Monday, May 31, 2010

Weekend wrap-up

Tons of interesting data out over the long weekend....

1) Great data point out of Barron's this weekend - "What leads us to talk about PowerShares QQQ (you thought we'd never get around to telling you) was Alan Newman's CrossCurrents advisory letter, published a fortnight ago. More particularly, his survey of insider transactions in the top eight issues in the ETF. He performed the exercise on May 10 and what he discovered was rather astounding.

There were 231 sellers and three buyers, which works out to a somewhat lopsided ratio of 77 to 1. All told, the insiders sold 59.8 million shares and purchased 15,200 shares, a sell/buy ratio of 3,933 to l. Not exactly a resounding vote of confidence in the prospects for their companies.

Moreover, Alan notes, analysts are just as positive on the QQQ leaders as they were back in March 2008 before a 37% fall in price. At that time, 74.1% of the recommendations were Buys and 2.9% were Sells. As of May 10, 2010, 77.7% were Buys and 3.6% Sells. The more things change, we guess, the more things stay the same, especially on Wall Street.

Insiders are hardly infallible investors and, as Alan observes, their investment habits are not a timing indicator. Still, they do tend to know a bit more about the company and its outlook than the analysts or the folks buying the stocks they're so determinedly selling."

2) Despite the growth rates in India, 50 degrees Celsius means they are probably off my "move to list".

"Record temperatures in northern India have claimed hundreds of lives in what is believed to be the hottest summer in the country since records began in the late 1800s.

The death toll is expected to rise with experts forecasting temperatures approaching 50C (122F) in coming weeks. More than 100 people are reported to have died in the state of Gujarat where the mercury topped at 48.5C last week. At least 90 died in Maharashtra, 35 in Rajasthan and 34 in Bihar." But, remember that because Matt Drudge linked to a story about a freak snowstorm in May in the mountains of California there is no global warming. Tell that to the people in India right now...

3) More European issues - French Budget Minister Warns On Credit Rating....

"France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit."

Spain was already cut a notch by Fitch on Friday afternoon.

Things to watch this week - Geopolitical flare ups over the Israeli - Gaza Aid ship incident; tracking the oil spill (the next attempt is more a diversion - the relief well or wells is really the only fix for this spill. We're going to end up talking about this thing in terms of millions of barrels spilled.).


Sunday, May 30, 2010

Have a great weekend!

The weather couldn't be better in our part of the world and I hope you are enjoying some time with friends and family.

Please ignore the urge to read up on the destruction of the Gulf of Mexico after the failure of the top kill - it doesn't seem like it ever worked at anything other than slowing the leak briefly and "postponing" the release of the bad news so that it hit the news cycle on Saturday night.

If you're looking to waste 11 minutes this video is outstanding. It breaks down what really motivates us as employees. I think they creator of the video has hit on a key dysfunction within so many US companies. Since, every corporation is driven by a profit motive, they assume that all employees are also driven to strive for greater financial rewards. It appears that this is not the case for anything beyond simple mechanical tasks. In fact, it appears that the science says you just have to pay people enough to make money a non-issue. When, you hit that point people will start to deliver greater products and better customer service as they strive to achieve mastery in their field. Keep tempting them with $$$ and you tend to get a store full of products that break upon use or a company specializing in customer disservice.

I know there are more than a few of you on the email distribution list that will recognize your company in this video. Oh and the stop motion graphics used here are pretty entertaining.

Fire up the grill!

Friday, May 28, 2010

"All is well....all is well"

- Kevin Bacon at the end of Animal House.

You see, the problem with offering live video feeds is that when things go wrong it's pretty hard to lie about it. So far most major media outlets seem to be going with the "Oil flow has stopped story" but that seems hard to believe when you see images like the ones posted here. Which appears to have occurred this morning.

Maybe they meant to have that little explosion but I'm thinking that was a bad thing.

All is well

Quote of the Day

"You cannot borrow your way out of debt anymore than you can drink yourself sober.” - Barry Ritholtz

Thursday, May 27, 2010

Wow, I think I have whiplash

That was a pretty strong move in the markets throughout the day and the computers goosed it into the close again for 3+ gains everywhere.

Again take note of the fact that this was done on virtually no volume, but that's a story for another day. The markets seem to be in love with the idea that the Chinese weren't dumping their Euro holdings (yet). If you have ever wondered what it's like to be on the losing end of a Financial Cold War, I think we might get the chance to find out one day.

Completely off topic, but seriously BP -- you stopped pumping mud early in the morning because it didn't appear to be working and then you slowly start leaking (pun intended) that it is working to the media. WT#? You weren't pumping mud all day and now you tell us late in the evening?

The best analogy I've read for this top kill procedure is imagine a fire hydrant springs a leak. If you hook up another fire hose to a tanker full of heavy liquids and push the fire hose up against the leaking hydrant it might work - or it might crack the hydrant in half. Now, just imagine doing this at 5,000 below the surface of the Gulf of Mexico. Good luck with that.

In an interesting media development, the best commentary on the oil spill, in my opinion, hasn't been on TV but rather on a blog called The Oil Drum. Lots of industry engineers have been offering some really good (and often depressingly accurate) assessments of the situation.

Oh, and Iceland appears to be heading for their "Elizabeth, this is the big one" moment. Katla - the larger Icelandic volcano is making everyone nervous and Iceland's president "has warned governments around Europe that a significant eruption at the volcano is close."

Have a safe long weekend, buckle up and obey the speed limits -- the Staties are out in force this weekend - if you're not from MA, you'll have to Google Staties :)


Rally mode take 2...

Well, it didn't work out so well yesterday, but the markets look to set for another big rally today. I'd caution that the US futures are up 2% on practically no news. The futures are easily moved with little volume but right now the futures are so bright I've got to wear shades :)


* Update - the market has found a plateau that it seems to like right here and it could hold but we'll see what happens when the afternoon algorithms kick in.

The technicians like the market to bounce here for another month or so up another 8 percent. Something to watch.

Wednesday, May 26, 2010

Market manipulation

It's clear to me that the market is being manipulated by one person - the guy that makes those Dow 10,000 hats :)

The initial bounce never picked up much steam in the US and the weakening Euro led the market to rollover by the end of the day. I don't think any serious investors give a !#$$ about the Dow breaking 10,000 but it's worth noting I guess because the talking heads on CNBC will be in a tizzy trying to get us back over the magic number tomorrow.

Interesting things on the web tonight....

* Uh oh, S. Korea seems to have lost track of N. Korea's 4 subs. Maybe they're just sending them to the Gulf to help with the oil spill clean-up. However, these wacky moves by the North are disconcerting.

* China reviewing their Eurozone holdings -- "Representatives of China’s State Administration of Foreign Exchange, or Safe ... has been meeting with foreign bankers in Beijing in recent days to discuss the issue.Safe, which holds an estimated $630bn of eurozone bonds in its reserves."

* Moody's seems to have a bulls eye on their back.

* Mortgage applications fall to lowest level since 1997 as tax credit pulls demand forward.


It's all green to me...

The screens are green everywhere as global markets rebound sharply today because North Korea backed down, Europe got fixed, we stopped the oil spill and cleaned up the Gulf and 1 out of every 5.5 dollars personal income dollars now comes from the US Government.

Hmmm, only one of these things happens to actually be true but let's not let facts get in the way of a good story. So, 33 Liberty Street has told you to the coast is clear so let the buying begin.
When you see a chart like this it is clear why Larry Summers is starting to talk about Stimulus 6.0....

"Larry Summers, the senior economic adviser to President Obama, reportedly asked Congress yesterday to begin drafting plans for a second stimulus package to prevent the economy from suffering a double dip recession. Summers suggested additional loans for small businesses, an extension of unemployment insurance, and financial aid to states to avoid further layoffs in the public education sector."

Tuesday, May 25, 2010

2pm autopilot...

Someone asked today if that was me on my bike today around noon in the midst of a market meltdown. Of course I was, the market shot lower on the open and then pinned so it was clear that nothing was going to happen until we crossed the 2pm magic hour at which time the autobots would either flash crash the market or stair step the market back to unchanged. On cue, the market rallied almost back to unchanged and all is right with the world.

Asia has opened up strong on the heels of our rebound but they are starting to show some cracks.

What's an oil leak look like when it goes KABOOM?

This quick link shows some footage of the BP spill from about 6pm on Tuesday. Thankfully, it appears BP was shamed into continuing coverage of their top kill attempt this week. Let's hope it works.

The most interesting trade of the day: The most active strike price in the Dec 2011 S&P 500 was the 50 line. That's not a typo, someone is basically making a bet that the US is out of business by the end of 2011 because it's a long way from today's close of 1074 on the S&P to 50.

It takes guts to bet on a 95% decline in the stock market over the next 18mths.


Time to break out the Dow 9,000 hats again?

Well, the global equity sell-off has picked up steam around the world overnight. Most Asian markets were off 3%+ and Europe is down 3%. We'll see if Optimus Prime can save the market again, but it looks like we're heading straight down to the flash crash level of May 6th. If we get there on increasing volume it could be a very negative sign for the market.

Stay tuned....

Monday, May 24, 2010

The cost of financial illiteracy

Based on the fact that you're reading this post, you are not among the millions of financially illiterate in our country. However, you may know someone that struggles to understand the basics of interest, etc so perhaps this post will reach some of them.

I saw a great expose today on a Canadian company called EasyHome that offers electronics and furnishings to people without access to credit for "low, low weekly payments". In the US, Rent-A-Center is basically the same thing. If you can't afford that new 42" LCD why should you deprive your children the joy of Transformers 2 in HD when EasyHome can help keep you poor for low weekly payment of just $29/week?

There are laws in place to keep businesses from charging usury rates and most states cap interest rates at 29.9%. However, when you start looking into the details at places like EasyHome it's clear that they are gaming the system to charge people 200-400% interest on their leases. Take a TV that Amazon or Best Buy sells for $700. At Easyhome, they just say the base price is $2200, charge you 30% interest on top of that and that $700 TV now costs you $4,000. But wait, no one would fall for that, right? Well, guess, what the WEEKLY payment works out to? Just $25/week for 3 years.

These companies skirt the usury laws by claiming to be leasing centers or rental stores, but it's clear that they are preying on the poor and the uninformed.

For more interesting reading and viewing consider:

"Pay Now, Pay Later"


In the Canadian example, this couple is stuck paying $27/week for the next 3 years - over $3,600 for a USED GATEWAY laptop.


A picture is worth a thousand words


As we get ready to enter the fall election season it's important to keep this chart in mind. It shows our total debt to GDP over the last 115 years. Note that debt as a percent of GDP has grown under Republicans - Reagan, Bush 1, Bush 2 - and Democrats - Obama, FDR, Truman, Wilson.

However, debt to GDP has also fallen under Republicans - Eisenhower - and Democrats - Clinton, JFK/Johnson.

The real point of this chart is that it makes no sense to get yourself worked into a tizzy thinking that all of the Federal debt is a result of President Obama's actions over the last 16 mths because the Republicans bear at least an equal responsibility (you could argue they bear a great responsibility but I'll leave that to the political pundits).

The state of the economy has a far greater impact on Federal Debt levels than the political leanings of any individual president or congressman.


Sunday, May 23, 2010

Just another random Monday...

I'm sure you will have seen it somewhere online by now, but in case you haven't seen the BP live stream from the blowout of their well in the Gulf of Mexico you can watch a live video stream here....

There is also talk that the oil is now officially entering the loop current which means Florida will be in for some stressful weeks and months.
Finally, consider this image of the fishing ban now imposed in the Gulf.
That's about 4 times the size of the last fishing ban area that I saw posted last week.
I love the fact that even Jim Cramer sees the lunacy of the market. "Frequently people say, "you never complain when the market's higher and you get this action". I want to make it clear to everyone that I thought the last 15 minutes up was outrageous and shows how broken everything is. Just ridiculous... And should be investigated." This was in reference to the autobots running the market up 100 pts in about 10 minutes at the end of the day on no volume. An old trader dropped into today's market wouldn't recognize the market.
Weekly wrap-up of some old headlines from last week...
* MBA Q1 2010: Record 14.69% of Mortgage Loans Delinquent or in Foreclosure - it's hard to spin this positively.
* Housing Starts increase in April - On the surface this was a good number, but since permits fell sharply in May it suggests that this was a temporary blip.
* NAHB Builder Confidence Increases in May - I don't think the builders have a very good feel for their business anymore.
* House Prices Decline 0.3% in March - On a month-over-month basis, the national average home price index fell by 0.3 percent in March 2010 compared to February 2010
* Commercial Real Estate Prices Decline 0.5% in March - commercial real estate remains in a very ugly position.
* Architecture Billings Index shows less Contraction in April - This is a slightly confusing headline, but basically it suggests that business was weakening for commercial architects around the US, but it was getting worse at a slower pace. Given the glut of commercial real estate around the US, it's hard to see this business picking up any time soon.
Another consideration is that when business does improve many firms may not expand domestically. I've recently read where major US tech firms have sign new expanded leases in India for increased sq footage. This could signal an uptick in their business or a decision to ship more jobs overseas - it's not clear at this point - but I know of many huge blocks of commercial real estate in NY, NJ, CA that you can't fill at almost any price.
Does anyone else get the feeling that the South Korean delegation to the UN gets their lunch money stolen by the bullies every day?
From South Korea's president Lee Myung-bak: "If our territorial waters, airspace or territory are violated, we will immediately exercise our right of self-defense."
Here's the thing: Someone already violated your territorial waters and sank your ship. Threatening self-defense at this point lacks much punch especially when dealing with a leader that makes Charlie Manson look sane... Either way, keep and eye on the Korean peninsula because a real war over there is one of those "low probability, huge impact" events that you need to watch.

Friday, May 21, 2010

Ah, Good Old Fashioned Russian Engineering...

Video of a bridge in Russia that was just constructed last year...

Thursday, May 20, 2010

Well that was interesting...

The market never caught a bounce today and the carnage is continuing to ripple through Asia again tonight. Tomorrow could be eventful with meaningful votes in Europe and talk of more interventions to stem the decline in the markets.

I've seen a couple of news items recently highlighting the disconnect between falling oil prices and gas prices which have held steady around $3/gallon. Remember, there is about a 1 month lag between the price of oil on the spot market and any changes in prices at the pump. Oil is falling right now because of a strengthening of the US dollar which is rebounding because of the global panic going on right now. If this holds, we could see a 10-15% drop in retail gas prices in another month or so, but I'm concerned about the impact of the Deep Water spill could have on our domestic supplies. Right now we get about 13% of our oil or 1.2 million barrels per day from a port located off the Louisiana coast (it's located offshore to allow larger ships to offload their cargo). If the BP spill affects this area of the Gulf we could see imports slow dramatically at this port which could force prices up at the pump even if the price of a barrel of oil continues to fall.

I've mentioned before the coming pain to the pension system in the US but this is first mainstream review of the NY pension system I've seen in probably over a year...

"In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year. "

"Roughly one of every 250 retired public workers in New York is collecting a six-figure pension, and that group is expected to grow rapidly in coming years, based on the number of highly paid people in the pipeline.

Some will receive the big pensions for decades. Thirteen New York City police officers recently retired at age 40 with pensions above $100,000 a year; nine did so in their 30s. "

The biggest problem is not early retirement - although minimum retirement age should be increased to 55 in my opinion - but rather unrealistic pension investment expectations. Our pensions assume 8% returns indefinitely in markets that seem to be going sideways for the foreseeable future. I'm sure that will end well.


Jobless claims spike

Jobless claims jumped by 25k last week to over 471k last week which was much worse than expectations of 442k.

"The number of people filing new claims for unemployment benefits unexpectedly rose last week by the largest amount in three months. The big surge was a setback to hopes that layoffs were declining."

Hmm, can we blame snowstorms? A late Easter, again?

The stock market has broken through supports this morning. Things are starting to get interesting again...


Europe is a mess right now. I think we sometimes underestimate the longstanding cultural divides that exist in Europe. During the good times everyone gets along just fine, but at times of stress you can see things start to unravel fairly quickly. The Greeks are protesting in the streets again today and the Germans are trying to convince the rest of the EU to jump on the shorting ban bandwagon (because it's clearly working so well right now).

More headlines that we should be watching closely...

* Turns out N. Korea did sink that S. Korean ship. Maybe I'll cancel those plans to move to Korea.

* A professor of mechanical engineering testified yesterday that he believes up to 95,000 barrels of oil are leaking into the Gulf of Mexico every day or 4 million gallons. Basically, that would be an Exxon Valdez every 2 1/2 days and this thing has been going on for a month! I don't think there is any way to know what proportion of gas vs. oil is but I think it's safe to say that BP seems to be low balling the estimates on the leak.


Wednesday, May 19, 2010

Flash Crash re-visited...

It's too late to add much color to these stories.

* Everyone wants to be the guy that called the next "crash" and they get much more confident during volatile markets. I don't buy many of these arguments, but it's worth noting because many of these guys have large followings.

"Dow Theorist Richard Russell set out this dire warning:
“Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country.

Reuters reported that well regarded hedge fund manager Seth Klarman “sees few bargains in the current environment and predicted on Tuesday that the stock market could suffer another lost decade without any gains.” Klarman is concerned that we could see “another 10 years of zero returns.”

Raoul Pal of Global Macro Investor got even more specific warning in his newsletter: Crash Is Coming In Two Days-To-Two Weeks. He sees as an “archetypal crash pattern — a sharp decline followed by a failed rally followed by a collapse.”

Nouriel Roubini warned on the U.S. Treasury Market:
“Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the U.K., in Japan, in the United States, if we keep on running very large fiscal deficits,” Roubini said at an event at the London School of Economics yesterday. “The chances are, they are going to wake up in the United States in the next three years and say, ‘this is unsustainable.”

Just a quick follow-up on Germany's short-selling ban. I am clearly of the opinion that it restricts the free flow of capital and creates market imbalances, but my career included actively looking for short opportunities. However, here's the real problem with banning short sales - if a stock starts to fall without shorts in the market, the stock falls in a vacuum and the plunge can be much more violent. In a normal market, when a stock falls 10-20 percent those that are short become natural buyers of the stock to close their positions and this often slows rapid tumbles. Without short sellers a stock can fall freely without being held back buy those pesky buyers :)

In other news:

1 in 10 US mortgages are now delinquent. Just remember "house prices always go up" right???

As someone that writes publicly every night I'm sure I violate many of the Elements of Style in every post. However, I couldn't agree more with this story from the Boston Globe entitled "Failure to Communicate". The decline of writing skills among the under 25 crowd is startling.

Finally, KFC has bowed to the complaints of many health conscious Americans and their going to pull the "DOUBLE DOWN" off the market...... Just kidding, chubby Americans can't get enough fried chicken, bacon and cheese - they've sold over 10 million in a month.


Tuesday, May 18, 2010

Lots of random thoughts...

The German shorting ban might be a grey swan and that crushed the Euro today. Local media in Germany is showing major signs of stress and the break-up of Euro is clearly more likely today than it was yesterday. There is also talk of major margin calls hitting the foreign exchange trading desks around the world. This is the sort of stuff that can really snowball.

Keep in mind that the falling value of the Euro is going to make US products substantially more expensive in Europe and many US companies with substantial EU exposure might be facing some serious headwinds as a result of these currency swings. Also consider,

* Oil spill overwhelming Coast Guard

* New Dupont technology enables printing 50" OLEP TV in 2 minutes.

* Speaking of the rise of the machines, you know that your office copier has a hard drive that stores every image right? If not, watch this video that shows the data pulled off just 4 used copiers.

* New tax laws aren't even written and already hedge fund managers are working to figure out ways around paying the new tax. And guess what, tax consultants don't come cheap... (BAJ TWSS).

In essence, a hedge fund manager or private equity manager gets to keep 20% of a funds profits. The current position is that this is a capital gain (taxed at 15%) because it results from investing activities, but the new tax laws aim to treat this as income because, well.... it is income in my opinion (again, I'm sure the greater tax mind in my household probably has smoke coming out of her ears as she reads that line).


Monday, May 17, 2010

The market fought back to even on tiny volume and stepped up orders while other markets around the world continued to struggle.

FYI - Tradebot hasn't had a losing trading day in 4 YEARS!!! Think about that and it makes Goldman look like saps.

That includes the bubble years, the crash, the rebound, etc, and they haven't lost on a single day.

Obviously, they have the best analyst in the business identifying trends across various industries, right? Nope, the key to their success - holding stocks for an average of 11 seconds. These are the people that account for 40-70 percent of all stock trading in the US right now. Yeah, this is a healthy situation.

Full Disclosure, I know the founders of Tradeworx and worked with them as a start-up many years ago.

IMF: US Debt Nearing 100 Percent of GDP

"The United States’ national debt will soon reach 100 percent of gross domestic product, the International Monetary Fund predicts in a new report.

The sharp rise in U.S. debt started in 2006 and by 2015, the IMF suggests, debt could reach more than 100 percent of GDP.

At the end of first quarter of 2010, the gross debt was 87.3 percent of GDP, of which 56.6 percent was held by the public, and 44.4 percent was intragovernmental, U.S. officials have said.

The IMF predicts that the U.S. would need to reduce its structural deficit by the equivalent of 12 percent of GDP, a much larger portion than any other country analyzed except Japan.

Greece, in the midst of a financial crisis, needs to reduce its structural deficit by just 9 percent of GDP, according to the IMF’s analysis."

Note to self and family members -- Buy RosettaStone Korea b/c we might want to relocate.

Oh, and remember the volcano in Iceland? The big ugly stepbrother Katla experienced a small earthquake today. Not necessarily unusual, but since this earthquake could be 10 times the size of the current eruption it's worth monitoring.

"Historically, Katla has erupted after the eruption of it’s close neighbor, Eyjafjallajokull, which first erupted on April 14, 2010 and is ongoing at this moment. Magma channels beneath to the two volcanoes are thought to be interconnected. A Katla eruption would likely be about ten times as powerful at the Eyjafjallajokull eruption and could cause worldwide disruption while expelling huge volumes of volcanic ash into the stratosphere which would circle the globe potentially for years, depending upon the magnitude of the eruption."

Since the weather is finally improving in NNY it seems only right a giant volcano would wipe out summer :)

OT: Cycling 101

Here's a tip that I wish someone had passed along to me before today - When biking in the early spring as yellow jackets are emerging be sure to check your helmet for said yellow jackets BEFORE strapping it onto your head.
About 3 minutes into my ride today I noticed a strange pain on the crown of my head. Since, I knew I hadn't been in the sun long enough to get a sunburn through my helmet vents I pulled over to the side of the road and discovered the culprit in my helmet. As I said to my daughter, I ended the yellow jacket's short time on this earth quickly and hopefully painfully.

I guess it could have been worse -- I could have been struggling like these guys in the Giro d'Italia

Should we be more worried about China or Europe?

Of course we have our own issues with that little spill in the Gulf and the flooding in Nashville which has been woefully underreported, but I think we need to bump China up on our worry list.

In the good old days, when stocks were a representation of a company's future earning power and not just a ticker symbol to gamble on, the stock market was seen as a forward looking indicator of economic activity. Well, China clearly got the most bang for their stimulus bucks and in 2009 they seemed to be saving the global economy by buying up every natural resource in sight. This propped up economies like Canada and Australia that have large natural resources available for sale to highest bidder. Well, as I've been noting China's stock market is in a bear market right now. Down 22% this year and falling. Should we be concerned that the engine of global growth seems to be choking on too much stimulus? I'd be concerned if I was long Canadian loonies....

The worst stat you'll see today: "Perhaps no more than half of those who began a four-year bachelor’s degree program in the fall of 2006 will get that degree within six years, according to the latest projections from the Department of Education."

We need to be honest with ourselves and our kids. Not everyone is cut out for college, but no one has the guts to tell little Johnny or Suzy the truth. In much the same way that the housing bubble was caused by many parties - aggressive lenders, the Fed's cheap money, Wall Street, homebuyers, etc - the education bubble is being extended by many enablers - guidance counselors, schools that put 90% of their kids on the "honor roll", the Fed's cheap money, universities, students....

The Empire Manufacturing Index is not a terrible relevant indicator of health because NY State is not a major manufacturer anymore, but it's worth noting because it is our home state. The expectations were that this number would hold steady around 30, but instead it fell sharply to 19.

"The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to improve for a tenth consecutive month in May, albeit at a slower pace than in April. The general business conditions index fell 13 points, to 19.1. Similarly, the new orders and shipments indexes also moved lower but remained at positive levels. The inventories index dropped back to a level near zero after rising into positive territory in March and April.

Six-Month Outlook Remains Favorable, but Level of Optimism Falls
The future index readings were somewhat lower than in April but showed that New York State manufacturers expect conditions to improve further over the next six months. The future general business conditions index fell from a lofty 55.7 last month to 42.1. The future new orders and shipments indexes also declined."

In general, it seems that while manufacturers feel things are still improving the pace of improvement has slowed. This might tie neatly with the trend in stimulus spending which is peaking right now and will fall in coming months. If so, then expect the chatter about another round of stimulus to grow.

Other things to watch this week:

* The Icelandic volcano is going to wreck European travel again this week. I think global businesses have had about enough of these delays and I expect we'll see a severe cutback in global business travel if we have one more major disruption.

* The progress on the oil spill will be watched closely. The cost to the coastal communities is going to be enormous and it feels like "Heckuva Job Brownie" is in charge. We've been lucky so far that this oil has not come ashore, but that does not mean that it's not impacting the Gulf.


Friday, May 14, 2010


What's particularly disturbing about the current action in the market is that it takes only a few large sell orders pull the rug out from beneath the whole market. There is almost no buyers and market seems to hit an air pocket every 12 minutes or so.

Right now the US markets only stand about 2 percent above their closing lows from a week ago after a TRILLION dollar bailout in Europe. The Euro is being crushed and keeps breaking through technical levels. Rumor is that the US Banks are piling on by shorting the Euro as well -- gotta keep those perfect trading days going (btw - in Goldman's defense they weren't the only ones with a perfect trading quarter at least 3 other banks had perfect quarters).

I said about a month ago that people were getting very aggressive against France and it seemed to be a strange position to take. Well, it may just be rumors but the talk in the market of a possible French downgrade or France leaving the Euro are adding to the instability in the markets right now. The comments from Deutsche Bank's CEO that Greece might not make it also didn't help.

We got one trillion dollar bailout last weekend, what will this weekend bring?

Separately, the retail sales numbers from the government were surprisingly strong. There was strength in building materials which can be tied to some pick up in the low-end of the housing market. However, I'd caution that the data on retail sales has been mixed as of late. The government data has shown a nice steady uptrend, but they are using historical seasonal patterns to smooth their trendlines. Stores on the frontlines seem to be coming in a little light - like Kohl's which missed expectations - but there are other surveys that indicate sales were up for the 7th month in a row. Mastercard also reported that retail sales dipped 2% in April after rising for 3 straight months by 2% a month.

Right now I think the only thing that matters to the markets is the chaos around Europe.

Cheers and watch out for weird action this afternoon.

Thursday, May 13, 2010

Snakes on Facebook eating Apples...

I couldn't figure out any other way to link these 3 crazy stories...

1) This story on how Apple has lost it's Mojo is pretty interesting. It's not so much that Apple isn't making great products, but more that they've become "THE MAN" while trying to appeal to their customer base that wants to stick it to the man. That's a fine line to walk.

Ok, I'm a little embarrassed to admit parts of this story but bear with me. I had to kill some time today after picking up some pet supplies at Super Walmart. I needed a haircut and since cutting my 163 remaining hairs is not that complicated, I figured I'd try to kill two birds with one stone by getting a haircut at the in-store "Style Center" at Walmart (I know, I know.... I think I threw up a little in my mouth just writing that sentence. Please don't think less of me).

Anyway, the point of the story is that halfway through the haircut, I notice one of the other employees clicking away on a new iPad. Really? This is the next great advancement in our society? The fact that this happened on the day that Walmart leaked plans to sell the iPad later this year seemed particularly ironic.

I think the back of the store Arthur Fonzarelli was revving his motorcycle to jump the shark.

2. Speaking of jumping the shark - Fact of the day - "Pop quiz: Which is longer, the United States Constitution or Facebook’s Privacy Policy? If you guessed the latter, you’re right. Facebook’s Privacy Policy is 5,830 words long; the United States Constitution, without any of its amendments, is a concise 4,543 words." Also, there are no shortage of Facebook wannabes coming out of the woodwork to be the "next big thing" but I like this idea from a group of NYU students.

3. Just in case the oil spill, hurricanes, plummeting real estate values, or alligators aren't enough to keep you away from Florida consider that after October we'll be out of anti venom for Coral snake bites. Yes, you read that right - a treatment for a deadly snakebite that we've had for over 40 years will suddenly no longer be produced because it's not a profit center. Note to self - it's time to limit vacation destinations to Hawaii, Alaska or Maine (where there are no poisonous snakes).

You can see the whole story here on how the "free market" has determined that anti venom is a losing line of business.

"Unfortunately, after Oct. 31 of this year, there may be no commercially available anti venom (antivenin) left. That's the expiration date on existing vials of Micrurus fulvius, the only anti venom approved by the Food and Drug Administration for coral snake bites. Produced by Wyeth, now owned by Pfizer, the anti venom was approved for sale in 1967, in a time of less stringent regulation. Wyeth kept up production of coral snake anti venom for almost 40 years.

But given the rarity of coral snake bites, it was hardly a profit center, and the company shut down the factory that made the anti venom in 2003. Wyeth worked with the FDA to produce a five-year supply of the medicine to provide a stopgap while other options were pursued. After that period, the FDA extended the expiration date on existing stock from 2008 to 2009, and then again from 2009 to 2010. But as of press time, no new manufacturer has stepped forward."

4. Finally, I can't independently verify this story, but it is freakin' genius and will be copied by any smart people looking for work by tomorrow morning. Check out the video....


Tuesday, May 11, 2010

Mr. Euro seems to have found his way into a bad neighborhood

US markets are holding up better than those around the globe so far. We'll see if people start to get antsy about the falling Euro. I can't independently verify this story but if it's true it makes you wonder about the state of our financial system...

"We have received confirmation that several of the largest French banks are now actively shorting the euro to take advantage of globalized moral hazard, which with every ensuing bailout does nothing but make the bonuses of French FX traders surge. In other words, the very banks that Europe is bailing out are betting more and more aggressively with each passing day against Europe's own survival!"

Update: The Euro is clearly where the action is right now. Ignore all other headlines and focus on the Euro which is on the verge of a real breakdown right now. If that happens things could get wild again.

Two small business stories out today that initially appear to conflict each other:

Small business optimism improves.

"The National Federation of Independent Business Index of Small Business Optimism gained 3.8 points in April, rising to 90.6 and ending seven straight quarters of under 90 readings1. The persistence of Index readings below 90 is unprecedented in survey history. Nine of the 10 Index components rose, particularly the outlook for general business conditions and sales, and one was unchanged. Still, job measures barely moved and capital expenditure plans were flat.

“The gains are a step in the right direction, but they are not enough to signal a solid recovery is in place,” said William Dunkelberg, NFIB chief economist. “Owners are feeling a little better about things, but not enough to turn them into concrete action.”

Jobs pictures still bleak for small businesses

"The net percent of owners increasing employment in the last three months fell one point to a net negative 12 percent. April marks the 27th consecutive ‘no new jobs’ monthly reading.

“There is little enthusiasm among owners to hire more workers, primarily due to continued weak sales trends."

While these headlines appear to contradict each other, I think they accurately reflect the current small business mindset. Small business owners are weathering the storm and have seen some trickle down of the stimulus boost sales a bit but not enough to start new hiring. The problem will come as the stimulus starts to wind down this summer and will spending be there to fill in the gap.

I knew that google android based phones were available on more wireless systems, but I was surprised to see that android phones garnered a larger share of the smartphone market in Q1 than the iphone. Both phones still trail the Blackberry system, but I think Apple needs to be careful not to get so caught up defending their network that they watch consumers learn to love the android phones because you can make a call on the FDR Highway and it won't drop 4 times in 38 blocks.


Monday, May 10, 2010

Inflate away your debts

The US policy of kicking the can down the road has proved to be surprisingly popular around the world. The EU went from "things are fine" on Thursday to "the world is coming to an end" by Sunday night. Again, rather than dealing with the issues in front of the EU they have chosen to deal with the issue of too much debt by taking on more debt.

I think the markets reaction to this after the initial short squeeze may be interesting.

** Update: Today's headlines will all read how the market soared the most in more than a year, but there are a couple of interesting notes. The market soared on the open and it took a massive push from the autobots at the end of the day to finish near the highs. More importantly the Europeans put up nearly a trillion dollars to defend the Euro. The initial reaction was positive as the Euro jumped to $1.30 US, but fell back to roughly unchanged by the end of the day at $1.27. You can't throw a trillion dollars at the market every day (well, maybe you can but it's generally ill-advised).

This is perhaps the best summary of the May 6th market meltdown that I've read:

" Today’s price swings in a great number of stocks highlight the inherent and systemic risk of our automated stock market, which has few checks and balances in place. Once the market sensed stress, the bids were cancelled and market sell orders chased prices down to the lowest possible point.

We read this in a recent comment letter to the SEC about HFT and couldn’t agree more: “When markets are in equilibrium these new participants increase available liquidity and tighten spreads. When markets face liquidity demands these new participants increase spreads and price volatility and savage investor confidence.”

Today’s severe market drop should never have happened. The US equity market had at been hailed as the best, most liquid market in the world. 
The market action of May 6th has demonstrated that our equity market has major systemic risks built into it. There was a time today when folks didn’t know the true price and value of a stock. The price discovery process ceased to exist. High frequency firms have always insisted that their mini-scalping activities stabilized markets and provided liquidity, and on May 6th they just shut down."

One of the other questions I've been asked is: "Someone made a killing right?" Well, there was actually very little stock traded during those volatile minutes but considering the cancelled trades its highly unlikely that anyone made a killing and it is very likely that some people ended up in a very bad situation.

Consider a stock that fell from $45 to $1 before closing at $39. Let's say you were the lucky duck that bought a 1,000 shares at $1. As the stock began to rise you quickly sold it at $25. Congrats, you just made $24k pre-tax, right? Wrong. The exchange has decided to cancel your $1 buy because obviously the market was out of line, but they let the sale at $25 stand. So, now you are SHORT 1,000 shares at $25 and the stock is trading $40 - basically you have a $15,000 paper loss. Doesn't that make you feel confident that the system is working?

Finally, can we please stop calling Goldman Sachs a bank? They are a hedge fund and a really, really, really good hedge fund, but this notion that they are anything but a giant day-trader is silly.

Consider that they didn't have a losing day in the first quarter. NOT ONE DOWN DAY!

"Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time."

More than half the time the firm is generating over $100 million a day! My greatest awakening occurred late one night at my office in the World Financial Center when I mentioned to a colleague that it seem so silly that we were paid so well when we created nothing. That's become the entire business model at GS.

It's a heads Goldman wins, tails you lose world - get used to it.

Do you think there will be any Congressional Inquiries into today's panic buying?

Of course not. We only get worked up when the computers crash the market, but when they drive it up 5-9% in a day, well, that's just the marketplace in action.

This reminds me of our market's reaction to TARP as the US futures are screaming higher right now.

In my opinion, Europe has attempted to solve their credit card debt problem by taking out a massive 3rd mortgage. It looks good on paper and it certainly bails out the banks in Germany and France, but ultimately, you've just pumped the system full of liquidity without addressing the underlying problems. This can work for only so long.


Sunday, May 09, 2010

To paraphrase Crocodile Dundee: "That's not a bailout. That's a bailout!"

That's brilliant.

Depending on how you added up the latest EU bailout is somewhere around €750 billion. The early rumors this morning out of Europe suggested a much smaller package and this news has definitely provided some stability to global equity markets.

However, as has been the case with bailouts 1-42, this one has to be approved by the national lawmakers. Considering Germany is on the hook for a huge chunk of cash under this plan and enough lawmakers are afraid of getting "Scott Browned" (yeah, I made it a verb, deal with it) I think this plan may suffer some setbacks at some point.

As a small aside - the IMF looks to be putting up $200 billion and the US funds about 17% of the IMF so that's another $34 billion that we don't have for education, energy, cleaning up the Gulf of Mexico, fixing Haiti, or funding another cash for clunker homes program.

The trend as of late has been to get giddy on the news and sell into as the day progresses. We'll see if the size of Europe's TARP really changes that pattern.

There's been a great deal of speculation as to what happened last week in the stock market and I'm sticking with my initial assertion that it's the machines running wild, but I've read 2 additional facts that really highlight the flaws in our system.

1) When things started to get out of hand, the NYSE basically tried to call a timeout on various stocks to slow the rate of descent. This removed all bids from the market, but the problem is that the NYSE only represents a fraction of the market anymore. The computers were still looking to make a market and they threw out insane bid numbers - like a penny for ACN - and a computer somewhere hit the bid because they are written to hit the best bid.

2) I've also heard that some of the biggest flash/high frequency traders shutdown operations in the midst of the crash. This further reduced liquidity and made the losses grow faster.

This is the nature of our market and we can't legislate this type of activity away unless we go to "annual pricing" of stocks. Wouldn't that be a great concept? Buy a stock today at $10 and if they earn $0.25 during the year, you'll get a dividend of $0.25 or when the stock opens up for it's only day of trading it will trade at $10.25. Of course, that would drive the last engine of growth "trading" -- out of our economy but it sure would make things less chaotic for the rest of us.

This article is about as far from the markets as you can get but it speaks to me. On Mother's Day, I'd ask all future Mother's to pay close attention....

Can we please stop misspelling our kids names on PURPOSE? We know you want to make DILLAN, or DYLYNN feel you unique, but really you're just giving me a headache and making sure that he'll end up on the People of Walmart homepage someday.

"I saw a birth announcement the other day and groaned. In recent years, I’d learned to accept the flood of trendy tots named Madison, but this was my first Madicyn. If you care about spelling, my advice is to pour yourself a stiff drink before untying that pink or blue ribbon and reading news of the blessed event.

In a similar vein, leafing through the newspaper these days is like crawling through a minefield of makeshift names. An article will catch my eye — say, something about a tornado that just missed ripping through a preschool beauty pageant — and I dread what’s coming next. They’re going to interview the pint-size witnesses, and I’m about to meet little Brittney, Brittny, Brittneigh, Brit’nee, Brittani and Bryttney. If you absolutely have to name your child after a rugged French peninsula, then get out a dictionary and look it up. It’s Brittany.
I have a major gripe with the trend of misspelling baby names. On purpose. The parents’ logic runs something like this: “My child is special and unique. Thus, my child deserves a special, uniquely spelled name.”

All across America, parents are mangling names in a misguided mission to trumpet their kid’s individuality. Take the wildly popular name Chase, which is actually not a name at all, but something a dog does to its tail. It was annoying to begin with, but now it gets worse as it slowly mutates from Chase to Chace, and on to Chayce.

Misspelling a child’s name won’t make Junior special, creative or unique. Y’s and I’s are not interchangeable, and apostrophes are not some sort of newfangled confetti to be sprinkled liberally throughout groups of letters. Parents shouldn’t impose cryptic, incoherent or foolish spellings on their own children, nor on society as a whole. And they shouldn’t condemn their children to a lifetime of bleakly repeating that, no, the name in question is spelled “Shaiyahne,” not “Cheyenne.” (And while I’m at it, don’t name your child Cheyenne, either.)

The liberty to name one’s child is not always absolute, certainly not outside the United States. In France, for example, the district attorney has a short window of time after a child is born to block names contrary to the interest of the child, including those that are pejorative or rude or would cause ridicule. I’m not suggesting we commission a similar corps of name police in the United States. But I am saying that a little humility and some common sense would go a long way."


Friday, May 07, 2010

Monster employment number but is it real?

The headline print was a huge 290k new jobs added in April. In general many signs looked up as hours worked increased and temporary hiring was up as well.

I haven't seen the number of census workers added but even assuming it's 100k that still leaves a huge jump in payrolls right?

Well, then we go to our old favorite - the fantasy birth/death model. This is the old fashion plug that was used so well during the Bush administration to generate jobs that may or may not have ever existed. Remember back in the 90s it would have been rare to see this number be over +/- 10k jobs in a month.

This month the BLS wants us to believe that 188k jobs were created that are out there we just haven't seen them yet. You can't subtract these jobs from the headline number because of various calculations that the BLS does to weight these jobs different, but suffice to say this huge number (up from just 81k in March) severely undermines my confidence in a otherwise strong report.

I'll update this post as I work through the data.


The unemployment rate jumped to 9.9% from 9.7% but this is mostly a math issue. Assume there was 1 person out of 10 unemployed and 1 person on the side that had stopped looking. Your unemployment rate would be 10%.

If that person suddenly decides things are looking better and jumps back into the job market then the unemployment rate with JUMP because 2 people out of 11 - or 18% - will be unemployed. The labor pool - total employed and unemployed looking - increased 805k and pushed unemployment up 0.3%.

The Good: Average workweek up, average hourly earnings up a penny, temp workers up 26k, Feb and Mar were both revised upward.

Census workers only added 66k so there should be a monster addition to payrolls next month.

In general, it's a good report, but keep in mind this is the peak of stimulus spending and unemployment is still almost 10%. At some point our economy will need to generate real CAREERS again. We seem to have succeeded in generated some jobs "temp help, leisure hospitality, etc" but these are not careers that will enable people to start households and spend like we did in the past.

Separately, the market is still not able to shake yesterday's freak out. We keep blowing through technical support levels like they don't exist and the Nasdaq is particularly weak.

I expect some end of the day buying so people can go home flat over the weekend but it's interesting to see some volatility return to the markets.

Thursday, May 06, 2010

Well, that was interesting...

One of the problems with the stock market for the past 7 months is that it has basically been treading water on very thin volume. The markets are up 0-8% over this span and every up day looks exactly the same. High volume trading in garbage names like Citigroup, AIG, Fannie, Freddie, etc, and that was able to prop things up while generating massive profits for the traders.

However, what happens when everybody hits the exit door at the same time? Well, you get a day like today.

Basically, we relived the crash of 1987 in about 10 minutes today. There is plenty of blame going around including the ubiquitous "fat finger" rumor (the tale of the fat finger implies that a trader meant to buy or sell 100 shares but instead leaves his finger on the button and buys or sells 1,000,000 shares). I don't buy that story. I prefer to think that this was the first of many "terminator-style" war among the machines that may hit the market in coming years. I noted early in the day that 1150 was a key number for the S&p500 to the technicians. Once that number was violated the computers started piling on which triggered many stop-loss orders until 1130 was crossed and then the computers went nuts and took the Dow down 600 pts in 5 minutes.

This is the problem with the automation of today's markets. It exposes investors to wild swings that are completely unrelated to fundamentals. No one seems to mind these issues when they are driving stocks up but on the downside, yikes!

Asian markets are continuing the slide right now but it's a much more controlled 4% dip at this moment.

As I've said, a number of big market players moved to cash this week and they are looking for entry points to load up their short positions. This could get interesting, but tomorrow's job report could change the tone very quickly (expect a fairly strong headline number - we'll have to back out Census jobs, birth/death adjustments, etc, etc, before we get an accurate number).


C.ollectively O.verpaid - are P.eople S.urprised?

Interesting story today on one of the last growth industries in our paranoid country - law enforcement.

From Boston - $250k cops.

"Robert Ciccolo earned almost $237,000 as a police captain in the hackney unit — $37,000 of it attributed largely to staying late, doing paperwork.

His cousin, Steven Ciccolo, a lieutenant in South Boston, took in nearly $248,000, a salary made larger by almost $54,000 for patrolling parades, filling in for other officers, and testifying in court.

And James Claiborne, a popular captain who retired last year, made about $248,000, boosting his annual salary by almost $44,000, largely by going to community meetings and events in a high-crime district that covers Mattapan and North Dorchester.

These three officers were among the department’s top 10 earners in 2009. The highest-paid officer took home $272,000, and another earned $265,000; the other eight earned between $237,000 and $248,000."

There should be a cap on these salaries to prevent overtime abuse. Once you hit $125k or some other number that seems appropriate you should become a salaried employee and not subject to overtime pay. Watch how fast that paperwork gets done when there's no overtime pay.

Just for laughs you have to check out the Chinglish slideshow at NY

I saw a number of these signs around the time of the Beijing Olympics, but it doesn't make them any less funny now :)

A couple of thoughts on the market: it's starting to gain a little steam to the downside and some pretty powerful investors have indicated they are bailing and looking for short opportunities. I think we'll get another relief rally at some point but then the big money might get REALLY short.

Europe doesn't seem to be able to get out of it's own way. China's stock market has fallen to 8 mth lows and no one seems to notice. Remember China, Australia, and Canada (both Canada and Australia are likely to experience their bubble bursts in coming years, but that's another story for another day) are the global bright spots thanks to their commodity exposure. However, there seems to be some increased fear gripping the globe and this is leading to a strengthening US $ which does a few things - it should ultimately cut commodity prices, lighten our debt load a bit, and hurts US corporations selling abroad. One of the untold stories of the boom in earnings is that it's been largely due to weakness in the US dollar. That could reverse fairly quickly.

Freddie came back to Washington with their hat in hand asking for another $10 billion. Since Freddie/Fannie and Ginnie Mae are the only game in the mortgage market I'm not sure what to recommend. Since we decided that housing is an industry that must be saved we have to keep propping these zombie lenders up. Without additional funding the mortgage market could further shrink and the housing market could wither on the vine. I'm particularly troubled by the surge in "For sale" signs locally.

Maybe it's normal activity, but it certainly feels like there is an uptick in listings (however pricing remains laughable IMO). As one realtor told me recently "I didn't set the price. It's a crazy price and I'll tell them to jump on any offer that was 50% of the list because it will probably be the only offer they'll see."

Update: The power of the technicians to run the market right now is startling. This morning someone said 1150 would be a line in the sand for the S&p500. The market ran right to that level. Crazy stuff.

Tuesday, May 04, 2010

Oil, Europe and Lawnmowers, Oh, my!

Via another blog - "At this point nothing that happens in Greece is important, although the thing that will most likely happen is that the Greek government will fall imminently, killing the austerity package and destroying whatever credibility the EMU and the EU have left, but notCheck Spelling before the IMF and the EU soak up another 110 billion euro in their slush funds. As we expected, the euro is about to breach 1.31 support. And adding insult to injury is the latest rumor of an upcoming downgrade or very cautious language of Germany by the suddenly hyperactive rating agencies."

This is getting pretty interesting in Europe. On a related subject, I know that we like to snicker at the EU having to bailout the Greeks, but since a big chunk of the bailout is coming from the IMF guess who really is providing the bulk of the bailout? Thank You John Q. Taxpayer!

"It now looks like almost 30% of the Greek financing will come from the IMF, rather than just a small portion. And since 40% of the IMF is funded by US taxpayers, and that debt will be JUNIOR to current bond holders - (if the rumors are true).

What that means is that US (and Canadian and British, etc.) tax payers will be giving money to Greece who will use a lot of it to roll over old bonds, letting European banks and funds reduce their exposure to Greece while tax-payers all over the world who fund the IMF assume that risk."

Re: The Big Spill - While BP is on the hook for all of the oil clean up costs, they're coverage of economic losses is currently capped at $75 million. I find it funny that two NJ Senators are co-sponsoring a bill to lift this limit retroactively. Are they worried that summer rentals in Seaside Heights will be hurt by the oil BLOB? What about the slick of Hawaiian Tropic left in the ocean by all of the Situation-wannabes?

Also, consider that “John Amos, a geologist who has worked as a consultant with companies such as BP, ExxonMobil Corp. and Royal Dutch Shell PLC on tracking and measuring oil spills from satellite data, said NOAA raised its estimates to 5,000 barrels a day after he and his colleagues published calculations that showed the original figures were far too low based on the NOAA data. Amos has also previously participated in a joint industry-NASA study using satellite imagines to detect and track oil slicks.

Mr. Amos said the 5,000 barrels a day is the “extremely low end” of their estimates. He said, based on NOAA maps, a more realistic figure is 20,000 barrels a day….

PSA - I wouldn't have been aware of this class action settlement without hearing a PSA on the radio the other day so I thought I'd pass along the website - Basically, the engine manufacturers allegedly overstated the HP on almost every lawnmower sold in recent years (remember we all must lie all of the time). Well, someone figured this out and sued. If you bought a mower - push or rider - in the past 16 years you can file a claim to get between $25 and $75 back from the manufacturers. You need some pretty specific information on the model - like the model # - but it's pretty easy to find on most mowers. You can file a claim online so it's worth 2 minutes of your time if you bought a mower in the past few years.


Look out below...

The market apparently was scared straight by the idea that the Greeks might not give up with out a strike or two. Oh, and rumors swirled that Spain quietly asked for a couple of hundred billion, you know just between friends....

If the bailouts taught us anything it's that you don't want to be second in line. Bear Sterns went under but it was sold mostly intact. Lehman went into liquidation b/c they were second in line. The rest of the bailout babies were all covered by TARP so they were ok. Spain's in a tricky spot if they need money soon...

Sorry for the ginormous chart but it's pretty informative. Makes you wonder if Greece can cause this much unease in the markets, what's coming next.

Monday, May 03, 2010

Random Thoughts on GDP and GM...

Follow-up to the GDP numbers - Amidst all of the news on Goldman/Greece/Oil spill/ the Times Square Nutmeg bomber, the GDP numbers lost their punch on Friday. While the data was decidedly mixed the consumer spending number seemed surprisingly strong. A little digging reveals the truth behind the data...

Total personal consumption expenditures were up about $130 billion which led many to cheer the return of the consumer. However, we can see that the entire jump in "spending" generated by "reduction of savings of $88 billion" and government social benefits to persons which jumped $61 billion. This is neither healthy nor sustainable.

GM paid us back right???

I have to thank my Mom for inspiring this post. I was ranting the other day about how GM can't be bothered to tell the truth, instead they hold press conferences and run commercials on how "they paid us back EARLY". Sounds good, right? Except it's not the whole truth.

What troubled me when I first heard the news that GM was repaying the TARP money was that they are still losing money and have negative cash flow. How can they be repaying us when they're still bleeding cash?

Don't hold me to these exact numbers because they are ballpark estimates but here's the breakdown.

We gave GM roughly $49.5 billion. GM swapped about $42 billion of this debt for equity in the new GM or shares in the new company. In theory if GM ever became a profitable business again it might have some value but it's unlikely we'll ever see that $42 billion again. It's like loaning your kid $100 to start a lemonade stand and then watching your kid say "You see I'm not going to pay you back your $100 but you now own 60% of my failing lemonade stand!!"

This however, is the least dishonest part of the "Hey, John Q. Public we paid you back!" ads.

There was still the matter of about $6.7 billion of true debt to be repaid and GM did repay that, but how? When GM went into bankruptcy the government set up a $13 billion working capital line of credit. Think of this as a credit card with a $13 billion credit limit. It's not debt, but it's available for emergencies. So in order to rid themselves of all of those painful compensation restrictions associated with TARP recipients GM basically took a cash advance on their $13 billion credit card for $6.7 billion and wired that cash to government and said "OK we repaid the TARP loan, now we're free to pay our CEO whatever we want!".

Basically, GM paid off their Visa bill with their Mastercard and bought ad time to tell us how "healthy they are now". GM has also recently applied for additional loans to the tune of $10 billion to retool their plants.

So, in summary while it's TECHNICALLY true that GM repaid a small portion of their TARP debt (13% of all the money we gave them) they repaid it with more government loans and they did it so they could apply for MORE loans.

Let's never let the facts get the way of a good story......

The best joke of the day:

"President Obama stated clearly that BP would be held responsible for the cost of the oil spill in the Gulf of Mexico. BP's CEO responded 'We would like to apply for status as a Bank Holding company. We believe BP is a critical lynch pin in the global economy and we'd like some Fed bailout money to ease the burden of this clean-up.'

When asked about this concept Chairman Bernanke responded 'Seems to make as much sense as anything else we've done'."


Sunday, May 02, 2010

Greece gets a bailout! No this isn't a repeat of the past 4 weekends.

I think the $160 billion Greek Bailout will certain calm some fears in the market but think of how fast this has evolved. A couple of weeks ago the bailout was pegged at $30 billion. Today, it's $160 bil and I've seen numbers that suggest the ultimate tab could be 3 - 4 times this number. The problem that the Eurozone now faces is that they've set a precedent that they will bailout any country that is getting attacked in the markets. Next up, Portugal, Spain, Ireland and maybe France. The German backlash against this decision will be interesting to watch.

There was a decent amount of coverage of Warren Buffett's comments over the weekend. Mr. Buffett said he sees the economy picking up steam. Here's the problem with that idea: Think about Mr. Buffett's biggest business interests - financial firms, energy and railroads.
Well, the financials have been killing it this year as they borrowed from the Fed at next to nothing and traded their way to profitability. Energy firms have benefited from higher commodity prices and railroads have seen a slight uptick in traffic tied to the peak of stimulus spending. I don't think Mr. Buffett is a perfect indicator on the US economy, but it won't matter on CNBC tomorrow as they'll run his comments in perpetual loop :)

I really had to make sure I read this right when I saw this article in the WSJ...

"Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance."

Without Fannie, Freddie, and Ginnie Mae there would be almost no mortgage market.

I'm looking for some more independent verification of the 1099 debacle that appears to be in the health care bill. So far most of the websites highlighting this story seem to be right wing think tanks, but there are links with the actually language from the bill so it seems pretty legit.

Anyway here's the deal... Historically, a 1099 has been used to report "other income" - interest (yeah, remember the good old days when banks paid YOU), independent contractors, winnings from your week in Vegas, etc. Basically, it helps to keep you honest since you know the IRS knows about your income.

Well, I'll defer to the slightly greater tax mind in my household to interpret this section of code:

"The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services."

Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year.

Buy $600 worth of paper from Staples? Issue them a 1099. Buy $600 of flour from Sam's Club? Issue them a 1099. Sell $600 of pizza to the high school for homecoming? Expect a 1099 in the mail.

I know why this was written into the bill - to help track down additional tax revenues that fall through the cracks at cash based businesses - but this could be a disaster trying to manage. Hopefully cooler heads will prevail and this will get pulled before implementation.