Tuesday, June 29, 2010

That was the recovery?

There seems to be a growing body of evidence that the second quarter may mark the peak of the stimulus driven "recovery". The combination of stimulus funds running out, tax credits expiring, no more extensions of unemployment benefits, state financial troubles, plunging consumer confidence, Krugman throwing in the towel, endless wars (the military build up off the coast of Iran should have us all filling our extra gas cans), etc, etc, gives me pause when looking at our economic situation.

The trading in the market remains the exclusive domain of the technicians. Four weeks ago, those in the know said this market is simple - buy the S&P500 at 1040 and sell it at 1120. On June 8th the market flirted with 1040 before running straight to 1130 over the next two weeks. A week later the market closed at 1041 (many thanks to the silicon based traders that goosed the market in the last 10 minutes to prevent a close below 1040 which would have made the computers go haywire in the AM). So while you were bombarded by Drudge's flashing red screens about the plunging market, keep in mind that while the its down 11% this quarter the active trader could be up 15% or more without using any leverage. That's good for Ferrari dealers in Greenwich and Realtors selling large islands on the St. Lawrence River but not so much for the buy and hold crowd.

Many of the better technicians seem to be jumping off this 1040-1120 train because the moving averages have been crossed. It's silly tea leaf reading in my opinion but this is what is impacting your retirement funds so it's best to be aware of what's coming.

ABC's "This Week" runs a week 30 second blurb highlighting the ultimate sacrifice made by our servicemen and women overseas in the past week. This week's numbers really jumped off the screen when I saw them - 16 soldiers lost in the past week. Consider that 17 sailors were lost in the bombing of the USS Cole. According to the Washington Post, total fatalities now stand at 5,521 for the 2 wars.

Piggybacking on an idea I saw on another website today - What's the best book you've read this year? Offer up your nominee in the comments.

Monday, June 28, 2010

Don't practice your backstroke here....

Apparently this a pool on top of a Casino in Singapore. That's a pretty sick pool.

Maybe New York should have been called New Greece

One of the problems with the credit default swap market is that it provides real time data on the market's opinion of the creditworthiness of an entity.

Well, if that's the case, things are looking a little bleak here in NYS. Despite hints that progress was being made on finalizing a state budget the cost of credit protection for NYS has jumped about 20% in the last week. This is roughly the same jump seen in states like CA, NJ and IL over the same period. Also, consider that the cost of credit protection for NYS is now higher than Spain's and roughly the same as Portugal or Croatia.

I noticed that our sewer district is considering expanding their service to include another 500 homes at a cost of about $12 million. Knowing a little bit about the area to be served I'd guess no more than 1/3rd of those homes are year-round residents so the real cost is about $12 million to serve 167 homes. I'm in favor of preserving the environment and protecting our river, but at some point you have to weigh the costs versus any perceived benefits. Separately, I'm always amazed by local officials that point to grants and rural development funds as sources to pay for projects like this. Where does that money come from? First National Unicorns, Inc. or from Federal Tax Receipts collected from me???

Weird news of the day.....

1) Sometimes when you buy an American Flag for a dollar, you get a flag that is worth about a dollar. In related news apparently China thinks we have 61 states. That might explain why they keep buying our bonds -- they think we own Canada, Mexico and all of Central America.

2) Apple says it's sold 1.7 mil iPhone 4's. According to my sources at least 13 completed calls were successfully made over the weekend with the phones :)

3) If you needed another reason to hate Verizon please consider this story: A marine is killed in action in Afghanistan. His widow moves home to be closer to her family. Verizon coverage is terrible in her hometown so she calls to cancel her service. Verizon says sure -- That will be $350 for the early termination fee. Update: They've apparently waived the fee, but it took lots of bad publicity on the web before they stepped up.


Sunday, June 27, 2010

Financial Reform?

It seems fairly grim to consider the implications of Sen. Byrd's failing health on the financial reform legislation so I'll leave that to others.

However, there have been some pretty good breakdowns of the "reform" that was passed and the fact that it actually reforms very little. This grading of the bill was put together by The Big Picture blog....

The new regulation does not directly address either the repeal of Glass Steagall or TBTF. The crisis legacy is a financial services sector that is highly concentrated with dramatically reduced competition. The six largest financial firms — combined assets: $9.4 trillion — will still dominate the industry. Too-Big-to-Fail remains the law of the land.

Establishes new minimum underwriting standards for mortgages. No more no doc, NINJA, or Liar loans. Lenders must verify income, credit history and job status. Would ban payments to brokers for steering borrowers to high-priced loans. Of all the regulatory changes passed today, this seems to be the only one that, if in place a decade ago, would have prevented (or at least dramatically reduced) the crisis.

Gives federal regulators new authority to seize and break up large troubled financial firms without taxpayer bailouts; creates a sector rescue fund from banks with > $50B in assets. The time to assess this fee is before a crisis, not after — when banks need every penny of capital.

Inexplicably, all of the new regulations fail to reduce leverage rules today .

10-member Financial Stability Oversight Council to address system-wide risks to stability, with the power to break up financial firms. Oh, and about that leverage thingie? Directs them to look into it.

Sets up a quasi-government entity to address conflicts of interest. Allow investors to sue credit-rating agencies. Establishes new SEC oversight office. Retains Oligopoly; Fails to open ratings to more competition. Considering that the ratings agencies were the prime enablers of the crisis, this failure is shameful.

Moves most derivatives to exchanges, routed through clearinghouses,e etc. Customized swaps remain OTC, but have reporting requirements. New capital, margin, reporting, record-keeping and business conduct rules for firms that deal in derivatives. Failed to overturn CFMA.

Curbs propriety trading by FDIC insured depository institution. Would not have prevented this crisis, but addresses the moral hazard of banks in the future due to the bailout.

I'd note that I disagree with this assessment. I believe that FDIC insured institutions will just move their prop trading desks to joint ventures or subsidiaries and hold a minority stake in those businesses.

Give shareholders a non-binding vote on executive pay. No clawback provisions. Does not address imposing liability on management for excess risk taking, corporate collapse or taxpayers bailouts.

Overturns OCC tool John Dugan Federal pre-emption of state regulations. states to impose their own stricter consumer protection laws on national banks. National banks can seek, and will likely receive exemptions from state laws, undercutting this entire law.

Permanently increases FDIC for banks, thrifts and credit unions to $250,000. Fly in the ointment: Congress failed to fund this, although the FDIC will be covered by taxpayers if and when they run out of cash . . .

This is funny - increase the insurance coverage, but without funding it just means that we are on the hook for failed banks.

The new Consumer Financial Protection Bureau is a half decent idea, but the exemption for Auto Dealers — the typical family’s 2nd biggest purchase is a car — is unconscionable. Putting the agency inside the Federal Reserve is beyond idiotic.

Overall, this is a political showpiece rather than a piece of effective legislation. Wash, rinse, repeat.

We'll get another BLS report on Friday. The current consensus is around one hundred and fifty thousand jobs added in June ex-Census jobs. We'll see how the number bounces around during the week.

Thursday, June 24, 2010

How many people will line up for the iBrick?

I've always wondered if there was threshold of pain for Apple zealo... I mean customers. Perhaps the latest iphone that has millions lining up around the globe might just test their patience. Apparently, the phone either drops calls or loses coverage when held a certain way. You can resolve the issue by installing what is basically a large rubber band around your latest high-tech gizmo, but I think that might turn off more than a few fanboys.

Apple has done nothing but crush everyone's expectations for the past 7 years we'll see if they can keep their mojo.

A couple of surprisingly positive data points:

1) Hotel occupancy increased 5.8 percent to 66.7 percent. The average daily rate rose 1.1 percent to US$98.03 and revenue per available room rose 7.0 percent to US$65.36.

Business travel seems to be accounting for the bulk of this pick up, but I'm not sure how long it will last.

2) This isn't truly a positive, but 30 yr mortgage rates hit a record low of 4.69% this week. This is a positive for the 12 people left in the US looking to buy a house with a traditional mortgage. In fact, it reflects the weaker global economy which increases demand for treasury bonds which pushes up their price and lowers the yield on t-notes.

I'll let you try to filter out the garbage from the truth coming out of the Gulf region but things seem to be getting materially worse. The only good news seems to be that the relief well is running ahead of schedule.


Wednesday, June 23, 2010

Mandatory viewing for everyone

Okay so we all know that every magazine uses Photoshop to touch up their models but this seems a bit extreme. Kids are under immense pressure to live up to the images they see in magazines, but they should realize that most of these images are about as real as an Avatar character.

The more you watch the before and after the more things you'll notice - the magic second arm,
the incredible shrinking forearm, etc.

The irony of the magazine running an article titled "Skinny Pills: Yes they work!" is a bit over the top. If you don't see the gif below in your email - visit www.grindstonefinancial.com to see the before and after Faith Hill.

You have to be a Family Guy fan to appreciate this picture but it made me laugh. FWIW I'll say US 2 - Algeria 1

* Mortgage applications tumble - The purchase index has collapsed following the expiration of the tax credit suggesting home sales will fall sharply too. This is the lowest level for 4-week average of the purchase index since February 1997.

* US architectural billings dip again and are still contracting. It's worth noting that the Northeast commercial sector was above 50 indicating expansion.

* The Baltic Dry Index hasn't been in the headlines much since 2008 (it is a measure of the cost of shipping and a general indicator of the health of global trade). The index soared back to over 4500 in 2009 as China ramped up steel production and stocked up on oil, but it's fallen about 20% this week and is approaching levels last seen in the fall of 2009. If it breaks down a bit further it could get people worried about global trade.


Law school grade inflation

Perhaps fearful of the prospect of being sued by a bunch of out of work law students that owe $120k in student loan debts, law schools have apparently decided it's easier to just tack a few extra grade points onto a students GPA than to actually go through the effort of training a competent workforce.

"One day next month every student at Loyola Law School Los Angeles will awake to a higher grade point average.

But it’s not because they are all working harder.

The school is retroactively inflating its grades, tacking on 0.333 to every grade recorded in the last few years. The goal is to make its students look more attractive in a competitive job market.

In the last two years, at least 10 law schools have deliberately changed their grading systems to make them more lenient. These include law schools like New York University and Georgetown, as well as Golden Gate University and Tulane University, which just announced the change this month. Some recruiters at law firms keep track of these changes and consider them when interviewing, and some do not.

Law schools seem to view higher grades as one way to rescue their students from the tough economic climate — and perhaps more to the point, to protect their own reputations and rankings."

Huh? Well, that's the new American work ethic - try hard and if it doesn't work out, well, you get an A, and you get an A and you get an A....

This reminds me of a history exam of a local student that someone shared with me. The student had missed 6 out of 35 questions. Not great, but it works out to roughly and 83%. Imagine my surprise when I saw the final score totaled as 108%. A variety of bonus questions and "neatness" kickers bumped the grade over 100% for work that was barely a B. I used to think that we were doing our kids a disservice by creating unrealistic expectations of continued grade inflation in college. Apparently, I was wrong - it's grade inflation for everyone!


Tuesday, June 22, 2010

Here we go again?

The market has been bouncing around a bit as of late but many of the horoscope readers --- I mean technical traders had drawn a line in the sand with the S&P500 at 1103. Once that number was breached the markets hit an air pocket and fell sharply. Hal9000 is running things still and we're just along for the ride.

The markets were shaken by the sharp dip in housing sales which fell 2% in May. To be clear this number was terrible, but the National Assoc. of Realtors saw it slightly differently "May Shows a Continued Strong Pace for Existing-Home Sales". The dip in May is clearly do the hangover from the tax credit expiration (remember what happened to car sales for a few months after the cash for clunkers deal expired) but the greater question will be what does it mean if sales are slowing going into the historically strong Spring/Summer selling season?

If sales continue to dip we could be talking about a double dip in housing before the end of the year.

Coming to a city near you - All employees outsourced to India and China!!!
Okay, that's a bit of a stretch but this city is taking the first baby steps in that direction.

"The city of Maywood will lay off all city employees and begin contracting police services with the Los Angeles County Sheriff's Department effective July 1, officials said.

In addition to contracting with the Sheriff's Department, the Maywood City Council voted unanimously Monday night to lay off an estimated 100 employees and contract with neighboring Bell, which will handle other city services such as finance, records management, parks and recreation, street maintenance and others. Maywood will be billed about $50,833 monthly, which officials said will save $164,375 annually.

"We will become 100% a contracted city," said Angela Spaccia, Maywood's interim city manager."

Interesting turn of events...

FYI - if you're flying a Boeing 767 in the next few days... The FAA seems pretty concerned about some cracks forming around the engines.

"Structural cracks discovered recently on at least two American Airlines Boeing 767 jetliners, including one jet that air-safety regulators believe easily could have lost an engine, are prompting concerns that some of the problems may turn out to be more widespread.

Over the past two weeks, American, with oversight from the Federal Aviation Administration, has checked the bulk of its wide-body 767 fleet to look for possible cracks in critical components that attach engines to the wings. On Monday, the FAA said problems were found on three planes."

Boeing is disputing the findings on one of the planes, but if it's 2 out of 56 planes or 3 out of 56 those are not odds that I like playing. Boeing has sold almost 1,000 767's since 1982 so there's a good chance that if you're getting on a plane tonight it could be a 767.

On that happy note have a cocktail, sit back and enjoy the flight!

The double down now has some competition...

Why have just another artery clogging burger with a plain old bun, when you could be enjoying two grilled cheese sandwiches enveloping your burger? I present the new Friendly's Grilled Cheese Burgermelt.

From the Friendly's website:

1500 Calories
870 Fat Calories
79g Total Fat
38g Saturated Fat
180g Cholesterol
2090mg Sodium
101g Carbs
9g Dietary Fiber
4g Sugar
54g Protein

The day is coming when food like this is going to be hit with a 100% tax surcharge.

I will note however that I have a real affinity for grilled cheese sandwiches and in a moment of weakness at 2am after a night out with the boys I could definitely see my younger self ordering 2 of these with a side of cheese fries :)


Monday, June 21, 2010

Yuan theoretical revaluation gets the markets going

I think we need to be careful what we wish for. If the Yuan was fully revalued it would certainly help to level the playing field in global manufacturing, but there is an outside risk that 10 years from now the Yuan could become the world's reserve currency replacing the USD. That would not be a good thing for any of us...

Right now I think the talk of revaluation is mostly just talk but it has given the markets a nice shot in the arm so it will be off to the races in the AM.

I read a quote this morning that should worry anyone in the once great Empire State -

"State economies are plunging, and are $200 billion underwater, this will lead to 2 million in state-level layoffs leading to a low-end impact; raising taxes at state level will impact the top-end."

I've said before that my concern for the North Country is that we have hitched our wagon to the gov't gravy train. Think of the proportion of NNY residents that work for some form of state, federal or local government - it's staggeringly high relative to other parts of the US. From prisons, to schools, to Ft. Drum and everything in between we could be facing some very lean times in NNY if politicians get fiscal religion.

I tend to be a fence sitter on this issue - not all government spending is bad or excessive and cutting too sharply will almost certain send us into a deep double dip recession, but the current budgetary path is unsustainable in states like NY.

The next time your local realtor shows you a lovely 20 x 20 "island" in the might St. Lawrence priced at the low, low price of just $329k maybe you can remind them of options like this property in Illinois - $179k for 43 acre island.

If it wasn't in Illinois, I'd scoop that puppy up.


Finally, if you don't think the oil spill is impacting tourism consider this - I'm a notorious cheapskate so I view the spill as my way to take a cheap vacation. I looked online last night and I can book a room at a 5 star (a true 5 star that rhymes with Fritz-Barlton) beachfront resort on the Gulf Coast for $150/night. Now this is normally their slow season, but when it's cheaper to stay in the nicest hotel west of Miami (that normally books for $299-$499/night) for less than the cost of a night at the Days Inn in Syracuse then you might have a problem with your tourism industry.


PS - As the school year draws to a close expect light posting over the summer as I put my kids through the rigors of "Dad's school".

Sunday, June 20, 2010

Weekend wrap up

I'm certain BP is trying to write the PR handbook on what not to do after an oil spill. After delaying measuring the oil leak flow for 2 months they've now said the worst case scenario is up to 20 times worse than their original estimates. Also, as the winds start to move the slick toward the Florida Panhandle their CEO is watching his $700k 52 ft sailboat race over the weekend? The big BP news this week will likely be -- Can they sell enough debt to stay afloat? This tug of war will continue throughout the week.

* This is a pretty good discussion on the economics of shale gas extraction. With natural gas plentiful and cheap, the rush to drill seems a little out of whack. I really can't see anyone in NYS allowing this to move forward because of the potential risk to the NYC watershed, but our state government doesn't inspire a great deal of confidence lately.

* Russia to scrap capital gains tax - In an economic textbook this seems like a good idea, but the corruption in Russia will still keep the largest investors from migrating to Russia.

* This is a crazy long video - something like 12 minutes - but it shows every nuclear test conducted on the globe from 1945-1998. All of that residual radioactivity might explain why you have a sudden urge to give away your money when you visit Las Vegas. The other shocking thing in this video is the insane number of tests the French have conducted over the years.

On a hopefully unrelated note, a bunch of the fringe military monitoring websites reported over the weekend that "12 American warships, among which one aircraft carrier, as well as one Israeli corvette, and possibly a submarine, have crossed the Suez Canal on their way to the Red Sea." The reportedly disrupted traffic through the canal for some time.


Thursday, June 17, 2010

Fundamentals, Shmundamentals

The markets were staggering against the ropes all day until the last 30 minutes when the silicon based traders went nuts and goosed the markets about 1 percent in the blink of an eye. Remember, we only care when the markets fall quickly without an explanation and we commission Congressional inquiries into the FLASH CRASH. When the markets explode thanks to Hal9000 we are asked to conveniently look the other way.

The widely watched Philly Fed Business Outlook missed expectations by a mile and fell back to it's lowest level in ten months.

"Until this month, firms’ responses had been suggesting that labor market conditions were improving, but indexes for current employment and work hours were both slightly negative. For the first time in seven months, more firms reported a decrease in employment (18 percent) than reported an increase (17 percent)."

Just to be fair and balanced you'll remember that earlier in the week I mentioned a widely followed technician that felt it was safe to return to the market in the near-term. An alternative concept was put forth by the godfather of technical analysis today - Robert Prechter and his Elliot Wave Theory.

"The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016."

"Stock market bulls and most economists think that a new bull market and economic recovery are underway. Most bears are looking for either a long sideways bear market à la 1966-1982, or a hyperinflationary run to infinity. Our Elliott Wave outlook opposes both of these scenarios. The most likely profile is a stock market crash of historic proportions."

Elliott Wave Theorist offers several reasons, including: "This bear market is of Supercycle degree, the biggest since 1720-1784. It should therefore include a decline deeper that the 89% decline of 1929-1932. A decline of 91.5% or more would carry it below 1,000." To be clear, he is saying not Dow 10,000 but the Dow under 1,000 over the next 6 years and this guy isn't some random fool blogging in the Tundra -- he's probably followed by more traders than anyone not connected to one of the big investment houses.

That was my WTF moment of the day....


Wednesday, June 16, 2010

Comedy in the markets

About 3 weeks ago the CEO of Toll Brothers - a large developer of McMansions around the US - said "With demand increasing in many areas, we are very focused on growth." Ooops, not so much on the whole demand thing...

"In the three weeks following our earnings conference call on May 26, 2010, our per-community deposits have been running about 20% behind the comparable period."

They also trotted out the lamest excuse I've seen to date - "worries about the oil spill in the Gulf of Mexico and its effects on the economy and the environment have negatively impacted the outlook of American consumers." Yeah, Biff and Muffy in NJ aren't buying your houses because of the spill in the Gulf.

Speaking of the spill - remember when I said that there were estimates that indicated there could be 2 mill + gallons of oil leaking per day? Well, that's what we are now estimating at the top-end. Again for perspective - that's an Exxon Valdez every 4-5 days and we're on day 58.

The BP $20 billion fund will clearly be a starting point to stabilize Gulf businesses, but somehow I suspect attorneys will make an effort to get 20% of that money. It reminds me of the large class action lawsuit vs. Expedia that resulted in a settlement payout for me - Yippee!!

This was the actual text from the class action lawyers "You are receiving this notice of credit because you booked a hotel stay through Expedia and paid “Tax Recovery Charges” or “Service Fees” during the period from January 10, 2001 through June 11, 2008. As part of the settlement, you are entitled to receive $1.16 in the form of an Expedia Coupon." I'll try not to spend it all in one place.
The markets staged a nice rally on little news yesterday and less volume - when no one is buying or selling a little strategic buying can really move the markets. The technicians can be more positive as the market has crossed back over it's 200 day moving average. The non-tarot card crowd has to consider things that are still looking a little shaky like: the European debt crisis, weak retail sales, weak housing market, weak job market and rising global debt levels.

As one analyst said today determining the market direction is "basically like tossing a coin".


Monday, June 14, 2010

To double dip or not to double dip...

The Greeks took the wind out of the market's sails late in the day as Moody's cut their debt to junk status. This has been coming for some time but for some reason it seemed to catch the market off-guard.

There was an interesting bit of technical research that made the rounds this morning that indicated that it's safe to enter the waters of the equity markets again. The thinking is that the market has made a bottom at this point and we'll be good to go until the fall (when this same analyst said head for the hills because it could get really, really ugly). Many people also pointed to a piece of research that suggests the odds of a double dip recession are virtually zero. I think their analysis is based on historical norms and if this recession has taught us anything it's that history doesn't always repeat. Without another round of substantial stimulus I think we're looking at about a 30-40% chance of a double dip. I don't think there is any chance the politicians will authorize another round of stimulus in an election season so the odds of a recession may go up as the year goes along.

FYI - The Federal Government is about to get hit with overdraft fees if they aren't careful. On Friday our actual cash was down to about $4 billion. It shouldn't be news that we're spending more as a nation than the gov't is taking in, but the thing that really concerns those in the know is the reliance on ultra short-term financing. Basically, we've bought a $2.8 million McMansion and rather than financing it with a 30 yr fixed rate mortgage we're using daily loans from the bank. This works great until the day that it doesn't work. So far in the first 10 days of June we rolled over $320 billion in debt. So far, so good...

Wow, Illinois seems to be rolling the dice in their teacher's retirement fund.

"Dale Rosenthal, a former strategist for Long Term Capital Management, the hedge fund known for its epic collapse in 1998, and a proprietary trader for Morgan Stanley, has seen his share of financial complexities.

But when shown a seven-page list of derivatives positions held by the Illinois Teachers Retirement System as of March 31, obtained by Medill News Service through a Freedom of Information Act request, the University of Illinois-Chicago assistant professor of finance expressed disbelief.

“If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank,” Rosenthal said.

The fact that the sheet doesn’t belong to one of those high-flying hedge funds, but to the $33.72 billion pension fund that serves more than 355,000 full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago, is perplexing to those interviewed for this story.

How bad is it? After losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, the teachers’ pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report. By comparison, only 20.3 percent of the Chicago Teachers’ Pension Fund is unfunded.

Still, TRS has the fourth-riskiest investment portfolio for a pension fund in the U.S., with fully 81.5 percent of its investments considered risky, according to a Pensions & Investments study based on 2008 data.(The Commonwealth of Pennsylvania State Employees’ Retirement System was considered the riskiest with 86.1 percent of its investments considered risky.)"

On a separate, but possibly related note, the NYS Teacher's Retirement System used to publish their holdings online annually and every quarter. However, I can't seem to find the listing of holdings (other than the top 10 holdings) on their website. If anyone knows where they might have moved this info on their website, let me know.


Shanghai - Then and now....

Shanghai 1990
Check Spelling

Shanghai 2010

Holy code violations batman. BTW: How is the new WTC coming along 9 years later?

Side note: My old building and my better half's home away from home are in the background of this photo.

Sunday, June 13, 2010

Weekend Thoughts...

The appetite for risk seems to be back for the moment and that has pushed up the Euro and lowered the US dollar which is rallying stocks in the futures market right now. BP will probably continue to be the story of the week and while I don't think you can defend BP right now, I think you can appreciate why the British might be a little miffed with our sudden rush of environmental responsibility when you look at a chart like this.... (Energy use per capita)

That little pink line on the bottom should give us all pause.
In general, I've been a supporter of Gov. Paterson's "Tell the Truth" tour even if his lack of political acumen is glaring at times. However, while the news seems to be focused on the prospect of a government shutdown, the pension sleight of hand that the legislature seems to be considering may be the worst example of "kick the can" that I've seen to date.
"Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits.
Pension costs for the state and municipalities are soaring, a result of enhanced retirement benefits for public employees and the decline in the stock market over the past two years. And, given declines in tax revenue and larger budget shortfalls, the governments are struggling to come up with the money to make the contributions.
Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013."
So just to clarify -- Pension costs are soaring because of enhanced benefits, the falling stock market and falling tax revenues. To address this issue we could increase taxes, cut benefits or stick our fingers in our ears and sing la-la-la-la-la. Of course, we have to chose option c.
Let's assume you have $100k in your 401k and you'd like to contribute another $10k this year. However, you're broke and you really, really want to go out to Applebee's for 8th time this month so you devise a clever scheme to have your cake and eat it too.
Hey, you can borrow $10k from your 401k and pay it back with interest over the next 3 years. You can cross your fingers and hope that the stock market roars back to life which will offset the cost of your reckless move. However, the more likely scenario is you're going to be stuck struggling to make your interest payments and wondering why you didn't tighten your belt back when it would have meant a little pain.
These are the sort of decisions that make people reconsider their decision to live in the great state of NY.

Thursday, June 10, 2010

Well, Hal 9000 what will it be today?

Here's all you need to know about today's rally. Goldman told people to start selling the Euro because it was going lower.

Of course, because Goldman said that publicly, it was implied that they were buying Euros for their own book and it was off to the races for the Euro --- ok, snark off.

Remember the basic formula if the Euro is Up and the Dollar is Down then Stocks will be up!

2:30 is usually the golden hour when the computers will either take profits or goose it.

The best story working its way around the web comes out of BMO in Canada. With 10 million clients they are a real bank even if they are based in Canada :)

Go To Cash

"We advocate switching out of equity positions and going to cash".

I don't offer investment advice, but to hear a bank that makes money by managing money say that clients should switch to cash is interesting, especially on a day when the market is rallying :)

Wednesday, June 09, 2010

Why does the US hate NJ's Teachers and California's Cops?

Of course, the government doesn't hate teachers and cops, but as the talk of a possible dividend cut at BP increases, it continues to crush the stock which has been roughly cut in half over the past seven weeks.

I mention NJ and California because the pensions in those states are listed as owning 51 million and 36 million shares of BP. That's a hit of $1.53 billion and $1.1 billion respectively. However, that pales in comparison to the hit that UK pension participants are facing.

"The share collapse means a £15,000-a-year pension will be cut by up to £400 a year with possibly worse to come."

However, I've seen estimates that indicate up to 1 pound out of every 6 pounds paid by the UK pension system is derived from the BP dividend. If they eliminated their dividend a pensioner that had a 15,000 pound pension could see it fall to 12,500 pounds immediately.


Tuesday, June 08, 2010

Finally, some good news....

Snakes in mysterious global decline. To paraphrase a friend "snakes are my kryptonite".

Also, "Windows Live users can access several Microsoft Office Live Web Apps for free. Office Live includes browser-based versions of Word, PowerPoint, Excel, and OneNote. Users can create new documents or upload existing ones and edit them in a browser, share files with other users with the option to edit simultaneously, view Live documents on most smartphones, and more." Basically, this is Microsoft's reply to Google Docs. Free access to Word, Powerpoint and Excel is a pretty sweet deal.

You can get a Windows Live account here.


Propane pricing...

Okay, so I tried to do my part to reduce my carbon footprint by shifting my heating source from pure propane to a mix of renewable energy and propane.

Last year I used over 800 gallons of propane. This year it was more like 250 which was due in part to better insulation, a warmer March, and renewable energy use.

The frustrating thing is that my unnamed propane supplier (hint: they are not located in a city)penalizes me for using less fuel. My latest bill from them for 50 gallons of propane shows a price of $3.55/gallon. According to NYSERDA, statewide pricing for propane is current $2.68/gallon and $2.93 in the North Country.

I can't help but feel that this is the same sort of circular logic developed by our friends at National Grid "Hey, it's great that you're saving the planet with your fancy CFL's and energy star appliances, but we've got bills to pay so your rates are going up 20%".

I've appealed to their customer service reps to bring my pricing back down in line with local averages, but I might be shopping for a new provider so if anyone has a propane supplier that they like let me know.

What do you call a guy that buys the driveway of a condo complex (housing many elderly) at auction for $1,500 and then offers to sell it back to the condo owners for a small mark-up of 53,000%?

Bonus points: He's now blocked the condo driveway with concrete barriers.

Bonus point #2: He owns funeral home and has blocked the driveway used by many elderly residents of condo complex forcing them to walk further to their cars.

Full story here.

I don't know all of the physical limitations of a train design like this (I assume the boarding car/departing car would cause some problem) and I sense that there are more than 5 people trying to get on a train at the average Chinese train station, but this is some pretty cool outside of the box thinking.

I'm sure one of the local rocket -- okay, train -- scientists in Watertown can fill me in on the feasibility of this design. Again, if you get the blog via email you need to go to http://www.grindstonefinancial.com/ to see the video.


Monday, June 07, 2010

Flash Crash Part 2....

Well, this is an interesting turn of events. Stocks have now taken out the lows hit during the flash crash a month ago. So, that computer glitch has proven to be a pretty accurate predictor of the markets over the last month. Markets are rebounding in Asia tonight on the heels of B. Bernanke's comments. The market is due for a bounce we'll see if it can carry on through the night. I think it is interesting to note that despite all of the market rally talk, the stock market is up less than 2% over the past 9 mths and is now solidly red for 2010.

Just a quick thought on the spill. Anyone watching the videos of the underwater ROVs can see that oil is still gushing out of the well at a disturbing rate. When they severed the pipe to attach their latest capture tool, the rate of oil flow increased dramatically. So while it may be accurate to say BP is capturing 400,000+ gallons of oil/day, I think it would also be accurate to say that an amount of oil equal to the previous uncapped levels is still leaking into the Gulf. BP's apparently working to get a second ship on site so that they can capture up to 850,000 gallons/day. Remember the official estimate until recently was that this well was only leaking 200,000 gallons a day, but now they are somehow capturing almost 4 times that amount?

I've mentioned before that rail traffic is a decent indicator of economic activity. There are many factors at work here, but it is worth noting that May saw a decline from March and April and this could be an issue if the trend continues.

"U.S. freight railroads originated 1,153,675 carloads in May 2010, an average of 288,419 carloads per week.

• U.S. railroads averaged 294,758 carloads per week in April 2010 and 288,793 in March 2010. Thus, May 2010’s average was actually down slightly from those months.

The new UK Prime Minister went all Gov. Christie on the Brits today and that has shaken many in the UK (sidebar: I find it comical how Gov. Christie of NJ gives basically the same speeches as Gov. Paterson in NY but he is being touted as a potential VP candidate while Gov. Paterson is being run out of town).

"Cameron’s forecasts are that the public debt could reach 1.4 trillion pounds in five years. The annual interest payments on that are expected to be 70 billion pounds. “£70 billion means spending more on debt interest than we currently do on running schools in England plus climate change plus transport,” he said."


Quote of the Year?

Now this guy knows how to get my attention. Anthony Fry, Sr. MD at Evercore Partners on CNBC Asia...

"I don’t want to scare anyone but I am considering investing in barbed wire and guns, things are not looking good and rates are heading higher".

Now there are lots of Doomsday nutcases stockpiling guns and buying Costco survival kits (I noticed that Sam's Club has jumped on this "end of the world" bandwagon with their own line of start your own farm, make your own clothes books), but when a prominent banker says it on CNBC it makes me wonder if he said it just to cause a panic in the CNBC control room :)


Sunday, June 06, 2010

Mr. Market has Finance Ministers muttering to themselves...

So, the G20 finance ministers can't seem to agree on a way to protect the precarious global recovery.

In the US, the market got whacked because job "growth" seems to have gone the way of BP's Beyond Petroleum ads. Obviously, that seems to tell Tim Geithner and Big Ben that the market wants more stimulus to prop up the slip 'n slide economy.

However, in Europe their markets are getting whacked over fears that they can't meet their obligations - debt, pensions, etc - so, they feel that they have to cut spending dramatically in order to restore confidence in the market. On a related note - BP is extremely important in many British Pension plans. Give the fact that it accounts for about 14% of all dividends paid by companies in the FTSE 100 it has been very popular with pension plan managers. If BP has to cut it's dividend to fund cleanup in the Gulf of Mexico expect to see some angry people in the streets of London when their pension checks get cut by 20%.

As I've said before - the markets don't like uncertainty and the confusion surrounding the EU - US split is likely to lead to more volatility in the near-term.

In short, if the Euro keeps falling - $1.16-1.10 to the € seems to be the next target - the US dollar will appreciate and that likely means stocks will fall.

Ah, remember the good old days when a company's performance determined its share price? Those were the days my friends. Unless, you can follow the markets 24/7 and understand the impacts of currencies, debt and commodity pricing on stocks you might be better off investing in scratch-offs.

*** Update: After the Asian markets plunged 2 - 4% overnight the Germans have stabilized things globally and that has offered the Euro some support. Remember, though if German exports are growing it may say less about a global recovery than it does about the falling value of the Euro. Any big ticket item priced in Euros has become meaningfully cheaper over the past few months.

"German factory orders unexpectedly jumped for a second month in April after the euro’s 16 percent plunge against the dollar this year made Europe more competitive in world markets."

Unfortunately, their gain may be our loss...
So, everyone has the story of the one that got away. I spoke with the lead advisers to Larry and Sergey (the founders of Google) about 3 weeks before they took in their first big round of VC funding 1999. I also once owned 15,000 shares of a $0.20 stock that I happily sold at $0.52. The stock climbed to a high of $41.50 two years later (yeah, do the math, it's pretty sickening to this day).

But there has never been a story like this guy.... This guy make some of my trades look golden.

The OTHER Apple Founder....

"It's usually past midnight when Ron Wayne, co-founder of Apple leaves his home here and heads into town. Averting his eyes from a boneyard of abandoned mobile homes, he drives past Terrible's Lakeside Casino & RV Park, then makes a left at the massage parlor built in the shape of a castle.

When he arrives at that night's casino of choice, Wayne makes a beeline for the penny slot machines. If it's the middle of the month and he has just cashed his Social Security check, he will keep battling the one-armed bandits until 2 a.m. Wayne is waiting to hit the jackpot, and he is long overdue.

He was present at the birth of cool on April Fool's Day, 1976: Co-founder — along with Steve Jobs and Steve Wozniak — of the Apple Computer Inc., Wayne designed the company's original logo, wrote the manual for the Apple I computer, and drafted the fledgling company's partnership agreement.

That agreement gave him a 10 percent ownership stake in Apple, a position that would be worth about $22 billion today if Wayne had held onto it.

But he didn't.

Afraid that Jobs' wild spending and Woz's recurrent "flights of fancy" would cause Apple to flop, Wayne decided to abdicate his role as adult-in-chief and bailed out after 12 days. Terrified to be the only one of the three founders with assets that creditors could seize, he sold back his shares for $800."


Friday, June 04, 2010

The jobs report pt.2

So the headline number was far below official estimates and WAY below the "whisper" numbers. Adding just 20k jobs, ex-census workers, means this is a very weak report.

The number of census workers hired was a little light, but the reality is that we were going to ignore that number anyway. The markets are taking a beating right now as the futures are off substantially.

The Bad:
* The labor force participation rate slipped again which helped lower the unemployment rate.
* Private employment was very weak across the board.
* The birth/death adjustment was a goofy +215k. Again, this implies that private industries - mainly in construction and leisure/hospitality - added 215k new jobs that just didn't show up at the BLS survey yet. It should embarrass the BLS to put out data like that. You can't just subtract these jobs from the report to get a "real" estimate, but it does make one question the validity of the report.

* Hours worked ticked up again.
* Temp Help was up again. I dispute that this is really a positive sign. In every previous recession businesses have used temporary help to bridge the gap as their business picked up, but I think temp help has become the new source of "just-in-time" employees and they will not be converted to permanent jobs.

Totally, off-topic, but has anyone noticed that HUNGARY has blown up in Europe over the past 2 days? Hungary's Credit Default Swaps have exploded over the past couple of days and their largest commercial bank just had trading halted after falling 10%. Austria, France and Germany have all seen their CDS's jump 20% (implying a greater credit deterioration) in just the past day! I think we've grown very complacent while Europe is still teetering on the edge. It would be very convenient for one of the many minor military skirmishes around the world - Koreas or Israel/Turkey/Ireland - to flare up and distract us from Europe's Lehman event.

Jobs Report

Well, today's the day for the craziest release of gov't data in recent memory. Estimates keep climbing -I'd say the whisper number is easily over 700k jobs added and I've seen estimates as high as 900k.

How could that be?

- 500k census workers
- 150-250k for the birth death adjustment (again you can't just add or subtract this number but it does artificially boost the jobs data)
- 50k for temporary help cleaning up the Gulf Spill.
- 50-150k of real jobs added.

So on the surface we could see 950k "jobs added" but remember that almost all of these jobs will vanish by July.

It should be fun dissecting this report.

Look for updates after 8:30am....

The initial number of 430k is way below consensus and the 41k of private jobs is about 100k light. I'll dig through the numbers but on the surface this looks like a huge miss.

Thursday, June 03, 2010

Oil, jobs and the positive power of feeling grumpy and jumpy

Well, the headlines are decidedly positive that BP has finally cut the riser pipe but it's definitely not a clean cut (they've been working most of today trying to trim off jagged pieces of pipe) and that will make getting a proper seal very challenging. The volume of oil coming out of the pipe right now is truly staggering. The volume of dispersant being applied is also pretty startling (you can see the dispersant in Standi: ROV 1 - it's the white plume being pumped into the oil stream).

You can see all 12 underwater rovers in action at this link. Let's hope they get a tight seal, but I think the media sounds a bit more optimistic than BP (who has oversold and underdelivered at each stage of this clean-up so far).

Tomorrow our attention will turn to the jobs report. Goldman upped their estimate to 600k!! jobs but the entire increase was due to census jobs. There is an enormous range of estimates from 100k to 750k. I've never seen such a wide spread, but the key will be to focus on non-census, non-birth/death adjustment jobs. If that number is north of 250k it could provide the fuel for a sharp rally. If we fail to reach that number and the markets slip a bit today things could really get ugly tomorrow. Or, as has been the trend, the actual number will be surprisingly close to the estimates and nothing will happen in the market. In other words, it might rain, unless it doesn't.

Finally, this story from the BBC almost brought a smile to my face - Feeling grumpy is good for you.

"In contrast to those annoying happy types, miserable people are better at decision-making and less gullible, his experiments showed.

While cheerfulness fosters creativity, gloominess breeds attentiveness and careful thinking, Professor Joe Forgas told Australian Science Magazine."


PS - This video of a person going attempting a to turn their Chevy into a new version of the General Lee is going to be an Internet sensation. You saw it here first....

*** If you are one of the many email subscribers to the blog you won't see the video above. Just go to the original posting at www.grindstonefinancial.com to see the video it's worth 12 seconds of your time.

Wednesday, June 02, 2010

No worries, they found the extension cord and plug the autobots back in

The market had an upward bias today on the heels of the Japanese Prime Minister's resignation. Remember Japanese turmoil weakens the Yen which strengthens the Euro, weakens the US $ and that pushes up stocks.

Everyone is grasping at straws for a rational behind the big run up in stocks today (many articles sighted news on housing that came out early in the morning) when the reality is that 1100 is an important number for the S&P500 and that's right where they took the market on low volume.

Housing: The housing data was slightly better than expected based on demand pulled forward to take advantage of the first time home buyer tax credit. I'd caution however that there is a fair amount of anecdotal evidence that many buyers submitted multiple bids on multiple houses with the intention of only closing on 1 deal. This could lead to many busted deals in coming months. Oh, and we can already write next month's headline "Pending Home Sales Plummet by a Record Amount".

Jobs: If the market can hold these levels it could be "To the moon Alice" come Friday with the jobs numbers. I've seen some good updates that show we probably added close to 500k census jobs in May. Couple that with the recently resurgent Birth/Death numbers (running close to 200k last month) and guess what? The BLS could publish a 700k jobs number on Friday without the economy adding a single "real" job. That would be a blowout number.

Weird news of the day:

Not that Ohio was ever really on my "places to live" list, but this ruling which allows cops to ticket you for "appearing" to be going too fast probably took them out of contention for good. On a side note, how about speed traps set up with 2-4 police officers on both sides of our 2 stoplight town for most of the day today?

Just in case you wondered why California is broke - They spent $175k moving a bush 1 mile down the road.

"$140,000 to dig up and move the shrub, and $35,000 for "support" services from geological, botanical and climate experts in preparation for its new home in the Presidio less than a mile away."Check Spelling


Oil Spill Mash-up -- Repost...

I'm not sure I'd call this mash-up between Google maps and the oil spill data fun, but it's certainly informative. Input an address and it will lay the oil spill on your doorstep.
The NNY map is interesting because it shows the spill covering everything from Toronto to Oswego to Massena and Ottawa and about fifty percent of Lake Ontario. Click the link to cover your hometown in oil!

Tuesday, June 01, 2010

Did someone trip the extension cord at 33 Liberty St?

The autobots pulled their bids at the end of the day the market sank like a lead balloon. It was an unusual reaction during an otherwise uneventful day.

On the flip side, Japan's Prime Minister resigned tonight and that will lead to weakness in the Yen, strength in the Euro and green signs in the AM. We'll see if it carries over throughout the day.

Favorite stories of the night:

* The Pemex/Ixtoc spill from 1979 - a less complicated spill that took 10mths to fix.

* Payroll numbers will be all over the map on Friday. Expectations are for 540k new jobs but up to 400k of these jobs will be temporary census jobs. The headlines will scream 540k NEW JOBS! Unemployment DOWN! Keep in mind that the trend seems to be another dip in employment b/c April had about 220k new jobs ex-census vs expectations of 130k-150k for May.

* These are some crazy over-the-top ideas, but I'd love to see us consider a feasibility study of these wild plans.

* Actual headline of the day "Our summer will be cooler....Unless it's not".

Oil Spill Mash-up

I'm not sure I'd call this mash-up between Google maps and the oil spill data fun, but it's certainly informative. Input an address and it will lay the oil spill on your doorstep.

The NNY map is interesting because it shows the spill covering everything from Toronto to Oswego to Massena and Ottawa and about fifty percent of Lake Ontario. Click the link to cover your hometown in oil!

The European markets are off to a weak start in June as global uncertainty seems to be the theme again.

I think this is a pretty important data point on where we stand in the global recovery - "The Journal of Commerce commodity index that includes steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth."

This story on homeowners walking away from mortgages and loving it is making the rounds on the web today. I saw a link on almost every financial site that I visit in the am. Some of the quotes are worth more than the overleveraged split ranch McMansions these people bought.

"Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino."

The whole article is worth reading. If you have any faith in our future as a nation it is sure to be shattered by the time you reach the end of the article.