually help in more that the very short term, or if a pre-packaged Chapter 11 might not be the more prudent way to go.
What I do know is that to sit at the podium and condemn an entire industry due to the PR failures of the leaders of that industry is asinine. To evoke the phrase of: how am I going to explain a bailout to my constituents back home, is yet another case of politicians not thinking of the greater good of the country, not making whatever tough decisions they NEED to make, but merely watching the polls back home and maintaining a partisan stance so that in 2 or 6 years depending on where they serve they will be in position to win their seat back.
If they have to postpone their Thanksgiving recess, or something really drastic such as curtailing campaigning, so be it. For once, try and actually do the job that we sent you to Washington to do.
10:10 AM Thursday: Stocks continue to slide with the financials getting taken to the woodshed. Citigroup is about to go to a 4 handle, Goldman is 49 and change, Bank America is plowing toward 10 and General Electric is stunningly in the 12's. I sit, I watch and I can't believe.
The two year Treasury is through a 1% yield, the 3-month is .01% and the ten year 3.15%. I think the term "flight to quality" doesn't even begin to describe it.
5:00 PM Thursday: Yet another horrible close with the S&P down 54 and the NASDQ down 70. All kinds of technical levels were breached to the downside, which brings in the real potential of another leg down Friday and Monday. The VIX closed at 81, and the financials, led by the banks and insurance company's portend something frightening. You need a magnifying glass to see Treasury yields.
Any vote on a auto industry cash infusion is also on the back burner.
It's Time To Go Back To The 70's and 80's and Hit The Two Martini Lunch Again
Thursday, November 20, 2008
Is This How We Will Remember The United States Auto Industry (see picture below)?
In a throwback to a bygone era, the Edsel represented one of the larger design mistakes to come out of Detroit. The engineers and management at Ford just didn't get the reason behind why this car would not sell and be as wildly popular as the Thunderbird, but at the time, that was OK. The company would move on to the next and the Edsel would become just a punchline in jokes.
Fast forward to today, and the management of the Big Three have come hat in hand to Washington for government bailout money that they say will keep them out of bankruptcy until the economy improves. This they say will also help to avoid the trickle down disaster to the economy that the loss of these firms would create, not only in the U.S. but around the world.
The Reception On The Hill
Testifying in front of the Senate Banking Committee on Tuesday (House Wednesday) seeking $25 Billion of TARP funds, the CEO's of the 3 car companies, union leaders and economists faced tough bi-partisan questioning as to why this money would solve a systemic problem and why anyone was to assume that they would not be back in a few months looking for more in the near future.
Great minds on both sides of the issue testified that we will face huge global economic risks going into a Chapter 11 or worse Chapter 7, or that this bankruptcy protection will provide the desperately needed cover to finally be able to get competitive with the foreign manufacturers. Questions were asked about the use of funds, technology, competitiveness, union cooperation, potential systemic risk and more. Some were answered, and some had answers delayed due to the fact that you could not reasonably expect an on the spot answer (maybe some politicians basking in the face time wanting to look tough). A recent survey that showed 80% of potential car buyers would not buy from a company in bankruptcy was mentioned more than a few times by the pro-bailout crowd.
Promises were made, recriminations were stated and at the end of the day it is impossible to say which way this is going to fall. You have some great minds from academia and business (I didn't include politics) firmly planted on both sides of the issue, and being neither of those two I could not begin to predict how a bankruptcy would play out for us all.
What I do know is that it would be great if we could go back to the carefree times of the Edsel, no matter how bad the design was.
Listening to the testimony in front of the House today and Senate yesterday, I felt compelled to make this statement about the sanctimonious politicians whose legislation and action, or lack thereof, bears a large responsibility for the success or failure of this country looking back as well as going forward, and who love nothing more than to pass judgement on the performance of others, such as the car companies, when their performance has been abhorrent. That was a run on sentence, but you see the point. This in no way excuses the automobile industry for its' performance, but is merely a commentary on the partisans who get nothing much done for you and I, the constituents they so often speak of.
Wednesday, November 19, 2008
In one of the famous Citigroup Town Hall Meetings held this morning by CEO Vikram Pandit, job cuts totaling 50,000 were announced, 20% cost cuts and plans to sell troubled assets. The 50,000 number is second only to the 60,000 cut by IBM back in 1993. Not that problems are unique to Citigroup, but these announced cuts are more than the entire sector has combined to cut over the last four months. It is the perfect indication of the bloated and inefficient bureaucracy that this bank has, and presents quite a morale problem for those that remain, always wondering when the next reorg shoe is going to drop.
In 1994, I was an employee of Citicorp Investment Services, the then brokerage subsidiary of the bank , and learned first hand of the CYA mentality of the bank, as well as the overriding concern with any decision needing to go up through what seemed to be layer upon layer of life long employees whose goals seemed at odds with the idea of outside the box thinking, and more in line with not making waves and total conformity.
The goals of many employees (many but certainly not the majority) seemed to be filling up the "calendar" with meetings that never seemed to result in any firm decisions getting made and turf battles between different sides of the bank that seemed to be the rule. The term political maze was coined for the firm.
Here a small example of my experience with the culture. In my position as the Fixed Income Product Manager (I had come over from PaineWebber), I spent months trying to push a tax loss swap program through for the account holders that owned bonds that had fallen in value due to the rise in interest rates. By the time the legal and investment policy side of the firm had vetted the idea and approved it, we were somewhere in the middle of December, to late for it to be of any value. The banking culture was not prepared to be in the brokerage business, but that did not stop them from entering.
Hopefully these cuts will get Citigroup back into fighting shape.
Tuesday, November 18, 2008
You are not going to believe this, but today I heard that the data suggests that despite the fact GDP had only one quarter of contraction, it appears that we are in recession. Technically we would need two consecutive quarters, but many market analysts, those seers of reaction and not proaction, with a smattering of arm chair quarterbacking after the facts have seemingly been established thrown in, think we are already there.
It's a gutsy call being we have not had those two consecutive quarters I speak of, but if we look at some of the anecdotal if not actual evidence, I think that I am going to have to agree with these guys.
Let's Go To The Videotape (ala Warner Wolf)
- My personal readings of restaurant occupancy on Friday and Saturday nights showing more and more people staying home.
- Mall parking on a Saturday is uncharacteristically available.
- Anecdotal evidence that wedding and other cash gifts are being reduced (I am uniquely qualified for this analysis as I got married the Saturday after the '87 stock market crash).
- The misery index as measured by friends and acquaintances is growing.
I am going to throw in some more traditional economic readings as well for confirmation:
- Loss of 1.2 million jobs this year to date.
- Predictions of 220,000+ jobs loss per month going forward.
- The New York Fed on Monday reported the general business conditions index at -25.43 in November, the lowest reading since the inception of the index in 2001.
- Predictions of the unemployment rate topping 7.0% early next year.
- Philly Fed predicting 4th quarter GDP would decline 2.9%.
- Institute for Supply Management (ISM) fell to 38.9 in October from about 50 at the beginning of the year.
- At a yearly low in both Real Disposable Income and Real Personal Consumption.
- Oil continuing to drop despite OPEC production threats do to the slowing economy.
- Corporate profits as a percentage of GDP continues to decline to a second quarter level of 10.7%.
Monday, November 17, 2008
Neel Kashkari Pays Paulson's Price
Serving as a proxy for Henry Paulson, Treasury Secretary, Neel Kashkari, whose title is interim assistant secretary of Treasury for financial stability faced the House Oversight and Government Reform Committee's domestic policy subcommittee on Friday.
He was there to explain the shift in policy away from purchasing toxic assets from financial institutions, to actually injecting money into those institutions while the assets remain. Further, there is some vague talk from Paulson about direct help to consumers, aka the people on Main Street.
Many of the members of the committee wasted little time lambasting Kashkari and his boss on the deployment of funds, using the opportunity in the spotlight to question things that they should have been questioning before. The questioning, on a bi-partisan basis took more of the form of congressional pontification stressing the fact that the Congress had been duped. Perhaps they should take more of an oversight position instead of signing the checks and going by the wing and a prayer system of hoping that the $700 billion would be deployed the way that they hoped that it would.
Watching these events really makes you wonder who is in charge of the asylum, if anyone. We are the most powerful country on earth, and it seems as if we are being led by a bunch of amateurs all operating under their own agendas, not ours. The next political pawns are the auto companies, who, as I talked about last week have made their own beds, but can not be allowed to fail for the greater good. These leaders will hopefully recognize that and keep us out of another great depression with the unemployment and social upheaval that would occur.
Some Of The Gems Blasted At Kashkari
- "I guess you get a taste for how Mel Gibson felt in the last scene of "Braveheart" : Rep. Brian Bilbray
- Regarding the passion of Paulson and Kashkari for helping homeowners, Rep. Dennis Kucinich asked: "He is. Where? What country?" and he accused them of suggesting that "We're just skipping along our way." and in response to a statement Kashkari made "Boy y'know, that statement you just made, you will hear about for the rest of your career."
- Rep. Elijah Cummings said is response to an answer that "Life is short, and I don't have time to hear ring around the rosie answers." and one of the more played barbs of "Is Kashkari a chump?" and finally "You're on TV. You’re the man. I don't know how much we're paying you, but you're our employee..."
There were more but it is really irrelevant. It's like a combination of the Three Stooges and Titanic and hard to watch.
Sunday, November 16, 2008
Through out the history of our Republic, the government has undertaken many large projects, programs and actions for the good of the people. In today's dollars, how do they compare in size with the TARP? In adjusted dollars, only two are more costly.
- The Hoover Dam: 1930-1935 Cost: $45 MM Todays Dollars : $782 MM
- The Panama Canal: 1904-1914 Cost: $375 MM Todays Dollars: $7.9 B
- Gulf War 1: 1990-1991 Cost: $ 61 B Todays Dollars: $ 98 B
- Marshall Plan: 1948-1951 Cost: $12.7 B Todays Dollars: $ 115.3 B
- Louisiana Purchase: 1803 Cost: $ 15 MM Todays Dollars: $ 217 B
- Moon Race: 1958-1969 Cost: $36.4 B Todays Dollars: $237 B
- S&L Crisis: 1986-1995 Cost: $153 B Todays Dollars: $ 256 B
- Korean War: 1950-1953 Cost: $ 54 B Todays Dollars: $ 454 B
- New Deal: 1933-1943 Cost: $ 32 B Todays Dollars: $ 500 B
- Gulf War 2 and war on terror: 2003-? Cost: $551 B Todays Dollars: $ 597 B
- Vietnam War: 1964-1972 Cost: $111 B Todays Dollars: $ 698 B
- NASA: 1958-2008 Cost: $ 416.7 B Todays Dollars: $ 851.2 B
- WW II: 1941-1945 Cost: $ 288 B Todays Dollars: $ 3.6 T
MM: Millions, B: Billions, T: Trillions
Information from CNBC.com
After the first day of meetings of the G-20 in Washington on Saturday, there seem to be many proposals for steps that need to be taken in the future, but no real answers for what it is that will help solve this problem in the near term. Although not yet official, it is expected that the final draft of the meeting will contain some of the following, broken down into two parts:
- New guidelines to be established by the end of March to be discussed at the next G-20 meeting to be held in April at a venue not yet determined.
- In the first part they are going to call for greater government efforts to prop up economies, cooperation to create international regulation of the worlds' financial systems, steps taken to help developing countries, and countries to back off the temptation to return to protectionism. Some of the specific recommendations that are being requested from finance ministers are said to include a look at global accounting rules, the risk-reward component in executive compensation, an examination of oversight and regulation and greater hedge fund and derivatives regulation and others as well.
- The second part of the draft is said to be the "action plan" which will look at transparency, regulation, the process of bringing a feeling of trust back to the market participants, international cooperation and reform.
It appears, however, that if you look at the words that I have highlighted, the tone contains nothing specific but rather government speak for we have a big problem, these are the areas of importance, we have no idea how to fix them but will push it all off until some time in March so that we have have time to figure something out. We can also throw all of it onto the new administration.
As has been the case recently, when governments speak either in unison or individually, it does little to ease the mind and seems to indicate that the problem may be bigger than any of us know.
Friday, November 14, 2008
"I think we've seen a bottom"
If I had a nickel for every time I have heard an analyst say that over the past year, I would have all of my money back from the losses I have from listening to them in the first place. Just kidding, I never listen to these guys.
As I have discussed before, the art of being an analyst includes 20/20 hindsight, liberal use of the phrases "I think", "we think" or "my firm thinks", the ability to say that stocks are cheap because they are x percent off of previous highs regardless of what future earnings may look like, no accountability for past errors (such as Joe Battapaglia's endless bullishness during the tech boom and through the bust), the cleverness to go with the momentum such as during the oil and commodities run ups when the sky was the limit, loving stocks at $60 all the way down to $15 when you finally downgrade them and any number of other talents that I am probably forgetting.
My cynicism comes partly from watching and listening to guys like Henry Blodget during the tech boom raise price targets on companies that wouldn't potentially get a whiff of real earnings for 5 or more years if everything went perfectly, to levels that were insane. It also comes from continuing to watch the and listen to the blather that comes out of guys today that were there during the same time, making the same types of statements as Blodget but managing to avoid the same consequences.
Being Your Own Stock Analyst
Bottom line, we have to be our own advocates and do our own homework, run some of our thoughts by some of the analysts with proven track records that we respect (reading their research), and then making our own decisions.
What To Make Of Today's Stock Market Actions
On the heals of the Intel warning last night, the market went down and tested previous lows, held the level and then proceeded to go on a monster bounce in the last hour. Is that it? Are the waters now safe? Do we commit any money that we may have left (or dry powder as they like to say) to the market?
I am going to have to take a pass, if only for the fact that the news that took us down in the morning, yesterday, the day before, etc. has not changed. The guys in Washington still have to prove that they have a clue as to what will get us out of this mess (maybe we will get that from the G20 over the weekend), economic data has to improve, consumer confidence has to improve, housing has to improve, employment has to improve, the auto dilemma has to be resolved, etc. For now I go with the fact that this bounce was merely technical.
Maybe I will go find an analyst to ask.
Thursday, November 13, 2008
I was watching the business news again Wednesday morning, which for one reason or another gets my blood boiling whether it is the continuing slide in stocks, the general feeling of malaise around the world or the commentary from guests. The anger gets particularly high when I hear politicians rambling on.
The problem with most, not all of these politicians is twofold.
First is that for the most part they have absolutely no idea about what is really going on in the markets, the bailout plan or the economy. I can excuse them for some of this, since the "financial experts" at the Fed and Treasury don't seem to know what's going on either.
The second, and what I believe needs to stop goes along with the line in the John Cougar Mellencamp song that has to do with becoming women and men. In a different way than I am sure that he meant, our political leaders need to become tough, hardminded LEADERS that we sent them to Washington to be. What they love to do is find the basic subject that their constituents can hang their hats on, like executive compensation, and focus on it ad nauseum while avoiding the critical and tough decisions that need to be made. Every speech or TV appearance will include multiple references to the item the polls say the American public is most fed up about.
Now, some of these tough decisions, if made with the long term viability of the country in mind, might limit them to one term or result in losing a long held seat. In this way, they would lose all of the trappings that being in Washington provides, and be forced back to being just another rank and file citizen like you or I. They would no longer live by the cliches of "good for Main Street" or how my constituents "hard earned tax dollars" are being spent. They would actually be living it. The more I watch the way that things are being handled, or more accurately mishandled, my level of angst rises. Some might say all of this is easy for me to say. That I am not there in the trenches like they are. That's true. But I am in my own trench, and the "politicians" that don't play leader are playing with fire.
Let me know what you think about the true resolve of the people that we have sent to Washington in terms of really solving our systemic problems.
Are they there for us, or for themselves?
Wednesday, November 12, 2008
Yet Another Change In The TARP
With the stock market taking out the previous lows, consumer confidence at multiple year lows, company after company warning about earnings, the chairmen of JP Morgan and Merrill Lynch projecting a prolonged recession. commodities dropping like rocks and my own personal mood getting worse every day, Treasury Secretary Henry Paulson continues to inspire zero confidence that he, or anyone else in our government knows what the hell they are doing.
The TARP, which was originally created for one thing, is now going to be targeted at another thing, at least for today. While originally it was going to be the buyer of illiquid and troubled assets from the books of financial company's, it will now be used in some way to benefit the consumers instead. The problem with the plan as described, is that at the end of the speech I had no idea of what he was really saying. He sounds like a used car salesman, and I mean this with no disrespect to used car salesmen. Instead, let's say that he sounds more like a snake oil salesman.
In the meantime, where does the economy go from here. I ask again:
Would you buy a used car from this man?
A few days ago I wrote that if I ever got into severe financial trouble due to my own financial mismanagement, my inability to manage my people effectively, my inability to recognize the changing environment and the types of products that I should be selling or because of any other factors that may or may not be within my control, I would like the same largess provided to me that seems to be provided to corporations that are in some way to big to fail.
In reality, some of these companies like GM are in fact to big to fail, but not because if they are bailed out they will suddenly become a thriving, competent company as opposed to the dinosaur that GM is now, but because of the fact that should it fail, the trickle down in terms of its' employees, as well as the employees of its suppliers and countless others will be incalculable. The very people that all of this bailout money is supposed to help when banks get back into the business of lending, would no longer be able to buy a house, a car, send kids to school etc.
As much as failure is an unfortunate part of business, in the case of GM the ultimate price of its' demise will go well beyond its' borders and is not an acceptable solution.
Harvard Feeling The Pinch
For all of the people out there following the plight of the richest school in America, Harvard is facing some major losses in its' $37 billion endowment fund as well as a decline in donations from alumni, and may have to look for ways to chop expenses while keeping tuition increases "moderate". State schools are starting to look better and better.
Tuesday, November 11, 2008
AIG announced its' "earnings" Monday morning, and it now seems as if the $80 plus billion that was in the original bailout, was just a little short of the mark by about $70 billion or so. In the current financial environment, that $70 billion represents little more than a rounding error.
The new chairman, Edward Liddy, complained that some of the terms in the original bailout were "almost punitive in nature". Can you imagine the fact that the Federal government, using the taxpayers money to bail out a firm that had gotten trapped by greed and inept management would have the nerve to try and impose terms that are tough and that would try and protect our investment? I think that some of these guys think that there should be an open ended commitment of funds to take care of this problem, that in the amount of time between the original bailout and now has proven to be worse that anyone could have known.
Stop leaning on these guys so hard. I hope my sarcasm is apparent. Only in America could these companies get bailed out like this. I understand the macro ramifications of failure in both the financial and some industrial sectors, but the methodology being taken seems to be seat of the pants, throwing money one way and when that doesn't work throwing money the other way. I would like someone to be able to tell me that when the music stops, all the money has been spent, the bailouts have been given time to run their course and the Federal deficit has ballooned to unimaginable levels, that we are going to come out of this OK.
New Price Target For General Motors
In an unrelated yet very related turn of events, an analyst at Deutsche Bank cut the rating on GM from hold to sell, and set a price target on the common stock at $O or zero.
Let's all look at this as something other than just a day off, and really stop and give thanks to those that have protected the United States and our way of life!!!
Monday, November 10, 2008
The New York Times, Los Angeles Times and Washington Post are some of the classic examples of newspapers that tend to lead with their political stance before they lead with the credo of unbiased news story telling. That said, they would be the first to deny that.
It therefore comes as a form of REAL confirmation of the bias of the media during the election, when a writer for one of these papers actually does the research, and has the objectivity to report on the way the coverage went.
When conservative talk radio speaks of media bias, they are called paranoid and just plain wrong. Perhaps when one of their own recognizes the trend, the rest of the media will sit up, take notice, and perhaps, just perhaps alter the way that they cover bi-partisan events.
Deborah Howell, Ombudsman for The Washington Post
***I have done my research on this story from sources other than The Washington Post Online, due to the fact that the link to the story was not working while others on the site were. I am not paranoid, but perhaps the link was disabled due to the nature of the story. Or maybe I am paranoid. (if anyone finds that the link is working now, please let me know). Turns out I am, the link is now working.
In any event, these were her findings:
"The op-ed page ran far more laudatory opinion pieces on Obama, 32, than on Sen. John McCain, 13. There were far more negative pieces (58) about McCain than there were about Obama (32), and Obama got the editorial board's endorsement. . ."
"Howell and her assistant found that news stories and photos about Obama outnumbered McCain coverage. Additionally Howell wrote that “like most of the national news media”, Post reporters, photographers, and editors found Obama just more “newsworthy and historic” than an older well-known battle-scarred McCain."
"Howell confirms that “Obama deserved tougher scrutiny than he got.” Howell was specifically concerned with the lack of coverage of his undergraduate years, his Chicago connections, his relationship with Tony Rezko, and that “The Post did nothing on Obama's acknowledged drug use as a teenager.”
It is not just the imagination of the people that watch and listen to the coverage. We are smarter than that and can see and hear what is going on.
Friday, November 7, 2008
- Slowing sales
- Cash burn
- Growing liabilities
- Difficulty getting customers financing
- Negative impact on business from declining consumer confidence
- Growing inventory due to slowing sales
- Negative impact on employees and suppliers if business continues to deteriorate
- Poor business decisions, failure to recognize and adapt to changing markets, bloated infrastructure, high level of employee entitlements, etc.
- Liquidity issues
Other than #8, is this a description of my business, your business, the business next door? I think at this point it is a description of the majority of businesses. Who deserves a government bailout? Who is to big to fail? Whose failure would create to large a ripple effect on the rest of the economy?
Who is the arbiter of all of this? If I have a business that exhibits the attributes of #8, do I deserve to be given the largess of the taxpayer?
The Big Three
Unfortunately for you and I, we are not to big to fail and no one in government is realistically going to come to our rescue. The auto companies, hat in hand, will no doubt be given some type of a rescue package.
Auto manufacturing is a very difficult and highly competitive business, particularly since we can not really compete with the foreign manufacturers that build their cars in the States, with the quickly changing technology, consumer confidence at multi-year lows, demand for alternative fuels, on price and the financing crisis that leaves eager buyers unable to buy the cars.
What we, the people need to make sure of (particularly since they will be using our money to do it), is that this money given to the auto makers in whatever form it is, comes with an incredible amount of strings attached that will force them to make the tough choices and the serious structural changes required so that we will hopefully not have to do this again.
Just like you and I have got to do without a government bailout, auto companies need to get lean, get mean and make good business decisions. Is that to much to ask?
Check it out, and if you have any thoughts, comments or questions please let me know. Particularly in this banking environment, where even the most pristine borrowers can have real problems getting financing, bridge lending offers a real alternative.
If you are an investor interested in new ways to deploy your money, bridge lending, or lending secured by real property, can be a great alternative.
At 8:30 this morning (Friday) we will be getting the employment (unemployment) numbers for October. The consensus is for a drop in non-farm payrolls of 210,000, and a rise in the unemployment rate to 6.3%. The level of payroll jobs lost this year to date is over 710,000. Should these numbers come in substantially worse, we will probably give back even more of the recent stock market gains than we have on Wednesday and Thursday. Some analysts think that in subsequent months we could see a non-farm payroll number come in south of 400,000 jobs lost.
Continuing jobless claims hit levels not seen for 25 years jumping by 122,000.
Bank Of England
In what demonstrates the fact that the English economy is in very bad shape, the Bank of England on Thursday morning lowered their key lending rate not 25 bp, not 50 bp, not even a full 100 bp. They lowered their rate a whopping 150 bp.
LIBOR and the TED Spread
The 3-month LIBOR rate (London Interbank Offered Rate) dropped for a 19th straight day on Thursday to 2.375%, a very good development for the credit markets. Unfortunately, in a continued flight to quality, the 3-month Treasury bill is at a level below .4% keeping the TED spread above 2.0%.
Thursday, November 6, 2008
Was The Press Fair?
In a study that has been conducted by the Pew Research Project for Excellence in Journalism since the end of the party conventions, it should come as no great surprise that the coverage of John McCain has for the most part been on the negative side, and the coverage of Barack Obama, while not always overwhelmingly positive ranged more neutral to positive.
In the period from the end of the convention through the last presidential debate, the study found that McCain's negative stories led positive stories by a 3 to 1 margin. Nearly 6 out of every 10 stories were negative to very negative (57%) while only 14% were positive.
During the same period 36% of the stories were positive, 35% neutral and 29% negative.
These were some of the findings by PEJ:
Coverage of Obama began in the negative after the conventions, but the tone switched with the changing direction of the polls. The most positive stories about him were those that were most political—the ones focused on polling, the electoral map, and tactics.
For McCain, coverage began positively, but turned sharply negative with McCain’s reaction to the crisis in the financial markets. As he took increasingly bolder steps to try and reverse the direction of the polls, the coverage only worsened. Attempts to turn the dialogue away from the economy through attacks on Obama’s character did hurt Obama’s media coverage, but McCain’s was even more negative.
Coverage of Palin, in the end, was more negative than positive. In all, 39% of Palin stories carried a negative tone, while 28% were positive, and 33% were neutral. Contrary to what some suggested, little of the coverage was about Palin’s personal life (5%).
Democratic vice presidential nominee Joe Biden was nearly the invisible man. His had just one large moment, the vice presidential debate, which also offered his only positive or neutral contribution. Aside from that week, the limited coverage he did receive was far more negative than Palin’s, and nearly as negative as McCain’s.
The economy was hardly a singular lens through which the media perceived the race. Though it was the No. 1 campaign topic overall, five out of the six weeks other topics were bigger, and in the end it accounted for not much more of the campaign newshole (18%) than assessments of the candidates in the four debates (17%).
Horse race reporting, once again, made up the majority of coverage, but less so than earlier in the contest or than in previous elections. Since the conventions ended, 53% of the newshole studied has focused on political matters, particularly tactics, strategy and polling. That is more than twice as much as the coverage focused on policy (20%). This focus on tactics and horse race grew in the last three weeks as both campaigns became more negative in their rhetoric.
Wednesday, November 5, 2008
It's about 4 PM EST and I just finished voting. I am listening to some commentary on the radio and the speaker is referring to the party that is not Republican, as the the Democratic party, and those running for office within it as democratic candidates. I have heard all of this before, and the point is that words need to be used more carefully.
Is It Democrat or Democratic Party?
I am not usually a stickler for words, but this is an interesting question. I went to dictionary.com, and the definition for democrat is:
- democrat: a member of the Democratic party.
a. of, pertaining to, or characteristic of the Democratic party.
When the Democrat party is referred to in the same sentence as the Republican party, but is referred to as the Democratic party, is the Democrat party being given the superior position as the party that believes more in the democratic process than the other?
I am sure that in the majority of cases the choice of words or phrases are done in a completely innocent way, in that the term democratic rolls off of the tongue much more smoothly than democrat. The point is that it should be used correctly.
It might sound like an insignificant point, but it really isn't.
Let The Results Begin!!! (8:00 PM EST it is McCain 21, Obama 3. To early to call)
Tuesday, November 4, 2008
Where should your state be?
Election Day Is Here!!
It's the day we've been waiting for o' these many months. Who is going to win the presidency? Will it be Obama or McCain? The truth is, if Obama does win the more critical votes are going to be in the Senate, as that is where we may have the situation where Democrats control the White House, House and Senate.
If there is a groundswell for the Democrats as some anticipate, and they get to a 60 seats in the Senate, they will have a filibuster proof majority. What this means is that they will be able to pound through any legislation that they want with the Republicans in no position to stop it.
What The Senate Race Looks Like
Going through the predictions from various sources, the total for the Democrats coming out of the vote could be anywhere from 57-59, with few predicting the magic number of 60. One thing we know however, is that we are not arrogant enough to think that we know anything. This number could fall out anywhere.
It will be a long day and night tomorrow, with Senate races in Alaska, Minnesota, Georgia and Kentucky some of the more interesting ones. In Alaska, Senator Ted Stevens, who was recently convicted on 7 counts of making false statements, remains in the race. He has always won by a wide margin, but I wouldn't look for that tomorrow.
Monday, November 3, 2008
Even a stopped clock gives the right time twice a day
Originally uploaded by crouchingbadger
As a constant listener to business radio and watcher of business TV, I am consistently being given advice by so-called experts that is usually something that could be generated by my 12 year old.
Stock Market Sayings
When we are in the deepest throes of a downside crisis, and the markets are in maximum turmoil, I hear very few if any of them tell me that this is the bottom, this is the spot and this is where you should commit your money. No, what I get are one or more from a long and very tired list of market cliches that are designed to say everything, but really nothing.
The Wizard Of Oz Technique
These cliches, much like most of the advice out of Wall Street that come with a multitude of caveats, are designed to basically sit on both sides of the fence, and to exonerate the speaker from any responsibility if wrong. It's kind of like the Scarecrow in the Wizard Of Oz who points in both directions when asked a question. I am going to highlight the part in each phrase that allows you to really come to no definite decision.
That said, in my travels there is one guy on TV that does not sugarcoat his thoughts or advice, is many times wrong but takes responsibility for it. Once you get past the bells and whistles, Jim Cramer is a smart guy that stands up for what he thinks. Better than stock picking he is great on macro-economic thinking. How refreshing.
Anyway, here is a small list. If you have more, send them on in:
The market is starting to get cheap based on fundamentals
We could go down to ... and test the low set in....
Hedge fund selling could go on for a while
This is a critical level to hold or we could have a way to go
Don't want to catch a falling knife
I would start to nibble in here but keep some power dry
We are starting to get constructive on the market
Could be a good time to buy if you have a long term time horizon
I may be a few weeks early, but ....
My firm thinks that .....
Once we have bounced hard off the low as we did last week, the new cliches are:
I think we have put a bottom in
We may go back and test the lows but....
Assuming no new market shock, I think we have seen the lows
Individual stock fundamentals look good here assuming...
Not to say that this isn't the start of a new bull cycle, but if you look at the last 3 recessions we will probably retest the lows
Take a stand and live with the consequences, because like economists there are typically are no consequences for being wrong.
I remember guys like Joe Battipaglia during the 2000 NASDQ absurdity riding it down from 5000, banging the table along the way that anyone that thought there was no where to go but up was crazy.
They then change their tune to whatever is working down the road, and still have their jobs and are still on TV giving their opinions.
Sunday, November 2, 2008
Simply said, a poll of polls is like a fund of funds. You take many of them, put them together, and you will have some that outperform, some that are average and some that are below average. The poll of polls takes many of the different major sources of polls and just basically averages them out so that the bias and inaccuracy of any one or more of them will hopefully be smoothed out. The developer of this is Real Clear Politics.
RCP Average 11/01 50.5%(Obama) 44.2%(McCain) Obama +6.3%
Polls are from such diverse media outlets as CNN and Fox News and range from McCain down 13% to down 2%. It will come down to voter turnout, and just how undecided all of these undecided voters really are.