Wednesday, September 30, 2009

Are things getting worse?

Hey, I'm just a blogger in upstate NY, but this sentence from the Wall Street Journal is just poorly written.

"The pace of layoffs didn't slow much in September, raising questions about the strength of the recovery."

Companies continue to layoff workers at roughly the same rate as the did in August so that leads you to question the "strength" of the "recovery"? If businesses slowed the pace of HIRING perhaps you could say that raised concerns about the strength of the recovery, but when firms are still laying off hundreds of thousands of people every month it's hard to call it recovery.

Anyway, the news of the day seems to be the wildly volatile ADP survey which comes out 2 days prior to the actual jobs report. I don't have a good read on this month's jobs report. I suspect government and education hiring remained strong, while private sector jobs weakened substantially. I imagine the BLS will futz with the Birth/Death model to plug in a number that makes the market happy (call me a cynic), but the market is jittery and if we get a disappointing number look out.

CIT seems to be teetering on the brink again. Maybe someone will step up to save them, but if they do, it seems likely that the equity will get wiped out (but that doesn't mean people will stop buying the stock --- see GM as an example).

Perhaps the most distressing piece of news this morning is the fact that the Chicago Purchasing Managers Index fell back below 50 in September. A reading below 50 indicates more people said business conditions were worsening than said they were improving and September's reading was 46.2. Chicago is considered a good gauge for the US economy because of it's mix of manufacturing and service businesses.

Finally, if you're a regular reader (and even if you're not), I'm going to ask a favor of you......

Would you consider adding the Alexa Toolbar? It's a simple add-on from Amazon that let's you see where every website is ranked -- ie, google is #1, facebook is #2, etc. The more people that use Alexa and visit your site, the higher your ranking. Well, I've climbed from a rank about 8,108,564 into the top 1.2 million websites in the past few months. If a few more readers added the Alexa toolbar, I think I could really get solidly into the top million :)

Here's the link for the Alexa Toolbar.......


Tuesday, September 29, 2009

The widowmaker....

This is why healthcare in America can never be reformed. I present to you "The widowmaker". 1 1/2lbs ground beef, 1 lb of bacon, 1 lb of Italian sausage, a box of hot pockets (my personal favorite), a package of fried onion strips, stuffed between two pepperoni pizzas, sauce and cheese. Just slightly more creative than Twitter :)

Housing prices ticked up ever so slightly last month as a result of first time home buyers moving aggressively to buy low-end homes before the tax credit expires. Like the Cash for Clunker program before it, the housing stimulus will prop up the market for a short period and then the market will adjust when the stimulus is gone.

Consumer confidence slipped slightly last month and that caught many off-guard because layoffs had slowed and spending seemed to firm over the summer thanks to Cash for Clunkers and home buying. The consistent theme in the consumer confidence report has been that the present conditions portion remains very weak, while the expectations portion remains elevated. I think if the present conditions remain weak it could lead to another weak holiday season for retailers but it's really too soon to tell.

I mentioned over the summer that I had a painless auto buying experience with a local dealer. I promised that after I received my title that I would give the dealer a little good publicity. So, drum roll please......

Thank you to Steve and the office staff at Dealmaker Honda in Watertown. I walked in with a number in mind and had a deal done in 15 minutes. Painless. 2 weeks later I was driving my new Honda and I've been happy with the experience. Car buying is about my least favorite activity in the world, so to have a good experience was refreshing.


Is Twitter worth a billion dollars?

"Twitter has reportedly been valued at $1 billion. As reported by the Associated Press (AP), a major investment into the company has boosted its value, despite it not yet earning significant revenue."

This is really in my wheelhouse because this was one of my former jobs - valuing private companies for large investments.

Let's look at Twitter: Loads of users and lots of traffic. No ad revenue and limited data mining (so far, but as Facebook has shown that's where the real money is)

However, I think twitter has been a little less than forthright with their new investors. Over the last month or so, as the company has increased talks with investors about this round of financing, the amount of twitter spam has exploded. Up to 20% of the network is now spam and in my experience up to 75% of new "followers" are spam artists. This is only my opinion, but I find the volume of spam so frustrating that I've abandoned twitter (the blog still feeds to twitter, but I don't use it).

Apparently, I'm not alone. Look at a sampling of recent tweets,

grabcocque: Twitter spam is ruining Twitter. Fix it, you @$!^.

gammawaves: Found 10 new followers, 8 of which sent the same tweets. Blocked them. But all that spam is so tiresome, I might give up twitter 'coz of it.

luthienrising: Went to look at a "trending topic" & found nothing but spam. Completely useless feature now

And this is just a sampling of tweets over a 5 minute period. Maybe Twitter will reassert itself now that it has closed it's round of financing, but the spambots are difficult to corral once they infect the host.

Twitter is often praised as being another shining example of American innovation. Well, a billion dollar company with no revenues that produces nothing....yeah, that pretty much sums up the 21st Century American economy.

Meanwhile, the Germans and Chinese race by us with new wind turbines and solar panels.


Monday, September 28, 2009

Everyone is overpaying for consultants: It's rally time!

Xerox pays about 20% too much for ACS and the market is giddy because we're back to the good old days. I was going to compare this to Sears buying Kmart, but that's a little harsh - ACS is actually a pretty solid company - but I just don't see the fit. I think Xerox looked around after Hewlett Packard bought Perot and realized they were the only guy at the dance without a girl so they grabbed the first free girl, ACS, that they could find. This is more like EBAY buying Skype or Time Warner buying AOL. It's just a stretch to think that there are any synergies between these companies.

Asian markets are continuing the rally tonight we'll watch it tomorrow.

This story really didn't make my day....

"The U.S. Northeast may have the coldest winter in a decade because of a weak El Nino, a warming current in the Pacific Ocean, according to Matt Rogers, a forecaster at Commodity Weather Group.

Weak El Ninos are notorious for cold and snowy weather on the Eastern seaboard,” Rogers said in a Bloomberg Television interview from Washington. “About 70 percent to 75 percent of the time a weak El Nino will deliver the goods in terms of above-normal heating demand and cold weather. It’s pretty good odds.”

Seriously, can it be any colder or snowier than the last couple of years? It's Sept 28th and I saw snow flurries in our local three day forecast. I'll be on for the rest of the night....


Some days I see something on the web that grabs my attention even if it's not related to the markets. This video is wonderfully created and it incorporates a beautiful 3-D rendering of deep space. 10,000 galaxies each holding hundreds of billions of stars like our own all from a slice of space that is the size of a grain of sand held out at arms length.


Sunday, September 27, 2009

Job seekers exceed job openings, imagine that

This is the greatest (of many) risks facing the current "recovery" - there just aren't any jobs. This has been an ongoing problem in the US economy since 2000, but we managed to convince ourselves that it wasn't a problem because our home values were booming and public sector (government) hiring has remained strong.

During the 2001-02 recession there were about 2 job seekers for every job opening. By the beginning of 2009 this ratio had spiked to over 4 job seekers for every job. By August of this year, the number has hit an all-time high of 6 people looking for a job for every job listing.

Look at the decline in manufacturing job openings - 47% in a year. An equally disconcerting op-ed piece in the NY Times on the future of green jobs globally.
"Right now, China is focused on low-cost manufacturing of solar, wind and batteries and building the world’s biggest market for these products. It still badly lags U.S. innovation. But research will follow the market. America’s premier solar equipment maker, Applied Materials, is about to open the world’s largest privately funded solar research facility — in Xian, China.
Instead of a strategic response, too many of our politicians are still trapped in their own dumb-as-we-wanna-be bubble, where we’re always No. 1." Yikes. Well, there may be jobs somewhere, just not in our time zone.......or within 10 hours of your time zone :)
No one has to worry about Social Security running out of money (yet) but this story about people choosing early retirement should cause concern. Not because of the strain it puts on the system, but rather because it speaks to the weakness of the labor market.
"Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.
The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.
Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn't expect the increase to be so large.

"A lot of people who in better times would have continued working are opting to retire," said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. "If they were younger, we would call them unemployed."

Thursday, September 24, 2009

Random Reading

I continue to see the empty high-end hotel market as a minor threat to the banks, but stories like this continue to reinforce how widespread the problem is....

Luxury Hotels Risk Default as $850 Rooms Sit Empty

"Loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default, according to Realpoint LLC, a credit rating company that tracks commercial mortgage-backed securities. Some of the biggest loans, put on the company’s watch list because of late payments, decreasing occupancies or cash flow, were made to luxury properties where rooms can cost more than $850 a night.

“All segments are showing signs of distress but the luxury segment carries much higher loan balances and is more clearly affected,” Frank Innaurato, managing director of CMBS analytical services at Horsham, Pennsylvania-based Realpoint, said in a telephone interview."

Well, this is awkward... 5 Southern Illinois sheriff's cars repossessed. How does that conversation go down?

Repo Man: Sorry sir, but I have tow this car, and that one, and that one.....

Sherriff: Dude, hold on or I'm gonna call the cops....

Crickets chirp loudly and fade to black.

I don't have any skin in the healthcare reform debate and frankly, it's another fiscal issue that's become politicized so I hope to avoid discussing it. Having said that, the system is broken, but I think we're avoiding the hard conversations that might actually fix something. The politicians are battling back and forth over nickels when the big money in healthcare remains off the table.

Here's the reality in my opinion: 1% of our population accounts for 35% of our healthcare expenditures. $67 billion of Medicare spending (roughly 1/3rd of all Medicare expenditures) go cover costs of patients in the last two years of life. Medicare will pay thousands of dollars for endless testing and procedures at the end of one's life, but they won't reimburse for an $18 non-hospice caregiver in the home. We need to have open and honest debates on end of life issues.

Secondly, Americans have shown no consistent ability to make wise choices when it comes to food. We all like bad, cheap food for a reason. The problem isn't one twinkie here or there, it's when the majority of our healthcare expenditures are tied to diseases caused by lifestyle choices. There is no political will for it, but we need a supertax - yes, I'm obviously a Marxist pig because I used the TAX word - on any product that gets an F nutritionally.

I saw box of ice cream cones in Sam's Club yesterday that looked like a good deal -24 M&M ice cream pops for $5.24 or something like that. I almost fell over when I saw the nutritional info -- 63% of your daily allowance of saturated fat in a SINGLE SERVING!!

That product should be a nutritional F and that product should be taxed at 300%, 400% or even 500% if it would change our habits. Sure it would hurt some companies, it would make "treats" a treat again, instead of being part of every meal. We should view many of these products the same way we see cigarettes. You are welcome to indulge, but understand what you are doing to yourself and understand we expect you to pay to take care of yourself in the future.

Unfortunately, this would never happen because we've become so enamored with the rights of the individual that we've forgotten the concept of shared sacrifice.

I guess the CBC documentary on biking really got me going tonight. The Canadians and many others around the world see the value of biking and instead of building new trails they are just converting certain roads to bike-only roads. Sure it might inconvenience a few people at first, but society as a whole benefits.

I'll get off my soapbox now.
Markets look a little dicey as a major tech company, blackberry maker - Research in Motion, has fallen 11% after releasing disappointing results. Asian markets are down 2-3 right now.


Wednesday, September 23, 2009


That was one of the first sell the news days in the market in quite sometime. The market never caught a bid in the last half hour and that was an interesting turn.

The futures have rebounded afterhours, but it's worth watching the trading over the next couple of days.

The best thing I read today was a little historical perspective on what happens sometimes in the midst of volatile markets.

"We noted last week that the Nikkei posted six 20%+ rallies since its bubbleburst in 1990 and no fewer than four 50%+ rallies. Indeed, you can count 423,000 rally points from all the up-days since the secular bear market began in 1990 and yet the index is down 74% since that time."


Finally, this made me chuckle........


Craving Mickey-D's

Have you ever wondered how far you are from your next heart attack, I mean Big Mac? Well, someone asked and a blog delivered.

Wow, talk about your thousand points of light. According to, "East of the Mississippi, there’s wall-to-wall coverage, except for a handful of meager gaps centered on the Adirondacks, inland Maine, the Everglades, and outlying West Virginia.

For maximum McSparseness, we look westward, towards the deepest, darkest holes in our map: the barren deserts of central Nevada, the arid hills of southeastern Oregon, the rugged wilderness of Idaho’s Salmon River Mountains, and the conspicuous well of blackness on the high plains of northwestern South Dakota. There, in a patch of rolling grassland, loosely hemmed in by Bismarck, Dickinson, Pierre, and the greater Rapid City-Spearfish-Sturgis metropolitan area, we find our answer.

Between the tiny Dakotan hamlets of Meadow and Glad Valley lies the
McFarthest Spot: 107 miles distant from the nearest McDonald’s, as the crow flies, and 145 miles by car!"

Wow, 145 miles by car!!! Makes our 28 mile jaunt for two all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun, look like a walk in the park.

Dow 10,000?

Well, here we go again. The Dow is a meaningless index of 30 stocks and it is a price-weighted index which reduces its value, but it won't matter because all we'll hear about for the rest of the week is DOW 10,000 if we get there.

The Fed basically held pat and that rallied the market to within spitting distance of 10,000. Will it hold or will they sell the news?

Stay tuned.

Tuesday, September 22, 2009

One of these things is not like the others

This chart shows the percentage change in recent bear markets from the lows relative to the change in volume. Ideally, you would see a substantial move in the markets accompanied by a meaningful jump in volume as investors return to the markets. While the current rally has been historic, the volume accompanying that change has been anemic.


This is a lot of red for the green shoots crowd...

Basically the red states are contracting and green states would be expanding. North Dakota is ROCKING!! Uh, the rest of us..... not so much.

The monthly Philadelphia Fed Coincident Index survey was released today and data was not very encouraging. I look at coincident and leading indicators for indications of shifts in trends. This report should give all the recovery crowd pause.

"Over the past three months, the indexes increased in six states, decreased in 40, and remained unchanged in four."


Perhaps equally troubling is the news that mortgage delinquencies seem to be ACCELERATING despite all of the government programs put in place to allow for mortgage modification.

"Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters.

August marked the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace. By comparison, 4.89 percent of mortgages were 30 days past due in August 2008, while in August 2007, the rate was 3.44 percent, Equifax data showed.

The rate of subprime mortgage delinquencies now tops 41 percent, up from about 39 percent in each of the prior five months."

Think about that for a moment. Roughly 1 in every 12 homes with a mortgage is 30 days late on their mortgage payment. If you live a subprime area, 2 out of every 5 homes is behind on their mortgage. Anyone else get the feeling that we're just kicking the can down the road?


Monday, September 21, 2009

What I'm reading...

A selection of the finest of the web tonight....

1 - John Hussman of Hussman Funds noted a shift in their position as a result of "My discomfort about strenuously overbought and moderately overvalued conditions overlaps with skepticism about the U.S. economic “recovery,” which appears to be nothing but an artifact of government spending, while intrinsic economic activity remains weak."

"The percentage of bullish investment advisors now rivals that seen at the 2007 peak. Stocks are strenuously overbought. The S&P 500 is overvalued to the extent that we now expect just a 6.6% annual total return over the coming decade (a level that except for the period since the mid-1990's has corresponded more to bull market peaks than bases for sustained advances). Historically, such combinations of overbought, overvalued, overbullish evidence have generally been unrewarding, so we don't even need to consider special cases."

It's difficult to say, if or when the buying will relent, but when thoughtful, well-connected individuals indicate that a top is near it's worth adding to your list of "points to ponder".

2 - We heard from some pundits today that the economic recovery will not be based on the shoulders of the already burdened consumer, but rather driven by increased corporate spending. Well, Caterpillar might be a pretty good gauge of those increases in corporate spending and frankly it's looking pretty bleak from CAT's perspective.

"The maker of heavy industrial vehicles and equipment showed that dealer sales of its heavy equipment fell by a whopping 48% in August. The largest drop was in the truck and bus segments and in its industrial segment. Also noted was that North American dealer sales of its equipment were down by 57% in August. This is a slightly less-bad figure than the -59% reported for July. By region, Latin America sales fell by 37% in August versus a 28% drop in July; while Asia-Pacific region saw a 33% drop compared to a 30% drop in July. The EMA, or Europe, Middle East, and Africa, was down 50% in August as it was in July."

3 - Swine Flu Part II - There are some interesting things to watch over the next 6 months with regards to the Swine Flu. Watch what happens internationally, particularly among poorer countries that have large natural resource exports and watch what happens domestically if employers start seeing large absenteeism due to prolonged outbreaks of the flu.

Consider this piece -- US business group warns of swine flu absenteeism

"The largest American business federation presented scenarios in which more than 10 percent of staff are too sick to come to work on any given day over the course of several months to a year."

"In communities where H1N1 flu circulated this past spring, the infection rate was roughly 6 percent to 8 percent over a three- to four-week period. During the winter season, infection rates could be two to three times higher, as both the H1N1 (swine) flu and the seasonal flu circulate and sicken people simultaneously."

Also, note the UN report that was leaked to a UK paper that indicated that millions could die in the world's poorest countries.

Just something to have on your radar.


Sunday, September 20, 2009

It's great time to buy a home if you can wait until 2030

I'll preface this by saying that Moody's rating service failed to see the housing collapse and continued to rate many bonds AAA well into 2007-08 as the financial world was imploding. However, their latest call on housing is worth reading especially considering how far and fast home prices have fallen in recent years.

Look at some of those data points. Moody's estimates it will be more than 14 years before housing recovers in AZ, NV, CA, FL, MI, etc. Even historically strong economies like NY, NJ, IL, and GA are not predicted to recover for a decade. From the Moody's piece...

Yet Moody's predicted home prices "will remain at a persistently lower level than we anticipated prior to the crisis, and it will take a full decade from the 2010 bottom just for the [Case-Shiller] national index to climb back to its 2006 peak."

On a regional basis, Moody's said hard-hit states such as Florida and California will be among the last to recover and "will only regain their pre-bust peak in the early 2030s, well after the nation does." Meanwhile, a decimated Wall Street will weigh on New York's recovery, although the state's overall price decline will be less severe.

Finally, a small note of thanks to a Garth and his wonderful family at the Wolfe Island Corn Maze. I was in the midst of a fantastic two nation bike tour from Clayton to Kingston and back when my supposedly high-end tubular tire failed AGAIN. This left me with few choices but to walk across Wolfe Island. Many Canadians stopped to offer help but my tire was beyond repair. Finally, I crossed paths with a fellow biker that offered to give me a lift to the ferry. Thank you and I'll be sure to pay it forward!


Thursday, September 17, 2009

I'm speechless

These pictures popped up on the web today....

Really? The recession is so bad that you need to grill on a grocery cart? I presume that these gimmicks to drive web traffic.
"I'm in such bad shape that I have to grill on a grocery cart but let me take a photo of my grill with my iPhone or $399 Nikon DSLR."

SEC proposes ban on flash trading...

This seems obvious and it's a good move from the SEC (and Sen. Schumer). Flash trading has added to the volatility of the markets in recent years and has produced massive profits for those that have access to massive computing power and access to early order information.

"The U.S. Securities and Exchange Commission proposed banning flash orders after lawmakers said the practice may give hedge funds an advantage over other investors.

SEC commissioners unanimously voted today to seek public comment on a rule barring exchanges and trading platforms from giving clients access to information about stock orders a fraction of a second before the market. The proposal requires a second vote at a later public meeting to become binding.

“Investors that have access only to information displayed as public quotes may be harmed if market participants are able to flash orders and avoid the need to make the orders publicly available,” Chairman Mary Schapiro said.

Democratic Senators Charles Schumer and Ted Kaufman urged the commission to halt the practice, arguing frequent traders use technology to profit from access to information not available to retail investors. Direct Edge Holdings LLC has relied on flash orders to take market share from NYSE Euronext."


Is someone manipulating the price of milk?

This is clearly a sensitive issue for anyone living in the North Country given our long-standing relationship with the dairy industry.

Farmers are understandably distraught by the 30%+ decline in milk prices in the past 2 years (they were surprisingly less upset by the 50% INCREASE in milk prices in 2006-07). The sharp decline in milk prices has farmers demanding investigations into the buying practices of major producers to see whether or not anti-competitive forces are at work.

Mish Shedlock has done a good job showing that milk is just another commodity. When supply rises and demand falls guess what happens??? Prices fall.
Now the severity of the swings has been more significant than we've seen in the past, but look at this price chart. The average price per 100lbs of milk has been about $13.80 over the past ten years. Today the price is around $12/100lbs of milk.
Consider what happened in 2006-07 as milk prices soared (almost DOUBLING in about a year) farmers added nearly 190,000 dairy cows to the US herd - increasing supply of milking cows by 2%. Throw in the added yields from every cow and a falling demand as a result of the global recession and you can see why prices have retreated.
Prices in 2007 for milk probably went about 20% too high - like they did for other commodities oil, copper, etc - and they may have over-corrected here by 10-15%, but the argument that there is some corporate conspiracy to stick it to the farmer is just not based on facts.
We're about to enter a special election season here in Northern NY. The first candidate to come out in support of an investigation into milk pricing (and you know one of them will) will lose all credibility in my book.
Separately, Belgian farmers protested the price of milk by spraying their fields with excess milk.
This actually, is the first step in improving prices --- reduce supply :)
They should have partnered with Nabisco and had kids chasing the tankers with bags of Oreo's. Now that would have been some marketing.

Circular logic...

I love this...

The best comedy is based on reality.

Wednesday, September 16, 2009

Economic addictions....

As we near the end of the first time homebuyer $8,000 tax credit many people tied to the real estate industry fear that they are about to suffer their own Cash For Clunkers style crash after the buzz wears off.

Cash for Clunkers worked. It was a terribly inefficient way to get old cars off the road and it cost WAY too much money for too little economic impact but it drove up sales. The problem with stimulus - or stimulants for that matter - is once you have a taste for that easy money you want it again and the next time you want more of it.

The first time home buyer credit has caused a similar frenzy at the low-end of the housing market. With the FHA aggressively lending and $8,000 representing up to 10% of the purchase price of many homes in the North Country this has kept the low-end of the housing market hot (I'll note that high-end properties in the North Country seem to be dead in the water).

But now this tax credit is set to expire and what do we hear? Maybe we need EXPAND it, INCREASE the size, etc, etc. The limping housing market has been propped up by stimulus and like any good addict, instead of seeking treatment we just want more, more, more!!!

"The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion."

Mr. Bernanke basically called an end of the recession yesterday and I can't disagree. He has access to more data any of us so his opinion should carry some weight (much of it flawed data, but you know the old saying garbage in garbage out).

I'd just note a couple of things -

1) Mr. Bernanke does not have a great record as a forecaster. Mr. Bernanke believed the subprime issues were contained, that housings problems would not impact the rest of the economy and that the Bear Stearns situation was a one-time issue. Oopsie!

2) People continue to view stock market activity as a measure of economic activity. The stock market has become so disconnected from economic activity that it has become its own system for GENERATING economic activity rather than just measuring economic activity. Talk to anyone in the "real world" - businesses selling to consumers or other businesses - not government related entities - and you get a startling wake-up call. Business around the US appears to be getting worse not better for virtually every sector save the financial sector (and that is largely due to government stimulus - see above :).

I'm not saying that we are still in recession, but I think it's way too early to break out the champagne and party like it's 2006 again.

I don't really have an axe to grind with law enforcement. I appreciate their protection, but I feel that in many municipalities they might be migrating from serving and protecting to a role more similar to that of a tax collector. Write the tickets and earn commission........I mean, overtime.

Long Island apparent has 11 cops making over $200,000.......Pretty good work if you can get it.

"Long Island's highest paid police officer earned over $246,000 last year while working on Nassau County's drunken driving enforcement team.

Department records show that highway patrol Officer Daniel McKenna's earnings included more than $113,000 in overtime. The 14-year veteran of the force did not respond to an interview request. Nassau County's tough line against drunken drivers helped 11 police officers earn more than $200,000 last year."


Tuesday, September 15, 2009

I think we should teach skepticism in school

The retail sales data came out today and EVERY news site ran with the Commerce Departments 2.7% INCREASE in retail sales in August. I hate having to do this again, but let's break it down again....

1 - The headline sales data includes the highly volatile auto sales which were skewed to the upside by Cash for Clunkers. Excluding auto sales, retail sales were still up a respectable 1% or roughly $3 billion. It's interesting to note that even with the massive Cash for Clunkers program sales for August were still down 5.3% from August of '08.

2 - So where did the $3 billion in added sales come from? Let's see:

Furniture down $120 million

Electronics up $90 million

Building material down $290 million

Health/Personal care up $90 million

Clothing up $400 million -- due to back to school shopping remember these numbers are shown increasing or decreasing relative to July. Relative to August of 2008 clothing sales were down more than a billion dollars.

Restaurants up $100 million

After netting all of these swings against each other you get a fairly modest jump of about $270 million showing sales up not 2.7% or 1%, but just 0.09%. Hmmm, something must have caused the big spike, but what?

Well, there was a $1.5 Billion JUMP in Gas Station sales - gas prices have been trending up all summer. There was also a $800 million jump in general merchandise sales at stores that include warehouse clubs -- many of which sell huge volumes of GAS!

So, the BIG JUMP - which was really a decline when compared to Aug 2008 - was due to Cash for Clunkers and rising gas prices. Sounds like winning combination for the economic recovery, huh?

I'd be more accepting of this sort of data regurgitation if it wasn't so easy to find the real data online. It takes about 12 seconds to search for the latest release from the census department and another 30 seconds to interpret the data and realize that sales didn't JUMP 2.7% in August.

If sales fall in the next few months watch out for people laying the blame at the feet of falling gas prices. They aren't giving gas prices the credit on the way up, but they'll blame gas prices if sales fall.


Take this for what it's worth, but the level of short interest in the market is back at it's lowest level in more than 30 months. Either this means we are out of the woods OR if you subscribe to contrarian thinking, that things might be about to get worse.


Is it a snake with a foot or a lizard missing 3 legs?

Ok - this is WAY off-topic, but every once in awhile you see something online and say "whoa, I haven't seen this before".

Today was one of those days.
According to the UK Telegraph......
"Dean Qiongxiu, 66, said she discovered the reptile clinging to the wall of her bedroom with its talons in the middle of the night.

"I woke up and heard a strange scratching sound. I turned on the light and saw this monster working its way along the wall using his claw," said Mrs Duan of Suining, southwest China.
If you ever, ever, hear me complain about the wind, cold or snow in the North Country again please remind me that at least I don't have to wake up to the sound of a snake climbing my bedroom wall WITH IT'S CLAW!!

Monday, September 14, 2009

Insiders not really loving their own companies

There is an old theory that says no one knows a company like the executives of a company and thus, you should follow their trading patterns in order to glean a bit of knowledge about a company's prospects.

Well, if that theory holds true, you might want to start stockpiling some twinkies and spam because insiders appear to HATE the prospects for their companies.

Insiders sell like there's no tomorrow....

"While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals.

"Insiders know better than you and me. If prices are too high, they sell."

Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn't the only one who has taken note. Ben Silverman, director of research at the web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.

Silverman said the "orgy of selling" is noteworthy because corporate insiders were aggressive buyers of the market's spring dip. The S&P 500 dropped as low as 666 in early March before the recent rally took it back above 1,000. "

As we observe the one year anniversary of the beginning of the financial crisis, I'd like to offer up one observation. The financial industry should help grease the wheels of global commerce, but it should not be in and of itself, the driver of economic activity. In 2009, I think we've seen the big banks become more aggressive in an effort to recover faster and that could make things very challenging for our recovery prospects.


For Rent....Bring offers :)

This Washington Post story highlights the challenges facing the commercial real estate market. When properties sit empty it impacts the banks that financed them and the cities/counties that expect these buildings to add to the tax base.

"Constitution Center in Southwest Washington seems the ideal place for a federal agency or security-minded company to locate. So says an online sales pitch.

But property managers for the 1.4 million-square-foot building, which is scheduled to be completed in November, have yet to land any tenants."

"A lack of tenants in the late stages of a project was rare during boom times but is becoming more typical now, commercial real estate experts say, as businesses retrench operations and reduce their need for additional office space. In June, according to Delta's analysis, the amount of vacant space in the region soared nearly 24 percent, to 47 million square feet from 38 million during the same month a year earlier.

"We have 14 million square feet [of office space] vacant," said Jerry Gordon, president and chief executive of the Fairfax County Economic Development Authority. Gordon said that numerous agencies have cut their budgets because the county is losing tax revenue as housing values decline. "We need more revenue from the commercial side of real estate" to make up for shortfalls on the residential side, he said. "That revenue comes from new construction, which won't happen until we fill the old space."

I think you can relate stories like this to your own region - in 2005-2007 did you see an excessive build up of hotels, strip malls, and office space? I thought so.


Are the banks in worse shape today than they were pre-Lehman? Wow, how could that be? That is the contention of Nobel Laureate economist Joe Stiglitz who says...

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview yesterday in Paris. “The problems are worse than they were in 2007 before the crisis.”

I think his contention is not that the banks are in worse financial shape than they were in 2007, but rather that our problem with banks being too large to fail has grown. I think this is probably an accurate representation of the situation, unfortunately.

Unemployment runs out for 33,000 in a high cost state....

"An estimated 33,000 New Jerseyans will receive their final unemployment check Friday, and the state estimates that benefits will dry up for about another 3,500 to 4,000 each week through the end of the year as residents exhaust the unemployment insurance benefits available to them.

Help for the unemployed now rests on Congress, where legislation is pending that would extend benefits, likely for another 13 weeks.

In New Jersey, and many other states, out of work residents can collect unemployment for 79 weeks.

But nationwide, 500.000 people are expected to reach the maximum threshold this month and 1.5 million people by the end of the year, according to the National Employment Law Project (NELP)."

That is particularly striking - after 79 weeks of unemployment (a year and a half) 33,000 people have been unable to find work. Maybe this isn't just a jobless recovery, but maybe a jobsLost recovery.


Sunday, September 13, 2009

Trade war coming?

I'm sure that there are about 18 different layers of international trade negotiations that I am unaware of, but the bold move by the US to fire the first shot in a possible trade war with China seems odd and ill-timed.

"The U.S. would impose remedies under Section 421 of the 1974 Trade Act to stop a harmful surge of imports into the U.S. of Chinese tires for passenger cars and light trucks. Following what the ITC determined was a surge, production of similar products in the U.S. dropped, domestic tire plants closed, and Americans lost their jobs.

The agency posted the following penalties: The three-year remedies, consisting of an additional tariff of 35 percent ad valorem in the first year, 30 percent ad valorem in the second, and 25 percent ad valorem in the third year, are being imposed."

"China’s share of the U.S. tire market surged 255% in that time, to 16.7% from 4.7%."

I think it's pretty clear that China's tires serve the low-end of the US auto tire replacement curve. China argues that the US tire manufacturers have long ago abandoned this segment of the market and I think their argument is pretty sound.

Late on Sunday, China said they were going to look at US imports - autos and chickens - and possible dumping by US companies in the Chinese market. I don't expect this to get too heated but it's something to watch.

The growing US poverty problem

"The nation’s poverty rate climbed to 13.2%, up from 12.5% in 2007. That is almost certainly a sign the economy has decimated the earning power of millions of Americans. The number of people living in poverty is likely to be closer to 14% next year because unemployment is so high now.

The problem of lower wages has affected more than the poor as the median family income fell to $50,300 in 2008 from $52,200 in 2007."

I have a number of big picture concerns facing the US, but I think the stresses on our social safety nets - unemployment, social security, etc - as job losses grow, Federal tax receipts fall, state tax revenues fall, etc, has to be near the top of my list.


Thursday, September 10, 2009

Markets march on...

I'll admit to being more than a bit surprised by the slow, steady grind upward in the past week. I was in the camp that said once people got back from vacation we'd see some substantial volatility and the markets seemed primed for a pullback, but every bit of bad news this week has been met with more buying so I don't think anyone has a clear idea of our direction right now.

The best observation I read today though came from Dave Rosenberg:

1. This remains a hope-based rally (with strong technicals). I say that because during this six-month 50%+ rally in the S&P 500, the U.S. economy has shed 2.4 million jobs, which is almost as many as we lost during the entire 2001-02 tech wreck — in just six months. The market’s ability to shrug off the loss of 2.4 million jobs is either a sign that it is treating this as old news or sees the cost-cutting as good news for profits. Either way, what we are seeing transpire is without precedent — the magnitude of the employment slide versus the magnitude of the market advance. Truly fascinating stuff.

I'll echo that the anecdotal evidence is that there are waves of more layoffs coming. Corporations realize that their revenues continue to shrink and cutting payroll is the only way to stay profitable. This is a short-sighted approach that will delay any recovery when it comes, but it is the new "normal". Think about that number - we've lost 2.4 million jobs in six months while the stock market has soared - something is wrong with that picture.

2. Companies have not really been beating their earnings estimates — only the very final estimates heading into the reporting quarter. For example, the consensus view for 3Q EPS at the start of the year was $21.00, last we saw the estimates were down to just over $14.00. But there is a deeply rooted belief that earnings are coming in better than expected. This is a psychology that is difficult to break. It is completely unknown (for some reason) that corporate revenues are running at a -25% YoY rate, which compares to the -10% we saw at the worst part of the 2001-02 bear market and the -3% trend at the most negative point in 1991.

Again this speaks to the severity of the decline in corporate operations. Revenues are down sharply and you can't cut fast enough to offset these declines.

3. All the growth we are seeing globally this year is due to fiscal stimulus; not just here in Canada and the U.S., but also in Korea, China, the U.K., and Continental Europe too. For 2010, the government’s share of global growth, by our estimates, will be 80%. In other words, there are still very few signs that organic private sector activity is stirring. Today’s stimulus is really a future tax liability.

When I look at any entity to gauge the quality of its growth the first question I ask is always --- Is the growth organic or inorganic? Organic growth is growth due to increase volumes or pricing because your product is in demand. Inorganic growth is growth through acquisition or adding more locations, etc. Obviously organic growth is much higher quality than inorganic growth. All of the stimulus is inorganic growth.


What will local auto sales look like this fall?

While it's clear that the Cash for Clunker program drove sales in August I find the increase to be surprisingly low based on our local data reported yesteday.

Just under four hundred new vehicles for the month were sold which translated to just a 6.3 percent increase from last year. With cash flooding the auto market via the cash for clunker program, sales for the month were still down seventeen and twenty nine percent when compared to sales 2 years ago or 3 years ago.

Perhaps the most interesting breakdown of the data is that thirty percent of all vehicles sales in Jefferson county in August were Kia/Hyundai last month, while Toyota accounted for another twenty percent of sales.

Finally, the most startling stat may be that Buick, Cadillac, Ford and Chrysler combined to account for just 1 percent of all sales in Jefferson county last month - just 4 cars.

It would be interesting to see the total dollar value of cars sold because I think that would show a shocking change. While the number of vehicles sold increased, the shift in the market toward low-priced imports means that the dollar value of vehicles sold could have fallen in August despite the increase in unit sales.


Wednesday, September 09, 2009

$34 here, $34 there -- it starts to add up...

The concept of bank overdraft fees is dated and should really be changed in the era of debit cards. Banks should have the right to charge a reasonable fee for the first overdraft - perhaps not to exceed the value of the transaction - but after one overdraft, the bank should notify the customer via cell phone or email that their account is frozen.

For one person to incur $238 in fees in a day without knowing that he was spending money he didn't have is unacceptable in our wired world. The customer here also needs to get a grip on his own finances - if you're out of cash, $4 coffees at Starbucks might have be dropped from your daily shopping list.

"When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward.

He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge."


Tuesday, September 08, 2009

Credit contraction and mortgage markets

The consumer continues to retrench and that was demonstrated by the record plunge in July's consumer credit.

"Consumer credit fell by a record $21.6 billion, or 10 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington.

Credit dropped by $15.5 billion in June, more than previously estimated. Credit fell for a sixth month, the longest series of declines since 1991.The arrival of the government’s “cash for clunkers” program in late July wasn’t enough to keep credit that covers car loans from plummeting by a record amount, as consumers delayed other purchases.

Economists had forecast consumer credit would drop $4 billion in July, according to the median of 31 estimates in a Bloomberg News survey."

This has far reaching implications for retail this fall as we head into the holiday shopping season. If the access to credit still shrinks while consumers experience a weak job market the prospects for spending will be bleak.

I think we've all been aware of the growing role that the Federal Government was taking in the housing market but the flood of data over the past few days has really shed substantial light on just how large of a role the government is playing.

Only one lender of consequence remains: the federal government, which undertook one of its earliest and most dramatic rescues of the financial crisis by seizing control a year ago of the two largest mortgage finance companies in the world, Fannie Mae and Freddie Mac.

While this made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, the government's newly dominant role -- nearly 90 percent of all new home loans are funded or guaranteed by taxpayers -- has far-reaching consequences for prospective home buyers and taxpayers.

The government has the power to decide who is qualified for a loan and who is not. As a result, many borrowers among both poor and rich are frozen out of the market.

Nearly one-third of those who obtained home loans during the boom years of 2005 and 2006 couldn't get one today, according to mortgage industry analysts. Many of these borrowers were never really able to afford their homes and should not have gotten loans. But many others could, and borrowers like them are now running into tougher government standards.

At the same time, taxpayers are on the hook for most of the loans that are still being made if they go bad. And they are also on the line for any losses in the massive portfolios of old loans at Fannie Mae and Freddie Mac, which own or back more than $5 trillion in mortgages.

There is growing evidence that many loans being guaranteed by the government have a significant risk of defaulting. Delinquencies are spiking. And the Federal Housing Administration, another source of government support for home loans, is quickly eating through its financial cushion as losses mount.

The outlay has already reached about $1 trillion over the past year and is rising. During that time, the government has pumped more money into the mortgage market than has been spent on Medicare or Social Security or the defense budget, more even than Washington has paid to bail out banks and other struggling companies.

"Absent government intervention, there would be no lending," said Nicolas P. Retsinas, director of Harvard University's center for housing studies." Washington Post

I'll leave it to the talking heads on TV to debate the value of government intervention in these markets, but my issue is with the fact that we appear to have not learned any lessons over the past 4 years. If the government wants to be in the mortgage business - great, but lets make sure we don't repeat the same mistakes by lending to people that can't afford their homes if rates go up or if they lose their job or will walk away if the house value falls 8 percent because they only put 3 percent down. Ooops, too late.


Monday, September 07, 2009

Ten years and no jobs....

I know everyone got pretty worked up on Friday because the jobs reports showed fewer jobs shed than expected. Two things:

1 - The Bureau of Labor Statistics continues to act like the Bureau of BS - adding 118 thousand jobs that are out there just not measured yet because of all the hiring going on at new start-ups. Give me a break. That's silly.

2 - There are three states for the job market. We can be adding jobs, losing jobs or holding steady. Even with the wacky birth/death addition of 118k jobs last month our economy still shed over two hundred thousand jobs. So while, we're not losing jobs like we were in January it's far from certain that we won't return to those levels again in a year.

Finally, this chart is eye-opening and it should remove any partisan arguments about one party versus another...

This shows the total number of jobs created in the US over a ten year period. Note that we're now in the red for the past decade. Considering the growth in US population during this period, this number is really startling. This chart doesn't show 2.1 million new government jobs created in the past decade - mostly in education and security - but it's amazing to think that we could be looking at a decade with no new jobs. I also argue that since not all jobs are created equal - replacing a quality assurance job GM with a cashier at Target - the gross income of all employed individuals is likely to continue to fall.

As we approach the 8th anniversary of the attacks of Sept 11th, I found this story on CNN depressing, scary and even a little intimidating...

Four hundred thousand workers, 22o mph trains, three hundred billion dollars...... Anyone want to give me the odds that their train network is done before the World Trade Center is rebuilt?

Oh boy, here we go again...

I know that this is just one couple and they live in San Francisco and house prices have "tumbled" in the Bay area, but oh my, what knucklehead gave this couple a loan.....

He's a crane operator and she's a hairdresser paying three quarters of million for a three bedroom house. Again it's just anecdotal evidence but all of the most questionable loans in the CNN piece seem to be FHA loans.

Including this masterpiece - "The house was $257,000, and I needed to put down 3.5% to meet the FHA rules. I didn't have all of the $9,000 required, but then I found out about the FHA's new program where you can use the tax credit for the down payment."

Maybe I'm old school, but if you don't have nine thousand dollars, maybe you should be buying a house for a quarter of a million dollars.

This has lead some to question if the FHA is the next big bailout looming on the horizon...

"The FHA's aggressive lending programs have continued throughout the housing downturn, causing its market share of the mortgage industry to grow from 2% in 2005 to 23% today. ...

The FHA insurance fund, however, is likely running dry. ...While almost all of the experts believe that Congress would support the FHA if necessary (it's currently self-funded), we wonder if FHA officials will be under pressure to continue tightening their lending policies, which currently allow 96.5% mortgages to people with 600 FICO scores. ... Claims against the insurance fund have climbed, with roughly 7% of all FHA-insured loans now delinquent."

The FHA has increased it's market share ten-fold because they still issue 3 percent down even if you have a terrible credit score.

Well, what's another couple of hundred billion among friends...


Thursday, September 03, 2009

Upstate NY's rapidly expanding hotel inventory...

I don't have the official number but I'd guess that probably 400-600 new rooms have come online recently in Watertown area as several large hotel projects have completed.

Today's news that NYS was going to grant $2.5 million to develop a building in downtown Watertown seems interesting. While I welcome any efforts to restore downtown, I think we need to realistic with our expectations. Consider the consequences of overbuilding....

Portland's hotels face grim prospects

"Hilton's decision to shutter its original 23-story building for four weeks this winter frames a grim picture for a hotel industry battling corporate travel cuts and consumers' belt-tightening.

Hilton's original 1963 building is a local icon of the travel industry. The hotel has provided temporary shelter for famous faces from George W. Bush to former South Korean president Kim Dae-jung to boxer Muhammad Ali to celebrity sex doctor Dr. Ruth.

But for two weeks in November and one week each in December and January, the Hilton's presidential suite -- along with all other rooms in that building -- will go dark."

or at the high-end: Maui Prince Faces Foreclosure

Maui Prince Hotel is the target of foreclosure proceedings and the cancellation of a management contract just two years after a Morgan Stanley real-estate fund and local developers bought it for $575 million.

Mortgage-holders led by Wells Fargo Ba
nk sued last week to foreclose on the 310-room resort, following the owners' failure to pay the resort's $192.5 million mortgage when it came due in July. The foreclosure threatens to wipe out the $227.5 million in mezzanine debt held by a UBS fund and the $250 million in equity that Morgan Stanley and its partners put into the property.

This week, Prince Resorts Hawaii, which stayed on as the resort's manager after selling it to the Morgan Stanley group in 2007, disclosed it will stop managing the resort Sept. 16 due to a shortage of funds from the resort's owners and lenders. "We do not have funding for payroll, but we are getting some funding for our accounts payable and basic operating expenses," said Donn Takahashi, president of Prince Resorts Hawaii, which manages three other resorts on the islands. "We cannot operate a top-notch resort in this fashion."

Now clearly Maui is not nearly as upscale as downtown Watertown, but maybe there are some warning signs showing up in the hotel market.

Tuesday, September 01, 2009

Turn the calendar and stocks drop?

The general consensus floating around Wall Street seems to be September is historically weak so when the calendar says 9/1/09 you obviously must sell stocks (sarcasm free of charge!).

You might just as well run your investments according to the position of Saturn and Jupiter relative to Mars. It's silly logic, but I don't make the rules, we just have to be aware of what the market is thinking.

Surprisingly, much of today's economic data was pretty decent, but I think most people view the "less worse" data as being in the rear view mirror. Asian markets continue to slide in early trading and the volume in the US today was substantially to the downside. I still contend that many Wall Street money managers are on vacation this week so the kids at the controls this week have 1 job - don't lose too much money. The really action should kick in next week after the big boys (and girls) get back from the Hamptons.

Cash for Clunker follow-up: August car sales came in at 1.17 million which was the best month since May 2008. While this should be viewed as a positive for the industry, I think it speaks to the fact that the US consumer remains tapped out. Most people believe that around 550,000 cars were sold under the CFC program in August. When you back that number out of the total auto sales number you get a monthly total of around 557,000 units. Now that's not an accurate view because some cars bought under the CFC program would have been bought anyway, but I think it's clear that September will show a dramatic decline in vehicle sales and I'd put the over/under at 700,000 units.


Tiny bubbles...

When I first saw this quote circulating earlier this week, I thought it was a bit from The Onion or maybe The Daily Show. While many people believe that central banks are doing their best to create another asset bubble, no one would be so bold as to say that in public would they?

Well, apparently the head of the China Investment Corp felt up to the task.

"It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose," he said.

Well, maybe he views that he can't lose, but as we've seen bubbles tend to end badly and tend to hurt the man on the street that doesn't have $298 billion to invest (rough estimate of the value of the China Investment Corp).