Sunday, January 31, 2010

Interesting week...

Many people are pointing to the resilience of the market this past week (the Dow only lost 100 pts!), but take a look at the broader markets. The S&P is back at levels last seen in September and the Nasdaq has shed 7.5% in about a week and a half.

The technicians have told me that 1038 is another "support" level for the S&P 500 and while I generally regard this to be as reasonable as picking stocks based on the CEO's astrological sign, when EVERY is watching the same data it increases it's validity.

I was really struck by the passionate defense of the GDP number throughout the MSM. Kudos to the CBS morning show for highlighting that ex-inventory adjustments the GDP number was disappointing and that many leading indicators within the GDP report were weakening. I think it really speaks to the power that web-based financial reporting is having on the markets. About 10 years ago when a report hit the wire, I could tell you that it was a weak report but the headline was good so the market will trade up today while CNBC touts the report and down tomorrow when the analysts dissect the report and talk to the salespeople. This was a very predictable pattern. When Friday's GDP number hit the web the market traded up almost 1% but within an hour most blogs were peeling back the layers of the onion and the market started it's slow reversal. The length of time it takes for a report to be dissected on the web has gone from days to minutes given the number of underemployed analysts sitting on their hands in Bernardsville, Greenwich, Short Hills and Clayton :)

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Wow, I don't think you can understate the importance of this statement - Aramco CEO says China has overtaken US as its biggest customer.

"Saudi Arabian Oil Co., the world’s biggest crude producer, is exporting about 1 million barrels a day to China, more than to the U.S., Chief Executive Officer Khalid al-Falih said.

“We are already exporting more to China than to the U.S.,” he said today in an interview in Davos, Switzerland. “We are prudent and careful about where to invest but our eyes are focused on China and we will continue to look for all opportunities.”

The U.S. imported 1.014 million barrels of oil a day from Saudi Arabia in the nine months through September, according to the Energy Information Administration. China and Saudi Arabia aim to boost trade 50 percent to $60 billion by 2015, the state- owned Saudi Press Agency reported this month, citing Chinese Trade Minister Chen Deming."

I'm of the opinion that China is bubbly right now, but this is an interesting data point.

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Well, this might not end well for someone.... The Special Investigator Group for TARP "has opened 86 and has 77 ongoing criminal and civil investigations. These investigations include complex issues concerning suspected TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations."

How many politicians are crossing their fingers that the 77 cases do not involve companies or individuals that made contributions to their campaigns in the past. Can you imagine the 2010 election ads? Senator XYZ took money from John Smith who allegedly committed TARP fraud....

Yikes!

It's going to be another interesting jobs report this coming week. The data has to be smoothed for seasonal adjustments (January normally reports huge job losses as the post-holiday layoffs commence) and there will be a monstrous adjustment to reflect all of the "phantom" birth/death jobs that have been added over the past year.

Cheers!

Friday, January 29, 2010

5.7% GDP!!!

Well, as expected the GDP number for the fourth quarter was strong - up 5.7%, but unfortunately that's in our rearview mirror now and there are reasons to not be excited by that headline number.



1) Inventory build represented 3.4% of the gain in the quarter. This fits with what I've been hearing from other sources that much of Q4 was inventory build and that cycle is slowing now.

2) There are a couple of math issues with this data. The printed number of 5.7% has a +/- 37% confidence interval. Revisions have tended to be negative lately so there is a possibility that final GDP may come in much lower than the reported number (remember when they revised Q3 GDP data?). There was also a big boost to GDP by a lower than expected inflation rate. The smaller GDP deflator boosted GDP for the quarter by at least 1%.

As someone else said "5.7% GDP growth is better than a sharp stick in the eye, but it's not as good as the headline indicates".

Cheers!

Thursday, January 28, 2010

Thursday evening potpourri

S&P sits right on the number - Further evidence that market has become the equivalent of a large Las Vegas sports book. The technicians said this morning that 1085 would be a critical support level for the market. Well, a combination of factors weighed on the market this morning and we cracked that level pretty quickly. However, by the afternoon the mystery bid had returned to the market and given it just enough juice to end the day at....wait for it.... 1084.5
If you've ever done any legal sports gambling you know that the line in Vegas is set to draw in enough public $$ to offset the smart money. I get the sense that the market is moving to the same beat. Moving in remarkably precise steps to ensure sufficient order flow from the armchair quarterback technicians while Silverlady is betting the farm on the other side.
Bernanke reappointed - Frankly, I'm kind of surprised by the vote -- 70-30. I know the Senators were fed the "Don't upset the apple cart" line and that led to the votes falling for Bernanke but his recent testimony convinced me that he's just out in left field. He didn't see the housing crisis that EVERYONE else could see coming from a mile away. That alone is enough to vote against him. There's also some buzz on the intertubes about a possible whistleblower coming forward that has evidence that it was recommended that the Fed let AIG fail, but that Chairman Bernanke may have ignored that suggestion.
However, if this keeps Larry Summers out of the Fed, then it is a good thing :)
Ford - Just a quick note on Ford. Great quarter, but note that much of there profit was due to very low material costs and profits from there financing arm. If spreads tighten Ford could be in trouble again along with the banks.
Mortgage delinquencies - "Fannie Mae reported today that the rate of serious delinquencies - at least 90 days behind - for conventional loans in its single-family guarantee business increased to 5.29% in November, up from 4.98% in October - and up from 2.13% in November 2008."
Does this look like the makings of a healthy housing market?

Cheers!

Uh oh, this sounds familiar...

Papandreou Says Rumors Hurt Greece, Not Seeking Aid

Boy, that headline sounds like something I've seen in print before...

Fuld Blames Lehman's Fall on Rumors, `Storm of Fear'

Rumors Caused Bear Stearns Collapse, CEO Says

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Mr. Market is not in love with the iPad and that's hammering the Nasdaq. It's interesting to note the Nasdaq has broken through to new lows for the year and is now just 1.5% above it's September 09 peak. It's definitely starting to feel like the market is running on fumes.

However, a Bernanke confirmation could bring in the dip buyers so I'd watch things pretty closely this afternoon.

Cheers!

Wednesday, January 27, 2010

The iWhiff?

I'll readily admit that I'm no Apple fanboy. I can understand the appeal of their products from a design standpoint (thanks to B. Jones for showing me the glass is half full), but the functionality of everything from ipods to iphones to macbooks seems to be marginally better than the alternatives at 2-3 times the cost, imo.

However, it's widely understood that tech geeks would pay $4.99 per 12 oz bottle of iH2O if Steve Jobs put it on the market. That's why I was really surprised to hear the tech blogs slamming the iPad. The shortcomings are significant.... per gizmodo

No Multitasking
This is a backbreaker. If this is supposed to be a replacement for netbooks, how can it possibly not have multitasking? Are you saying I can't listen to Pandora while writing a document? I can't have my Twitter app open at the same time as my browser? I can't have AIM open at the same time as my email? Are you kidding me? This alone guarantees that I will not buy this product.

I concur, if there is one thing that any mid-tier product must do it is multi-task. Who works with one application at a time anymore?

No Flash
No Flash is annoying but not a dealbreaker on the iPhone and iPod Touch. On something that's supposed to be closer to a netbook or laptop? It will leave huge, gaping holes in websites. I hope you don't care about streaming video! God knows not many casual internet users do. Oh wait, nevermind, they all do.

This really curtails it's value as a web tool. Not so much for the mainstream web user but the Apple fan base is big on streaming video and without that ability I think some will question the iPad's value.

Adapters, Adapters, Adapters
So much for those smooth lines. If you want to plug anything into this, such as a digital camera, you need all sorts of ugly adapters. You need an adapter for USB for god's sake.

One last thing to keep in mind when you read all of the media coverage around the iPad -- many old media outlets (NY Times, Time, Newsweek, etc) see the iPad as their hail mary pass. If it succeeds and they build a subscription model off the iPad perhaps they can save their companies (and their jobs). You might not hear the most honest "reviews" of the iPad from these sources.

Oh, and don't get lulled into thinking the iPad is $499. It's $499 for the 16gb version. The more functional 32GB 3G version is $829 plus accessories (it will be close to $1,000 by the time you're done) and $30/mth for data.

Cheers!

Avatar math, planes and taxes....

The stories have been flooding the airwaves for the last week -"AVATAR overtakes Titantic as biggest film of all-time!!".

So, I wasn't around for the golden age of cinema, but I do remember when Star Wars was out in the theater. It was a cultural phenomena and EVERYONE went to see it in the theater. I don't know anyone that has seen Avatar yet. Now maybe this says that I'm a hermit with loser friends, but maybe this movie isn't quite as big as we're being told.

This IMAX 3d movie has ticket prices that are in the $15 range. Roughly twice what they were when Titantic came out. With a higher ticket price it takes fewer tickets to become the revenue leader. If the Yankees sell 15% fewer tickets in 2011 b/c of the economy but have doubled their prices from 2009 would you classify that as "the best box office in Yankee history"? No, you'd measure the actual bodies going through the gate.

With that in mind consider that according to the Hollywood Reporter, Avatar is about the 26th biggest movie of all-time....

1 "Gone With the Wind" (1939) 202,044,600
2 "Star Wars" (1977) 178,119,600
3 "The Sound of Music" (1965) 142,415,400
4 "E.T.: The Extra-Terrestrial" (1982) 141,854,300
5 "The Ten Commandments" (1956) 131,000,000
6 "Titanic" (1997) 128,345,900
7 "Jaws" (1975) 128,078,800
8 "Doctor Zhivago" (1965) 124,135,500
9 "The Exorcist" (1973) 110,568,700
10 "Snow White and the Seven Dwarfs" (1937) 109,000,000
11 "101 Dalmatians" (1961) 99,917,300
12 "The Empire Strikes Back" (1980) 98,180,600
13 "Ben-Hur" (1959) 98,000,000
14 "Return of the Jedi" (1983) 94,059,400
15 "The Sting" (1973) 89,142,900
16 "Raiders of the Lost Ark" (1981) 88,141,900
17 "Jurassic Park" (1993) 86,205,800
18 "The Graduate" (1967) 85,571,400
19 "Star Wars: Episode I" (1999) 84,825,800
20 "Fantasia" (1941) 83,043,500

On the other hand, I can't figure out how the film has earned $1.86 billion on 76.4 million ticket sales (that would be over $24/ticket). There must be per screen licensing fees built into that box office data.

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This might not strike anyone else as funny, but knowing first hand the insane amount of time and money that is spent navigating the pitfalls of corporate tax law as it pertains to corporate aircraft I chuckled when I read this.....

"Accompanying travel on corporate aircraft by family members or guests of the AIG Chief Executive Officer (CEO) and other executives is permitted if a documented business reason exists for the family member or guests to travel with the executive.The Chairman of the Board or the Chairman of the Nominating and Corporate Governance Committee must approve in advance any accompanying travel on the corporate aircraft by family members or guests of the AIG CEO. The AIG CEO must approve in advance any accompanying travel by family members or guests of the AIG CAO. The AIG CAO must approve in advance any accompanying travel by family members or guests of any executive other than the AIG CEO. Personal use of the corporate aircraft by the AIG CEO is permitted if the personal use is incidental to a business trip and the incremental cost is paid by the AIG CEO. All other personal use of the corporate aircraft is strictly prohibited."

If I were a board member of a major US corporation I'd argue that there are 2 options for executive air travel - fly commercial or use your own cash to buy a share of a Netjet. The aggravation of dealing with allocating a % of each flight to each passenger is not worth the value derived from avoiding the masses at JFK.

Cheers!

Tuesday, January 26, 2010

Some glimmers of hope

A pile of data hit the wires today and much of it could be view as slightly positive to neutral at worst.

* Case-Shiller Home Price Indices data through November 2009 reveal the annual rates of decline of the 10-City and 20-City Composites are improving. This was the 10 month of improved readings — less bad price declines — in the annual statistics. It was also the third consecutive month of “only” single digit drops.

Government intervention into the housing market has slowed the rate of declines in housing prices, but as the Fed stops suppressing mortgage rates (their mortgage security buying program is almost complete) and the first time homebuyer tax credit nears it's second expiration (will it get another stay?) I think housing will face significant headwinds for the balance of the year.

* The truck tonnage reported a 2.1% increase it shipped tons in December. This is seasonally adjusted but it's a positive number. However, the trucking association's economist said trucking benefited from the inventory correction, however he believes that is nearing completion.

Again, it's will be interesting to see how this trend develops in the Spring after inventory has been restocked.

* Consumer Confidence was 55.9, 2.4 pts above forecasts and up from 53.6 in Dec. It’s at the highest since Sept ‘08.

This data tends to be influenced a bit by the stock market and lags stock market moves, but this data is a positive surprise.

* President Obama will call in his State of the Union address for a three-year freeze on spending.

Sounds good, but let's look at the details. "The freeze covers non-security discretionary spending, which amounted to about $447 billion this year out of a $3.5 trillion federal budget. Spending on programs such as Medicare, Medicaid and Social Security, along with interest on the national debt, are set by law and make up the biggest portion of the budget." So the freeze targets 12.8% of the total Federal Budget. This is largely a symbolic gesture to appease the deficit hawks. Unfortunately, the "fixed" portion of our budget is so large - Medicare, Medicaid, SS, interest and Defense that we can't make any real dent in our deficit without tackling these issues.

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This statistic has been out for over a month, but I just stumbled across it today. It's a scary stat.

"A recent McKinsey Global Institute report found that 71 percent of U.S. workers hold jobs for which there is decreasing demand, increasing supply, or both."


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Cheers!

Monday, January 25, 2010

Shifting Public Priorities and Who is Hiring?

It's pretty clear that the public is following along. Reducing the Federal Deficit has shot into the top seven priorities, while dealing with our energy needs has fallen out of the top 10 according to this polling done by the Pew Research Center.
However, this is perhaps the most interesting piece of data presented. If you listen to any talking heads on TV you'd think the Republicans have been fighting excessive spending for the past decade, but it's clear that the Republican party members have just recently "got religion" on the budget deficit. It's also interesting that 66% felt the budget deficit was a problem in 1997 with a Democrat as President (and as the budget was finally breaking into the GREEN), but five years later when the budget deficit was setting records with a Republican President just 27% Republicans felt the budget deficit was a problem. Ah, politics.
I also find it interesting that Rep & Dem have converged and basically have the same opinion on the Budget Deficit. There was a 15 point gap between the parties just 3 years ago. This is the sort of data that will get the Ron Paul crowd tingly all over.
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These 22 Best Companies to Work For have at least 500 openings each, totaling more than 87,750 jobs.
Wegman's and a personal favorite of my household made the list.
Cheers!

White House Proposals...

Compared to recent proposals coming out of Washington today's announced "Middle Class Relief Efforts" seem almost quaint in their size and cost.

1) The child care tax credit is probably a good idea. The cost of child care is certain an issue for many middle class families and any effort to ease that burden should be applauded. I think there might be other alternatives to this tax credit - how about Kumon style after school learning centers - but it's not terribly expensive to try a tax credit, so go for it.

2) Cap on federal student loan payments at 10% of income is also a relatively cheap way to buy some goodwill with the public. The problem with college in my opinion is that access to cheap money and too many student loans has allowed college pricing to get out of line with reality. My policy on this front would be exactly the opposite. Make it harder to get money for school and fewer people will apply and we can burst the bubble in higher education costs. Again, I'd also support a federally funded university that works with industry to attract the best students. More competition for the best kids will also put pressure on college pricing.

3) Expanded financing for elder care. Again, access to cheap money is the problem, not the solution, but at just $100 million it's hard to be against this proposal.

4) Requiring all employers to give workers an option of automatic workplace direct-deposit IRAs. This feels like a successful Wall Street lobbying effort. Wall Street is concerned that despite their best efforts to get everyone excited about joining the party again, individual investors have for the most part stayed on the sidelines during this rally. Why? Investors tired of being burned (tech bubble, housing bubble). A new direct deposit IRA would force feed funds into investments and would spur greater equity participation but I'm not sure that's a good thing. I'll wait for more details on this plan.

All together, it's a fairly benign set of proposals from the President and I think it foreshadows what is coming for the balance of 2010 as both parties attempt to "do no harm" before the mid-term elections.

The trouble with data...

Fantastic work by B. Ritholtz at The Big Picture. The government quietly revised Durable Goods data for November and it shows a big drop as opposed to the initial reported gain.

We're going to see probable bump again in December as a result of further inventory builds, but it highlights the problems with trying to analyze real-time data from the government given the size and complexity of the US economy.









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Existing home sales plummeted 17% in December the largest monthly decline since records began back in 1968. However, I'd caution that November was artificially stimulated by the expected expiration of the first time homebuyer tax credit, so December's drop is probably not as bad as indicated by this data. However, expect the lobbying groups to use this data to their advantage -- "Look what will happen to sales if you let the tax credit expire!!".

Existing home sales are an important indicator for other aspects of the economy because existing home sales lead to home improvement expenditures and capital goods purchases.

Cheers!

Sunday, January 24, 2010

A couple of down days and the double dippers come out of the woodwork

I've been pretty consistent stating my opinion that absent another stimulus package we are likely to see another dip back into a recession in late 2010 or 2011. However, it took a couple of down days in the stock market to get the rest of the gloom and doomers on board.

“I think global growth is going to be anemic and I’d put a 40 percent chance on a double dip at some point in the next couple of years,” Stephen Roach, chairman, Asia of Morgan Stanley, told CNBC Friday.

Having spent a little free time this weekend reading Cormac McCarthy's "The Road" a 5% drop in stocks and 10% unemployment seems downright cheery.

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It looks like Timmay is going to be in some pretty hot water over the AIG emails. More details leaked out today over at the NY Times.

I'd say there is a 80% chance Geithner doesn't last to the end of 2010 and there is a 10% chance he could be out this week (Friday night would be convenient b/c it would follow the State of the Union and the public could be distracted by the Healthcare reconciliation vote).

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When I hear people casually toss around budget numbers like $200 billion, $1.9 trillion, etc., I wish I could sit them down for a second and tell them this story....

Imagine that the Federal Government stopped spending more than we take in right now and our national debt clock stopped ticking at roughly $12.3 trillion (for this exercise, I'll ignore the trillions in Social Security and Medicare obligations outstanding).

Now let's also assume that by some miracle we develop a plan to take in one more dollar than we spend every second of every day. If we could do this consistently for an entire year we'd be able to pay down $31.6 million over the course of a year. Yeah, that's all. At that pace it would take almost 32 years to pay down $1 billion. And if we could maintain that level of fiscal restraint (assuming our debt paid 0% interest) and bring in $1/sec we could have our entire debt wiped out in a mere 390,364 YEARS! Houston (and NY, Boston, LA, Chicago, etc) we have a problem.

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I don't normally focus on the various terror threats around the world because it's a dangerous world and I think it's naive to assume that we can spend our way to safety. However, it is interesting that at least 17 nations have quietly increased their threat levels based on recent intelligence. Perhaps what's most disconcerting for the "let's profile them" crowd is that "Al Qaeda is believed to have taken to employing in their European networks typical Westerners of Caucasian appearance, quite different from the stereotypical Muslim."

Cheers!

Friday, January 22, 2010

The BLS where 1-10-10-10-10 = no change

I'm really having a tough time squaring this data in my head. According to the Bureau of Labor Statistics...

"Forty-three states and the District of Columbia recorded over-the-month unemployment rate increases, four states registered rate decreases, and three states had no rate change."

YET....

"The national unemployment rate was unchanged in December at 10.0 percent."

So, 84% of the states surveyed registered HIGHER unemployment, but nationally the unemployment rate was unchanged? Someone suggested that this could be caused by a big jump in employment in one or two large states offsetting declines in smaller states.

Let's check that for accuracy - The 4 states registering declines in unemployment were IA, OK, MI and SD. These states are ranked 8th, 28th, 30th and 46th in state population totals, not exactly bursting at the seams with population. Second, the declines in unemployment were all very small just 0.1-0.2% for the month (with the exception being Oklahoma where unemployment fell 0.5%??)

Well, how did the big states do for the month?

California 12.4 12.4 unchanged
Texas 8 8.3
NY 8.6 9.0
Florida 11.5 11.8
Illinois 10.9 11.1
Pennsylvania 8.5 8.9
Ohio 10.6 10.9

MI 14.7 14.6
GA 10.1 10.3
NC 10.7 11.2
NJ 9.7 10.1



Huh, well that's not good. It seems like the individual large states (except Michigan, but note that Michigan's improving unemployment rate is still the highest in the nation) are all seeing meaningful upticks in unemployment but when the data goes into the BLS supergianthypermega computer the national unemployment rate remains unchanged.

I suspect that this may have been caused by a difference in methodology (perhaps they remove workers that drop from the workforce in national data, but not in state data?) but it is this kind of inconsistency that makes it hard to handle BLS data.

Cheers!

Facebook Credit Scores?

Well, it was just a matter of time until redlining came to Facebook (ok - it's not that bad, but the concept is similar). Lenders are using publicly available data to check up on the company that you keep online and drawing conclusions about you from your "friends" data.

"Your social networking chit-chat could have an impact on your credit - specifically on whether banks think you are worthy of a loan.

Creditors are checking out what you post to your Facebook and Twitter accounts. They're checking out who your friends are and who the people are in your networks.

The presumption is that if your friends are responsible credit cardholders and pay their bills on time, you could be a good credit customer."

The flipside of course would be if a friend was late on a payment they might assume you are a deadbeat as well.

"While lenders say they are using the information for marketing purposes -- to find out what you may like based on what your friends like."

And if we've learned anything through the financial crisis it's that your lender is honest, trustworthy institution that would never deceive it's customers. The article is here.

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On a related note, the NY Times posted a good tutorial today on how to adjust your privacy settings to reflect the new Facebook privacy policies. I've given up crackbook b/c I found it tedious, but if you're still on there you might want to consider taking 5 minutes and changing your settings.

1. Who Can See The Things You Share (Status Updates, Photo, Videos, etc.)
Probably the most critical of the "privacy" changes (yes, we mean those quotes sarcastically) was the change made to status updates. Although there's now a button beneath the status update field that lets you select who can view any particular update, the new Facebook default for this setting is "Everyone." And by everyone, they mean everyone.

If you accepted the new recommended settings then you voluntarily gave Facebook the right to share the information about the items you post with any user or application on the site.

Depending on your search settings, you may have also given Facebook the right to share that information with search engines, too.

To change this setting back to something of a more private nature, do the following:

From your Profile page, hover your mouse over the Settings menu at the top right and click "Privacy Settings" from the list that appears.

Click "Profile Information" from the list of choices on the next page.

Scroll down to the setting "Posts by Me." This encompasses anything you post,
including status updates, links, notes, photos, and videos.

Change this setting using the drop-down box on the right. We recommend the "Only Friends" setting to ensure that only those people you've specifically added as a friend on the network can see the things you post.


2. Who Can See Your Personal Info
Facebook has a section of your profile called "personal info," but it only includes your interests, activities, and favorites. Other arguably more personal information is not encompassed by the "personal info" setting on Facebook's Privacy Settings page. That other information includes things like your birthday, your religious and political views, and your relationship status.
After last month's privacy changes, Facebook set the new defaults for this other information to viewable by either "Everyone" (for family and relationships, aka relationship status) or to "Friends of Friends" (birthday, religious and political views). Depending on your own preferences, you can update each of these fields as you see fit. However, we would bet that many will want to set these to "Only Friends" as well. To do so:

From your Profile page, hover your mouse over the Settings menu at the top right and click "Privacy Settings" from the list that appears.

Click "Profile Information" from the list of choices on the next page.

The third, fourth, and fifth item listed on this page are as follows: "birthday," "religious and political views," and "family and relationship." Locking down birthday to "Only Friends" is wise here, especially considering information such as this is often used in identity theft.

Depending on your own personal preferences, you may or may not feel comfortable sharing your relationship status and religious and political views with complete strangers. And keep in mind, any setting besides "Only Friends" is just that - a stranger. While "Friends of Friends" sounds innocuous enough, it refers to everyone your friends have added as friends, a large group containing hundreds if not thousands of people you don't know. All it takes is one less-than-selective friend in your network to give an unsavory person access to this information.

3. What Google Can See - Keep Your Data Off the Search Engines
When you visit Facebook's Search Settings page, a warning message pops up. Apparently, Facebook wants to clear the air about what info is being indexed by Google. The message reads:
There have been misleading rumors recently about Facebook indexing all your information on Google. This is not true. Facebook created public search listings in 2007 to enable people to search for your name and see a link to your Facebook profile. They will still only see a basic set of information.

While that may be true to a point, the second setting listed on this Search Settings page refers to exactly what you're allowing Google to index. If the box next to "Allow" is checked, you're giving search engines the ability to access and index any information you've marked as visible by "Everyone." As you can see from the settings discussed above, if you had not made some changes to certain fields, you would be sharing quite a bit with the search engines...probably more information than you were comfortable with. To keep your data private and out of the search engines, do the following:

From your Profile page, hover your mouse over the Settings menu at the top right and click "Privacy Settings" from the list that appears.

Click "Search" from the list of choices on the next page.

Click "Close" on the pop-up message that appears.

On this page, uncheck the box labeled "Allow" next to the second setting "Public Search Results." That keeps all your publicly shared information (items set to viewable by "Everyone") out of the search engines. If you want to see what the end result looks like, click the "see preview" link in blue underneath this setting.

Thursday, January 21, 2010

Maybe I misjudged that regulation issue

I took a quick read of the headlines on the bank regulation proposals and thought that it was more of the same proposals -- toothless press releases that would be tap danced around by the big banks. However, when I actually read the press release and saw --

"no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit." I did a double take.

(This will actually create a nice market for some guys with huge liquidity to buy majority stakes in these operations from the banks. I'd expect to hear the name Warren Buffett at some point.)

I don't have the exact data in front of me, but I'm sure someone will put together a fancy chart soon that will show the massive percentage bank "profits" that have been generated by prop trading. When 60% of NYSE volume is accounted for by C, AIG, Fannie, Freddie and Bank of America, do you think it's mom and pop Jones trading those stocks all day long? No, I'd guess it's Goldman, Merrill, JP Morgan, Morgan Stanley, etc, and they are trading those dogs for Fidelity.

Any interruption in this cycle of banks bullying the market with their trading activities could seriously jeopardize the stock market melt up that's occurred in the past 10 mths. The technicians said support for the market would exist at 1114 for the S&P -- closed at 1116 -- with a major line in the sand at 1078. Google's results might test these support levels - see below.

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Line of the day....

"Isn’t it funny when you walk into a investment firm, and you see all of the financial advisors watching CNBC — that gives me the same feeling of confidence I would have if I walked into the Mayo-clinic or Sloan Kettering and all the medical doctors were watching General Hospital…”
-Senior portfolio manager, UBS courtesy of The Big Picture

Cut the cord from CNBC and you'll lead a happier more succesful life!

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Things could get interesting tomorrow with Google posting good but not great numbers and the stock getting whacked tonight - it's down about $28 or 5% after hours.

According to JP Morgan...
Pro forma EPS totaled $6.79. This was slightly below our $6.85 estimate.
Net revenue grew 13%. This was slightly below our expectation for 17% Q/Q growth.
Paid clicks grew 13% Y/Y. This was slightly lower than our estimate for 16% Y/Y growth.
US revenue was up 11% Y/Y. This was slightly ahead of our estimate calling for 9% Y/Y growth.
EBITDA margin came in at 63.1%. This was well ahead of our expectation for 61.9%

I love Google's products and services, but I still keep thinking that one day the entire advertising world is going to wake up and realize that the emperor has no clothes. I'm sure that advertisers have developed sophisticated models to determine the rate of click through to completed sale, but as a long-term google user that has never clicked on an ad, I don't get why anyone would ever pay for clicks. Then again I don't own an iphone so I'm clearly stuck in the 20th century :)

Cheers!

Can we call it a Cramer Crash?

It's unfair to put the recent moves on the back of one man but why not?

"I think investors who are nervous about the dictatorship of the Pelosi proletariat will feel at ease, and we could have a gigantic rally off a Coakley loss and a Brown win," said Cramer on Friday's "Mad Money."

In all honesty, it's remarkably hard to predict short-term swings in the market right now and with the computers sitting right at the pivot point for an explosive move higher, that seemed like a pretty fair bet by Mr. Cramer. The excuses I've seen for today's sell-off have been pretty weak - new proposed bank regulations, Chinese moves to curb growth, etc - aren't really new. The "phantom" bidder tends to hit the market in the afternoon - just about 1:30 over the last 2 days - so we'll see if we bounce back today like we did yesterday.

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Hyundai dealer feels the wrath of the intertubes....

Companies spend hundreds of thousands of dollars annually advertising to build goodwill and then blow it all with one bad move. The entire saga is worth a read, but the summary is:

* Dealer sells a car on Ebay.
* Dealer fails to honor the price and laughs at the customer.
* Dealer claims customer is a "psycho"
* Blogs pick up the story and countless out of work tech geeks flood the dealership with emails and phone calls.
* Dealer "settles" but details are still sketchy.

The damage to this dealers reputation is enormous and I think it's possibly done some damage to the Hyundai brand because of the scope of this story. All because they didn't enter a reserve price :)

Cheers!

Wednesday, January 20, 2010

Pension math, suburban poverty and yachts!

I've been saying for some time that pensions are going to be huge issue for voters and beneficiaries over the next decade. The fundamental flaw in the pension system is that we have allowed pensions to you fantasy math to provide benefit projections to their pension beneficiaries to keep everyone calm. While equities returned basically 0% over the last decade - before inflation - we continue to allow pension plans to "forecast" 8% annualized returns forever. Every year that you don't hit those targets you fall into a deeper hole.

Note this gap for a single city - San Diego.


Note how the gap between pension obligations and pension assets has grown over the past decade. Now imagine this playing out in every major city, county, state across the country. While you'll hear many complaints about Gov. Paterson's budget cuts understand that this is a time for shared pain and if any thing his cuts should be deeper. Such is the price of living in a state like NY.

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For all of the talk about troubles on the coasts I was really struck by this chart from the St. Louis Dispatch showing that poverty rates have grown in suburban areas over the past decade.


"In other words, as low-wage retail and warehouse jobs have moved further into suburban areas, so have people who work them. But those jobs often don't pay well enough to support higher-priced homes in those areas, forcing a long commute or a hefty rent check, Koenen said.

"We closed the Chrysler plant and we're opening more retail stores," Koenen said. "And you just can't take care of a family on $8 or $9 an hour."


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A little good news for Wisconsin - Jacobs intends to quickly ramp up yacht production.

The former CEO of Genmar - a major boat manufacturer that went into bankruptcy last year - snapped up the yacht building business of Genmar for pocket change - just over $6 million. Given that the average price of some of the large yachts made by this division can be in the seven figures this seems like a decent deal.

"About 30 to 40 people kept the manufacturing facility going during Genmar's bankruptcy, but now Jacobs said that employment "should move up to 200 very quickly."

Now the skeptic in my would love to point out that "In the 18 months preceding Genmar's Chapter 11 bankruptcy filing in June 2009, Jacobs' Genmar businesses eliminated the jobs of about 3,000 of its 4,500 workers", but who am I to rain on this parade.

Cheers!

What do insiders know?

Well, they probably don't have any unique insight into the health of their companies do they? In the past week insiders sold $419 million worth of stock while buying just $18 million (interestingly - $17.5 million of the purchases were accounted for by just 2 large buys. Excluding these purchases, there were practically no buy orders by insiders in the market).

Again, insider purchases and sales aren't a perfect predictor of future price moves. Insiders have been selling with a passion for the past six months and the stock market has continued to go higher. However, I think there is some understanding by executives of disconnect that exists right now between the stock market and underlying economic activity.

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This might be the worst statistic I've seen in a long time --- U.S. Kids Using Media Almost 8 Hours a Day.

If you assume that kids have 8 hours of school (including commuting time) and 8 hours of sleep, this means that every other free moment is spent using media (*). Is it any wonder that our tweens and teens are image obsessed and falling further and further behind their global contemporaries every day.

In fact, over the past five years the amount of time the average 8- to 18-year-old spent with media is up by 1 hour, 17 minutes a day -- from 6 hours, 21 minutes in 2004 to 7 hours, 38 minutes now.

"It's more than seven and a half hours a day, seven days a week," she said. "That's more than 53 hours a week -- more time than grownups spend in a full-time job."

Cell phones are now multimedia devices, so kids on the go actually spend more time listening to music, playing games, and watching TV on their phone (49 minutes daily) than they do talking on them (33 minutes a day), the report found.

At home, too, media is pervasive. In 64 percent of homes, the TV is on during meals. In 45 percent of homes the TV is on most of the time -- even when no one is watching it, the survey found.

The survey also found that few American parents place any rules on how much time their children spend with media. Only 28 percent of kids cited parental rules on TV watching and only 30 percent were subject to rules on video game use. In addition, only 36 percent of parents limited kids' computer time.

In homes where parents did set limits, children spend about three hours less consumed by media, the report found.

* This isn't exactly accurate because they double counted sometime spent multi-tasking. Some kids are watching TV while texting and playing video games.

Cheers!

And cue the the fat lady...

As I said yesterday, the market had a singular focus - A Brown win would rally the market. Unless, it doesn't. Ooops.

The power of computers running the market right now is startling. The technicians said that the S&P 500 would run to resistance again at 1050 (closed yesterday at 1150.23) but it had to get to 1152 to break through. That didn't happen and the computers all decided to run to exit at the same time. The indexes are down roughly 1.5% today. Asian markets have been pretty weak over the past week and many have hit new 2010 lows recently.

The market has proved very difficult to hold down despite all of the recent news so we could bounce. Fun times.

Tuesday, January 19, 2010

Can it really be election season again already?

Well, the market is buzzing that a Republican might win in Massachusetts (the election is trending that way, but this is Massachusetts, so be careful assuming to much. Boston's turnout tonight will probably swing the election one way or the other).

The old standard is that the market loves stalemates and eliminating the Democratic supermajority in the Senate is one way to ensure nothing gets done. The markets are also at a critical technical pivot point so if it breaks through here on Brown's election, it has room to run (however, I'll caution that EVERYONE expects this to occur which means the opposite has an equal chance of happening).

Separately, I noticed the local congressional battle is heating up again ALREADY. I'm not going to stoop to the level of talking politics but I do question the validity of the poll that was put out by one prospective candidate.

My issue is less of an issue with this one particular poll and more of an issue with all polling done today. Most people under 40 with a pulse don't bother answering polls and many don't even have home phone numbers. Thus, all of these phone polls tend really skew to the elderly.

Case in point - this Hoffman poll. If you scroll down to the last page you will see that it shows 37% of poll respondents - more than 1/3rd of all respondents - are over the age of 65. However, according to data compiled by census in 2000 - listed here - senior citizens only account for 15% of Jefferson County voters.

Also, consider that just 12% of poll respondents were under the age of 40, yet according to the census almost 65% of the voting population for Jefferson County is between the ages of 18-44.

I didn't look at the data for the other counties in NY-23 - maybe the rest of the district is older than Jefferson County - but the data is so far off it would cause me to question these results if I was one of the other candidates mentioned in the poll.

Again, in my opinion this is just a function of a cultural shift away from home phones that has made traditional polling data increasingly useless in recent years.

I don't do politics but when your data is screwy then it will get my attention.

Cheers!

Banking 101

There have been a couple of inquiries as to how the banks can be in position to pay huge bonuses again if things are so shaky.

Well, this is where it gets a bit complicated. The banks are poised to pay big bonuses on their trading operations. The average stiff working at a Bank of America branch isn't buying a place in the Hamptons, but the traders that gamed the system in 2009 to book massive profits will get PAID this year.

How healthy are the banks? This is where I diverge from the mainstream. Most feel that trading success has solidified the banks and provides a strong base for future growth. Everyone seems to have forgotten the massive book of business that is still at risk. Both Alt-A loans and second mortgages are in real trouble. We've kicked the can down the road by not requiring banks to reflect these asset prices at their market price but rather "whatever the bank wants to tell us". In layman's terms imagine you bought a house for $100k and a year later it was worth $75k. You have a $25k paper loss. If you were a bank you should recognize that loss (and later report a gain if it regains value). These hidden losses at the banks are in the hundreds of billions of dollars. The hope is that we can keep these losses from bubbling to the surface until the economy recovers. I'm not optimistic that they can.

Finally, regarding the loan modification programs consider this chart....
On the surface this looks like a big improvement as we cut the median monthly payment by over $500 for those that participated in the loan modification program (I'd argue that if you couldn't afford your mortgage, you should lose your house but I'm a cold hearted SOB).
However, note line 2. AFTER MODIFICATION the mortgage payment still represents 55% of GROSS INCOME. Given that taxes, social security, etc take close to 30% of the average persons pay the modifications are actually showing that the mortgage payments will be close to 75% of after tax income. There is no way that plan can succeed, in my opinion.
Cheers!

Until further notice down is still up...

Citigroup posts a bad quarter and Asian stocks have been weak for 3 sessions so of course our market is up. We have to stop trying to analyze the markets as any type of rational measure of economic activity.

A couple of choice observations from the web so far this AM.

"January is usually a very high volume month in the stock market, yet it has started off the New Year even lighter than the last two months of 2009. Not only is the market volume light, but over 60% of the trading volume is concentrated on 5 stocks: AIG, C, BAC, FNM and FRE!"

In legal terms this would be classified as hearsay, but we're not in courtroom so here goes - a reader emailed this to another blog...

"As a commercial banker, I have a client who specializes in asphalt work, and most of his clients are cities, counties, and Cal Trans for road resurfacing work. He is benefiting significantly from all the stimulus money, as his gross revenues are up 40-45%. He has not hired one additional employee nor purchased additional equipment, so the real beneficiary is the owner of the business who I’ll keep anonymous."

Unfortunately, for the asphalt owner he lives in California and will probably see his income subject to a WINDFALL ASPHALT REVENUE TAX to help close their budget gap.

Cheers!

Monday, January 18, 2010

Alt-A is the New Subprime

As I've been saying for some time that we have to be aware of the ticking time bomb that is the Alt-A mortgage pool. Alt-A describes those loans that were deemed to be better than subprime, but not as good as prime for a variety of reasons (low credit scores, undocumented income).

Well, Moody's is trying to get out in front of the coming wave of defaults in Alt-A....



"Moody's Investors Service put $572.7 billion in Alternative-A residential mortgage-backed securities issued from 2005 through 2007 on watch for possible downgrade after it revised its loss provisions.

The rating agency said Alt-A loans that are 60 or more days delinquent "have increased markedly" since it last revised its loss projections.



Moody's said it now projects, on average, cumulative losses of 14% of the original balance for 2005 securitizations, 29% for 2006 securitizations and 35% for 2007 securitizations."



This should indicate another wave of huge losses for financial firms holding these assets, but given that our government has decided that we should look the other way -- changing mark-to-market to mark-to-make believe -- these losses may not materialize on the books of the banks.

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There haven't been any local sightings of ATM card capture tools to my knowledge. However, someone pointed out this example of the most advanced ATM fraud I've ever seen.






Normally, these card capture devices are pretty bulky and look out of place on the ATM but this example might fool me if I wasn't paying attention. All of the data capture is located in the flat section of the capture device. Some apparently even have wireless data transfer capabilities. Be careful when using unfamiliar ATM's, particularly when traveling.

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Ah, the trouble with long building cycles....

"Though it may seem counterintuitive at a time when many hotels around the country are having trouble filling their rooms, nearly 100 hotels are scheduled to open in major American cities this year.


New York will have the most new hotels, 46, according to Smith Travel Research, a hotel research company in Hendersonville, Tenn., followed by Houston, with 30. New hotels are opening as well in Atlanta, Boston, Chicago, Dallas, Los Angeles, Miami and Washington. That does not include new hotels opening in the suburbs of these cities.

With hotel capacity in New York expected to rise more than 12 percent this year, Mr. Hanson predicted that consumers would be the immediate beneficiaries. “In general, new hotels will use discounting to try to gain initial market share,” he said. “This will last a long time, because there is no imminent occupancy recovery. And existing hotels will face increased price competition from new hotels, which will require additional discounting.”

Cheers!

Sunday, January 17, 2010

Football blues

The Cowboys let me down for the 13th straight year, so I might be even more bitter than normal over the next couple of weeks.

Pimco's got a good feel for the state of the economy given their reach and scope of their investments. On Friday Pimco's Mohamed El-Erian said financial markets have failed to price in the remaining problems in the economy.

“You come to the conclusion that the market simply hasn’t priced in the reality of what we talk about every single day,” said El-Erian, who helps run the world’s largest bond fund.

“What you’re getting is a recovery phase, a healing phase that was artificially created.”

A lasting recovery will only be built on real growth and not that which is stimulated by government, he said.


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Cheers!

Friday, January 15, 2010

Friday Night Music Meltdown...

There have been a few videos of this 5 yr old drum prodigy on the web over the past year, but this one strikes a special chord in my aging heart as he covers System of a Down's only mainstream hit - Toxicity. Word of warning -- make sure your computer speakers are turned down because this is nice and loud...



Enjoy!

Thursday, January 14, 2010

Retail Sales, Kodak Moments and SEC Secrecy

Retail Sales - It's all in how you look at it... My wife's economic team told her that Retail Sales have grown for 4 mths in a row and December will make it FIVE in a row. But here's the deal, they are talking about Dec '09 vs. Dec '08. However, December '09 vs. November '09 Retail Sales fell 0.3% surprising most analysts. Forecasts from 80 Economists ranged from no change to a gain of 1.2 percent. Again, 80 skilled people making a forecast and no one can come close to being right.

For all of 2009, retail sales fell 6.2 percent before adjusting for seasonal variations, the biggest drop since comparable records began in 1993.

This does surprise me a bit, but gas prices hadn't really ticked up until January so I'd look for the trend to possibly reverse in January (despite the fact that sales of non-gas retail items might fall).

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There was a bunch of Internet chatter yesterday focused on that relic of the 70's Eastman Kodak as option activity really spiked on a company that has missed the boat on the digital photography. Why would people be buying calls (speculating that the stock would rise) on a company like this?

Well, today the news broke --- and it will lead to SEC investigation of all those Charles Schwab trades coming out of Rochester yesterday --- Eastman Kodak has announced that it filed lawsuits against Apple Inc. and Research In Motion Limited. Kodak is alleging at the International Trade Commission that both companies infringement Kodak patents and intellectual property concerning digital imaging technology. The specifics claim that Apple’s iPhones and RIM’s camera-enabled BlackBerry devices infringe a Kodak patent that covers technology related to a method for previewing images.

Of course Kodak could have made iPhones and Blackberries in 1980's if they wanted to, but they were holding back that technology to wait for the market to develop. Please... that's ridiculous. These lawsuits are designed to be "Lawyer Full Employment Stimulus Programs".

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Speaking of crazy trades, the market is still grinding higher - 11,000 is on the horizon for the Dow - and just when the market shows a little weakness someone (we have no idea who) traded 200,000 emini future contracts with a margin requirement of $1.3 billion. I've promised my wife I'd keep my margin trades under $1 billion so it wasn't me :)

The trade has been attributed to someone hitting a bad button, but here's the problem, since so many computers run trading operations, this massive spike in volume -- even a phantom spike like yesterday's -- triggers more buying which artificially pushes things higher. This keeps working until one day when it stops working...

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FacePalm...

SEC order helps maintain AIG bailout mystery

It could take until November 2018 to get the full story behind the U.S. bailout of insurance giant American International Group because of an action taken last year by the Securities and Exchange Commission.

In May, the SEC approved a request by AIG to keep secret an exhibit to a year-old regulatory filing that includes some of the details on the most controversial aspect of the AIG bailout: the funneling of tens of billions of dollars to big banks like Societe Generale, Goldman Sachs, Deutsche Bank and Merrill Lynch.

The SEC's Division of Corporation Finance, in granting AIG's request for confidential treatment, said the "excluded information" will not be made public until Nov. 25, 2018, according to a copy of the agency's May 22 order.

There is no defense of this position. The only excuse can be providing political cover for those in Washington. The President should immediately demand full disclosure whatever the political fallout.

Cheers!

Wednesday, January 13, 2010

US Freight Rail Traffic...

In the endless pursuit of trends in the most obscure locations, we visit the American Association of Railroads for their Railtime Indicators. The data is mixed to slightly positive...

1) In Dec. 2009 carloads fell 4.1% from Dec. 2008 and were down 17.6% from Dec. 2007. However, there was a substantial decline in coal shipments in 2009 so excluding coal, rail carloads were 42,741 (6.9%) higher in December 2009 than in December 2008. The bulk of the improvement came from autos & parts, grains and chemicals. Interesting crushed stone, sand which is considered a proxy on construction activity, tumbled 15% in December 09.

2) Despite the latest small uptick, total U.S. rail carloads in 2009 were still the lowest since 1991!!

3) Note there was a complete collapse of rail traffic last December so even though this year was slightly higher than last year's low level, the December 09 data was still the lowest level we've seen since Feb 09. The comparisons get more difficult in January, we'll see how things look next month, before drawing too many conclusions.

Cheers!
For the data nerds out there... This guy put together a pretty impressive map.

















This includes some stimulus bill data but it's not all that telling in my opinion b/c the spread between the state getting the most money per capita - Utah - and the least - Florida - is only $30.

What I found much more intriguing was the fact that a certain state in the FAR NORTH has state spending at 28% of gross state product. Boy, that certain sounds like a state run by a highly efficient governor that likes to cut waste and bureaucracies, right? You betcha... ;)

Another good reason to avoid High Fructose Corn Syrup

I've never been in the "genetically modified foods are evil" camp, but this study doesn't make you want to go out and load up on corn.

In a study released by the International Journal of Biological Sciences, analyzing the effects of genetically modified foods on mammalian health, researchers found that agricultural giant Monsanto's GM corn is linked to organ damage in rats.

"Effects were mostly concentrated in kidney and liver function, the two major diet detoxification organs, but in detail differed with each GM type. In addition, some effects on heart, adrenal, spleen and blood cells were also frequently noted."

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On a separate but related topic -- would you be surprised to find out that somewhere between 42% (according to a trade group) and 80% (according to the USDA) of the world's apple juice export market is dominated by Chinese juice exports? There's a greater than 50% chance that the juice in Johnny's lunch box came from China. I'm sure they are taking great strides to ensure product safety, right?

We're back to water in the lunch boxes until further notice :)

Tuesday, January 12, 2010

Alcoa, Markets and Stimulus, Oh My...

Alcoa kicked off "earnings" season with a pretty weak report that sucked the wind out from under the market's sails. The company reported a $0.01 per share proforma profit despite posting a $277 million loss and as I said last quarter, there's only so much companies can cut, eventually you need to grow revenues if you are going to continue to boost profitability.



Alcoa's stock has become a proxy for an aluminum carry trade. This is mind numbing stuff, but suffice to say it's less dependent on end user demand and more closely tied to access to cheap money.



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Many market observers, myself included, have been scratching our collective heads at the low volume grind in the markets to kick off the year. Today that changed a bit, but the Dow still staged a weird late day rally to post a very small loss for the day. It's worth noting though that the Nasdaq has broken to new lows for the year.



I don't know what to make of it yet -- is this just consolidation or the beginning of something more sinister?



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Homeowners may struggle with Option ARM Resets



"It's going to kill off housing," warns Patrick Pulatie, CEO of Loan Fraud Investigations, a predatory lending audit firm. "We have pretty close to 500,000 option ARM payments going higher in California over the next couple of years. The impact of the higher payments will be devastating for homeowners who are having trouble now making ends meet."

Option ARM mortgages, which have been around since 1981 and are aimed primarily for people who had fluctuating incomes, became popular during the housing boom. Terms of the loan usually allowed the borrower to make low monthly payments initially—sometimes by just paying interest only.


But as the terms of those mortgages now readjust, homeowners are facing much higher mortgage payments at a time when the value of their house has plummeted and many are out of work. In some cases, homeowners who chose a very low starting interest rate have actually seen the overall amount of their mortgage increase—known as negative amoritization—putting them even deeper in debt.

Many of those option ARM loans have already re-adjusted to higher payments, but more are on the way. Some 88 percent of Option ARMs originated between 2004 and 2007 are going to adjust higher between now and 2012. Those option ARM borrowers could see their housing bills go up as much as 63 percent, according to Fitch ratings.

Yikes!

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Okay, I won't put this one on the President, this smells of a number cruncher that been a lifer in the political game.

"The White House has abandoned its controversial method of counting jobs under President Barack Obama's economic stimulus, despite mounting a vigorous defense of its earlier count of more than 640,000 jobs credited to the stimulus.

That means that any stimulus money used to cover payroll will be included in the jobs credited to the program, including pay raises for existing employees and pay for people who never were in jeopardy of losing their positions.



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I know "fail" is such a 2009 term, but it fits so well with this photo....







I can't confirm that this isn't photoshopped but it looks pretty legit to my untrained eye. The next time the ticket agent is tapping away furiously at the airport trying to squeeze you onto that over booked flight, keep in mind that he's probably just playing solitaire :)

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Finally, just a quick thanks to all the new and returning readers. I've blasted into the top 100,000 websites in the US and top 400,000 globally according to Alexa. Check out the good news here...

Cheers!







Monday, January 11, 2010

Two Demographic Icebergs Colliding...

One of my favorite hobbies is speculating on long-term trends. You're rarely wrong and you can make wild guesstimates that sound reasonable if presented properly. Nearly a decade ago, I spent some time doing a good deal of research for a now defunct investment bank that rhymes with Sheman Mothers on the demographic trends in the US.

Three things jumped off the page at me at that time:

1) The boomers were such a huge junk of the workforce that their retirement was going to alter our tax base significantly and influence government spending dramatically from 2010 to 2030.

2) The boomers were likely to live longer than any previous generation due to advancement of healthcare options. I'd alter this analysis today because there is a good chance that many boomers will eat their way into an early grave, but the advancement of medical technology has astonished me and people with serious health issues seem to be living longer than expected.

3) The delay of young people creating households. This trend started in the late 90s as individuals started to push out getting married into their late 20's and early 30's (well, at least the smart ones did ;) -- just kidding honey!

Well, when people delay household creation it slows savings rates and wealth building for a nation. The individual that blows $150 in Hoboken on shooters ever Friday night is not going to be buying a house or shopping for towels at Bed, Bath and Beyond on Saturday.

One of my big fears right now is that these two demographic trends have only seemed to be amplified during the great recession. Under 30 unemployment has skyrocketed during the recession and the jobs that do exist tend to be service jobs that aren't careers. I don't have any data to back it up yet, but I'd suspect that over the next 3-5 we'll see the national marriage rate fall because people fell less comfortable with the idea of settling down, buying a house, having kids, etc, when Time Warner is calling every month and threatening to cut off their cable. Thus, we'll have a problem with young people generating sufficient tax revenue to cover our outflows.

On the other end of the equation, boomers are either retiring at an amazing pace or dropping like flies. Boomers seem to be dropping out of the workforce extremely quickly which means they will require longer periods of pension payouts, health coverage, etc, while contributing less to the tax revenue side of the government's income statement.

These trends can reverse but these two trends are going to collide at some point with devastating impact on State and Federal budgets.

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* The new Governor of NJ has a difficult task ahead of him. Gov. Christie won election on the premise that there would be no new taxes. Yet the state faces an $8-$9billion shortfall in the upcoming year. This nearly a 1/3 of the state's budget. Will he be able to cut $8 billion from the budget in 2 months? Good luck with that.

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* Redefault rates for modified mortgages (mortgages that modified and then still went to default) were termed "tragic" by an analyst that follows the market...

"Re-defaults after modification were $12.8bn, or 10.9%, up from 10.5% last month."

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Sam's Club announced a couple of store closings today. One in Sacramento, CA, another in La Quinta, CA and Clay, NY. Okay, three stores isn't a trend, but one store was opened in 2007 (can you imagine the sunk cost in that place?) and the three stores represent about 1.5% of all US Sam's Club stores. Since it seems like our local Sam's Club is mobbed 90% of the time, this is an interesting development.

Cheers!

Sunday, January 10, 2010

China and Ticketing/Police Pardox...

The Asian markets continue their winning streak based on strong reported data on imports and exports.

"Chinese exports climbed 17.7 percent from a year earlier, the first increase in 14 months, and imports jumped 55.9 percent, the customs bureau said yesterday." The data benefits from easy comparisons relative to last year, but it's still pretty impressive. The real questions that I have are:

1: How much of this growth is stimulus related?

2: Can we really trust any data released by the Chinese gov't? Allow me to explain.

I spend a good amount of time dissecting US government data and there is always a decent amount of spin, misrepresentation and outright bad data in our statistics. I'd love to be able did down into some of the Chinese data releases....

Well, one of my contemporaries that nailed the Enron story - I was on the same page with him re: Enron, but I just didn't see it going to zero so he's a billionaire and I am not - is taking aim at China and I'm listening this time around.

James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.
James Chanos made his
hedge fund fortune predicting problems at companies and shorting their stock.

Now Mr. Chanos is betting against China, and is promoting his view that the China miracle has blinded
investors to the risks in that economy.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.

As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.

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I hope that I don't come across as anti-government in some of my rants. The government - at all levels - provides necessary social safety nets and provides countless valuable services that make living in the US an honor and a privilege. However, I am anti-stupidity and stupidity tends to reveal itself in certain places repeatedly (government, banks, night clubs in Orlando...).

This move in California typifies the sort of move that makes my skin crawl.

"Since San Francisco flooded the streets with additional parking control officers in the last two years, the number of parking citations has been on the decline.

The MTA has attributed the 16 percent drop in citations to cash-strapped drivers becoming more wary of parking regulations, a decrease in street-sweeping operations and fewer motorists out on the road because of the weakened economy."

I see many similar moves in NYS. The number of State Police patrolling NNY has skyrocketed in the past decade, but I get the sense that people have become aware of the ticket risk and do not wish to be an ATM w/wheels for the state, so my own observations seem to indicate that people have lowered their average speed which will produce fewer tickets.

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As predicted a week ago, gas prices hit the $3.00/gallon for regular unleaded today. I know people seem to shrug at $3.00 gas, but consider that a year ago the national average for a gallon of gas was $1.79!! Considering we use almost 400 million gallons a day in the US that's an extra $12 billion/mth of discretionary income that is going to be eaten up by higher gas prices.

Also, keep this in mind when we get GREAT retail sales data next month. The higher sales will be almost exclusively driven by gas prices.

Cheers!


Pictures worth thousands of words....

This first chart - courtesy of http://www.calculatedriskblog.com/ - shows the percentage of the population in the workforce in the US. In the late 1940's and 1950's the percentage adults participating in the labor force exceeded 85%.




This chart shows similar data just for a more recent time period and thus the swings seem amplified. You can see the way labor participation has fallen off the table in the past couple of years. This is not the trend of a healthy economy poised to dominate the global economy for the coming decades. It's more like the trend of a economy obsessed with American Idol and hitting the early bird special at the Olive Garden.






Finally, consider this picture of the percentage of persons unemployed that have been unemployed for more than 1/2 a year. Another example of why the Great Recession will be with us for a long time even if we enter a "statistical recovery" in 2010.






Cheers!