Sunday, November 22, 2009

Time for a little R and R...

Postings will be spotty over the next two weeks as I hit the road. Here are the things to watch out for....

Existing Home Sales: Will probably be strong, but they were distorted by all of the people that rushed to buy a house before the expiration of the tax credit (before it was extend).


Industrial Production and Capacity Utilization increased slightly in October, but the rate slowed substantially. Consistent with the thesis that we may double dip.

Builder Confidence was still very low in November - The builder housing market index was just 17 in November. Any number under 50 indicates builders think conditions are more poor than good.

Housing Starts declined sharply in October.

Architecture Billings contracted again.


PS: The ten day forecast at my destination calls for daily temperatures of 84 degrees and sunshine. Enjoy the first lake effect snow of the season later this week. I'll be thinking of you all :)

Thursday, November 19, 2009

It's (still) all about the Benjamins...

The dollar still rules the financial markets as today the dollar strengthened in the face of weak economic data as some traders are starting to suspect maybe the dollar decline has run it's course. As I said, the other day if we get religion on spending, the dollar will probably strengthen and that's a scary prospect for stocks because the only reason people are buying equities is to defend against the falling dollar. If the dollar rebounds look for people to move their assets into the next hot thing.

Inquiring minds are reading Societe Generale's doomsday forecast in the Telegraph. They present this as their worst case scenario. We better hope they assign a low probability of this scenario occurring.

"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.

The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. "High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said.

The bank said the current crisis displays "compelling similarities" with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.

Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone. However, sovereign bonds would "generate turbo-charged returns" mimicking the secular slide in yields seen in Japan as the slump ground on.

Mr Fermon said his report had electrified clients on both sides of the Atlantic. "Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried," he said.

This is one of the golden rules of research, be different and have an opinion (preferably a controversial one). Obviously, it's worked for Mr. Fermon as his report is getting a good deal of coverage today. This tends to mesh with my thinking that we're likely to take a double dip in 2010, but less because of the debt load of industrialized nations and more because of the lack of organic growth in traditional growth industries (tech, pharma, etc). I think these industries are actually still contracting so I find it hard to be optimistic about their prospects in 2010.


Tuesday, November 17, 2009

The Internet recession

I like the analogy that rather than a V, L or W shaped recovery we might be facing a WWW recovery (or retreat - chose your poison) or an Internet recession.

We plowed trillions into bailouts and stimulus and the results were expected to produce 3-4% growth in the third quarter and stronger growth beyond that. Well, those in the know have started backing off those predictions (a couple of Wall Street firms have starting edging expectations down to 3% for the 3rd quarter).

The Fed's Dallas president yesterday seemed to hint that 2.5% might be the new goal for 3rd quarter growth. That's far below our long-term growth rate and below the threshold needed to create new jobs. This creates two questions:

Do we need a larger, more aggressive stimulus plan?


Do we hit the brakes and try to gain some fiscal restraint?

I'm not sure which we're leaning. There are plenty of powerful voices on both sides of the argument, but it should be interesting to watch. If I were a betting man, I'd guess that we're going to get religion on spending and start making hard cuts in 2010 so the Democrats can run on a deficit hawk platform. This would like firm up the dollar and whack the stock market.

Wow, I would have loved to have been in on this auction.

"Nearly 35 years after taxpayers spent $55.7 million building the Pontiac Silverdome and a year after a $20 million sale fell through, city officials have sold the arena once called the most desirable property in Oakland County.

The price: $583,000."

"The 80,300-seat stadium opened in 1975 and has largely remained empty since the Detroit Lions left for Ford Field in 2002. The sale included 127 adjacent acres."

Wow, I knew times were tough in Detroit, but $583k for the Silverdome? There are condos in Clayton priced almost that high.


Where are the jobs?

It's very early in the cycle to be making any long range forecasts, but I've heard more than enough anecdotal evidence to suggest that as the unemployment rate ratchets up, more and more highly educated, highly paid workers are considering and actively seeking work overseas.

The US has long been the great brain drain for the world. The best and brightest have long aspired to live the American Dream with a white picket fence and two BMWs in the driveway (see the related story below "Living on Severance" -HT to Eric I.)

However, as highly skilled jobs remain increasingly difficult to come by, many are beginning to rethink their ties to the USA and starting to look overseas.

"Jeff Joerres, CEO of Manpower, the No. 1 U.S. staffing company, says about 500 clients are seeking jobs abroad, up from a few dozen six months ago.

"It suddenly looks like there may be better opportunities outside the U.S.," Joerres says. "It is a phenomenon we haven't had before."

While the number of globe-trotting job candidates is still relatively small, the trend reverses a longtime pattern of far more foreign workers seeking jobs in the U.S., Joerres says.

Fifty-four percent of executives said they'd be likely or highly likely to accept a foreign post, according to a survey of 114 executives Friday by talent management company Korn/Ferry.

The hottest international job markets include India, China, Brazil, Dubai and Singapore, recruiters say. International companies are largely seeking candidates in engineering, computer technology, manufacturing, investment banking and consulting."

This is a very narrow survey, but it deals with an important demographic - executives. Executives tend to be high wage earners that produce large tax receipts and have a substantial impact on their local communities. Losing people like this to overseas markets would be a disturbing long-term trend if it becomes reality.

I see it in my own industry. People that formerly worked in NY, Boston or Chicago, are relocating to Zurich, Dubai or Mumbai. Something to watch.....

I really wanted to feel sorry for the people profiled in Life on Severance, but they really make it hard to feel bad for them.

"Paul Joegriner hasn't worked since March 2008, when he was laid off from his $200,000-a-year job as chief executive officer of a small bank. But you wouldn't know it by appearances.

His wife, Marzena, shuttles their two young children to private school every morning. The family recently vacationed in Virginia Beach, Va., and likes to dine on Porterhouse steaks. Since losing his job, Mr. Joegriner, 44 years old, has had several offers. He's turned each down in hopes of landing a position comparable to what he held before.

The family's lifestyle over the past year and a half has been propped up by a $200,000 severance package and another $100,000 in savings -- funds the family has burned through rapidly. By Mr. Joegriner's own calculations, the family will be out of money in six months if he doesn't find work."

After working for more than a decade in New York ad shops, Chuck Hipsher moved to Detroit in 2005. He took a position at the Campbell-Ewald agency, where he helped launch the Chevrolet Silverado campaign. Raised riding in the back of his grandfather's Chevy pickup in Iowa, Mr. Hipsher, 50, says he was "elated" at the opportunity.

He met his wife at the ad agency, and the two had a $40,000 wedding. Kelly Hipsher, 32, was laid off in October 2007 and found out she was pregnant in February 2008. A week later, Mr. Hipsher's pink slip followed. Two months after that, the out-of-work couple moved to Greenville, S.C., to be closer to family and get a fresh start. Together, they had received about $60,000 in severance. "Now we have $600 to our name," says Mr. Hipsher.

Although their rent was cheaper, Mr. Hipsher says the family continued to spend like before. They moved with three cars -- two BMWs and a Chevy Silverado. They continued to buy cases of $36-a-bottle wine. They spent $250 a month on a cleaning lady, and Mr. Hipsher dropped $50 a week on flowers for his wife. The couple still dined out regularly.

Before the layoffs, the Hipshers had no debt. Today, they owe about $70,000 -- including money borrowed from family members and $31,000 in credit-card debt. To hold off the collection companies that call daily."

The article generated over 1,000 reader emails for the WSJ.


Monday, November 16, 2009

Dollar dives, markets soar...

More of the same today as Bernanke continues to indicate that he'll be accommodative and Asian countries continue to point toward more stimulus. This means more weakness for the dollar and more strength in assets - gold, oil, stocks, etc.

Many looked for an explanation for the rally today in retail sales figures (they were ok, but ex-autos, it was mostly driven by rising gas prices) and GM "only losing a billion dollars". Ignore all of this white noise, it's all about the dollar.

Interesting story in the Telegraph on how China has become the greatest risk to the world economy includes this amazing stat.....

"Realty Track said that 332,000 properties were foreclosed in October alone. More Americans have lost their homes this year than during the entire decade of the Great Depression. A backlog of 7m homes is awaiting likely seizure by lenders."

Obviously, homeowership (I left out the "n" on purpose) is far greater today than it was during the Great Depression, but that's still a stunning statistic.

Overheard today: "Dad, did you ever get that meat fork with a built in thermometer?"

At least locally, I'm surprised by shopping activity. Our reliance on government spending has buffered us during the first wave of the recession. However, talk is building that the Federal government needs to reign in military spending (I interpret that to mean fewer civilian support jobs) and NYS is going to be reeling for a few years. We might not feel the full effect of the recession until 2011 or beyond given the lag time between economic conditions and the government's budget process.


Sunday, November 15, 2009

Investing 101

I've long echoed the thoughts of other fundamental analysts that argue that the market has become detached from reality. However, over the past year, the technicians could always be counted on to move the market because their tarot cards, sorry bollinger bands and Elliot wave theories told them to buy or sell.

Recently though the markets have got the chart readers talking to themselves. For all the analysis being done on Wall Street, my 6 year old could trade the market as well as anyone at Fidelity right now.

Step 1) Check the direction of the US Dollar.
Step 2) Understand that stocks are going to do the opposite.
Step 3) Trade accordingly.

Every signal that the market is sending keeps getting lost in US $ trade. We'll see how long this trend continues, but right now, it's all about the $.

The Poughkeepsie Journal has an interesting piece from the director of the Manhattan Institute that is indicating that NY needs to declare a financial emergency.

"McMahon said the state must declare a financial emergency and enact a statutory freeze on public-sector wages for at least three years. State law allows this and enables contracts to be voided, he said. It would save at the rate of $2 billion a year for state, local and school taxpayers.

McMahon also called for shutting down the state's pension systems to new entrants and giving them instead a plan similar to one of the alternatives for the State University system, in which a stable amount is contributed by the state and employees can add their own.

New York state's fiscal troubles stem from too much reliance on tax revenues generated by the Wall Street financial industry and from a chronic tendency to raise spending even when revenues are collapsing, McMahon said.

The high earners who form the top 1 percent paid 41 percent of New York income tax in 2007, he said."

This seems a little drastic, particularly in light of the fact that Wall Street looks to be headed for a great year in 2009 which should help boost state tax receipts this year. I'd agree however, that we need to have a serious conversation about our addressing our pension liabilities at some point. I suspect that since 2010 is an election year, politicians won't be in the mood for making any hard choices.

Uplifting story of the day... Triumph of a Dreamer

* I'll note that this is about the third story I've seen recently that equated all of the "good that could be done with money that might otherwise be spent in Afghanistan". I think there are plenty of good arguments for not expanding our presence in Afghanistan -- principally, the fact that Al Qaeda isn't there anymore -- but I suspect someone is building a case through the media for the "we can't afford it" argument.

Video of the day... Caution for language used by the stoner videotaping this...

Here's the backstory: Apparently, a 34 yr old owner of an exotic car repair company drove his $1.6 million Bugatti Veyron into a lake at 60mph and initially blamed it on a pelican. Inquiring minds are now "stunned" by the emergence of video of the accident. I smell insurance scam or marketing promotion. Either way, it's fun to watch an idiot drive a car worth 8 homes (or one redesigned missile silo in the Adirondacks) into a lake.


Friday, November 13, 2009

The perfect place to store all of your Costco supplies

Someone passed this link along today and I was stunned that by this property on a number of levels....

"Adirondack Mountains, NY. 20 acres (or more). This is the most highly developed Atlas F site....

Just to clarify, an Atlas F site is a huge missile silo built in the 1960's at a cost of $18 million a piece.

It has a 2050 ft runway, a 2000 sq. ft home on the surface with an open floor plan, a large garage and a wrap around porch which hides the underground structure entryway. The underground structure has been converted to a 2300 sq. ft. 2-story (3 bedroom, 2 bath) luxury home with fiber optic lighting and a contemporary finished interior. The silo tube has all floors, spiral stairs and steel super-structure. Price $2.3 million.

The Silo has a climate constant 58 degree earth ambient temperature. It is 52' diameter x 178' deep / 9 floor steel superstructure. The entire steel superstructure hangs from gigantic spring suspension system designed to absorb shock of a direct nuclear hit."

Talk about the ultimate man cave!!

I would love to put some of the photos on here, but there are too many to choose me, it's worth visiting their site to see this place....


Consumer sentiment dips

Apparently, I'm one of the few that could see this coming. Unemployment is surging and somehow confidence was expected to ratchet up again this month? People are still spending but there appears to be a shift in psychology and people seem to feel almost guilty opening up their wallets.

"The sentiment index (reported at 66) was forecast to rise to 71, according to the median of 69 economists surveyed by Bloomberg. Estimates ranged from 67.5 to 75. During the expansion that began in late 2001 and ended in December 2007, the index averaged 89.2."

It really is embarrassing for the economists to all miss this badly. 69 economists provide a forecast and not one of them can get the number right. Every forecast was off by 2% - 12%. That's just terrible.

The trade deficit was also surprisingly large (how do you not notice that oil prices were going to impact trade deficit?) as oil and auto imports offset higher exports. In general, I think both of these figures signal a modest boost of the economy but it is likely inventory restocking. Also, note that a higher trade deficit will eat into the final GDP numbers when they are revised.

I've said for some time that there is a consensus building around another stimulus package next year. Much like the last stimulus package, I think this money will go toward saving more jobs than creating new jobs. This is the dilemma facing the a country that becomes a stimulus addict: once you get a hit off that pipe, it's hard to go back to living life clean, sober and debt free.

I could see a scenario where we pullback on our military commitments in 2010-11 in order to fund stimulus part 2 and maybe part 3. We'll see if it plays out that way.

As a reminder, note how weak mortgage applications were yesterday. When the government stops (or threatens to stop) propping up an industry with incentives and tax breaks, business slows to a crawl again. The cash for clunker style programs continue to be very ineffective at creating a sustained long term recovery.


Thursday, November 12, 2009

Walmart, 3Com trades and more...

Walmart was modestly optimistic for the upcoming holiday season based on their earnings released this morning. What does this mean for the US economy? Is Walmart the canary in the coal mine indicating that the consumer has turned the corner or is Walmart taking a larger share of the consumer spending?

I tend to think it's that Walmart is getting a bigger piece of your spending. This explains why Walmart keeps upgrading stores to SuperWalmart's. In the past you might pop into Walmart for a quart of oil and some shampoo (don't judge, I had a rough weekend:) and then head off to the grocery store for staples and Best Buy for the latest Call of Duty game. Now, all of those dollars go straight to Walmart. Locally, this is good for Walmart, but bad for Kmart, Sears, Hannaford, PriceChopper, etc....

I don't understand people that keep trading on insider information. It might take the government 8 years to find you, but they will eventually figure out who bought all of those November and December $5 calls yesterday on 3Com.

I'll walk you through this assuming that you know nothing about options... A call is the right to purchase a stock at a defined price by a certain date. Yesterday, 3Com's stock was trading around $5.65 for most of the day. There were a total of 960 November $5 calls outstanding yesterday morning. With the stock trading a little above the "strike price" of $5 these contracts had value despite the fact that they were going to expire in 10 days. Suddenly, someone bought almost 4,000 November calls. That's four times the open interest (total number of contracts) trading in small time stock with 10 days to expiration. That's fishy.

Then someone bought over 3,000 December $5 calls which was like 15 times the open interest. VERY FISHY. After the market closes, HP announces a deal to buy 3Com for $7.90 making each of those contracts worth close to $300 each and they were bought for $65 to $85 a piece just 3 hours before the close of trading.

The plot thickens when we learn via Zero Hedge (he's a little out there, but this blogger is connected) that....

Goldman yesterday advised selected clients that 3Com had withdrawn at the last minute from the Conference. As those in the industry are well aware, any last minute switches of this kind are indicative of imminent good or bad news dissemination, and more often than not are associated with some strategic announcement.

A company canceling a presentation is not enough to warrant any trades, but it often leads people to start digging around and that may have triggered the trades....

As someone said, it's a good thing the SEC was off yesterday for Veteran's Day.
Initial jobless claims were a little better than expected but again, the statisticians seem to be playing games to get good headlines. The announced number of 502,000 (which is still awful and signals rising unemployment) was about 8,000 fewer than expected, however, the government revised upward initial claims from last week. Companies have little room to cut further (although some large firms like Pfizer, Johnson & Johnson and Applied Materials are going to take a shot at it) so we may see the rate of new claims slow, but hiring remains almost non-existent.


*** BTW: I continue to be amazed by the Alexa traffic readings. I've cracked the top 700,000 globally and appear to be closing in on the top 100,000 in the US. Really amazing stuff! Thanks!!

Wednesday, November 11, 2009

One Top 10 list NYS missed...

CNN highlights the 10 states that are in the deepest financial trouble....

While those budget gaps are pretty shocking, it's clearly the severity of the downturn in revenues that has caught states off guard. Consider this chart with the two quarter moving average of state tax revenues.

While there have been some swings over the past forty years, there has been one consistent theme -- states have been able to count on revenues growing year in and year out. The current downturn has struck every revenue stream for the states - real estate transactions, sales taxes, income taxes, etc. California, for example, has projected that it might be 6 years before revenues return to levels seen in 2008.
I'm not a political being, but I think someone needs to share this data with the people in Albany. Hard choices need to be made without the fear that every special interest group is organizing another bus trip protest to Albany.

Monday, November 09, 2009

What I'm reading....

When I first heard this quote today I thought it had to be a joke....

“There are families not eating at the end of the month,” said Stephen Quinn, executive vice president and chief marketing officer at Wal-Mart Stores, and “literally lining up at midnight” at Wal-Mart stores waiting to buy food when paychecks or government checks land in their accounts.

Eric E. Schmidt, chairman and chief executive of Google, began his speech by declaring, “We know we have begun the recovery” because searches on for terms like “restaurants” and “dancing” are increasing. “I think we should be optimistic,” he said."

Really, people are lining up at midnight to buy food when their money hits their accounts? I guess that's another market for Walmart to corner. And Google is basing their outlook on the economy based on people searching for restaurants or dancing? I know tech geeks like to think they are above the whole economics thing, but that's taking it a little too far.

A quick check of Mr. Schmidt's assertions on Google trends seems to make his claims look a little suspect. The blue line is "restaurants" and it's pretty much flatlined this year. There has been a minor blip in the last week, but that barely registers when you look at the data from an entire year.

The term "dancing" is represented by the red line and it has been trending down over the last couple of months. Admittedly, there was a spike in September, so were people rushing to go clubbing and buy a couple of bottles of Crystal in September? Maybe not. Remember Patrick Swayze passed away in September (star of Dirty Dancing) and the new season of Dancing with the Informercial Stars or something kicked off in September. Both of these factors probably influenced search terms more than any desire to blow money you don't have "dancing".

The final line is the term "unemployment" and that seems to be the only search term showing a definitive uptick.

How did this idea get off the drawing board? The billionairexchange.... basically ebay for Billionaires. Yeah, here's a thought -- the guys and girls that are billionaires didn't get to be billionaires by searching the internet for the latest beanie baby.

Haute Couture tries the Netflix model.... I love the people that are quoted in this article "Here was this young girl who loves fashion and was willing to spend a good portion of her salary on a dress that she’s only going to wear once or twice, and I thought, there has to be a solution for this." WHO SPENDS A GOOD PORTION OF THEIR SALARY ON A DRESS? I'm out of touch with the twitter generation....


The economy is in the toilet...Let's buy stocks!!

At least there are plenty of daytrading bucket shops hiring....

The market has reacted as expected following the jobs report -- things look awful so traders expect more stimulus and an accommodative Fed which means a weak US dollar and strong markets for commodities (I've seen gold forecasts of $1,350/oz recently) and stocks.

This rally caught more than a few people off guard and I think there's a decent chance that it pushes through for another week or two, however, the market remains very, very hard to gauge.

One other item that I failed to note after last week's jobs report - Average hours worked fell to just 33 hours last month. This is a leading indicator of future economic activity and as this number keeps falling it shows that there is plenty of slack in the system. When the economy picks up there will be very few jobs associated with the recovery because employers have plenty of room to add extra hours for their existing employees.

Also, I'm really concerned by the consistently bad job news coming from our best companies. If the CEOs of Pfizer, Johnson and Johnson, Microsoft, etc are 18 mths into the recession and don't see any reason to delay layoffs, it's a sign that the outlook remains bleak.

Pfizer streamlines R&D - this is a meaningful blow for NNY because Pfizer looks to be closing research facilities in Rouses Point and Plattsburgh. I don't know what R&D took place at these facilities, but these are high skilled jobs leaving the north country.

US Lawyer job cuts deepest in 30 years - Global economic carnage has pushed US firms to make the deepest cuts in lawyer numbers for more than 30 years, according to The National Law Journal.

It said America’s top 250 law firms axed 5,259 lawyers in the last 12 months.

Johnson & Johnson cutting 7,000 jobs....

Did you see SNL pick up on the Goldman Sachs H1N1 vaccine story? Funny video link here......

I left the world of Facebook a few months ago, because I could see that their need to drive revenues was starting to reduce the application's functionality.

There is a poorly written, but well documented expose of some of the scams going on on Facebook right now. The scams seem to target the social gaming crowd (think Farmville or Mob Wars) and they are pretty blatant. I don't think the average adult would fall for these tricks but I could easily see teenagers falling for these scams.

"users are offered in game currency in exchange for filling out an IQ survey. Four simple questions are asked. The answers are irrelevant. When the user gets to the last question they are told their results will be text messaged to them. They are asked to enter in their mobile phone number, and are texted a pin code to enter on the quiz. Once they’ve done that, they’ve just subscribed to a $9.99/month subscription. Tatto Media is the company at the very end of the line on most mobile scams, and they flow it up through Offerpal, SuperRewards and others to the game developers.

As you can see in the image below, nothing in the offer says that the user will be billed $10/month forever for a useless service.

I could see an interesting business model for Google/Microsoft or others creating a similar site to Facebook that was subscription based so that you could avoid all of the garbage.... I mean advertising, on Facebook.


Sunday, November 08, 2009

What's next for our neighbors to the north?

It's mostly anecdotal evidence, but I think any trip to the many retail locations dotting the north country will see a healthy representation of Ontario license plates. The simple reason for this is the fact that the Canadian dollar has been near par for much of the last month (currently at $0.94). I think the question for local retailers and local politicians (trying to forecast sales tax revenues for 2010-11) is: How sustainable is this trend?

Via Jonathan Tonge's America Canada Blog...

Average Canadian home prices hit roughly $320,000 US – an all-time high. Residential mortgage debt in Canada has over doubled since 2002. We will surpass the US in per capita residential debt within the next year.

In 2009 alone, we will add 100 billion in fresh residential mortgage credit (equivalent of about 1 trillion in the US on a per capita basis). The average price of a detached Toronto home has approached $600,000. The listing-to-sales ratio in Toronto, the fifth largest city in North America, has surpassed the late 1980’s bubble.

In the greater Vancouver area, our third largest metropolis after Montreal, the average price of a detached home in March 2008 was $921,000. In fall of 2008 the market tanked, but only to find itself growing again in 2009. By September 2009 the average price was back up to $904,000. Average household incomes in Vancouver hover somewhere around the $70,000 mark.

Exports to the United States have fallen nearly 50%, in part thanks to “Buy America”.

In Ontario lurks an economic and political disaster. US Steel purchased Canada's largest steel manufacturer known as Stelco two years ago. They made the purchase just after Stelco had received hundreds of millions from Ontario’s provincial government to keep operating. Within days of “Buy America”, US steel shut down the Canadian Stelco plant.

A few months ago the benefits for the laid off workers dried up. The union notified US Steel that they would have to either bring the workers back or retire them and pay out their pensions. The company had no interest in paying out the pensions. US Steel decided to bring the Canadians back to a make-work project. Instead of making steel they painted all the buildings in a fresh coat of blue paint. If you understand the size of the Stelco plant and buildings than you can understand what a formidable task this was. A couple weeks later all the buildings were blue. The workers benefits have been renewed and they were laid off again.

Wait until more Canadians find out about this. “Buy Canada’, or more plausibly, “Do Not Buy America” will gain steam. We’re a free trade country by and far, but “Buy America” has been a hard hit below the belt for most of us."

I don't agree with some of the author's conclusions but those observations are important. Canada is by far our largest trading partner and it's worth noting that if a Canadian real estate bubble bursts the ramifications will be far reaching for the US.


Friday, November 06, 2009

Jobs report

Unemployment cracks 10% as the White House foreshadowed when they started hinting at a second stimulus last week.

"The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarmpayroll employment continued to decline (-190,000), the U.S. Bureau of LaborStatistics reported today. The largest job losses over the month were in construction, manufacturing, and retail trade.

Household Survey Data
In October, the number of unemployed persons increased by 558,000 to 15.7million. The unemployment rate rose by 0.4 percentage point to 10.2 percent,the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million,and the unemployment rate has grown by 5.3 percentage points."

Other important numbers:

U-6, a measure of unemployed and underemployed, is now at 17.5% nearly one out of every five American workers.

The Birth/Death model ADDED 86,000 jobs in October. This has become beyond comical. The fact that the statisticians at the BLS look at the economy around them and say, "Yeah, we think enough new businesses started up this month to generate 86k jobs this month." Remember, this is net of new businesses that failed in the month. Playing this sort of game makes me question every number that the BLS releases.

The markets are off a little right now, but remember the crazy mindset of the Wall Street trader: Bad news for the economy means the Fed will continue it's easy money policies, which means the dollar should remain weak, which means commodities and stocks should rise.

I know it doesn't seem logical, but that's the thinking right now.

Thursday, November 05, 2009

Facepalm Friday

Even with all of the wild stories I've read over the past year, major bankruptcies, wild stock swings, I'm still shocked by some stories. Case in point, Goldman Sachs getting more H1N1 vaccine then Lennox Hill Hospital and the crazy new Fannie Mae Lease deals.

1) From Businessweek "Citigroup has been supplied with 1,200 units and Goldman with 200, says Jessica Scaperotti, press secretary for the Department of Health & Mental Hygiene. The agency has so far approved orders by 29 employers—including 16 that have yet to receive any vaccine—after they were cleared by the U.S. Centers for Disease Control & Prevention (CDC). Big employers that have received or are scheduled to receive vaccine so far include Time Warner (TWX), JPMorgan Chase (JPM), Memorial Sloan-Kettering, New York Presbyterian Healthcare System, and New York University.

Health-care workers at those employers are bound by the CDC to distribute the vaccine only to populations deemed to be at high risk of developing serious complications from swine flu: pregnant women, children and young people aged 6 months to 24 years, people who live with or provide care for infants under 6 months (who cannot be vaccinated), people aged 24 to 64 with medical conditions that put them at higher risk for flu-related complications, and health-care workers and emergency medical personnel. A spokeswoman for Goldman, who asked not to be named, said the company had just received the vaccine and did not yet have information as to how it would be distributed, saying that Goldman will supply vaccine only to those who qualify as high-risk, per the CDC requirements."

As I watch more and more kids come out of school coughing every day I struggle to understand how in world this could happen. I understand corporations put in for allotments of H1N1 vaccine, but when millions of children remain unvaccinated the only proper thing for Goldman and Citibank to do is to walk their allotments to the nearest public school and hand them over to kids in need.

2) We continue to face the facts in the housing market. No one wants to address the fact that the emperor has no clothes in the housing market. John and Jane paid $500k for a split ranch in Arizona in 2007. They put nothing down and their option arm adjusted to a payment of 48% of their gross income in 2008. Then the house fell in value to $400k and the government offered to modify their mortgage. Before the modification could go through 20% of their neighbors had defaulted and their house was now worth $275k. What to do now?

Since John and Jane clearly deserve this home and because they have shown what excellent financial managers they can be Fannie Mae will come to the rescue.

a) Fannie Mae plans to allow homeowners facing foreclosure to stay in their homes and rent them for up to one year as part of the latest effort to help troubled borrowers while keeping a glut of foreclosed properties from hitting the housing market.

b) The Deed for Lease Program will offer borrowers who fail to complete or don't qualify for a loan modification or other workout to deed their property to the lender in exchange for a lease. Borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments.

John and Jane were facing a $3,600/mth mortgage, but if they let the government hold the deed and they can "rent" their house for just $1,350/mth. Great deal for them, a terrible deal for the taxpayer.

John and Jane were never homeowners. The n is silent... They were homeowers :)


Get ready to pull out your DOW 10,000 hats again!!

The market has reacted surprisingly well to collection of "less bad" news today. Initial claims were slightly lower than expected but the four week moving average is little changed and anything over 500,000 for initial claims is still a bad number in my opinion.

John Chambers at Cisco was his usual overly optimistic self because his sales only fell 19% so obviously we've turned the corner.....

Call me a skeptic on this rally. This has the feeling of someone that wanted to goose the market on no news, so that if we fall hard tomorrow on the jobs report (not likely, as the BLS continues to manage the numbers), we can end the week relatively flat.

If the market likes the jobs number tomorrow, look out. We could be screaming higher for a couple of weeks because the chart readers think this is critical juncture.


Wednesday, November 04, 2009

It's my prerogative (to pay 40% of assessed value)

At some point home prices will fall back to level that is interesting for patient buyers. Some homes are already there.... See Whitney Houston's NJ home that hit the market for just 44% of its assessed value and 10% less than she paid in 1987. Repeat after me "homes are always a great investment, right?".

"Whitney Houston has put the 5-acre Mendham estate where she married singer Bobby Brown on the market for $2.5 million, far less than its assessed value of $5.6 million.

The 12,561-square-foot home, which she bought in 1987 for $2.7 million, is described in its listing as modern, full of natural light, with three fireplaces, walk-in closets, a bar (uh-oh), floor-to-ceiling windows, and a four-car garage. The (quite frankly rather dated-looking, and we’re not the only ones who think so) home has Frank Lloyd Wright-style stained glass in the entry, an enormous kitchen, and what appears to be a custom-made bed in the center of the master bedroom."

You can see all of the pictures here...

Admittedly, it is more than a little dated -- and you have to really, really like the color white, but $2.5 million for 12,000 square feet and 5 acres in Mendham (a top 10 town in NJ) is probably a deal. I'd bet you could buy the house today if you walked in with $2 million cash. Any banksters from Goldman want the ultimate suburban party house?

The ADP data was roughly as expected and since job losses seem to be slowing (more on this in a moment) the market is hopeful that they'll hear some positive news from the FOMC and hopes that the jobless numbers will be ok on Friday (expected to be 175,000 jobs lost and an unemployment rate of 9.9%).

The service sector of the economy grew barely in October - but at a slower rate than September - and employment contracted sharply in October again.

I suspect that the slowdown in job losses that we've seen is in part due to the stimulus allowing many jobs to be saved (while few have actually been created). However, as budget officers and CFOs look forward to 2010, I think we have to expect job losses to pick back up again.

Look for talk of Stimulus PART II to start circulating after Friday's jobs number.

Walmart, Sears and a few other retailers are trying to spread out the Black Friday rush to the weekends throughout November. Walmart (click here for the flyer) today announced a series of electronics "specials" that are good on 11/7 only. The HP laptop for $298 w/Windows 7 3GB Ram and 250GB hard drive and the XBOX 360 for $199 with a $100 gift card (effective price $99) seem like pretty good deals, but expect them to be gone 1 minute after the stores open.


Tuesday, November 03, 2009

Ah, to be a Russian Billionaire....

This was the bill for lunch for 6 people late last week in Manhattan. There is some dispute as to whether or not the bill belongs to the owner of the Chelsea football club...

"The billionaire Chelsea FoCheck Spellingotball Club owner was alleged to have racked up the impressive bill at Nello's Italian restaurant by drinking a selection of the finest champagnes and wines and dining on truffles and veal.

Restaurant owner Nello Balan made the bill public, commenting on how Mr Abramovich was a man after "excellence and perfection".

$10k for taxes and tip??? Some guys have all the fun.

Only 24 days to Black Friday!!

I think that I'm online more than anyone in NNY (except the people behind, so from time to time I'll come across deals a little sooner than the average shopper.

One observation I made last week: Old Navy offered 50% off to the 1st 50 customers on a random Friday. They had a line of over 100 people a half an hour before the store opened. People really, really want to spend their money if they are getting a perceived deal, regardless of the economy. I think this will be true again this holiday season, but I think shoppers will be chasing deals more than ever.

In that spirit here are some deals that I've seen today....

1) Lowe's Black Friday sneak peak was released today. Nothing great, but the 18v 4 piece set for $59 and the 14 gallon shop vac for $29 are pretty good deals.

2) Get $25 gift certificates to Good Fellos or Sackets Harbor Brewing Co. for $4. Through $25 gift certificates are normally $10. However, if you use the code HARVEST at checkout you can knock 60% off the price and get a $25 gift certificate for $4. There are restrictions (Valid with a minimum purchase of $35. 1 certificate per party per table. 18% gratuity added), but at over 80% off the price is right for me take Mrs. Grindstone out for dinner.

3) Target printable coupons on toys.... you can probably find many of these online for the same price, but if you have to have it today you might just as well use a coupon.


Is our stimulus plan goosing the Spanish and Chinese economies?

That's probably an oversimplification and the Chinese have been offering up their own aggressive stimulus packages, but I was surprised to read that the majority of spending for green energy projects is going to overseas manufacturers.

When I think about it logically, I know the Chinese dominate the global solar panel market and the Europeans and Chinese have been very strong in wind power, so it makes sense, but these statistics really jump off the page at me.

"By Mr. Choma’s reckoning, 84 percent of the $1.05 billion in clean-energy grants distributed by the government since Sept. 1 has gone to foreign renewable energy companies — specifically, wind companies. Through its American subsidiary, Iberdrola, a global manufacturer of wind turbines based in Spain, commanded most of that funding: $545 million.

“We broke down some of the numbers and found out that the program funded 11 projects that installed 982 turbines,” Mr. Choma wrote in an e-mail message, “and 695 were built by foreign manufacturers.”

I'm not some protectionist loon -- I think we should buy the best product on the market at the best available price. If that happens to be a Chinese solar panel or Spanish wind turbine, fine.

However, I think it speaks to the problems we face as a country that even when we get behind an effort to generate clean power the best products are often not manufactured domestically. While we will still reap the benefits of clean power, we don't benefit from the original manufacturing of the products. This like deciding to go to sugar cane based ethanol but importing all of our ethanol from Brazil.


Monday, November 02, 2009

Domo arigoto, Mr. Roboto...

The biggest problem I've had with our national response to the financial crisis is that regardless of who is in charge, Republican or Democrat, we seem determined to repeat the mistakes of the Japanese during their lost two decades.

We would not force our banks to deal with their problem assets and instead we kicked the can down the road through debt issuance and capital infusion. Japan appears to be entering an even darker period for their own economy as debt levels cross critical points as indicated here....

"Japan wasted its immense fiscal firepower, scattering money for 20 years on half-baked spending projects to keep the economy afloat. QE was too little, too late, and this is the lesson for the West. We must cut borrowing drastically over the next decade, and offset this with ultra-easy monetary policy.

Does Downing Street understand this? Does the White House? Does the European Central Bank? Clearly not.”

“The primary difference between Japan and the United States at this point of their respective monetary malaises is that whereas Japan created a nation of zombie corporations, the United States is creating a nation of zombie households.” - James Aitken, Aitken Advisors

In the early 90's, the US ratio of household liabilities to disposable personal income was about 85%. Today is at 130% and rising. The official response (from both parties) during this crisis has been an attempt to artificially engineer the same boost to housing markets that previously occurred naturally.

The Fed bought nearly a $1 trillion of agency debt to pull down mortgage rates, tax credits for homebuyers have been expanded to solve the problem of too much debt with MORE DEBT!

In a statement that must send chills up the spines of other tech CEOs, Microsoft’s Steve Ballmer said that the vicious recession may have reset IT spending to a level which will never recovery to where it was in the period just before the downturn.

This is another huge concern of mine. The longer companies start surviving or thriving without the latest whiz bang tech gadget, CFO's are going to get more and more reluctant to open their purse strings. I hear this consistently, that people are experiencing a new normal, one that will never look like 2007.

In a related story, Apple continues to stick their thumb in Microsoft's eye at every turn. One of the tricks of advertising with Google is that if you are willing to pay the most, you get the premium ad space. When you search for various terms like "download Windows 7" the third ad to pop up is "Avoid Upgrade Problems" from

Too funny.
Finally, for all my readers in NY23, get out and rock the vote today!! I'm not terribly excited by either candidate, but I'll still be voting even if it's just to write in Mr. Grindstone ;)


Watch the bouncing dollar

I've been a believer that much of the global surge in asset prices this year has been tied to the decline in the US dollar. When coupled with Fed Reserve actions to eliminate volatility in the markets you get a perfect storm that starts reflating asset bubbles around the globe. Today, Nouriel Roubini gets on board with that thesis in the Financial Times....

"Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March."

In layman's terms, traders are shorting the US dollar (selling dollars today at x, with the intention of buying them back at x-10%) and taking the proceeds from the short sale to buy very risky assets: stocks, gold, oil, etc. This has been wildly profitable this year.

However, if and when this unwinds, it may lead to a massive panic to get out of the door at once. Assets will be sold violently to buy dollars and cover short positions.

We have created the "mother of all highly leveraged global asset bubbles." Leverage and asset bubbles are what got us in trouble in 2008 but here we are again just 13 months later.

The timing of when this trade goes bad is always uncertain (clearly the markets are having a good day today-however, these large swings -- 175 pts up, 280 pts down, 200 pts up, 120 pts down -- are not healthy signs), but when if the dollar starts to rise quickly the swing in asset prices could be swift and violent.


I've always found the holiday party to be an enormous waste of resources, but it is so ingrained in the culture of some firms that it's hard to cut it from the budget. According to Crain's...

"Just 62% of companies nationwide are planning holiday parties this year, down from 77% last year and 90% in 2007, according to a survey by outplacement firm Challenger Gray & Christmas. And like the law firm that is scaling back, 57% of businesses are holding their parties during the workday, according to the survey."


PS: A huge thanks to everyone that added the Alexa Toolbar. I was hopeful that maybe I'd crack the top 1 million sites globally if a few readers added the toolbar, but now I'm in the top 750,000 sites globally and the top 150,000 sites in the US. We've come a long way baby!

Sunday, November 01, 2009

Oh C#$T!

The news of the day will likely focus on the CIT bankruptcy. CIT is another one of those enormous financial conglomerates that provides a tremendous amount of financing to small and medium businesses. The company contends that its daily operations will be unaffected by the bankruptcy, but it won't be long before they start tightening lending standards and shrinking their book of business. If you really want to have a good time tomorrow watch the common stock of CIT which should go to zero, but may not b/c it's become a favorite of daytraders everywhere.

"One loser from a bankruptcy would be the U.S. Treasury. Late last year it injected $2.3 billion of funds from the Troubled Asset Relief Program ... The government investment is likely to be wiped out ...

Even if CIT emerges intact, its lending capacity could drop to less than 20% of what it was two years ago, according to an estimate by Brian Charles, a debt analyst at R.W. Pressprich & Co."

Via 24/7 Wall St. the FDIC continues to go easy on the banks and let them alter the classification of many troubled commercial loans.

"New guidelines for examining commercial real estate loans issued by the FDIC appear to allow examiners to go easy on banks as they account for what would be, under many circumstances, considered non-performing commercial real estate loans. This may help banks with their balance sheets and solvency, but it also misleads bank investors and the public about the seriousness of the huge problem in the commercial real estate lending business.

The new FDIC directive says ”Financial institutions that implement prudent CRE (commercial real estate) loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification.”

All that does is distort and hide the seriousness of the problem. It is a problem that is likely to ruin a number of banks. Putting it off does not alter its threat to the banking system."

I couldn't agree more. By changing the rules in the middle of the game we will ultimately reduce investor confidence in our banking system regardless of what the banks' financial statements say.