Tuesday, March 10, 2009

Rally Caps

V. Pandit's comments that Citigroup is having it's best quarter since 2007 has goosed an already lofty market this morning which has shrugged off news from United Technologies. Now I could make some snarky comment about what a brilliant job Mr. Pandit has done predicting Citi's future operations over the past 18 mths, but I'll try to hold off.

Separately, beyond today's rally (which could be the start of the bear market rally so many are calling for) what lies on the horizon?

Just as everyone keeps sounding the alarm that we have to "get credit flowing", we get word that banks are pulling credit cards as fast as they can. I think is a further indication that the consumer is not going to lead any recovery. Facing job losses and stagnant wages, consumers are feeling the pinch as banks pull available credit. Consider this from uber-analyst Meredith Whitney --

"Currently, there is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon. While those numbers look small relative to total mortgage debt of over $10.5 trillion, credit-card debt is revolving and accordingly being paid off and drawn down over and over, creating a critical role in commerce in America.

Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010. However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone. My revised estimates are that over $2 trillion of credit-card lines will be cut inside of 2009, and $2.7 trillion by the end of 2010."

If her estimates turn out to be true up to 55% of credit available to consumers could be gone by the end of 2010. I'd add, that banks face huge writedowns from credit cards and commercial real estate in the coming months.

I'm not trying to be a wet blanket on the high speed train for upstate NY but does this remind anyone of the Fast Ferry out of Rochester? You're proposing to build something for a need that doesn't exist. Meet a real market need and people will beat down your door trying to buy the product.

I'd argue that very few people in the NNY are as familiar with the Watertown/Syracuse to NYC route as my family. We've tried every possible form of transportation - train, car, plane, gondola, covered wagon, etc., and guess what, nothing beats driving.

Let's assume under the best case scenario - the train cuts the trip in half from 5 1/2 hours to 3 hours in 10 years. I think my wife will chuckle at that estimate because on 5 of the 6 trips she's taken from NYC to Syracuse the average delay has run well over 75 minutes. But assuming that you can get the trip cut to just 3 hours with a 150 mph train how much of an improvement is that over a car trip? Syracuse to lower Manhattan is 195 miles which at an average of just 65 mph (You know you can't speed anymore on 81, right? Speed traps every 10 miles in NYS and on Rt. 80 in NJ) conveniently works out to a ........... 3 hour trip!!

A good portion of the funding seems directed toward freight traffic and that is probably a wise investment, but it insults our intelligence to blame the plight of upstate NY on inadequate passenger rail service.

Finally, I'm not opposed to spending, let's just be smart about it. How about hiring a finance professional to teach personal finance to high school kids? Maybe bike paths that would encourage kids to ride to school? Hey, if everyone else is asking for their pork, sign me up, I want the whole pig :)

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