Friday, October 31, 2008

The Economic Crisis: Its All the Boomers Fault

At least according to this Minyanville Op-Ed.

They rebelled against their parents, protested the Vietnam War, and settled down in 2,300 square foot cookie-cutter McMansions with perfectly manicured lawns in mall-infested suburbia. They’ve raised overscheduled, spoiled children, moved up the corporate ladder by pushing paper rather than making things, lived beyond their means in order to keep up with the neighbors, bought whatever they wanted by going into debt, and never worried about the future. Over-optimism, unrealistic assumptions, selfishness and conspicuous consumption have been their defining characteristics.

The Greatest Generation left the Boomers with unparalleled prosperity and growth. While it was the Boomers that have just left us in Gen X and Y with the tab. Maybe a few years of the Obama Depression will get Gen X and Y to embrace a new frugality that their great grandparents had. I mean it will be hard to delay gratification on a new IPhone (or not buy one at all) or be forced to eat ramen noodles for months at a time but we were able to do it in our slacker years.

However it must be very tough for some Boomers to tell their kids that they can't afford to send them to the expensive, top-flight college because they are mired in debt and their 529 college savings accounts just lost 40% of their value. That is a failure of fiscal restraint and lack of financial education that will hit their kids squarely in the face.

Maybe all of the revulsion that the Gen Xers and Yers will feel will translate into rebelling against the whole conspicuous consumption paradigm. Maybe it is time to feel true hate toward Rappers with diamond teeth and gold necklaces as big as their heads. Maybe it is time to look down on the wastefulness of the scum on the Hills and My Sweet 16.

The last thing a person that has lost their job and house wants to see is some spoiled little rich girl throw a tantrum over the length of her $12,000 dress. We might be in for an "Eat the Wasteful Rich" scenario going forward. In any case I can endure the Obama Depression if it marks the death knell of the Bling Age.

Thursday, October 30, 2008

Movie Review: Max Payne

I saw this movie last night and it was *incredibly* crappy. It seemed like an endlessly boring, long shot of falling soap flakes and dark New York streets. The movie was long, stupid, boring and had very little action in it.

The plot was the same sort of cop on a revenge kick that you have seen in countless movies but it was not fresh and there were no twists or cool shots to make it decent. Basically, Max Payne wants to find out who killed his wife and kid and blames his partner for not doing enough. Payne goes from one dark street filled with soap flakes to another and gets involved with some Russian babe played by Mila Kunis. I guess she is Russian mafia or something but her character is pretty much paper-thin and only has a motivation to get revenge on the person who killed her sister. They go through the motions investigating the crime and fight the bad buys at the end. The plot is thin and weak and the mystery is such a joke that you solved hours before the characters do.

All of the characters including Payne can be summed up by a caption like Russian Babe that wants revenge, or former cop now Head of Security at Phama corp., or dorky, bald, bad guy with goofy tattoos. They even put Marlo Stanfield from the Wire in the movie with a Jamaican accent in a total waste-of-time cameo. All-in-all there is absolutely no character building or opportunity for Wahlberg to show his acting chops. No one is memorable or cool and everyone is just pretty much forgettable.

I could have swallowed all of this if there had been some great action scenes throughout the movie. But Max Payne seemed to have about 10 minutes of action stuffed into its final act. There was a great set-piece gun battle between Max Payne and some Riot Police at the evil Pharmaceutical company but that pretty much did it. The battle between Payne and the dorky, bald baddie was an absolute joke. The action just seemed like the director said "whoops, this is an action movie so lets add a few scraps towards the end."

They even had the temerity set up a sequel with Max's family saying "Not Yet Max" to him wanting to die. I wished they just said "It's Time Max" and he finally keeled over dead so we wouldn't have to watch a followup to this dreck. I looked up the Director (John Moore) and screenwriter (Beau Thorne) so I can avoid their movies in the future. To sum it up this movie is just another example that video game movies (as opposed to comic book movies) are made to suck.

If You are a Buy and Hold Investor This is Time to Buy

I have to agree 100% with this Fortune article on what the Buy-and-Hold in this tough market. The article basically says to buy Index funds, Banking stocks, emerging market debt, and global stocks. I'm looking into this fund as a pretty interesting allocation going forward.

To make it easy for regular investors to accomplish all of this in one fell swoop, on Oct. 29 El-Erian launched a new fund called the Pimco Global Multi-Asset Fund (PGAPX). Using the asset mix above, the objective of the fund is to outperform a 60/40 blend of the MSCI World index of stocks and the Lehman Brothers Aggregate Bond index while incorporating hedging techniques against systemic risk scenarios. El-Erian is the fund's lead manager. With an expense ratio of 0.95%, it's not the cheapest mutual fund, but it offers broad diversification with one of the world's best risk managers at the helm. Over the long term, hopefully, that combination will produce good returns.

We are Now in a Recession

It seems that the economy contracted by 0.3 percent and we need one more quarter of that and we will be in a textbook recession.

Consumer spending, which fuels two-thirds of U.S. economic activity, fell at a 3.1 percent rate in the third quarter -- the first drop since the closing quarter of 1991. Spending on nondurable goods -- items like food and paper products -- shrank at the sharpest rate since late 1950.

Heavy government spending, still-strong export growth and a slower pace of inventory liquidation helped mask the extent of deterioration in other sectors.

Tuesday, October 14, 2008

The FED opens the Lending Door to Three Central Banks

It seems the FED has now offered "unlimited dollars" to the central banks of England, Switzerland and the European Union.

The other central banks will be able to borrow "any amount they wish" in exchange for collateral. The goal is to flood the financial system with much-needed dollars.

After they borrow dollars from the Fed, the Bank of England, the European Central Bank and the Swiss National Bank will provide private financial institutions with one-week, 28-day and 84-day U.S. dollar loans in the latest attempt to unfreeze credit.

And people were talking about the demise of the dollar as the world currency and other such nonsense. The US seems to be the bedrock of the world economy yet again.

Obama's Tax Plan: Income Redistribution at its Finest

It seems that the idea that he is toting about 95% of Americans getting a tax cut is "more of the same." Here are the things he is proposing:

- A $500 tax credit ($1,000 a couple) to "make work pay" that phases out at income of $75,000 for individuals and $150,000 per couple.

- A $4,000 tax credit for college tuition.

- A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).

- A "savings" tax credit of 50% up to $1,000.

- An expansion of the earned-income tax credit that would allow single workers to receive as much as $555 a year, up from $175 now, and give these workers up to $1,110 if they are paying child support.

- A child care credit of 50% up to $6,000 of expenses a year.

- A "clean car" tax credit of up to $7,000 on the purchase of certain vehicles.

Here's the political catch. All but the clean car credit would be "refundable," which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer -- a federal check -- from taxpayers to nontaxpayers. Once upon a time we called this "welfare," or in George McGovern's 1972 campaign a "Demogrant." Mr. Obama's genius is to call it a tax cut.

Yup you will get all of these goodies even though you are not paying into the tax system in the first place. It is just a trillion dollar income redistribution from the top 5% to the now 63 million Americans (now 44% of all tax filers) who will not pay taxes. Hopefully I will be lucky enough to fall into that bracket but I would be willing to bet that it won't happen.

The American People Now Own Shares in 9 Banks

It seems that we are now the proud owners of shares in 9 different US Banks.

The nine initial banks participating are Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase, Bank of America Corp, including the soon-to-acquired Merrill Lynch, Citgroup Inc., Wells Fargo & Co, Bank of New York Mellon and State Street Corp.

At a briefing, Treasury officials said that the first purchases of stock from the nine major banks will begin within days and will total $125 billion. The government expects to spend the entire $250 billion slated for the bank stock purchase program by the end of the year.

They seem like pretty good organizations and hopefully we will get a decent dividend on the shares we just bought. I'm just glad it wasn't a rogues gallery of junky, nearly dead regional banks or some other risky bet. Plus it seems the FDIC got into the loan insurance business as well. Now we need to get into the credit ratings business and we would have a clean sweep.

In addition to the stock purchases, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so.

Friday, October 10, 2008

Great Rundown of the Sometimes Illegal Practices that Mortgage Companies Used

This is a very interesting article about the kind of things that Countrywide, IndyMac et al. used to get as many loans as they could for their portfolios. Mark my words there will be criminal indictments brought down on this whole mess in a few years.


1. Handed out copies of the movie Boiler Room as a training tape

2. Partnered to sell its “PayOption Arms” with a brokerage owned by a five-time felon, whose convictions included gun-related charges

3. Forbade loan officers to check borrower income on certain loans

4. Ran an “art department” in its Tampa office, where documents were altered

5. Settled allegations of institutionalized marketing deception that covered two million customers

6. Developed “FastQual,” a program designed to approve borrowers in twelve seconds

7. Incentivized brokers and loan officers through “yield spread premiums” and other compensation schemes to put borrowers into more expensive loans

8. Tapped two kegs of beer at weekly staff meetings

The US Government to Go Long Financials Now?

Now this is interesting news I think.

U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity ``as soon as we can'' in banks and other financial institutions to restore market stability and revive economic growth.

The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.

They will certainly be buying low and hopefully getting a chance to sell high in a few years. It is just weird that taxpayers will suddenly be holding banking stock. I guess this is the point where Main Streen and Wall Street merge and become joined at the equity hip.

Stock Exchanges Propose a Short Selling "Circuit Breaker"

This seems like an interesting idea floated by the NYSE and the Nasdaq.

Under the plan, a stock that ends trading with a loss of at least 20 percent would be protected from short sellers for the following three days, the people said.

They propose this as well:

Under the proposal that may be filed with regulators, the exchanges would publish a daily list of protected stocks and short sales would be barred across all markets, the people said. Market makers and some option traders would be exempt from the targeted ban. The circuit breaker could apply to all stocks, instead of only finance-related companies like the emergency ban, and expire after Dec. 31.

This list would be a very good idea to check this "circuit breaker tripped" stocks each day to see what stocks are on it. I think it would be interesting to see what the stock does on that three day quiet period. Will shorts cover during that time and pocket their 20%+ profit on the stock thus driving the price up? Or will a stock trade down 20% and then even to slightly higher for 3 days and then fall again?

You could create a trading strategy based on the first idea if it is true. What you would do in a down market is just go long any stock on the list right after the drop to capture the shorts taking profits in the stock. Then if market sentiment is still negative you short the stock again after the waiting period is over.

Credit Ratings Agencies are Now the Angel of Death

I have to agree with Jeff Macke when he says that the ratings agencies need to have some sort of suspension in order to stabilize markets.

What Moody's and S&P did last night and this morning illustrates, to me, the futility of Fed actions to date. By noticing the glaring and obvious long-standing problems of General Motors and Ford (F) last night, S&P effectively raised GM and F's cost of capital infinitely. GM is in the middle of a "capital raise." It was going to be expensive before S&P raised the price of GM paper.

Now, after S&P's downgrade threat, it's going to be impossible.GM is dead, in my view. It may have died anyway but it's almost certainly dead now. S&P killed them.

I wouldn't go that far to say that GM is dead because I think they might be too important to politicians in the swing states to just fall into bankruptcy that easily. There will be an auto industry bailout before too long simply because the main street impact of thousands of blue color union jobs disappearing in favor of foreign companies is just too painful for the Dems.

The problem that Macke sites though is 100% correct. These ratings agencies have the power to kill any company in America simply by threatening to downgrade their credit. They don't actually have to downgrade anything they just have to put them on a watch-list for a firm to fail. That is just too much power for just a couple of companies to hold over trillions of dollars in equities and debt.

The worst part is that they are one of the people that got us into this mess in the first place. They were the ones that made subprime loans packaged together have the same debt rating as rock-solid Treasuries. So all sorts of firms had the green light to buy what these ratings agencies deemed "riskless." It is just like the USDA rating spoiled meat as Grade A.

These agencies did this basically to drive their own stock price up and increase their revenues because rating exotic subprime mortgage backed securities had higher fees then vanilla debt. Their greed has cost Americans billions of dollars and forced a total reordering of the financial world. The heads of these companies need to be the ones being investigated on Capital Hill and not guys like Lehman's Richard Fuld.

The worst part about it is that workers at S&P and Moody's could potentially be bribed by short sellers looking to make a profit. It probably hasn't happened but I could see a few unscrupulous short sellers throw a few thousand dollars at some underpaid credit bean counter and make billions riding GM or Lehman into the dust.

That is why there needs to be a federal investigation into these companies and maybe even a government takeover of them if there was chicanery involved. Ever since I was researching Ambac at the beginning of the year I was wondering how a for-profit company can rate these things and still stay 100% objective.

I kept thinking that this work should be done by a subsidiary of the Fed or the Treasury department with tons of oversight and transparency instead of a company thats sole existence is there to rate things for a fee.

Thursday, October 09, 2008

Why Libor Matters

I think this is another article that every American needs to read in order to understand what is happening in the markets today.

Rising Libor, set each day in the center of international finance, means higher payments on financial contracts valued at $360 trillion -- or $53,500 for each person worldwide --including mortgages in Britain, student loans in the U.S. and the debt of companies like CIIF in Makati City, the Philippines.

I hope this finanical mess gives some Americans the opportunity to get some financial acumen like they developed in regards to Islam and the Middle East after 9/11. People need to know why Libor is important and how it effects eveyone in the world.

GMs Credit Rating Put on Watch: Torpedos Market

Now that was a wild ride going into the close all because of S&P is thinking about maybe cutting GMs credit rating by 2009.

S&P, which rates debt of GM and Ford six steps below investment grade at B-, said in statements that both automakers have ``adequate liquidity'' for this year while facing a ``serious challenge'' during 2009. The ratings company put both on Creditwatch with a negative outlook and said it's also reviewing GMAC LLC, the finance company 49 percent-owned by GM.

Looking at GMs balance sheet you notice that they have $24 billion in cash and about $45 billion in debt but they have been reducing the amount of short term stuff out there. The problem is that GM just has to stop losing $15 billion a quarter by any means necessary.

If that means closing factories, putting workers on leave with less pay, or just making less cars then that is what they have to do. You can also really see the fear in this market when a story about how S&P *might* cut GMs debt in 2009 makes the market drop 421 points in like 30 minutes. The VIX volatility meter was at like 60+ today which is the highest ever. For some reason it just feels like a bottom to me but you never know.

Whew! Credit Markets Starting to Loosen Up a Bit

Now this is welcome news for the world economy. We might even catch a nice short covering updraft tomorrow if there isn't any more bad news overnight.

Yields on the highest-rated one-day dealer-placed commercial paper declined 1.15 percentage points to 2.35 percent, according to data compiled by Bloomberg. Sears Holdings Corp. reduced its offer rate 1 percentage point to 3 percent. HSBC Holdings Plc lowered the rate it's willing to pay by 25 basis points to 2 percent, the data show. A basis point is 0.01 percentage point.

Wednesday, October 08, 2008

Obama was Actually For McCain's Plan to Buy Mortgages just 15 Days ago

It seems that even though Obama's surrogates poo-poo McCains plan to take $300 billion of the bailout and buy bad mortgages Obama was actually for this same plan as early as Sept. 23.

``We should consider giving the government the authority to purchase mortgages directly instead of simply mortgage-backed securities,'' Obama said at a Sept. 23 news conference.

Does his campaign minions even know what their own candidate is saying publicly? McCain pretty much proposed the exact same thing that Obama was advocating just 15 days ago.

Obama says as plain as day that the government should consider buying mortgages directly and not just mortgage backed securities. The Bailout Bill already gives them the authority to do so and McCain is suggesting that they do it. Anyway you look at it this is a "Help Main street solution" if I ever seen one. Even Democrat Barney Frank is in support of what McCain is purposing

On Sept. 29, Frank, chairman of the U.S. House Financial Services Committee, said the government should start buying foreclosed mortgages directly if the Treasury Department's financial rescue doesn't work.

Even two respected professors at Columbia are advocating for something similar to McCain's plan in the Wall Street Journal.

Columbia University's R. Glenn Hubbard, dean of the Graduate School of Business, and Chris Mayer, senior vice dean and Paul Milstein professor of real estate, suggested the same in an Oct. 2 opinion piece in the Wall Street Journal.

``We proposed that the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25 percent, matching the lowest mortgage rate in the past 30 years,'' Hubbard and Mayer wrote. ``These mortgages would be backed by houses and the verified ability to repay the debt by millions of Americans.''

Maybe this is Obama's "He was For it Before he was against it" moment. Also I love how Bloomberg just tells things like it is like this. They aren't lying or redirecting anything. Those are Obama and Frank's words and the Obama Campaign just strait-up contradicted themselves.

Obama Will Lift no Fingers to Prevent Forclosures

At least it seems that way from this recent rhetoric on the matter. Here is the McCain plan:

McCain's proposal would devote nearly half the $700 billion from the recent financial rescue package to buying troubled mortgages directly, rather than indirectly aiding the nation's financial markets. The government would buy distressed home loans at their face value, said campaign spokesman Brian Rogers. Then it would pay the difference between a mortgage's original value and its renegotiated, lower value.

It seems sound because it actually attacks the root of the problem instead of buying bad loan instruments from banks. If house prices go up then it fixes the bad debt and keeps more people from going upside down on their home. McCain's plan hinges on whether or not the majority of the housing foreclosures have been flushed out of the market or not. I think most of the really bad stuff is out of the market so his plan needs to be seriously vetted. Here is the Obama campaign's boneheaded response.

The plan would cause the government "to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don't recover," Obama economic adviser Jason Furman said in a statement. "The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud."

I think someone needs to tell Jason Furman that home values will eventually recover no matter what happens. Demand will just have to be higher then supply for equity to start to build in peoples homes again. Some areas might not recover for years but to say that home values might not recover in 30 years of the life of the loan flies in the face of history. I mean land is one of the few things you can't make more of.

Ed Koch Stands up for Palin

My respect for this man has just gone up. Even though he is for Obama/Biden he still advocates that people respect Sarah Palin as a person and not try to portray her as a rube or a dullard.

I am for the Obama-Biden ticket. I also believe that in campaigning for that ticket, it is important to be fair to the opposition - McCain and Palin - who are honorable, intelligent, patriotic Americans.

If more on the Left had Koch's feelings that the people on the Right are honorable, intelligent and patriotic Americans then we might even get some discourse and agreement in politics. I think a return to the days of people disagreeing with someone but not disliking them should return. I mean I like Obama and I think he is a well meaning, intelligent sort of guy.

I just think he will put us in the second Great Depression with his tax-us-to-the-moon economic strategies. He is also dangerously naive when it comes to foreign policy but he seems to actually love this country and wants what is best for it. I can only fault his plans for the country and not try to attack the man himself.

Son of Democratic Tennessee State Lawmaker Hacked Palins Yahoo account

More dirty tricks from Democrats. I don't think this kid should be sent to prison for 5 years but he needs to face some sort of punishment. Of course if someone hacked Joe Biden's Yahoo account then Democratic operatives would be shouting for this kids head.

David Kernell was indicted Tuesday by a federal grand jury in Knoxville and faces a maximum of five years in prison, a $250,000 fine and three years of supervised release. Trial is set for Dec. 16.

Now ACORN is Commiting Voter Fraud in Missouri

I think Obama is going to steal this election if the GOP is not vigilant.

"I don't even know the entire scope of it because registrations are coming in so heavy," Davis said. "We have identified about 100 duplicates, and probably 280 addresses that don't exist, people who have driver's license numbers that won't verify or Social Security numbers that won't verify. Some have no address at all."

First the Dallas Cowboys voting in Nevada now 100s of duplicate registrations in Missouri. I think ACORN needs to be put up on fraud charges. Shades of Kennedy versus Nixon.

Blackberry Introduces the Storm

It seems like the kind of phone that will give the IPhone a run for their money. This is the part that will be the main selling point for me.

The browser supports full HTML and allows you to pan with your finger or use an onscreen cursor that floats above and to the left of your finger. That makes pressing links even easier.

I just hate having to browse the Internet using that crappy Verizon interface where you have to hit number keys to go to different links. It would be cool to go to and check scores without having to wade through 10 menus. It might be a good time to go long Research In Motion according to this.

Valuation may help as well. At its current price, RIM shares are trading at 12 to 13 times estimated earnings for the next four quarters. That's a sharp drop from the summer, when the stock carried a multiple in the low 30's. It is also below other peers even with the market sell-off; Apple is currently trading at a P/E ratio around 16-17 and even Motorola-- which is trying to spin off its money-losing wireless handset business -- trades at 15 times estimated earnings.

You are buying a company at 12-13 PE that is introducing a slew of new products for the consumer market that should sell fairly well. You just have to watch what the consumer does in the next few months. Will they pull back and start saving and make due with their old phone or would they pick up a new Blackberry? Any bump in consumer sentiment or retail sales will be pretty welcome for the smart phone market.

Tuesday, October 07, 2008

ACORN Registers Dallas Cowboys in Nevada: Tries to Stuff the Ballot Box

It seems that everybody is trying to stuff the ballot box for Obama in this coming election.

Nevada authorities seized records Tuesday from a group they accused of submitting fraudulent voter-registration forms — including for the starting lineup of the Dallas Cowboys.

"Tony Romo is not registered to vote in the state of Nevada, and anybody trying to pose as Terrell Owens won't be able to cast a ballot on Nov. 4," said Secretary of State Ross Miller, referring to star players on the pro football team.

State authorities raided the headquarters of the Association of Community Organizations for Reform Now, a group that works to register low-income people.

I wonder if Tony Romo and Terrell Owens would have voted multiple times for Obama if the authorities in Nevada hadn't caught these fraudulent forms first? They need to check out this ACORN group in Ohio, Michigan, New Mexico and any other swing state as well.

Google Chrome Does Not Work Well on Blogger Posts

This is kind of a strange thing to say but currently Internet Explorer is easier to use to post things into Blogger then Chrome is. You would think that web apps from the same company would work seamlessly but I guess not. I just keep getting this weird error whenever I try to do an Edit Post that I wrote with Chrome:

Notice how the letters are super big like that. That happens whenever I hit the Edit Post pencil on a Blog post that I did with Chrome. You have to reduce the size of the letters in order to edit them and they cannot be changed to Font which I guess is the default font in Blogger. When I hit Publish Post it seems to look okay but the fonts are sometimes messed up. I also notice that this error can be reproduced by cutting and pasting text out of another source (in this case Bloomberg.) and then changing the text color and making them italics.

I have no idea how to fix it but I emailed Google a while back and I have gotten no answer. Maybe I am being too hard on Chrome but you would expect a browser to work seamlessly with Apps made by the same company. Oh well I guess we need to wait until Chrome has a few more months (hopefully not years) under its belt in order to switch to it instead of IE or Firefox. I won't be switching browsers in the meantime.

California May Need Emergency Funds: Hopefully they Won't Default

This does not bode well for California based Munis.

The situation is complicated by frozen credit markets that may impede the state's ability to borrow as much as $7 billion of short-term notes next week. Without the loan, the state could run out of cash by month's end.

Schwarzenegger last week wrote to Treasury Secretary Henry Paulson saying he may ask the federal government for an emergency loan if the state can't find investors willing to lend the state money until tax receipts arrive.

I guess those "economic girlie-men" at the credit rating agencies better not cut their debt or we may see the next big economic blowup occurring in the Golden State. If California should happen to default then it will be the same thing as having the worlds 7th biggest economy suddenly going bankrupt.

California, the biggest borrower in the municipal-bond market, has $51 billion in general-obligation debt outstanding. The state is rated A+ by Fitch Ratings and Standard & Poor's, the fifth-highest rankings, and a comparable A1 by Moody's Investors Service.

These ratings agencies need to be watched like a hawk to see if they downgrade California's credit rating in the coming weeks. If they do then it might be death spiral time for the Muni market.

After the 5 Day Market Beat-Down its Looking Cheap

I was reading an article on how the market is off during the last 5 days and I came across this article.

The S&P 500 has tumbled 36 percent from its record a year ago. Based on estimated profit, the S&P 500's price-to-earnings ratio is 11.9.

``On very conservative earnings expectations for the next 12 months this market at minimum is starting to look reasonably valued,'' Leo Grohowski, chief investment officer for the wealth management unit of Bank of New York Mellon Corp., told Bloomberg Television. The unit manages $162 billion. ``Times when it feels almost irresponsible to shore up equities, they tend to be good buying opportunities historically.''

You have to say that a PE of 11.9 is pretty historically cheap. The last time it was in this level was 3/31/1989 when it was at 288 or so. Currently it stands at 996.23. So that is a nice couple of hundred percentage points between now and then. I just wonder if we will see 800 (the bust era) again before too long.

AIG Execs Go to Resort after Bailout: Congress Freaks Out

It seems that AIG execs from the insurance division (not the financial products division that sank the company) went on a retreat to the tune of $440K after the bailout. Of course this has a bunch of Congressmen who probably never worked for a corporation hopping mad.

"Average Americans are suffering economically. They're losing their jobs, their homes and their health insurance," House Oversight Committee Chairman Henry Waxman, D-Calif., scolded the company during a lengthy opening statement. "Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation."

Of course Waxman has never run a company whose execs could jump ship at any moment because their stock options are now underwater. Yup, upon looking at Waxman's background we can see the truth. He was a lawyer for 5 years then California Assemblyman then Congressman for 30+ years.

It is called a reward for staying with AIG Mr. Waxman. Sometimes you have to do that stuff in order to keep your senior staff from taking off when things get dicey. Now that the country is long 80% of AIG maybe you can try your hand at running the company.

Monday, October 06, 2008

Why Newspapers are Dying: Craigslist?

I keep thinking that younger people reading online news or getting it from the Daily Show is what is killing newspapers. However it seems that putting classified ads on a website for free on Craigslist seems to be the culprit.

One obvious culprit for the newspaper's demise is often overlooked: Craigslist. Newspapers never made their money on selling the news - they made it by selling classified ads. Those small-print pages right behind the comic strips were their bread and butter.

Craigslist, however, which was founded in 1995, took the wanted ads online and offered them for free. As of September 2007, Craigslist had established itself in approximately 450 cities in 50 countries. In turn, newspapers lost their primary source of revenue.

The rise of Craigslist has really contributed to a drop-off in Newspaper revenue. I know multiple people that use Craigslist almost exclusively and have pretty much cancelled their newspaper subscriptions.

I mean the Honolulu Advertiser is basically AP articles, a handful of local reports, and tons of ads. If not for the Commentary and Letters sections I would not have looked in a paper in years.

Friday, October 03, 2008

How Can Apple to Avoid Woes? A Netbook For the Whole World!

There seems to be lots of bad news for them on the horizon.

Whether we like it or not, globalization has changed the paradigm of the computing system. While in the US we are pushing for more powerful computing systems on a lightweight universal platform, in the emerging markets just the opposite is happening. Cheaper systems on heavier, simpler platforms are bought at a greater volume. On these computers speed is not an issue, and consumers are more than happy to spend less to buy a slower computer as long as it is simple to use. Many older consumers are used to the windows "desktop" and will find it difficult to learn the subtleties of using a MacOS computer.

They may be stuck in a value trap for a few quarters depending on what Americans do in the near future. I mean this article is right in that the emerging market (the market that is still growing) is adopting cheap Netbooks like what HP and Lenovo are peddling. The emerging market is not looking to buy higher priced machines that *might* provide a cooler experience but costs too much to be practical.

If Apple gets in on this category then they would have to compete on price and that will reduce their margin. Then you will see the be forced to transition from a growth company with value added products to a commodity computer concern like HP or Dell.

However I see an opportunity here. If they can put out a Netbook like they have been rumored to be doing but sell it using the idea of a "Mac for The Whole World" they just might succeed. They can enlist Bono and promote the idea that selling Apple Netbooks in the emerging market helps people close the digital divide.

So in other words have Apple do commercials where Bono hands out Apple Netbooks (call them Apple One-World Mac's) to people in Vietnam or Burkina Faso and promises them that they can get on the Net and join the world community. Make these things dirt cheap, economically friendly and take a loss at first in order to pour them into the emerging market by the boatload.

Apple will be trying to "close the digital divide" so they can justify selling them cheaply. These One-World PCs are basically there to cement a stripped down Apple OS X as the "emerging market OS." Tons of young Vietnamese kids will be hitting the web and on OS X instead of on Windows. They will have instant brand loyalty going forward. As their economy grows they just might own an IPod and an IPhone in a few years.

Plus these emerging consumers who are "closing the digital divide" can buy cheap apps via the One-World App store and a One-World ITunes. A few Vietnamese Dong buys you an MP3 of a local rock band or even some American music. Add this to the billions of people that don't buy anything on the web and you have a long tail revenue model out of nothing. In other words the One-World Mac would be a Trojan Horse into the "ILifestyle" for the part of the world that the Internet has missed.

Think of all the positive press that they would get for cementing their brand in the world. Hell, if Obama becomes President he might even bank-roll some of the One-World PCs rollout so that Apple's margin doesn't need to suffer. We might even see Apple become a bigger world name then Coke in a decade or so.

The Bailout Bill: How Your New $2324.50 Investment Will be Spent

Well it seems we are all long this Bailout to the tune of $2324.50 per person. Here is what I think about my new investment in Bailout Co. Inc.

--Provides the government with warrants to obtain an equity stake in companies. This helps ensure that taxpayers share in future gains of companies that are bailed out.

We might find that the American people will now own some Morgan and Goldman shares before too long. I think JP Morgan may also get rid of some of WaMu's bad debt in this thing as well. In fact I think all Americans may be long financials here before too long. In other words it might just be Unamerican to go short financials for the next couple of years.

--Limits excessive executive compensation for some companies. Any firm that sells more than $300 million in troubled assets to the government is also subject to more taxes.

I bet some companies may cut off their bad debt sales at $300 million in order to not have to pay higher taxes. Hopefully the government buys only the good stuff and not the trash.

--Establishes an oversight board and special inspector general to act as a watchdog.

There should be oversight as long as this guy doing the work isn't some unqualifed person like Senator Christopher Dodd. I think they need to hire an outsider or maybe some "Wall Street Fat-cat."

--Requires the Treasury secretary to regularly report to Congress the details of all financial transactions under the bailout.

This better be available to the American public as well. I want to read the 10Q on my new investment each quarter in order to see if I need to hedge it or not.

--Allows federal agencies to modify troubled mortgage loans.

I wonder how this will work? I guess it is fine as long as it isn't judges doing the work.

--Expands the amount of government insurance on individual bank deposits from $100,000 to $250,000.

This one is a no-brainer issue that really doesn't cost the government a penny as long as there aren't any more bank failures. It might make some Americans concentrate their money at one of the surviving 4 big banks.

--Gives the chairman of the Securities and Exchange Commission the authority to suspend mark-to-market accounting and requires the agency to complete a study on the effectiveness of this accounting method.

This seems like a pretty meaty proposal that will allow some banks to hide what bad debts that are still on their books until house prices come back up. I think this may be the lasting legacy of the bailout as firms can again bury their bad debt without rating agencies torpedoing their credit ratings. This means that all the big write-downs we have seen this past year may be over for the time being.

--Requires the president five years from now to devise a plan to recoup net losses, if there are any.

I think in 5 years this plan may be running a pretty decent profit since house prices will be rising by then. Also if the government is long financials they may be able to catch an economic recovery as well. I'm sure the Government will give it back the the American people in the form of a big tax free dividend check. *hint hint* Too bad that wasn't written into the bill because it would have been sweet.

--Gives companies the opportunity to insure their troubled assets rather than selling them, although this is up to the discretion of the Treasury secretary.

They actually threw the alternate plan that would fail on its own into the bill as well? I guess most companies will now sell $300 million in bad debt and then insure the rest if they want to avoid that troubled asset tax. In the meantime they will mark everything to maturity and heal their balance sheets over night. I will be following their 10Qs carefully since I (and all other Americans) now have a stake in seeing this thing succeed.

Bush Signs Bailout: Tax Breaks For All; Pork for Some

At last some cooler heads prevailed on Capitol Hill. Although this bill is now chock full of tax cuts so it seems like we got the bailout and alot of other stuff for free.

-Reduction in the amount of people hit by the AMT
-extension of the Research & Development Tax Credit
-8 year extension of the renewable energy Tax Credit
-$8 billion in tax breaks for disaster victims,
-$5 billion for higher education tuition deductions
-$400 million in deductions for teachers who buy school supplies with their own money.
-There are $3 billion in deductions for residents of states without income taxes that have state and local sales taxes.

Also they added some Pork Sandwich to the Bill as well:

_Extending an expired provision that gives Puerto Rico and the Virgin Islands a rebate against excise taxes charged on imported rum. The rebate, at $13.50 per proof gallon, helps finance local infrastructure projects. The cost is $192 million.

_Establishing a new tax credit ranging from $2,500 to $7,500 for purchasers of plug-in electric-drive vehicles. Cost: $758 million.

_Extending tax credits that expired at the end of 2007 for certain domestic corporations involved in American Samoa economic development. Cost: $33 million.

_Extending a credit of up to $10,000 for the training of mine rescue team members. The credit expires at the end of this year and the one-year extension costs $4 million.

_Enacting President Bush's proposal to erase the debt of the black lung disability trust fund at a cost of $1.3 billion.

_Extending for one year a seven-year depreciation timetable that NASCAR and other motorsport racing facilities have had for some years, the same tax break that amusement parks enjoy. Without the extension, the tracks would have to depreciate the cost of their improvements over 15 years, raising their taxes by $100 million.

_Extending for five years a program that reduces import duties on some wool fabrics. The tariff relief benefits U.S. worsted wool fabric producers that use imported fibers and yarns. Cost: $148 million.

_Increasing the single-year deduction in production costs, from $15 million to $20 million, that film and TV productions may take if the costs are incurred in economically depressed areas. In an effort to keep film and TV productions in the U.S., it also allows more companies to use a domestic production deduction. Cost: $478 million.

_Allowing commercial fishermen and others hurt by the 1989 Exxon Valdez oil spill in Alaska to average out damage awards over three years rather than taking a one-year hit from the IRS. Cost: $49 million.

_Extending two programs that fund rural schools and rural communities that have been relying on declining income from logging on federal land or have low property tax bases because they are located on or next to federal lands. This is a major issue in the West. Cost: $3.3 billion.

_Exempting wooden practice arrows used by children from an excise tax of 39 cents per arrow. Oregon's two senators and two Wisconsin representatives previously introduced legislation calling for the action, saying the tax was meant for more expensive archery arrows and is untenable for makers of toy arrows that may cost only about 30 cents apiece. The bill would affect about a half-dozen manufacturers nationwide, including one in Oregon; the Oregon senators said they didn't seek its addition to the bailout, however. Cost: $2 million.

_Allowing employers to exempt from taxation what they spend on some fringe benefits for workers who commute to work by bicycle, for example reimbursing the cost of parking the bikes. Cost: $2 million.

Thursday, October 02, 2008

First Google Android Phone Hits October 22

It seems like a pretty interesting looking device if you wanted a flip phone with a full keyboard. The plans seem pretty reasonable as well. T-mobile's $35 a month blasts AT&T's $50 for unlimited texts and data for the IPhone. I think Android will be looked at much closer a year from now to see what cool stuff people have cooked up for it. Then we will really see the IPhone vs. Android debates.

The T-Mobile G1 is $20 cheaper than the iPhone, at $180 for existing customers, and comes with two data plans: $25 a month (with unlimited Web access and limited text messaging) and $35 a month (with unlimited everything). It goes on sale October 22 at T-Mobile stores, but existing customers can begin pre-ordering on the Web already. Expect a huge marketing push. This will be the biggest marketing campaign in T-Mobile’s history. (Although they didn’t say it at the press conference, I suspect Google is footing the tab). The commercials are already out on YouTube.

Slow Economy = Less Illegal Immigrants

I guess all those jobs that Americans "don't want" will soon be filled by Americans again.

"The decline in job prospects in construction, service and other low-skilled jobs are communicated through extended networks of would-be movers from Mexico and Latin America," said William Frey, a demographer at the Brookings Institution, another Washington think tank. "It also may propel more return migration."

I think a lot of it has to do with home builders and home improvement people cutting back so they need less laborers. We may need to put a sign on the Mexican border saying "sorry no jobs."

Wednesday, October 01, 2008

A September to Remember: Hopefully Not an October to Forget

Minyanville was correct in saying it would be one wild September in the financial markets. Luckily there has been only one Black Monday like day with the 777 point Dow drop from the Hoover Republicans and their bailout-fail-out. This is crazy a recap of what happened in September.

The government seized mortgage financing giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). Lehman Brothers (LEH, Fortune 500) went belly-up. Merrill Lynch (MER, Fortune 500) gave up nearly a century of independence and sold out to Bank of America (BAC, Fortune 500). AIG (AIG, Fortune 500) collapsed. Washington Mutual (WM, Fortune 500) became the biggest bank ever to fail. Wachovia (WB, Fortune 500) dumped its banking assets in a fire sale to Citigroup (C, Fortune 500).

He also forgot to add that the last two investment banks Goldman Sachs and Morgan Stanley became actual banks after almost failing. Also credit markets froze for the first time in recorded memory. We may even get an actual Black day in October depending on what happens to the bailout.

Changing Accounting Rules Key to Solving the Credit Crisis?

At least it seems like a way to go according to this article.

"The SEC has destroyed about $500 billion of capital by their continued insistence that mortgage-backed securities be valued at market value when there is no market," said William Isaac, a former chairman of the FDIC.

"And because banks essentially lend $10 for every dollar of capital they have, they've essentially destroyed $5 trillion in lending capacity," he added.

Isaac believes that since the overwhelming majority of loans packaged together in even the weakest MBS pools are not in foreclosure, it is proper to value these securities based on the flow of cash from all the loans instead of a non-existent market value.

I was thinking about this as well. Why does a firm have to try to find a market value for a security that there is no market for? It is like forcing paper losses on the books just because you aren't able to sell the securities at the current time. You should be able to take the loss when you actually sell the item and not just because you have it on your books.

Also the nationwide foreclosure rate is just 2.8%. There are currently $12 trillion in outstanding mortgages in the US so that means $336 billion are in foreclosure. These companies have written down $500 billion already so they are approaching about double the amount of total foreclosures.

The only thing that would be interesting is to see how this effects how credit agencies grade their debt. Most of the bank failures came from a credit downgrade that forced a rush for capital or a merger. I think those credit agencies need an overhaul next.

Senate About to Pass Sweetened Bailout Bill

It seems that the Senate is still the place where the actual good of the country comes ahead of insane ideology or Nancy Pelosi hurting people's feelings. If the House goes 0-2 then we will see a 1000 point drop that has been predicted in the past.

House GOP opposition appeared to be easing after the Senate added $100 billion in tax breaks for businesses and the middle class, plus a provision to raise, from $100,000 to $250,000, the cap on federal deposit insurance. They were also cheering a decision Tuesday by the Securities and Exchange Commission to ease rules that force companies to devalue assets on their balance sheets to reflect the price they can get on the market.

The Next Victim of the Credit Mess: Auto Sales

It seems that the tight credit is already starting to move into auto sales.

Americans bought 964,873 vehicles in September, the lowest sales figure since February 1993, according to Autodata Corp. and the automotive Web site. Sales fell 27 percent compared with September 2007, with every major brand but General Motors Corp. reporting drops of at least 24 percent.

Just wait until the credit market is frozen for a month or more. You will see GM and Ford go into Chapter 11 or be forced to be bought out by Toyota or someone. I can see it happening in a couple of weeks if there is no deal passed. Maybe that will finally wake up Main Street and make them realize that there is a crisis.

VP Debate Moderator Writing an Obama Book?

The in-the-tank-for-Obama media is at it again.

Ifill's book, "The Breakthrough: Politics and Race in the Age of Obama," is due to be released about the same time the next president takes the oath of office.

In her book, Ifill contends that the black political structure of the civil rights movement has cleared the way for post-racial politicians to ascend to new heights.

So she has a little stake in an Obama win. The "Age of Obama" will not come to pass if McCain wins in November. I'm sure she can be professional but I am hoping that she doesn't ask these sorts of questions of each candidate:

"Gov. Palin in recent months the Prime Minister of Guinea Bissau has come out in favor of the West African Free Grain Initiative even though it will effect the grain quotas imposed in UN order 1120, and might jeopardize the indigenous Manjaco farmers in that country's Southern Coastal areas. What would be the knock-on effects of the WAFGI and what role will it have in the possible deterioration in West African relations? Please make sure to use the names of the various parties and characterize each of their views in regards to WAFGI. Also what is your view on WAFGI having replaced WACGI"

"Senator Biden you said in a recent People Magazine article that you enjoy eating Bell Peppers. Let the American People know about other foods you might also enjoy."