Bud's Poem Page
          Sunni/Shiite/Iraq/Iran
Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248       Kathy: 630-323-8422

29 January 2010

Thoughts

Model Portfolio Value As of 29 January 2010

$ 605,136

(Bloomberg) -- The economy in the U.S. expanded in the fourth quarter at the fastest pace in six years as factories cranked up assembly lines and companies increased investment in equipment and software. The 5.7 percent increase in gross domestic product, which exceeded the median forecast of economists surveyed by Bloomberg News, marked the best performance since the third quarter of 2003, figures from the Commerce Department showed today in Washington. Efforts to rebuild depleted inventories contributed 3.4 percentage points to GDP, the most in two decades.
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That news has stocks higher out of the gate. 3.5% of that number was inventory rebuilding for goods that weren’t produced in the last year as companies cut back on purchasing and used existing inventories. That means that other areas will have to take over in the present quarter to sustain that growth. Moreover, most folk haven’t felt the effect of that number since unemployment remains high and salary raises are nonexistent except on Wall Street. Moreover state and local governments continue to cut costs and jobs and there doesn’t seem to be an end in sight to that bad news since the Feds don’t’ seem willing to help the locals with their funding problems.
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Asian markets were lower while European bourses are higher at midday. Oil is up on the GDP news with a $74 handle and Gold is flat. The dollar versus the euro broke $1.40 to the good for the first time in months at $1.39.
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Amazon and Microsoft reported good earnings and sales numbers and coupled with GDP have set a positive tone. That this morning’s move higher is coming after yesterdays’ hold at significant support at 1080/85 adds import to today’s action. For the last week good news has been sold. After the initial surge this morning we will see if the bulls have any energy.
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Writing a letter would have been a lot cheaper in dollars and lives.

Blair Defends Iraq War: Tells Inquiry That Sending A Message Was 'Primary Consideration'
http://www.guardian.co.uk/politics/blog/2010/jan/29/iraq-war-inquiry-tonyblair


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Microsoft and Goldman are both lower in this morning’s rally and JP Morgan and Apple look like they will turn red soon. At 9AM the DJIA is up 60 points.
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Markets look tenuous and we bought Ford for a trade on earnings that hasn’t worked. And so we sold for a scratch gain.
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An Unsustainable Surge

            Diane Swonk, Chief Economist Mesirow Financial

Real GDP surged at a 5.7% rate in the fourth quarter, up significantly from the mediocre 2.2% pace of growth in the third quarter.

The more important issue is whether those gains can be maintained, which is more than doubtful. The majority of the fourth quarter surge--3.4%--could be attributed to a slowdown in inventory liquidation, which will dissipate now that dealers have restocked in the wake of the Cash for Clunkers program. Exports, consumer spending and residential investment also contributed to growth, albeit to a lesser extent than we saw in the second quarter.

Moreover, the economy lost momentum over the course of the fourth quarter and the stage is set for significantly weaker growth in the first quarter. Preliminary data suggests we could see growth slow to 2.8% pace in the first quarter.

Not Enough! On net, growth remains subdued, despite the year-end surge, and has yet to produce a turnaround in the jobs picture. Be glad that Ben got his tenure as Fed Chair extended, because we are going to need all the help we can get as we struggle to get ourselves out of the hole we dug as we move into 2010 and beyond.
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Negative takes on Apple iPad: http://www.dailymail.co.uk/sciencetech/article-1246801/Apple-iPad-met-derision-laughter-web-users.html

http://trueslant.com/caitlinkelly/2010/01/29/the-ipads-and-kindles-one-inherent-flaw/


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Privatized manned space flight: Because, hey, Blackwater has worked out pretty well. http://holdfastblog.com/
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Ending NASA’s control of manned American space flight and moving these responsibilities to private contractors sounds like as bad idea as is possible in the early twenty-first century. NASA has been successfully putting Americans into space for research and exploration for over half a century. Why would companies who are just beginning to experiment with manned orbital flight do a better job than the scientists, researchers, and engineers who’ve put men on the moon?

Speaking at a news conference in Israel on Wednesday, Gen. Charles F. Bolden Jr., the NASA administrator, gave hints of the new direction. “What NASA will focus on is facilitating the success of — I like to use the term ‘entrepreneurial interests,’ ” General Bolden said.

Turning NASA into a pass-through organization responsible for cutting checks to Boeing & LockheedMartin is an embarrassing idea, better suited for George W. Bush and Dick Cheney than the Obama administration. This is the worst kind of American corporatism.
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Krugman predicted it, earlier this month. And he provided a warning:

Here’s what’s coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.

But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths....

So the odds are that any good economic news you hear in the near future will be a blip, not an indication that we’re on our way to sustained recovery. But will policy makers misinterpret the news and repeat the mistakes of 1937? Actually, they already are.
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Krugman yesterday: http://www.nytimes.com/2010/01/29/opinion/29krugman.html
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Poll: Americans pretty clueless about politics, world (Maybe they don’t think it matters)

http://rawstory.com/2010/01/poll-americans-pretty-clueless-politics-world/
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European shares ended January on a positive note with most bourses up over 1%. That was before U.S. markets tanked into the close.
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Bad Luck:

Police think remains buried under concrete are lottery winner http://www.cnn.com/2010/CRIME/01/28/florida.missing.lotto.winner/index.html?hpt=T1
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Scott Rothstein Pleads Guilty to $1.2 Billion Ponzi scheme; and no one in the national media seems to care. We guess a billion dollars isn’t’ what it used to be.

http://wallstcheatsheet.com/breaking-news/economy/scott-rothstein-pleads-guilty-to-1-2-billion-ponzi-scheme/?p=6112/
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AT&T said revenue from U-verse TV, Internet and voice services nearly tripled over 2009 and is approaching an annual run rate of $3 billion, as the telco continues to pack on video and broadband subscribers......U-verse has grown to the point where "it's beginning to meaningfully change our consumer revenue profile," AT&T chief financial officer Rick Lindner said on the company's earnings call Thursday. AT&T also had 167,000 net adds for wireline consumer broadband in the fourth quarter, with gains on the more advanced U-verse DSL service offsetting a loss of 100,000 traditional DSL connections in the period. Total wireline broadband connections as of Dec. 31 were 13.7 million, up 5.8% year over year. AT&T also announced that it now serves 1 million U-verse Voice digital home phone lines, two years after introducing the VoIP service. More than 67% of new U-verse TV customers bundle the VoIP service, the telco said.
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We added shares of Deutsch Telecom to accounts that own it. The yield is 7.9%.
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$72.80 down 80 pennies $1078 down $5
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After being 100 points higher early in the trading day the major measure closed lower with the S&P 500 ending at 1073 below the support level of 1080/85. Breadth was negative and volume was active. The major measures closed the month lower.
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28 January 2010

Thoughts

Model Portfolio Value As of 28 January 2010

$ 605,686



President Obama gave his State of the Union speech last night.
*****

 

 

Asian markets were mildly higher overnight after six days of losses and European bourses have also reversed days of losses and are higher at midday. Gold is up $3 and Oil has a $74 handle. U.S. stocks look to open higher as 3M raised estimates and Ford turned in a profit for the year and said it will be profitable in 2010 also.
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(WSJ) Ford reported its first annual profit since 2005, helping the auto maker further distance itself from its troubled U.S. rivals while stoking consumer buzz about the company and its vehicles.

Net income for the fourth-quarter was $868 million, or 25 cents a share, compared with a loss of $5.98 billion, or $2.51 a share. The auto maker's fourth-quarter revenue was $35.4 billion. Ford's full-year 2009 profit was $2.7 billion, compared with a loss of $14.7 billion the previous year.

 

 
(WSJ) Procter & Gamble reported notable sales growth as consumers responded to better prices and new products. Colgate, meanwhile, said earnings rose 27%, aided by higher prices, stronger margins and increased sales volume.
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  (WSJ) The number of U.S. workers filing new claims for jobless benefits fell slightly last week to 470,000.
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(WSJ) Durable-goods orders posted a tepid rise in December, suggesting manufacturing's recovery will be slow.

(WSJ) Toyota recalled 1.1 million more vehicles over concerns that floor mats could get stuck under the accelerator pedal, potentially causing sudden acceleration, as the company struggles to get a handle on mounting safety concerns. The new models add to the 4.3 million vehicles Toyota recalled in October last year, in what already was the company's biggest-ever recall, and comes as Toyota has halted sales on eight models over a defect in the accelerator pedal.
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(WSJ) Nokia Corp. maintained its key financial targets for 2010 and posted a stronger-than-expected 65% rise in fourth-quarter net profit on rising handset sales and margins, marking a strong come-back in the battle with iPhone-maker Apple Inc. "We grew our market share in smart phones in the fourth quarter, driven by the successful launch of new touch and QWERTY models," said Chief Executive Olli-Pekka Kallasvuo. The Espoo, Finland-based company reported net profit of €948 million ($1.33 billion) for the three months to Dec. 31, up from €576 million a year earlier and beating analysts' expectations for €620 million. The hype surrounding the unveiling of Apple's iPad Internet tablet Wednesday couldn't take the shine off Nokia's market-busting performance, and by midday its shares had jumped 14%, against a 2.8% rise in the wider market in Helsinki.
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Fed Flash: Glacial Improvement

Diane Swonk, Chief Economist, Mesirow Financial

            Thursday, January 28, 2010 - 7:40 am Central Time


Initial unemployment claims fell slightly to 470,000 - much less than expected and a disappointment for those holding their breath for a positive employment number in January. Indeed, we are not likely to see hiring outpace firing by a substantial margin until hiring for the 2010 census ramps up in March (e.g., healing in the labor markets continues at a glacial pace and any improvement that we do see is still heavily dependent on government support).

Separately, durable goods orders (factory orders) edged up at a less-than-expected 0.3%. Orders excluding defense and aircraft were significantly better, which will be a help for GDP in the first quarter.

Real GDP, which will be reported tomorrow, likely exceeded the 5% threshold in the fourth quarter. The economy, however, appears to have lost some momentum at the end of the year, and is slowing as we move into 2010. The recovery remains sub-par at best.

Bottom Line: Hopes for more bi-partisan politics may still be more of a pipe dream than a reality, at least until the mid-term 2010 elections have passed. Bad economies fuel even more rotten politicking, as both parties race to the depths of scapegoating and blame.
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We are going into the telephone business today. Verizon is down over 10% in the last week and is only 10% above its March low. With a 6.4% yield we bought in accounts to hold or trade. Deutsch Telecom (owns T Mobile) is down over 155 in the same time period and we bought the same number of shares in accounts. It yields 7.8%. AT&T announced excellent earnings today and is yielding 6.6% and we added to accounts. These three issues will hold relatively well if the markets fall since they are safe havens with super dividend yields. Major market measures are off 7% from their highs a few weeks ago and that has been the extent of any correction since the March 2009 lows. We think there is more to go but by buying these issues coupled with Ford we have funds invested with relatively small short term risk and, in the case of the three telephone stocks, excellent yields. We don’t think a March 2009 crash is in the cards but a further 15% to 20% correction and more in select issues (not these) wouldn’t surprise us.
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It’s a slow day in a little East Texas town. The sun is beating down, and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.....

On this particular day a rich tourist from back east is driving through town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.

As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmer’s Co-Op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her “services” on credit.

The hooker rushes to the hotel and pays off her room bill with the hotel owner.

The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.

At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything. No one earned anything.

However, the whole town is now out of debt and now looks to the future with a lot more optimism.

And that is how banks in the U.S. are conducting business today.
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  European markets erased early gains amid further worries about Greece's budget deficit, while weaker-than-expected U.S. durable goods orders added to concerns over the strength of the global recovery. Also the U.S. markets were down 1% at the time European markets were closing.
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Oil ended unchanged at $73.75. Gold was up $3 at $1089.
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(NYT) Bloomberg Balks at 9/11 Trial, Dealing Blow to White House

The Obama administration on Wednesday lost its most prominent backer of the plan to try the self-described mastermind of the Sept. 11 attacks in Lower Manhattan when Mayor Michael R. Bloomberg said the trial should not be held in New York City. The mayor’s reversal was a political blow to the White House’s efforts to resolve a landmark terror case a few blocks from where Al Qaeda hijackers rammed planes into the World Trade Center, a trial that the president saw as an important demonstration of American justice. Mr. Bloomberg said that a more secure location, like a military base, would be less disruptive and less costly. His remarks echoed growing opposition from Wall Street executives, the real estate industry and neighborhood groups, who have questioned the burdens that such a trial would bring to a heavily trafficked area of the city.
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Our brave guard dogs Pooper and Luna stand ready to host the Trial. They have assured us that they can control the perimeter to keep unwanteds out.


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A close below SPX 1080/85 sets up another 5% leg down towards 1035 area.
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Goldman Studies 24 Housing Busts: Recoveries Always Weak, But Stocks Go Up Regardless

http://www.businessinsider.com/goldman-recoveries-always-suck-after-housing-busts-but-stocks-go-up-regardless-2010-1
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Stocks closed lower but above their worst levels of the day. The S&P 500 closed at support of 1085 holding the important level for today. Breath was 3/1 negative and volume was active.

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Matt Taibbi nails GS and David Brooks of the NYT http://trueslant.com/matttaibbi/

Populism: Just Like Racism!

Richard Brooks, NYT via Op-Ed Columnist – The Populist Addiction – NYTimes.com

It’s easy to see why politicians would be drawn to the populist pose. First, it makes everything so simple. The economic crisis was caused by a complex web of factors, including global imbalances caused by the rise of China. But with the populist narrative, you can just blame Goldman Sachs.

Normally one would have to be in the grip of a narcissistic psychosis to think that a columnist for the New York Times has written an article for your personal benefit. But after his latest article in the Times, in which he compares the “populism” of people who “blame Goldman Sachs” with exactly the sort of racist elitism I ripped him for last week, I think David Brooks might be trying to talk to me.

I think that’s at least part of what’s going on in his latest column, which is odd. If I were in his position, I probably would have punched me in the nose for the shot I took at him last week, but the response of David Brooks to being called out as a racist weenie is to write a passionate defense of the rich, one that includes the admonition that while blaming the wealthy is easy and feels fun, truly wise men should “tolerate the excesses of traders.”

I don’t want to get into the position of fixating on one guy for personal reasons. Obviously I’ve done too much of that with Brooks already, and I absolutely promise to give that part of it a rest for a good long while after this.

But leaving aside any discussion of Brooks the human being, this latest column of his is something that has to be discussed. The propagandistic argument he makes about the dangers of “populism”  is spelled out here as clearly as you’ll ever see it expressed in print, and this exact thing is a key reason why so much of the corruption that went on on Wall Street in the past few decades was allowed to spread unchecked.

That’s because this argument is tacitly accepted by almost everyone in our business, and most particularly is internalized in the thinking of most newspaper editors and TV news producers, who over time develop an ingrained habitual fear of publishing material that seems hysterical or angry.

This certainly has an effect on the content of news reporting, but perhaps even more importantly, it impacts the tone of news coverage, where outrages are covered without outrage, and stories that are not particularly “balanced” in reality — stories that for instance are quite plainly about one group of people screwing another group of people — become transformed into cool, “objective” news stories in which both the plainly bogus version of events and the real and infuriating version are given equal weight.

Brooks lays out the crux of his case his case in his first three grafs of his article:

Politics, some believe, is the organization of hatreds. The people who try to divide society on the basis of ethnicity we call racists. The people who try to divide it on the basis of religion we call sectarians. The people who try to divide it on the basis of social class we call either populists or elitists.

These two attitudes — populism and elitism — seem different, but they’re really mirror images of one another. They both assume a country fundamentally divided. They both describe politics as a class struggle between the enlightened and the corrupt, the pure and the betrayers.

Both attitudes will always be with us, but these days populism is in vogue. The Republicans have their populists. Sarah Palin has been known to divide the country between the real Americans and the cultural elites. And the Democrats have their populists. Since the defeat in Massachusetts, many Democrats have apparently decided that their party has to mimic the rhetoric of John Edwards’s presidential campaign. They’ve taken to dividing the country into two supposedly separate groups — real Americans who live on Main Street and the insidious interests of Wall Street.

Now, there’s bullshit all up and down this lede. The first lie he tells involves describing everyone who is a critic of Wall Street as a populist. It’s sort of a syllogism he’s getting into here:

All people who criticize Wall Street are populists.

All populists think of themselves as enlightened and pure, and are primarily interested in dividing society, the same way racists do.

Therefore, all people who criticize Wall Street are primarily interested in dividing society, just like racists.

This is obnoxious on so many levels it’s almost difficult to know where to start. As for the populism label, let me quote the Alison Porchnik character from Annie Hall (Woody’s first wife, in the movie): “I love being reduced to a cultural stereotype.”

Brooks here is trying to say that by criticizing, say, Goldman Sachs for mass thievery — criticizing a bank for selling billions of dollars worth of worthless subprime mortgage-backed securities mismarked as investment grade deals, for getting the taxpayer to pay them 100 cents on the dollar for their billions in crap investments with AIG, for forcing hundreds of millions of people to pay inflated gas and food prices when they manipulated the commodities market and helped  push oil to a preposterous $149 a barrel, and for paying massive bonuses after receiving billions upon billions in public support even beyond the TARP — that in criticizing the bank for doing these things, people like me are primarily interested in being divisive and “organizing hatreds.”

He is also saying that by making these criticisms, people like me are by implication making statements about our own moral purity and enlightenment relative to others.

Brooks goes on:

It’s easy to see why politicians would be drawn to the populist pose. First, it makes everything so simple. The economic crisis was caused by a complex web of factors, including global imbalances caused by the rise of China. But with the populist narrative, you can just blame Goldman Sachs.

Second, it absolves voters of responsibility for their problems. Over the past few years, many investment bankers behaved like idiots, but so did average Americans, racking up unprecedented levels of personal debt. With the populist narrative, you can accuse the former and absolve the latter.

Stuff like this makes me want to scream. If I’m writing about a bank that took a half-billion worth of mortgages where the average amount of equity in the home was less than 1%, and where 58% of the mortgages had no documentation, and then sold those mortgage-backed securities as investment-grade opportunities to pensions and other suckers — and then bet against the same kind of stuff they were enthusiastically selling to other people — is Brooks seriously suggesting that I also have to point out that the Chinese economy was doing well at the time?

Yeah, okay, the rise of China is a factor in the overall decline of the American economy, but it has nothing to do with the Goldman story, which is a specific crime story about a specific bank. If I’m writing about a gang of car thieves, what, we’re supposed to also mention that the endive crop was weak in that part of the country that year? What the fuck? And this whole business about how criticizing Goldman absolves voters — Jesus, how primitive can you get? Using that logic, criticizing anyone for anything is invalid:

ME: Well, Ike Turner was sort of a dick because he used to get high and punch his wife in the face all the time…

BROOKS: But it’s so easy to say that.

ME: It’s easy to say that a guy who punches his wife in the face is a jerk? (Scratching head) Well… I guess you’re right about that. Would you like me to say it while juggling three chainsaws? Would it be harder to say then, and would you have less of a problem with it?

BROOKS: But by criticizing Ike Turner, you’re absolving all the people who do other bad things. Like purse-snatchers in Central Park, and those kids who keyed my Lexus, and all those baseball players who took steroids! Rafael Palmeiro lied to congress! What about them?

ME: Dude, are you okay? Your pupils look dilated.

BROOKS: You’re absolving Mark McGwire! The single-season home run record is a fraud!

ME: (backing away slowly toward the door) Okay, yeah, sure. Listen, I’ll catch up with you later, okay? I’ve got to return some videotapes.

And so on. The entire argument is literally this nonsensical. If Brooks disagrees with criticism of banks like Goldman, he has a fantastic platform to point out where those criticisms are incorrect. The best platform there is, in fact. But not only does he not go in that direction, he does just the opposite — he concedes that these criticisms are basically true, and chooses instead to argue against the wisdom of making those criticisms, apparently because “bashing the rich” will make them less inclined to “channel opportunity to new groups.”

The emphasis in this next excerpt is mine:

So it’s easy to see the seductiveness of populism. Nonetheless, it nearly always fails. The history of populism, going back to William Jennings Bryan, is generally a history of defeat.

That’s because voters aren’t as stupid as the populists imagine. Voters are capable of holding two ideas in their heads at one time: First, that the rich and the powerful do rig the game in their own favor; and second, that simply bashing the rich and the powerful will still not solve the country’s problems.

Political populists never get that second point. They can’t seem to grasp that a politics based on punishing the elites won’t produce a better-educated work force, more investment, more innovation or any of the other things required for progress and growth.

In fact, this country was built by anti-populists. It was built by people like Alexander Hamilton and Abraham Lincoln who rejected the idea that the national economy is fundamentally divided along class lines. They rejected the zero-sum mentality that is at the heart of populism, the belief that economics is a struggle over finite spoils. Instead, they believed in a united national economy — one interlocking system of labor, trade and investment.

Hamilton championed capital markets and Lincoln championed banks, not because they loved traders and bankers. They did it because they knew a vibrant capitalist economy would maximize opportunity for poor boys like themselves. They were willing to tolerate the excesses of traders because they understood that no institution is more likely to channel opportunity to new groups and new people than vigorous financial markets.

What’s so ironic about this is that Brooks, in arguing against class warfare, and trying to present himself as someone who is above making class distinctions, is making an argument based entirely on the notion that there is an lower class and an upper class and that the one should go easy on the other because the best hope for collective prosperity is the rich creating wealth for all. This is the same Randian bullshit that we’ve been hearing from people like Brooks for ages and its entire premise is really revolting and insulting — this idea that the way society works is that the productive ” rich” feed the needy “poor,” and that any attempt by the latter to punish the former for “excesses” might inspire Atlas to Shrug his way out of town and leave the helpless poor on their own to starve.

That’s basically Brooks’s entire argument here. Yes, the rich and powerful do rig the game in their own favor, and yes, they are guilty of “excesses” — but fucking deal with it, if you want to eat.

And the really funny thing about Brooks’s takes on populists… I mean, I’m a member of the same Yuppie upper class that Brooks belongs to. I can’t speak for the other “populists” that Brooks might be referring to, but in my case for sure, my attitude toward the likes of Lloyd Blankfein and Hank Paulson has nothing to do with class anger.

I don’t hate these guys because they’re rich and went to fancy private schools. Hell, I’m rich and went to a fancy private school. I look at these people as my cultural peers and what angers me about them is that, with many coming from backgrounds similar to mine, these guys chose to go into a life of crime and did so in a way that is going to fuck things up for everyone, rich and poor, for a generation.

Their decision to rig the markets for their own benefit is going to cause other countries to completely lose confidence in the American economy, it will impact the dollar, and ultimately will make all of us involuntary debtors to whichever state we end up having to borrow from to bail these crimes out.

And from my perspective, what makes these guys more compelling as a journalistic subject than, say, the individual homeowner who took on too much debt is a thing that has nothing to do with class, not directly, anyway. It’s that their “excesses” exist in a nexus of political and economic connections that makes them very difficult to police.

We have at least some way of dealing with the average guy who doesn’t pay his debts — in fact our government has shown remarkable efficiency in passing laws like the bankruptcy bill that attack that particular problem, and of course certain banks always have the option of not lending that money (and I won’t even get into the many different ways that the banks themselves bear responsibility for all the easy credit that was handed out in recent years).

But the kinds of things that went on at Goldman and other investment banks, in many cases there are not even laws on the books to deal with these things. In some cases what we’re talking about is the highly complicated merger of crime and policy, of stealing and government, which is both fascinating from a journalistic point of view and ought to be terrifying from the point of view of any citizen, rich or poor.

And even if I were to accept the Brooksian view of an upper class that must be looked to to fix things and take care of the lower classes and create the needed wealth to help us escape our economic crisis, the whole point is that this upper class he is talking about has abdicated that very responsibility — and, perhaps having reached the cynical conclusion that our society is not worth saving, has taken on a new mission that involves not creating wealth for all but simply absconding with whatever wealth is remaining.

It’s not pessimism or “combative divisiveness” to talk about these problems and insist that they get fixed. On the contrary, it’s a very positive view of what citizenship is to believe that everyone has a real role in fixing his country’s problems, and that when we identify problems, we should try to do something about them because we might actually succeed.

On the other hand, telling oneself that when powerful people “rig the game” one should just tolerate it, because one’s best hope for seeing the situation fixed rests in hoping those same powerful people fix it themselves — I would describe that as pessimism, or something worse than pessimism. The whole point of America is that we are all supposed to be our own masters, never viewing anyone as being by birth or situation inherently better or more capable than ourselves, and so the notion of relying upon some nebulous class of investment bankers to “channel opportunity” from on high strikes me as being un-American.

And besides, the fact that a lot of these guys have made a lot of money recently doesn’t make them “upper class.” They’re the same assholes we all were in high school and college, except that they made some very particular moral choices in adulthood, and became criminals, and have now arranged things so that they’re going to be tough as hell to catch. And when they fall, which a lot of them will… I mean a lot of these guys are ten seconds from losing it all and spending the next ten years working the laundry room at Danbury or pushing shopping carts under the FDR expressway. And they know it. These people aren’t the nobility. They’re people just like us, only stupider and less ashamed of themselves.

That’s not a class story. It’s a crime story, and it doesn’t have a damn thing to do with China.
*****

Chris Mathews a/k/a Tweety on Obama’s speech last night: "It's interesting. He's post-racial by all appearances. You know, I forgot he was Black tonight for an hour."

Maybe he was also thinking of Bobbie Jindal. From: http://www.thepajamapundit.com/2010/01/changing-bobby-jindal.html


Notice anything strange about the official headshot of Louisiana Governor Bobby Jindal? Yeah. Weird.

Now, this could be the work of an overzealous staffer, or something even more innocuous. But, if this 'white-washing' is and intentional act, I must admit that I am perplexed at the reasoning.

One of the loudest criticisms of the Republican party is that it is unfriendly to traditionally underrepresented groups (minorities). If the GOP wants to appear more accessible to people of color -- you know, that whole 'big tent' thingie -- why would anyone want to change Governor Jindal's appearance so that he looks less... err... brown?
*****

 

27 January 2010

Thoughts

Model Portfolio Value As of 27 January 2010

$ 606,089


“Someone needs to tell Obama
that he’s allowed to break
McCain’s campaign promises.”



Matt Hamlin at http://holdfastblog.com/
*****

Asia was lower and Europe is lower at midday. That is six days in a row overseas markets are lower and so a rally of some sorts would be expected. U.S. futures are flat ahead of a big day. The Fed issues its statement at 1:15pm and that will be the focus of traders.
*****

Timmy the Treasurer testifies:

We will be able to stay awake till then because Timmy the Treasurer is up on Capitol Hill testifying about the AIG mess. AIG is spilled milk but it makes good theatre for the Congress people who seem to have nothing else to do.



*****

Apple of your eye

And today Apple unveils its tablet which is going to revolutionize the western and maybe the eastern world too.

(WSJ) Book publishers were locked in 11th-hour negotiations with  Apple Inc. that could rewrite the industry's revenue model after the technology giant unveils its highly anticipated tablet device Wednesday. Apple's new multimedia tablet device, with a 10-inch touch screen that is expected to deliver video, text, navigation and social-networking applications, is trying to change the way much of traditional media is delivered. For the book industry, the Apple tablet is bringing to a head a brewing battle between Apple and industry heavyweight Amazon.com Inc. over how e-books--seen as the future of the book industry--will be priced and distributed.
*****

(NYDN) In a massive and unprecedented move, Toyota halted U.S. sales of eight models, including the best-selling Camry, with potentially faulty gas pedals. "This action is necessary until a remedy is finalized," Bob Carter, Toyota's group vice president and general manager, told the Associated Press. The models affected by the "stop sale" were among the 2.3 million recalled last week due to faulty accelerators that could get stuck, causing rapid acceleration. This is the second big recall for Toyota in the U.S. in the past four months.

Read more: http://www.nydailynews.com/money
*****

The good and the bad:

 (WSJ) Caterpillar's fourth-quarter earnings fell by nearly two-thirds, but the heavy-machinery maker said it is seeing demand pick up. Nonetheless, Caterpillar still forecast 2010 earnings below current Wall Street estimates. Boeing swung to a profit on effects from a machinists' strike last year, but the aircraft maker and defense contractor's 2010 guidance fell short of analysts' estimates. Yahoo reported a fourth-quarter profit, citing a rebound in demand for premium display advertising although overall revenue figures were lower than last year.
*****

No surprise: More than half the Senate has declared support for giving Fed Chairman Ben Bernanke a second term as members prepared for a vote by the end of the week.
*****

Verizon is going to cut another 13,000 jobs.
*****

Berkshire Added to S&P 500: Warren Buffett's investment vehicle will become one of the biggest additions to the benchmark index in years, replacing its latest acquisition, Burlington Northern.
*****

The Hearings go on: Imagined answers we concocted:

Timmy Geithner: former NY Fed President, Tax Evader, and now Treasury Secretary:” What? Not me.” Other folks were responsible.”

Hank Paulson Former Treasury secretary and Goldman CEO: “What? Not me. That was the Feds call.”

Stephen Friedman, Former NY Fed Chairman and Goldman Sachs CEO: “Not me, I was too busy buying Goldman Sachs stock to pay attention to the AIG mess.”
*****

Hooray: Congressional experts pegged the 2010 budget deficit at $1.35 trillion, a slight improvement from the $1.38 trillion estimate in August.
*****

Demand for new homes unexpectedly fell in December, with sales dropping 7.6% from the previous month to a seasonally adjusted annual rate of 342,000, the Commerce Department said. Prices and inventories fell. Economists surveyed by Dow Jones Newswires had estimated sales would climb 2.8%. Aside from unemployment, new-home sales are suffering because of strong demand for used homes and the looming expiration of a big tax credit.
*****

Oregon voters bucked decades of media and elected officials claims of anti-tax sentiment Tuesday, raising taxes on corporations and the wealthy to prevent further erosion of public schools and other state services. The tax measures passed easily, with late returns showing a 54 percent to 46 percent ratio. Measure 66 raises taxes on households with taxable income above $250,000, and Measure 67 sets higher minimum taxes on corporations and increases the tax rate on upper-level profits. The results triggered waves of relief from educators and legislative leaders, who were facing an estimated $727 million shortfall in the current two-year budget if the measures failed.
*****

Ford earnings come tomorrow (they will beat) and with the negative Toyota news we bought shares in most accounts for a trade.
*****

The Fed speaks

1:15PM http://www.federalreserve.gov/newsevents/press/monetary/20100127a.htm
*****

Kitsch and capitalism: The rise and fall of Hummel figurines: http://www.walletpop.com/blog/bloggers/zac-bissonnette/
*****

European stock markets ended lower amid rising concerns about the fiscal problems bedeviling Greece and Portugal. The euro slumped against the dollar. Oil ended with a $73 handle and Gold dropped $12 to $1088.
*****

AT&T is offering an unlimited data plan with the new iPad for $30. AT&T has been saying that iPhone users have been using excessive bandwidth and now AT&T is adding more bandwidth users to its system.
*****

He who borrows what isn’t his’n must pay it back or go to prison.

Margin debt rose in December, according to the New York Stock Exchange, as investors continue to move back into the equities market. Margin debt in the second half of 2009 was significantly higher than that in the first half, when the equities market was at its lowest levels in years. At the end of December, margin debt was at $230.88 billion, up 30% from January and 4.5% from November, according to Big Board data for customers of NYSE-member securities firms. The figure fell as low as $173.3 billion at the end of February, the lowest level since the end of 2003.
*****

Treasury Secretary Tim Geithner's answer on the question of why AIG counterparties (most prominently Goldman Sachs) is laughably absurd:

            http://www.talkleft.com/story/2010/1/27/134410/754

Representative Dennis J. Kucinich, Democrat of Ohio, excoriated the New York Fed’s decision to pay 100 cents on the dollar to A.I.G.’s counterparties, including $2.5 billion to Goldman Sachs. “Isn’t it true that the New York Fed gave Goldman Sachs a better deal than it could have ever expected from A.I.G. or any other market player?” Mr. Kucinich asked.

Mr. Geithner replied: “Under the laws of the land, we did not have the ability. So we faced a very simple choice: Let A.I.G. default, or prevent it. And there was no way — financial, legal or otherwise — we could have imposed haircuts, selectively default on any of those institutions, without the risk of downgrade and default.” Mr. Geithner added that the negotiating position of A.I.G. was weak. With the ability to threaten default or allow A.I.G. to restructure in bankruptcy, negotiators were not in a position to make banks to take less on their contracts.

This is ridiculous.

Geithner could have provided any number of answers to this question (in the national interest, etc.), but a lack of bargaining power on the part of the federal government in that situation is not one of them.

Geithner disingenuously couches the question as one of whether the federal government had the legal power to require haircuts from the AIG counterparties. That was not the issue. The issue was the federal government going to come in and back AIG. Geithner argues that the counterparties could threaten the federal government in this situation because they could force AIG into default and bankruptcy. Excuse me? That was as much a threat to the AIG counterparties as the federal government (accepting the theory that an AIG failure would lead to a depression.)

Think of it this way - how much of a haircut would the AIG counterparties have had to take if AIG went into bankruptcy? That was the bargaining power held by the federal government.

Geithner's answers are a disgrace.....
*****

The major market measures closed higher on Wednesday. Breadth was positive, led by the banks, and volume was active.
*****

 

26 January 2010

Thoughts

Model Portfolio Value As of 26 January 2010

$ 605,827

Apple beat big-time last night, at least we think it was big-time since Apple changed the way it accounts for sales and so the numbers will have to be reviewed and massaged and extrapolated by the analysts on Wall Street. Since we have no horse in the race we are more interested in how the general markets react. So far the market will be opening lower.

Asian markets were 2% lower overnight and European bourses are also negative at midday. Oil has a $74 handle and Gold ahs surrendered its gains of yesterday. The dollar is at $1.40 to the euro.
*****

Verizon swung to a fourth-quarter loss because of charges related to job cuts, even as its wireless business continued to show resilience in the face of tough consumer spending.

Standard & Poor's revised its long-term rating on Japan to negative from stable, saying the nation's diminishing fiscal flexibility may lead to a downgrade.

U.S. home prices fell in November, according to the S&P Case-Shiller home-price indexes, as yearly declines continued to abate. The indexes showed prices in 10 major metropolitan areas fell 4.5% in November from a year earlier, while the index for 20 major metropolitan areas dropped 5.3% on the year. Both indexes declined 0.2% compared with October. Adjusted for season factors, the 10-city index was flat on the month, while the 20-city composite fell 0.1%.
*****

Krugman:

 

Obama Liquidates Himself

A spending freeze? That’s the brilliant response of the Obama team to their first serious political setback?

It’s appalling on every level.

It’s bad economics, depressing demand when the economy is still suffering from mass unemployment. Jonathan Zasloff writes that Obama seems to have decided to fire Tim Geithner and replace him with “the rotting corpse of Andrew Mellon” (Mellon was Herbert Hoover’s Treasury Secretary, who according to Hoover told him to “liquidate the workers, liquidate the farmers, purge the rottenness”.)

It’s bad long-run fiscal policy, shifting attention away from the essential need to reform health care and focusing on small change instead.

And it’s a betrayal of everything Obama’s supporters thought they were working for. Just like that, Obama has embraced and validated the Republican world-view — and more specifically, he has embraced the policy ideas of the man he defeated in 2008. A correspondent writes, “I feel like an idiot for supporting this guy.”

Now, I still cling to a fantasy: maybe, just possibly, Obama is going to tie his spending freeze to something that would actually help the economy, like an employment tax credit. (No, trivial tax breaks don’t count). There has, however, been no hint of anything like that in the reports so far. Right now, this looks like pure disaster.
*****

Obama's Spending Freeze: A Return to Infantilism

Another take on the spending freeze http://www.huffingtonpost.com
*****

US Steel swung to a deeper-than-expected fourth-quarter loss as sales slumped 25%. Chairman and Chief Executive John Surma added that the company expects to report an operating loss in the current quarter "in line" with the fourth quarter "as gradually improving business conditions are not yet fully reflected in our operating results." He added, though, that order rates are at their highest levels in a year for its automotive, service-center, converter and appliance customers. The shares are down 10% today.
*****

New GM CEO's Chicago Links

By JIM MCTAGUE     http://www.dcjunkies.com/

Politics-as-usual in choosing GM's new chairman?

DON'T BE HARD ON GM'S NEW CHAIRMAN EDWARD WHITACRE for confessing during an interview last week that he knows nothing about cars. He simply suffered a Joe Biden moment. Texans often tumble over their tongues when taking a stab at humility. In fact, few car companies, let alone their CEOs, know how to build cars, which is why so many of them are conking out. The Obama administration, in my view, picked Whitacre to run General Motors (ticker: GM) because he has a more important talent: He knows how to play Chicago-style politics.

Whitacre predominantly donates money to GOP causes, but he is no party purist. While serving as chairman and chief executive of SBC, the regional Bell that grew under his leadership into AT&T, Whitacre helped a couple of influential Chicago Democrats -- both friends of President Barack Obama -- enrich themselves between political gigs. He gave former commerce secretary Bill Daley a very sweet job and White House Chief of Staff Rahm Emanuel a very sweet investment-banking opportunity.

I have written about the Emanuel deal before ("Unraveling Rahm Emanuel's Fast Fortunes," Dec. 22, 2008). In short, SBC picked up a residential security outfit in acquiring telecom Ameritech and was ordered in 2000 by the Federal Communications Commission to divest itself of the property. Ameritech had sunk $1.4 billion into the subsidiary -- SecurityLink -- and SBC thought it could sell it for about that much.

Instead, it ended up selling the unit in 2001 to an investment group represented by Emanuel for $479 million. Whitacre and the SBC board signed off on the deal. The investment group, which was made up of GTCR Goldner Rauner and Covert & Whall, sold the property six months later to Dennis Kozlowski's Tyco for $1 billion.

An investment banker familiar with the deal claims there were no other buyers for SecurityLink, owing to both the tech wreck and mismanagement of SecurityLink by Ameritech, which had left its customer-billing system in shambles. The investment banker says the new owners had the knowledge to quickly repair the problems.

It was Emanuel's largest payday since he had left politics in 1998 for a stint as an investment banker. In two years, he amassed more than $16 million.

Neither White House Deputy Press Secretary Bill Burton nor GM responded to queries about the selection process.

Bill Daley, Bill Clinton's commerce secretary and brother of Chicago's popular Democratic mayor, was named SBC's president by Whitacre in 2001. His responsibilities, according to the official release, included regulatory matters, governmental initiatives, and external and international affairs. In other words, he became a lobbyist/door-opener for the corporation. He got a $1.1 million signing bonus from Whitacre, a starting salary of $600,000 and a bonus of no less than $600,000 in 2002, plus stock options, a country-club membership and a monthly car allowance, including free fuel and maintenance.
*****

By the by, after earning millions of dollars per year plus perks as head of Ameritech which was acquired by SBC which acquired AT&T, Whitacre received a retirement package worth $150 million in 2007. Maybe he did a good job, but then that’s why he was paid millions of dollars every year. It isn’t only Wall Street Bankers who make out like bandits.
*****

European stock markets rose, as upbeat U.S. consumer confidence data erased some of the earlier concerns about China tightening its bank-lending rules and worries over Japan's credit outlook.
*****

Oil closed at $74.70 and Gold was $1101.
*****

The major measures were higher all day but moved back to unchanged to mixed in the last hour as bank stocks turned south ahead of the Geithner’s testimony and Fed meeting tomorrow. Breadth was 2/1 negative and volume active.
*****

 

25 January 2010

Thoughts

Model Portfolio Value As of 25 January 2010

$ 605,727

Stocks are higher at the opening reversing three days of losses. Technically a further down opening with a reversal tomorrow would be more bullish. Our guess is that the relief rally this AM will fail by tomorrow.

Asian markets were lower overnight and European bourses are lower at midday. Gold has bounced $7 but remains under $1100 and Oil is up a few pennies with a $74 handle.
*****

From NYT and WSJ:

A group led by Tishman Speyer has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town Manhattan apartment complex to its creditors. The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S.... By some accounts, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors—including the California Public Employees' Retirement System, a Florida pension fund and the Church of England—and many of the debtholders, including Government of Singapore Investment Corp., or GIC, and Hartford Financial Services Group, are in danger of seeing most, if not all, of their investments wiped out.

(And these are the smart guys who want to manage money for rubes.)

And of course Tishman used other People’s money (OPM) not its own: The Stuyvesant Town deal is one of several Tishman Speyer did at the top of the market that the company is trying to save. But the company itself isn't threatened. It took advantage of easy credit and investors' eagerness to buy into real estate during the good times. As a result, it didn't put much of its own cash into deals. Of the $5.4 billion price tag on the Stuyvesant property, Tishman invested only $112 million of its own money, with about $56 million from Jerry Speyer and Rob Speyer, co-chief executives of the New York-based company.
*****

The Iraq war was a success-- for the oil companies: A consortium made up of Exxon and Shell finalized a deal in Baghdad to develop the West Qurna phase 1 oil field in southern Iraq, Iraqi oil officials said.

From http://www.businessinsider.com/exxon-and-shell-bag-iraq-deal-to-produce

The field has the capacity to produce more oil than the entire nation of Nigeria, which only produces 2.17 million barrels per day, and more than 20% of Saudi Arabia which produces 10.78 million per day based on the CIA World Factbook.

AFP: "The oil ministry signed the contract for West Qurna-1 with Exxon Mobil and Shell," ministry spokesman Assem Jihad said in a statement. "This contract will increase production from 285,000 barrels-per-day to 2,325,000 barrels-per-day."  West Qurna-1 in southern Iraq has reserves of around 8.5 billion barrels, according to oil ministry figures. Exxon Mobil and Shell will receive 1.90 dollars per additional barrel extracted from West Qurna 1. There's still far more to come. Iraq is expected to eventually ramp up its total oil production from 2.4 million barrels per day now to potentially as much as 12 million, which is more than Saudi Arabia.
*****

Sam's Club is cutting about 11,000 jobs, as the Wal-Mart division outsources in-store product demonstrations
*****

Google's co-founders each intend to sell about 5 million shares of the Internet search giant as part of a five-year stock trading plan, reducing their combined voting shares to 48%.
*****

No auto experience needed.

Ed Whitacre, the interim CEO of GM, has done a Cheney and decided that he is the best person for the job by naming himself CEO. He has nada experience in the auto industry but was CEO of Ameritech which became SBC which became the reconstituted AT&T.
*****

As perpetual Bears’ fans we really enjoyed Favre’s screw up at the end of the game.

Saints 31, Vikings 28, OT

Oops, same old Brett
After getting hit hard, Brett Favre sits on the field for a few seconds to compose himself during the second quarter Sunday.
*****

Existing homes sales dropped in December.

“Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008.... For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 percent higher than the 4,913,000 transactions recorded in 2008; it was the first annual sales gain since 2005.”

For more: http://www.ritholtz.com/blog/
*****

Greece enjoyed a much-needed boost as investors piled into its new €5 billion, five-year syndicated bond issue, registering more than €20 billion of orders in around three hours.
*****

Oil ended at $75.10 while Gold closed at $1097. Stock markets fell after dismal U.S. housing data rattled investor optimism about the state of the economic recovery. Strong interest in the first Greek bond syndication of 2010 lifted the euro.
*****

Apple reports after the close. That report and the reaction to it will set the tone for overnight and early Tuesday trading.
*****

The major measures close with limp gains on Monday. Breadth was positive and volume light.
*****

 

22 January 2010

Thoughts

Model Portfolio Value As of 22 January 2010

$ 605,686


*****

Asian stock markets were lower Friday, dragged by losses on Wall Street after Obama proposed to limit banks' risk-taking. The Nikkei fell 2.6%.
*****

General Electric's fourth-quarter net income fell 19% as the company was again dinged by a drop in earnings from its finance arm. GE posted a profit of $3.01 billion, or 28 cents a share, down from $3.72 billion, or 35 cents, a year earlier. GE Capital saw profit drop 67% as revenue fell 15%. Earnings at NBC Universal, which GE is selling majority control to Comcast, saw a 30% profit drop as revenue fell 4%.
*****

Google reported fourth-quarter net of $1.97 billion, compared with $382 million a year earlier, as the search giant recorded strong growth in advertising clicks and shed big charges that weighed down prior-year results. Revenue jumped 17% to $6.67 billion. The results topped Wall Street's forecasts, though shares were down 4.8% in after-hours trading.
*****

There is media madness about the trouble Ben Bernanke is having being reconfirmed. Democrat Senators up for reelection next year are coming out against him so it will take Republicans to put him over the top. Should be interesting.
*****

Bancroft Davis. Bancroft Davis was the former president of a railroad company. As the court reporter for the U.S. Supreme Court, he gave railroad companies a great gift in 1886 when he added a comment to the high court's ruling in a case involving the taxation of railroad properties. And in so doing, this one man gave all corporations a great gift by inventing the pseudo legal doctrine of corporate personhood, out of thin air. The Supreme Court ruling in Citizens United yesterday is based on the principle of corporate personhood, affirming the handiwork of Bancroft Davis. The Roberts Court has engaged in judicial activism- as The Rehnquist Court did in the 2000 election. The "strict constructionists" are effectively rewriting the Constitution.

http://www.dailykos.com/

From http://en.wikipedia.org/wiki/Bancroft_Davis acting as court reporter in the 1886 Santa Clara County v. Southern Pacific Railroad case, Davis is a key figure in the corporate personhood debate. Journalists have since cited Davis's prior position as president of Newburgh and New York Railway as evidence of a conflict of interest in the corporate personhood interpretation of the ruling.
*****

Worth the read: $250 billion (lost saver interest income) from our pockets to the banks in the last year.

http://www.nytimes.com/2010/01/20/opinion/20stockman.html?hp

...... To argue, as some conservatives surely will, that a policy-directed shrinking of big banking is an inappropriate interference in the marketplace is to miss a crucial point: the big Wall Street banks are wards of the state, not private enterprises. During recent quarters, for instance, the preponderant share of Goldman Sachs’ revenues came from trading in bonds, currencies and commodities.

But these profits were not evidence of Mr. Market doing God’s work, greasing the wheels of commerce and trade by facilitating productive financial transactions. In fact, they represented the fruits of hyperactive gambling in the Fed’s monetary casino — a place where the inside players obtain their chips at no cost from the Fed-controlled money markets, and are warned well in advance, by obscure wording changes in the Fed’s policy statements, about any pending shift in the gambling odds.

To be sure, the most direct way to cure the banking system’s ills would be to return to a rational monetary policy based on sensible interest rates, an end to frantic monetization of federal debt and a stable exchange value for the dollar. But Ben Bernanke, the Fed chairman, and his posse are not likely to go there, believing as they do that central banking is about micromanaging aggregate demand — asset bubbles and a flagging dollar be damned. Still, there can be no doubt that taxing big bank liabilities will cause there to be less of them. And that’s a start.
*****

An interesting liberal essay on the Supreme Court decision in the Citizens United case: http://trueslant.com/paultullis/2010/01/21/american-democracy-r-i-p-1776-2010/
*****

Stock Trader’s Almanac: when the DJIA closes below its prior year December closing low (10286) in the first quarter of the new year, it is frequently an excellent warning sign. The DJIA is at 10344 so there is a ways to go.
*****

Obama began talking on the tube and the markets tanked. Bush used to do that also.
*****

European shares extended the previous session's steep losses, as the threat of further regulation continued to drive investors away from the banking sector.
*****

Oil was down $1.68 at $74.40. Gold lost $14 to $1088.
*****

The S&P 500 lost another 2% today to close the day and week below its 50 day moving average and volume was active. The DJIA also closed 100 points below its December low (see above). Breadth was 3/1 negative.
*****

 

21 January 2010

Thoughts

Model Portfolio Value As of 21 January 2010

$ 605,686


*****

Asian was mixed up 1% in Japan and down 1% in China overnight. European bourse indexes are mixed small at midday. Gold is down another $5 and Oil has a $77 handle.
*****

(WSJ) Goldman Sachs said that its fourth-quarter net income was $4.95 billion, or $8.20 a share. Revenue for the quarter was $9.62 billion. Analysts polled by Thomson Reuters had expected the firm to earn $5.20 a share, on $9.65 billion of revenue. In the year-ago quarter, which ended in November 2008, Goldman lost $2.12 billion, or $4.97 a share.

One way GS made profits: from http://christopherfountain.com/

If I read this article right and, admittedly, I may not be grasping its implications correctly, it would seem that Goldman Sachs bought a sub-prime mortgage lender precisely because they knew its customers would default and, by betting against their own loans, GS would get rich. Senderra was just a blip in the subprime world, originating about $1.71 billion in mortgages from 2006 to 2008, according to an analysis by The Wall Street Journal of data filed by the lender. But loans it made through mortgage brokers across the U.S. were bundled into pools sold by Goldman and Merrill Lynch & Co. Those securities were hammered when housing prices slid. Losses on some of the pooled loans approached 20%. The subprime operation was overseen by Dan Sparks, the head of Goldman’s mortgage department, which wagered that the value of loans to borrowers with weak credit would fall. Those bets generated nearly $4 billion in profit, offsetting other mortgage-related losses at the firm and becoming one of the biggest trading home runs in recent Wall Street history. So GS buys a sub-prime, cranks out loans, packages them as prime and sells them to its customers, then shorts the trade and makes billions, for which its creator is praised, admired and no doubt, bonused. Doesn’t this seem sort of – to use an old-fashioned word – immoral?

UPDATE: Researching Mr. Sparks I learn that I am late on this story:

http://articles.moneycentral.msn.com/Investing/Extra/HowGoldmanProfitedFromSubprimeMeltdown.aspx ) Didn’t stop that bonus money, though.
*****

(WSJ) First-time claims for state unemployment benefits jumped unexpectedly by the largest amount in eight months, the Labor Department reported. The number of initial claims in the week ending Jan. 16 rose 36,000 to 482,000. The consensus forecast of Wall Street economists was for claims to inch lower to 438,000. This is the highest level of claims since November.
*****

(WSJ) UnitedHealth said fourth-quarter net income rose to $944 million, or 81 cents a share, from $726 million, or 60 cents a share, at the same point a year ago. Analysts had been expecting earnings of 73 cents per share. Revenue at the health care benefits and related services provider rose to $21.78 billion in the quarter, up from $20.46 billion last year.
*****

From Bloomberg by way of http://www.calculatedriskblog.com/ : China Accelerates to 10.7% Growth Pace as Bubble Dangers Loom

Gross domestic product rose 10.7 percent from the same period a year ago ... a statistics bureau report showed in Beijing today.

The focus for China’s policy makers has now shifted to restraining the inflationary pressures that stem from their success in spurring a rebound. ...

The economy’s third straight quarterly acceleration highlights the risk that inflation may surge and asset bubbles form after monetary policy committee member Fan Gang said in November that growth of more than 10 percent is excessive.

Note that the headline number is the increase from Q4 2008 to Q4 2009 - as opposed to the annualized quarterly growth rate reported in the U.S.
*****

http://www.calculatedriskblog.com/

Here is a discussion of interest rate risk on the Wells Fargo conference call today (ht Brian):

Analyst: just a follow-up question on rates. I just wanted to understand, Howard, how you are thinking about the impact of the Fed exit on the fixed-income market and how you are planning on managing the balance sheet for that?

Howard Atkins, Wells CFO: Well, that is a good question, Betsy, and the Fed obviously is active in buying MBS. And despite the fact that the yield curve is as positively sloped as it is right now, their active purchases is a factor that is, in some senses, artificially keeping long MBS yields lower than they might otherwise be. At some point presumably, they will either gradually or more quickly reverse course and that could lead to an increase in mortgage interest rates. And as I mentioned a couple of times in my remarks, in possible preparation for that, we have been keeping our powder dry, in effect underinvesting this large base of core deposits that we have for the possibility that that reverses course.

Analyst: So you might get some OCI hit near term, but dry powder leads you to a better outlook for earnings, is that the way to think about it?

Atkins: Yes, again, while the mortgage business is showing good results right now, in effect, on the portfolio side, the investment portfolio, we, in effect, are giving up some current income. We don't believe in the carry trade and we do want to preserve some powder in case rates do go up and we'll have the powder at that point, we will invest the powder at that point to offset some -- whatever is going on in the mortgage business.

John Stumpf, CEO: I see this as the classic short-term view of the business and long-term view of the business. 400 basis points or something like that, which you make in the carry trade today is very attractive. But we think it is the wrong decision long term because we think the bias is for higher rates, not for lower rates and we are willing to wait for that to happen. We think that is the better trade.

Atkins: we are effectively giving up 400 basis points today for possibly a year or so, maybe plus or minus, to avoid the potential risk of a larger number of basis points for 30 years. So the last thing we want to do is get stuck with securities at these low levels of interest rates.

Stumpf: Because I think when rates move, they are probably going to move at some speed and I don't think it's going to be maybe a quarter. It could be more than that and it could happen relatively quickly.

Atkins: this is the same thing that we did back in 2002, 2003 when interest rates were also at cyclical low points just before they went up a lot. What we are doing now is not very different from the way the Company has always managed itself.

So they are keeping their "powder dry", expecting an increase in rates. Many other banks are getting healthy on the carry trade...
*****

Keeping their powder dry means that they aren’t making loans, which is the purpose of the Fed maintaining artificially low interest rates. Wells Fargo is the counties third largest bank.
*****

Tougher rhetoric on the banksters after MA loss: Coincidence, faux populism, or real?

President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country's biggest banks, marking the administration's latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.

http://correntewire.com/tougher_rhetoric_banksters_after_ma_loss_coincidence_faux_populism_or_real
*****

One hour into the trading day and the S&P 500 has broken down through the 1127-1130 support area.
*****

These are the same folks who made Bush president in 2000, why be surprised.

(AP) -- The Supreme Court has ruled that corporations may spend freely to support or oppose candidates for president and Congress, easing decades-old limits on their participation in federal campaigns.

By a 5-4 vote, the court on Thursday overturned a 20-year-old ruling that said corporations can be prohibited from using money from their general treasuries to pay for their own campaign ads. The decision, which almost certainly will also allow labor unions to participate more freely in campaigns, threatens similar limits imposed by 24 states.

It leaves in place a prohibition on direct contributions to candidates from corporations and unions.

Critics of the stricter limits have argued that they amount to an unconstitutional restraint of free speech, and the court majority apparently agreed.

"The censorship we now confront is vast in its reach," Justice Anthony Kennedy said in his majority opinion, joined by his four more conservative colleagues.

However, Justice John Paul Stevens, dissented from the main holding, "The court's ruling threatens to undermine the integrity of elected institutions around the nation."

Justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor joined Stevens' dissent, parts of which he read aloud in the courtroom.

The justices also struck down part of the landmark McCain-Feingold campaign finance bill that barred union- and corporate-paid issue ads in the closing days of election campaigns.

Advocates of strong campaign finance regulations have predicted that a court ruling against the limits would lead to a flood of corporate and union money in federal campaigns as early as this year's midterm congressional elections.

The decision, written by Justice Anthony Kennedy, removes limits on independent expenditures that are not coordinated with candidates' campaigns.

From Justice Stevens dissent in this case:

"It is gutting campaign finance laws across the country."

"Today's decision is backwards in many senses. It ele­vates the majority's agenda over the litigants' submis­sions, facial attacks over as-applied claims, broad constitu­tional theories over narrow statutory grounds, individual dissenting opinions over precedential holdings, assertion over tradition, absolutism over empiricism, rhetoric over reality."

"While American democracy is imperfect, few outside the majority of this Court would have thought its flaws included a dearth of corporate money in politics."

On the above http://emptywheel.firedoglake.com/2010/01/21/supreme-court-unleashes-corporate-campaign-cash-in-citizens-united-decision/
*****

The ten largest defense contractors in the nation spent more than $27 million lobbying the federal government in the last quarter of 2009, according to a review of recently-filed lobbying records. http://www.huffingtonpost.com/2010/01/21/top-defense-contractors-s_n_431542.html
*****

Worrying about a deficit when 10% unemployment and 20% actual unemployment exists in the country is stupid. Can anyone say 1937? We have been there before and it didn’t work. This time we can’t solve the problem by going to war since because unfortunately we are already in two of them. Also giving the control of entitlement spending to a select Committee abrogates the rights of Congress and ultimately the folks who elect representatives.
*****

As with health care, the first idea will be long way from the realty- if there is any. And with today’s Supreme Court decision the banks have all the money in the world to influence the public.

President Obama Calls for New Restrictions on Size and Scope of Financial Institutions to Rein in Excesses and Protect Taxpayers

President Obama joined Paul Volcker, former chairman of the Federal Reserve; Bill Donaldson, former chairman of the Securities and Exchange Commission; Congressman Barney Frank, House Financial Services Chairman; Senator Chris Dodd, Chairman of the Banking Committee and the President's economic team to call for new restrictions on the size and scope of banks and other financial institutions to rein in excessive risk taking and to protect taxpayers.

The President’s proposal would strengthen the comprehensive financial reform package that is already moving through Congress.

“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama. “My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout.  It is exactly this kind of irresponsibility that makes clear reform is necessary.”

The proposal would:

1.   Limit the Scope - The President and his economic team will work with Congress to ensure that 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.

2.   Limit the Size - The President also announced a new proposal to limit the consolidation of our financial sector.  The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

In the coming weeks, the President will continue to work closely with Chairman Dodd and others to craft a strong, comprehensive financial reform bill that puts in place common sense rules of the road and robust safeguards for the benefit of consumers, closes loopholes, and ends the mentality of “Too Big to Fail.”   Chairman Barney Frank’s financial reform legislation, which passed the House in December, laid the groundwork for this policy by authorizing regulators to restrict or prohibit large firms from engaging in excessively risky activities.

As part of the previously announced reform program, the proposals announced today will help put an end to the risky practices that contributed significantly to the financial crisis.
*****

Needs to be said even if we think he is scum:

If John Edward’s mistress had had an abortion- as the mistresses of most other politicians, media stalwarts, religious leaders and business folk do- no one would be the wiser. And the thrice and more divorced serially monogamous (maybe) cable talking head Foxies would have nothing about which to talk.
*****

http://www.zerohedge.com/article/10-ways-say-no-banks-have-not-paid-back-their-debt-taxpayer
*****

10 Ways to Say "NO, the Banks Have Not Paid Back Their Debt to the Taxpayer!"

Reggie Middleton

I was not going to bother to comment further, but after hearing pundit after pundit attack Obama for the bank levy and Glass Steagal 'lite', after banks allegedly paid their dues... I just couldn't take it anymore. 

Yes! Obama has made a lot of policy errors in dealing with the banks. Yes! I believe he has not solved the problems, but has chased the symptoms. The separation of prop trading from deposit banking IS the RIGHT thing to do. In addition, the banks have not come anywhere NEAR repaying their debt to the government. Not even close.

Yes, some of the banks repaid TARP, with interest and warrants. Okay. The investment big banks (that were still in existence) were offered expedited financial holding company (bank) charters. That is why they didn't fail, at least in part.

So, running down the list, the banks paid back TARP. That's a +, but....

What was the value for bank charter, to get cheap access to the Fed's funds? Did they pay back this value yet? No!

How about the payment of interest on the banks' excess reserves at the Fed. Have the banks repaid that yet? No!

The Fed and the Treasury have purchased hundreds of billions of dollars of Agency debt, Agency mortgage-backed securities (MBS) and related securities through Treasury purchase programs.

Have the banks paid back the capital behind those purchases yet? No!

How about the Term Auction Facility? Has the capital behind the benefits of that program been paid back? No!

Then there is the Primary Dealer Credit Facility (PDCF), has this been paid back? No!

Do you remember the Term Asset-Backed Securities Loan Facility (TALF)? Have the funds behind that been paid back? No!

What about the PPIP? No!

Hey, there's the Foreign Exchange Swap programs (the currency swap lines, that saved not only our banks but out banks facing counterparties who were short on dollars), has that been paid back? No!

There's the Commercial Paper Funding Facility (CPFF), have the funds behind that been paid back? No!

Most importantly, the opportunity cost of ZIRP, which hurts those who do not speculate (or have not speculated) with near free money! How do you pay that back to grandma and her .017% CDs?

How do you repay the synthetic bid that the Fed has created under MBS that has rescued the banks from balance sheet purgatory (for now)? How about the accounting fantasy football game that was authorized by FASB last year that has lost fundamental investors who actually count vast sums of money? Then there is those FDIC bond guarantees... Oops, I went way past 1 reasons, didn't I?

I can rant on, but if I haven't driven the point home by now, I probably never will.  So as you read about Goldman's earnings beat on weaker revenue, consider the advantages that they have, that they didn't pay back, that smaller businesses such mine simply don't have access to.
*****

The "Volcker Rule" Would End Prop Trading At Bank Holding Companies (also known as the Let’s Get Goldman Rule)

Submitted by Tyler Durden on 01/21/2010 11:41 -0500

Prop Trading

11:37 01/21 OBAMA BAN WOULD PREVENT BANKS OWNING, INVEST IN HEDGE/EQ FNDS

11:37 01/21 OBAMA PROPOSING RULE LIMIT COMM BANKS FROM PROP TRADING

11:37 01/21 SR ADMIN OFFL: BAN ON PROP TRADE ALSO APPLY TO BANK HOLDING COS

11:37 01/21 ADMIN OFFL: WANT REGULATORS TO BE REQUIRED TO STOP PROP TRADING

Read more at http://www.zerohedge.com/article/its-official-bank-holdings-companies-included-prop-trading-ban
*****

The financial talking heads and blogs are aghast at the Obama/Volker proposals. They are giving the proposals as the cause the major market measures are down 2%.  The proposals may be the proximate cause but the 61% rally without a 10% correction is probably the underlying reason.
*****

European markets slumped, as mounting concerns regarding demand out of China and trepidation ahead of plans to curb trading activities of 'too-big-to-fail' banks outweighed strong earnings from Goldman Sachs. Greek bonds dropped amid stability concerns.
*****

1:15 PM on CNBC and Barney Frank is already refining and defining and slicing and dicing the Obama pronouncement regarding bank regulation. Goldman, bank stocks and the markets are rallying on the news
*****

Oil ended down $1.86 at $75.88. Gold dropped $12 to $1100. The dollar was $1.40 to the euro.
*****

Stocks closed 2% lower in active trading. Breadth was again 3/1 negative and the banks indexes close higher after briefly being negative before Frank spoke on CNBC.
*****

 

20 January 2010

Thoughts

Model Portfolio Value As of 20 January 2010

$ 605,609

State Senator becomes U.S. senator. Four years later becomes President. We don’t know if this layout is a hindrance or a help. Of course if he were a Democrat or worse, a Democrat woman this would have been a no no; for a Family Values Tea party man we guess it is a positive. He must have confessed and found forgiveness.

 

Massachusetts Senator Scott Brown in all his glory.


*****

The Brown Senate win rally may have occurred yesterday. Asian and European markets were lower overnight and earnings are center stage in the U.S. IBM and Wells Fargo beat while Morgan Stanley was not so much. The market measures indicate a lower opening but today is turnaround Tuesday so anything is possible. Will the markets turnaround from the lower opening or Turnaround from yesterday’s gain. Stay tuned.
*****

Investors’ Intelligence has 52% Bulls and 19% Bears.
*****

The Brown win means the Dems only have a 15 vote majority. Only is this country would a 20% greater number of senators for one party mean that nothing can be passed. We do think that the drug companies and hospitals and even the health insurers would rather have the Senate bill passed than not. The health insurance companies would get 40 million new customers and the drug companies would be guaranteed no interference as they continue to rip off the public. And hospitals would get extra dollars from the Feds. Maybe that is why the reaction is muted. All the beneficiaries may have protested too much.
*****

Total housing starts were at 557 thousand (SAAR) in December, down 4.0% from the revised November rate, and up 16% from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). Starts had rebounded to 590 thousand in June, and have moved mostly sideways for seven months.

Single-family starts were at 456 thousand (SAAR) in December, down 6.9% from the revised November rate, and 28 percent above the record low in January and February (357 thousand). Just like for total starts, single-family starts have been at around this level for seven months.
*****

MetLife is in final negotiations to purchase one of the biggest international life-insurance units of AIG for between $14 billion and $15 billion. The New York Fed would get $9 billion of the proceeds as the insurer repays its rescue aid. Only $80 billion left to repay. Hooray.
*****

IBM reported a $4.8 billion profit as the technology giant saw growth its services business and cost reductions. Revenue rose 1%, but fell 5% adjusting for currency swings.
*****

Banks and Drugs are higher in the early going while the general market measures are all down 1% after 15 minutes of trading. If the banks and drugs turn down look out below.
*****

The dollar remains better at $1.41 to the euro, its best level in months.
*****

From http://www.calculatedriskblog.com/

Robert Selna at the San Francisco Chronicle discusses the surge in investor buying at the Court House steps, and the changes to the FHA rules that allow the resale of homes in less than 90 days.

From the Chronicle: Investors dominate home flipping, auctions

House flipping, a quick-buck scheme pursued by amateurs and professionals alike during the real estate boom, now is dominated by investors willing to pay all cash, who troll auctions for foreclosures that banks are gradually trying to siphon off their books.

...

The figures, from research firm ForeclosureRadar.com in Discovery Bay, ... indicate that at December Bay Area auctions, about 20 percent of the sales went to investors rather than back to foreclosing lenders. In December 2008, that number was 3.2 percent.

...

Previously, the FHA refused to provide mortgage insurance for homes resold within 90 days to prevent fraud. A common scam was for investors to purchase a house, make minor repairs and sell it to a straw buyer who never planned to pay off their loan.

That kind of ploy artificially ramped up housing prices, left the FHA with inflated insurance claims, and made for vacant and blighted housing.

The FHA rule reversal is scheduled to last for one year starting Feb. 1 and includes some limited safeguards.

Flipping to FHA buyers - all the cool kids are doing it!
*****

The American people don’t like to be told what to do. The Obama should just go back to the drawing boards and propose three bills.

One would require all insurance companies to provide coverage at the same rate for age as any other applicant with no pre-existing condition exclusion. There should be a one year waiting period for pre-existing conditions for folks who have not had insurance. There should be no waiting period for folks who have had insurance.

The second bill should allow folks 55 on older and 25 and younger to buy into Medicare. The ages should drop/rise 2 years at a time for the next 15 years until the option is available to all.

Finally re-importation of drugs from foreign countries should be allowed.

These would be simple, understandable bills that would go a long way to meeting the complaints of most Americans without imposing any mandates. Too simple we know.
*****

At 10AM drugs have turned lower but not the banks. The DJIA is down 170 points.
*****

RIYADH — Health authorities in Jeddah have shut down an "illegal" women's fitness centre attached to a hospital, closing one of the few venues where Saudi women are able to exercise, local media said on Wednesday.

Although health officials have repeatedly blamed the high rates of heart disease and diabetes in the kingdom on poor diets and lack of exercise, health authorities said women's fitness centres were not allowed.

"Anyone who violates regulations governing the running of health facilities would be punished severely because this involves people's health," Jeddah health official Muhammed Abdul Jawad told the English-language Arab News.
*****

http://holdfastblog.com/ Expanding what the Chinese government calls a campaign against pornography, cellular companies in Beijing and Shanghai have been told to suspend text services to cellphone users who are found to have sent messages with “illegal or unhealthy content,” state-run media reported on Tuesday.

China Mobile, one of the nation’s largest cellular providers, reported that text messages would automatically be scanned for “key words” provided by the police, according to the English-language China Daily newspaper. Messages will be deemed “unhealthy” if they violate undisclosed criteria established by the central government, the newspaper said.

The increased surveillance of text messages is the latest in a series of government initiatives to tighten control of the Internet and other forms of communication. Since November, the government has closed hundreds of Web sites in the name of rooting out pornography and piracy.

Kan Kaili, a professor of telecommunications at Beijing University, called the routine surveillance of cellphone messages a violation of privacy rights and the Chinese Constitution.

“They are doing wide-ranging checks, checking anything and everything, even if it is between a husband and wife,” he said. “I don’t think people will be very happy about this.”

He said the government had established no clear legal definition of unhealthy content. He also said commercial authorities such as phone companies, even though government-owned, should not be involved in checking the contents of private messages.

“This is totally wrong,” he said.

This will likely have an intense chilling effect on communication by text message in China by democracy and right advocates, as well as within Tibet.

The notion that this spying is to crack down on pornography is simply absurd. SMS messages are person to person communication, not distributed publications. There’s just no reasonable explanation for how this effort would limit the spread of pornography (a whole other ball of free speech wax). This is about monitoring dissent and furthering bolstering the climate of fear that the Chinese Communist Party uses to maintain their tenuous hold on power.
*****

Gold is down $31 this morning and Oil is off $2.
*****

Who are they kidding?

(AP) President Barack Obama is likely to name a special commission to come up with a plan to curb the spiraling budget deficit under an agreement forged with top Capitol Hill Democrats.
*****

1130 is support on the S&P 500 and it is holding there at 11AM.
*****

If you are looking for a home in NYC:

http://www.businessinsider.com/dear-wall-street-nyc-real-estate-worthy-of-your-bonus-cash-2010-1#15-central-park-west-1
*****

"Compared with where we were in late 2008 and early 2009, financial markets have stabilized, and the prospect of a collapse of the financial system and a second Great Depression now seems extremely remote...What is fundamentally at issue here is not “turf,” but rather how we as a nation can best ensure that we never again re-live the events of the past few years—that the legitimate public interests associated with a safe, efficient and impartial banking and financial system are well served." - Former Goldman Sachs Chief US Economist Bill Dudley (and current New York Fed President)
*****

This 3000-word paper by Cumberland Associates offers observations about the Fed’s $1.25 trillion mortgage purchase program, the Fed’s “profits” of $46 billion, and the policy issues involved in them. It also comments on Fed interest-rate policy and the Fed’s forthcoming possible difficulties.
http://www.cumber.com/commentary.aspx?file=011410.asp
*****

Joseph Stiglitz on the economy: http://www.huffingtonpost.com/2010/01/20/joseph-stiglitz-interview_n_429437.html
*****

Marketwatch.com gives suggest these are the reasons for today’s drop: Stocks tumble on fresh fears that China's attempts to curb bank lending might slow global growth, while a bigger-than-expected drop in housing starts rekindles concerns about the shape of the U.S. recovery.

Our guess is that Jim Cramer predicted a large rally if Brown won and traders like to see little Jimmy with pie in his face.
*****

(Bloomberg) -- “New normal” may not be the new norm after all. Wall Street economists aren’t buying the theory propounded by Bill Gross and Mohamed El-Erian, co-chief investment officers at Pacific Investment Management Co., that the U.S. will be mired in long-term sluggish growth averaging 2 percent a year. They see potential real growth, or the rate of expansion at which inflation is steady, at 2.5 percent, matching the average quarterly rate of the past 20 years, according to the median forecast in a Bloomberg News survey of 46 economists.

“I don’t think it’s different this time,” said Christopher Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ in New York, who pegs potential growth at 2.6 percent. “We’ve had financial-market crises and big workforce changes before, and growth has pretty consistently come in around 2.5 percent over the past 50 to 60 years.”

While the half-percentage point between Pimco’s projection and the survey median may seem small, it makes a big difference over time, especially to investors. Expanding by 2.5 percent a year rather than 2 percent would leave the $13 trillion U.S. economy almost $400 billion larger five years from now, about equal to the gross domestic product of Argentina.
*****

Loan Wolf: http://www.guardian.co.uk/
*****

European markets tumbled 2% on concerns that the China may be taking strong action to prevent its economy from overheating. The dollar strengthened while Oil was down $1.79 with a $77 handle and Gold pulled back $25.
*****

The New York Times said Wednesday it will start charging consumers for unlimited access to articles on its Web site in 2011 in the hope that it can generate a new, reliable revenue stream to offset weakness in the advertising market. The publisher said it will limit the number of free articles viewers can see online per month, offering a "metered" subscription service to those who exceed the limit. Subscribers to the print edition of The New York Times will continue to have unlimited free access online.
*****

Goldman Sachs and United Health Insurance report earnings in the AM.
*****

Penguin Awareness Day 2010 is today, Jan. 20, 2010
http://www.huffingtonpost.com/2010/01/20/national-penguin-awarenes_n_429874.html
*****

Stocks closed over 1% lower but above their worst levels of the day. The S&P 500 held 1130. Breadth was 3/1 negative and volume was light.
*****


We accept no responsibility for conservative readers who have heart attacks or spasm of anger after reading past this point.
*****


We agree; from http://www.taylormarsh.com/

Drew Weston at HuffPo: The White House allowed the health care narrative to be all about process, and the process the American people saw wasn’t pretty. It scared seniors, who worried what would happen to their Medicare. It scared workers, who worried about what would happen to the plans their unions had negotiated so hard for in lieu of salaries. It scared middle class Americans with good health insurance plans, who had–and have–no idea whether their plans will be deemed–if not today, in three or four years–Cadillacs, which will first be taxed and then discontinued, leaving them with exactly what Frank Luntz told them it would leave them with: a bureaucrat between them and their doctor. And worst of all, it seemed to most Americans that the reason they were being asked to make such potentially big sacrifices was so that health insurance companies, pharmaceutical companies, and millionaires wouldn’t have to. It seemed not only risky but unfair.

So in that sense, the story of health insurance played right into the story that lies behind the looming tsunami that swept away Ted Kennedy’s Senate seat and will sweep away so many more Democratic seats if the Democrats draw the wrong conclusions from this election. The White House just couldn’t seem to “get” that the American people could see that they were constantly coming down on the side of the same bankers who were foreclosing people’s homes and shutting off the credit to small business owners, when they should have been helping the people whose homes were being foreclosed and the small businesses that were trying to stay afloat because of the recklessness of banks that were now starving them. Americans were tired of hearing Obama “exhort” bankers and speculators to play nice as they collected their record bonuses for a heckuva job in 2009. It took him a year to float the idea of making them pay for a fraction of the damage they had done, and at this point, few Americans have any faith that a tax on big banks will ever become law or that the costs won’t just be passed on to them in new fees.

Still, over the evening last night, messages drifted in that it wasn’t Obama’s fault, that it was Coakley, that is was –insert the excuse here– and that Obama wasn’t to blame. The ObamaforAmerica crowd turning escaping their panic in the ObamaForever bubble, with the reality too much for the unthinking, uncritical, unconcerned, because Obama simply can’t fail, though he had, once again sending out their message of more time is needed, it’s everyone’s fault, just not his. Never mind that it hardly matters the mistakes of Martha Coakley’s campaign, because the boss gets paid to see these things coming. The boss and party leaders expected to understand the symbolic importance of Teddy Kennedy’s seat, which even Teddy always treated as the people’s seat and worked his heart out to deliver for them; no one knowing more than Kennedy that coattails are an illusion, as he and John Kerry couldn’t even deliver for Barack. Vicki Kennedy may take last night’s blow as a final insult and rise up to take it back, but nothing can undo the damage done. That replacing Kennedy with a Republican went beyond the right’s hopes and dreams of Virginia and New Jersey, NY-23, because now they’d deprived Democrats and their bright shining political star, Barack Obama, of a Senate seat that meant more than any single number. They took down Democratic history and did it in a walk, putting the President’s plans in limbo, because there was no Plan B. Like when Ted Kennedy was dying and neither Obama or the Democratic leadership felt the urgency to pass health care before he himself passed. All in due time, they chanted, even when time ran out.

The “fierce urgency of now” now rendered to just words.

The huge good will Barack Obama walked into Washington now been frittered away, as the Democratic leadership stood by and watched it happen, starting with health care. First August came and went, then Sarah Palin’s “death panels” came and went, and now the super majority Pres. Obama believed he needed to pass health care has come and gone. Reconciliation or bust? On which bill?

Because conservative Democrats now have a place to take refuge, on the porch biding time for survival. With foreign policy the other casualty; the strength Obama showed towards Israel and their obligation to freeze settlements looming large beyond, the weakening on the domestic front likely to empower the status quo crowd, who have simply waited out the inevitable. The previews of what was coming feeding their patience. The promises at Cairo a mere memory.

We can only hope that one year after Obama took office, his win putting the very question of conservative relevancy into question that the Democratic leadership will wake up. That the stark reversal of fortunes sent through the message of independents who have manifested two party disgust by outnumbering both sides now, aided by many Democrats as well, will make a dent. But if the last year has taught us anything, it’s that Democrats will double down on reaching out and going right to where they can nurse their own caution, instead of digging in and getting what was promised done sending the sign that they got the message.

We’ve been showing the way for months.

We told you so.
*****

From http://gawker.com/5452813/the-republican-superminority?skyline=true&s=i

With Scott Brown's stunning, come-from-behind victory over the boring lady who hated baseball in Massachusetts, the Democrats must admit defeat. Please welcome our new unstoppable Republican Superminority.

The Republicans now hold 41 seats in the US Senate. As we all learned in Civics class, Glenn Beck's Secret Mormon Founding Fathers always intended for the party that controls slightly more than two fifths of one house of the legislature to have complete control over the government. It is in the Constitution! Our finest Democratic Senate leaders have honorably admitted that this brief experiment in Majority Rule was a horrible failure. Like Joe Lieberman:

"The independents are speaking loudly around the country today and they're telling us, one, to get together here in Washington," he said. "The second thing really is to do something about the economy and move to the center and worry about things that [independents] are worried about."

And Evan Bayh, who weighed in even before Scott Brown won:

"The only we are able to govern successfully in this country is by liberals and progressives making common cause with independents and moderates," Bayh said. "Whenever you have just the furthest left elements of the Dem party attempting to impose their will on the rest of the country - that's not going to work too well."

Yes! The far left reign of anti-abortion Nevada Mormon Harry Reid is over. Radical revolutionary Marxist Max Baucus should probably be jailed, for the good of the country.

Insane gun-toting Virginia Senator Jim Webb went even further: the Democrats must not pass the bill both houses have already approved in some form until the minority party seats its newest member:

It is vital that we restore the respect of the American people in our system of government and in our leaders. To that end, I believe it would only be fair and prudent that we suspend further votes on health care legislation until Senator-elect Brown is seated," Webb said.

Oh, sure, you may hear someone say that "Democrats are back to a majority in the House, control of the White House, and 59 Senate seats" and "the Democratic Party continues to be more popular than the Republican Party" and "the President's approval rating continues to be over 50 percent," but none of that matters. The Republican Superminority completely controls the legislative process and they have veto authority over the president's appointees. Mid-January special elections in individual states are actually stand-ins for public referenda on whatever issues are before the congress. A Republican victory means that Democrats must act like Republicans and either kill their health care bill altogether or scale it back considerably, because that is what the public wants, even though they keep claiming they want to bill to "go further" or "include a public option," which 60% of Americans and 51% of Senators (a "traditional majority") support.

A Superminority does not need to propose or craft legislation; in fact that is more or less forbidden. Their responsibility is primarily to prevent any legislation from being voted on at all, even if they actually support it. Use of arcane parliamentary rules to obstruct uncontroversial and vitally necessary legislation is, of course, democracy at its purest and more inspiring. And the Democrats agree! Because people expect and demand that Democrats do actual liberal Democratic things in a crisis like this, which is why they voted them into office in the first place, it is the responsibility of the Democrats to become spooked and refuse to do anything else for the rest of the year in the hopes that somehow this will pacify the people who are angry that Democrats can't do anything.

This is the opinion you will see echoed by our finest political minds in the newspapers and on the TVs from now until November. The Democrats were fools to attempt to make progress on one of the fundamental tenets of their platform. They should've focused on "jobs" instead, though there is no chance they will actually be able to do anything about "jobs," this year, because of the Republican Superminority, which is the fault of the Democrats.

Here is another good example of the power of the Republican Superminority: one crazy person who not even other Republicans like, Senator Jim DeMint, put a hold on Barack Obama's nominee to run the Transportation Security Administration, because this would-be TSA head refused to promise to forbid TSA employees from engaging in collective bargaining. Then there was that Christmas bombing thing, with the underwear! It seemed like maybe it would be nice if we had a TSA Director, around then. In a traditional democracy, the majority party would use this as an example of dangerous obstructionism and use some frame like "politics getting in the way of our security" or something, or at least maybe they would make any sort of noise about this at all. In our system, the Republican Superminority wins this nominee's withdrawal from consideration.

The message from Massachusetts is clear: the public is holding congress accountable for its failure to do what we elected them to do. It would be a political disaster if Democrats responded by attempting to do what they were elected to do. That's why God invented the Republican Superminority.
*****

 

19 January 2010

Thoughts

Model Portfolio Value As of 19 January 2010

$ 605,609

Asian and European markets were lower overnight. They were both higher on Monday. Oil is down over $1 with a $76 handle and Gold is flat as the shortened trading week begins.
*****

Citigroup reported a loss of $7.57 billion, or 33 cents a share, from a year-earlier loss of $17.26 billion, or $3.40. Excluding $6.2 billion in items related to the repayment of government aid, the latest loss was 6 cents per share.
*****

Kraft on Tuesday clinched a deal to acquire Cadbury PLC for £11.9 billion ($19.44 billion), in a trans-Atlantic tie-up that ends the nearly 200-year independence of Britain's most famous candy company.

And so, 6000 Cadbury jobs in England are now under the gun. And instead of spending money to grow current brands Kraft will spend all its finical reserves to take over another, with the inevitable job cuts, brand reductions and long term negative results for ordinary folks as opposed to the fees for investment bankers and parachutes and bonuses for company executives. The cost is $20 billion of which $12 billion is cash and a portion of that cash will be borrowed from banks who would rather loan for acquisitions than for growth.
*****

Japan Airlines filed one of the country's largest-ever bankruptcy protection petitions.
*****

Companies raised a record $11.7 billion last week in the high-yield bond market last week. The Fed is keeping interest rates near zero and so the only place investors can get the yield they need to live is from long term lower quality debt. Eventually interest rates will rise and investors will again suffer as the value of their bonds falls...
*****

http://www.calculatedriskblog.com/

From Crain's ChicagoBusiness: Illinois enters a state of insolvency (ht Walt)

While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it's not generating enough cash to pay its bills. ... "I would describe bankruptcy as the inability to pay one's bills," says Jim Nowlan, senior fellow at the University of Illinois' Institute of Government and Public Affairs. "We're close to de facto bankruptcy, if not de jure bankruptcy."
*****

Despite a budget shortfall estimated to be as high as $5.7 billion, state officials haven't shown the political will to either raise taxes or cut spending sufficiently to close the gap.

... Unpaid bills to suppliers are piling up. State employees, even legislators, are forced to pay their medical bills upfront because some doctors are tired of waiting to be paid by the state. The University of Illinois, owed $400 million, recently instituted furloughs, and there are fears it may not make payroll in March if the shortfall continues.
_______

For more on the problems of states, see the recent Rockefeller Institute report: Recession or No Recession, State Tax Revenues Remain Negative

The first three quarters of 2009 were the worst on record for states in terms of the decline in overall state tax collections, as well as the change in personal income and sales tax collections. The Great Recession hit virtually every single source of tax revenue and pushed a number of states to revise revenue forecasts numerous times throughout fiscal 2009 and 2010, with significant impacts on services.

Preliminary data for the October-December quarter suggest that fiscal conditions remain weak. ... While December data could change this troubling picture, there is little reason to expect reported revenues for that month to be strong. Continued weakness in revenues, along with continued if more moderate growth in expenditures, make further mid-year budget revisions and spending cuts highly likely.

According to the National Conference of State Legislatures (NCSL), new budget gaps have opened in at least 31 states since FY 2010 began. ... The continued weakening of state tax revenues in fiscal 2010 will force states to take further drastic measures.
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The Boskin Commission of 1995-96 and its adjustment of inflation using hedonics: http://www.ritholtz.com/blog/
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Why AIG Counter-Parties Received 100% on Derivatives http://www.ritholtz.com/blog/
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(WSJ) Tuesday, Hennessee Group said its hedge-fund index rose 88% from 2000 through 2009, compared with a 9.3% decline in the Dow Jones Industrial Average, a 23% fall in the Standard & Poor's 500-stock index and a 44% plunge in the Nasdaq Composite. The Hennessee Hedge Fund Index had only two down years—2002 and 2008—while the S&P 500 fell in 2000 and 2001, in addition to those.

The Model Portfolio was up 60% in that same time period without the leverage that hedge funds use.
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European stocks recovered from initial lows to close higher, boosted by gains in the pharmaceutical sector and merger news. The euro declined against the dollar and pound amid persistent concerns about Greece's finances.
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Gold gained $7 to $1138 and Oil closed at $49.02 up $1.02.
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The major market indexes reversed last Friday’s droop of 1% and managed to gain more than they lost in light trading. Breadth was 3/1 positive. Cramer and others are forecasting a large pop higher tomorrow if Brown wins in Massachusetts.
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A little late but Happy New Year


Tyler Bud Bezold, Luna, Bud Lemley, Lisa Lemley Bezold, Abby Bezold, Clementine, Kelle Lemley, Dave Bezold, Katie Lemley - 2009

15 January 2010

Thoughts

Model Portfolio Value As of 15 January 2010

$ 605,609

Monday is the Martin Luther King holiday and so our next post will be Tuesday January 19.
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The reaction to the news is more important than the news. Today is Triple Witching day for options and futures.
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Intel traded higher last night after announcing better than earnings but is lower this morning. JP Morgan beat on the earnings number but was light on revenue and is slightly lower in pre market trading. The initial reaction by the markets to the two leader’s reports is to trade lower.

Asia and Europe were both higher overnight. Oil is at $78.77 and Gold is down $8.
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(WSJ) Manufacturing activity in New York State strengthened in early January, the New York Fed reported. The Empire State index rose to 15.9 in January from an upwardly revised 4.5 in December.

Capital One Financial reported credit-card delinquencies eased in December, in a shift after at least six months of increases, though charge-off levels continued to rise from a month earlier. Charge-offs - loans Capital One doesn't think it will be able to collect - rose to 10.14% in December from 9.6% in November in its U.S. credit-card business and edged up to 9.58% from 9.5% internationally.

U.S. consumer prices edge up 0.1% in Dec.; energy rises just 0.2% after 4.1% spike in Nov.
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Our brave four square American companies are buffaloed by fear of losing business in China.
http://www.bloomberg.com/
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JPMorgan Reports Fourth Quarter Net Income of $3.3 Billion (JPM)

Jamie speaks:

Jamie Dimon: “We are gratified that we generated earnings of $3.3 billion for the fourth quarter and nearly $12 billion for the year. Though these results showed improvement, we acknowledge that they fell short of both an adequate return on capital and the firm’s earnings potential. We benefited from the diversity of our leading franchises, as demonstrated by the continued earnings strength of our Investment Bank, Commercial Banking, Asset Management and Retail Banking franchises. We are proud that, throughout these tumultuous times, we never stopped investing in the fundamental growth drivers of our consumer businesses.”

Bud comments:

“Jamie, you neglected to mention that artificially low interest rates maintained by the Fed to help you and all other financial institutions to the detriment of prudent savers are the real driver for the earnings you are reporting.”
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Krugman: http://www.nytimes.com/2010/01/15/opinion/15krugman.html?hp
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Industrial production increased 0.6 percent in December. The gain primarily resulted from an increase of 5.9 percent in electric and gas utilities due to unseasonably cold weather. Manufacturing production edged down 0.1 percent, while the output of mines rose 0.2 percent. The change in the overall index was revised up in October, but it was revised down in November; for the fourth quarter as a whole, total industrial production increased at an annual rate of 7.0 percent. At 100.3 percent of its 2002 average, output in December was 2.0 percent below its year-earlier level. Capacity utilization for total industry edged up to 72.0 percent in December, a rate 8.9 percentage points below its average for the period from 1972 to 2008.
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Tell us it ain’t so, Joe.

(WSJ) Federal prosecutors alleged that Johnson & Johnson paid one of the nation's largest pharmacies serving nursing homes "tens of millions of dollars in kickbacks" to increase sales of drugs, including blockbuster antipsychotic Risperdal. Prosecutors charged in a complaint filed in federal court in Boston on Friday that J&J illegally paid Omnicare to get the pharmacy company to buy J&J medicines and recommend their use to nursing homes. Omnicare purchases nearly tripled to $280 million, prosecutors alleged.
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Crony Capitalism is great:

An analysis by The Wall Street Journal shows that executives, traders, investment bankers, money managers and others at 38 top financial companies can expect to earn nearly 18% more than they did in 2008—and slightly more than in the record year of 2007.
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(WSJ) As a new year begins, stock-fund managers are all smiles about 2009's outsize gains, their best results in 50 years. But factor in the horrendous 2008 and some 97% of all stock funds still show a loss. While the average 2009 stock-fund return of 34.9% was the best since 1958, average performance in 2008 was a loss of 40.5%, according to calculations from investment researcher Morningstar. ..... So an investor with $1,000 invested on Jan. 1, 2008, would have only about $800 on Jan. 1, 2010. Few stock funds have delivered positive returns over the past two years. Of the 2,301 stock funds with more than $100 million in assets that were around for all of 2008 and 2009 (meaning newly hatched ones are excluded), just 63, or under 3%, are in the black over the two years, Morningstar says..... Among the vast majority of funds whose 2009 rebounds fell short of making up their 2008 slides is Oppenheimer International Small Companies. It posted returns of 121.7% last year, but that still wasn't enough to make up ground after its 66% loss in 2008. Someone with $1,000 in this fund at the start of 2008 would be left with around $750 at the end of 2009. Similarly, Van Kampen Equity Growth Fund (VEGAX) was up 78.3% last year but still down over two years after 2008's 50.7% loss. Bill Miller, holder of a record 15 straight years of beating the S&P 500, is still making up for a 55.1% loss in 2008, despite finishing ahead 40.6% last year. In Mr. Miller's case, the 2009 market-beating gains of his Legg Mason Capital Management Value Trust (LMVTX) were due in large part to heading back into financials early in the year. Interestingly, holding on to the financial sector too long contributed heavily to his 2008 losses.
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Interesting report on Tudor Tensor fund which is a hedge funds that trade futures. http://blog.ctnews.com/teribuhl/2010/01/14/162/
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(Bloomberg) -- Confidence among U.S. consumers rose less than forecast in January, signaling a lack of hiring will restrain spending. The Reuters/University of Michigan preliminary index of consumer sentiment increased to 72.8 from 72.5 in December. The gauge averaged 66.3 last year after reaching a record 28-year low of 55.3 in November 2008.
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European markets closed down 1% and more after U.S. stocks headed south on Friday. Oil was down $1.35 to $78.15 and Gold dropped $12 to $1130.
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The major market measures closed 1% lower in light trading. Breadth was 3/1 negative.
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14 January 2010

Thoughts

Model Portfolio Value As of 14 January 2010

$ 605,609

Gardengate, are the Obamas being honest about the vegetables? Maybe Sarah Palin on Fox News will give us the answer:

http://www.politicsdaily.com/2010/01/12/iron-chef-special-used-ringers-not-veggies-from-the-white-house/?icid=main|htmlws-main-n
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Asian markets were higher overnight and Europe is also higher at midday. The gains are mild. Gold and Oil are flat. First time Jobless claims were up 11,000 to 444,000 last week and retail sales in December were down 0.3% month over month when up 0.5% was expected. U.S. stocks look to open flat.
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Google/China stuff, the author suggest that Google gave China the key to all Google accounts: http://www.thedailybeast.com/blogs-and-stories/2010-01-13/
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The Subsidy That Won't Die, The big banks claim the government isn't helping them anymore. Not exactly. Check out this little-known subsidy.

http://www.newsweek.com/id/230530
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Underwater mortgagees and moral obligation: http://www.businessinsider.com/
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The Guy Who Called The Lost Decade For Stocks Just Told Us We're Now Set For A Decade Of Slow Growth:

http://www.businessinsider.com/
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Could the Fed be the answer we will never know? From the (Financial Times):

Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that "one big bidder" has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall.

The surprising demand for Treasury notes has come in the form of "direct bids", the term used for US institutional investors who bypass the so-called primary dealers that underwrite government bond sales.

On Wednesday, direct bids accounted for 17 per cent of the sales of $21bn in 10-year Treasury notes, far higher than the recent average of 7.4 per cent. It was the highest percentage of direct bids in a 10-year Treasury auction since May 2005.

On Tuesday, direct bids accounted for a record 23.4 per cent of the bidding for $40bn in three-year notes, up from an average direct bid of 6 per cent.

Market participants say the unusually high level of direct bidding suggests that a large investor is looking to accumulate Treasuries without alerting the primary dealers on Wall Street to its intentions.

"It appears to us that someone is trying to hide their apparent interest in owning these auctions from the rest of the market," said David Ader, strategist at CRT Capital.

Rick Klingman, managing director at BNP Paribas, said: "It is unusual to see such a spike in the direct bid and I would imagine it is one big bidder. There is no way we will find out who it is, not now, or ever."

The surge in direct bidding is particularly notable because it comes after predictions that the record levels of Treasury debt issuance would exhaust investor demand, driving yields higher.

Among the most high-profile warnings came from Pimco, manager of the largest bond fund, which raised concerns about the escalating supply of US Treasury debt.

Attention will now focus on whether there is similar direct demand for Thursday's $13bn 30-year bond sale.

(There was a large indirect bidder for the thirty year this afternoon.)
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Intel announces after the close and JP Morgan announces tomorrow morning before the opening. Both will beat and the markets’ reaction will set the tone for the next few days at least.
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Oil ended down 29 pennies at $79.37. Gold gained $6 to $1143.
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Major stock measures closed 0.5% higher but as we mentioned above the real action will occur overnight. Breadth was flat and volume continues to be light.
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13 January 2010

Thoughts

Model Portfolio Value As of 13 January 2010

$ 605,578

Asian markets were lower as is Europe. Oil has an $80 handle and Gold is up $7 in the early going.
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Google is talking about pulling out of China because there has been a concerted attack on Google servers by unknowns but thought to be the government of China hackers. China is not to be trusted, big surprise. With Google’s threat Baidu, the Chinese internet service is up 20%. There is always a winner, until there isn’t.
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Alcoa may be a good trading idea but we realized last night AA is a bad trading idea for us since we don’t want to own stocks right now. We sold this morning for a 30 pennies loss. We were one trade too aggressive.
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Europe close mixed. Oil dropped $$1.04 to $79.85 and Gold gained $8 to $1138.

The major measures gained more than what they lost yesterday. Our one day winning streak of market direction guessing is finished. Breadth was 21/ positive and Volume was light.
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Musings and other info

The Google/China imbroglio is interesting in that the profit motive is conflicting with human rights. Of course Wall Street and traders are coming down on the side of Profit and selling Google on the fear that it will pull out of China. That is too bad. We would like to see Google’s share price rise on news that Google is standing up for the human rights activists that China is attempting to find by hacking into Google Servers. But not is our life time, we suppose.
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The Wall Street bigwigs are testifying today. Yawn! http://www.thedailybeast.com
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Taxpayers lose, Goldman wins. http://www.zerohedge.com
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Clients lose, Goldman wins. http://www.zerohedge.com/
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Obama will announce his intention to impose a fee on more than 20 of the country’s largest banks and financial institutions to help recoup taxpayer bailout money and trim the federal budget deficit, an administration official said. The fees, expected to be spread over as many as 10 years, will be based on the leverage or amount of liability each firm has, said the official, who spoke on the condition of anonymity.

And guess who winds up paying those fees. The tax should be on bonuses and banking and investment banking should be separated but there is not the political will to do either.
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http://digbysblog.blogspot.com/

There you have it. The banks are greedy bastards who never wanted the money but benefited from the taxpayers' largesse --- but the administration is at fault for bailing them out in the first place.

This isn't going to be good for Democrats. Needless to say, the banks were originally bailed out by the Bush administration, but Bush's failures have been disappeared and the transition was pretty seamless between the two administrations on this issue, so there's not a lot of daylight. All anyone sees is this continued coddling of the big banks and Wall Street and a very unseemly relationship between the government and the most unpopular members of the business and financial sectors, in both the health care debate and the bailouts. Unfortunately, the only one of that group that people actually get to vote for is the government. As I've written before, the Democrats (and in particular those in the administration), are vulnerable on this because they ran so explicitly as clean, transparent reformers and they seem to be wither ineffectual or in cahoots. Neither of those things are selling points.

And I'm afraid that nobody believes the president's reported proposal to tax the banks to "recoup" some of the TARP funds is anything more than a political stunt at this point. The days of finger wagging and strenuously objecting are gone --- too much is known about the coddling of these institutions to make any of that believable. Unless there's more to it than we can see right now, I can't imagine that it will make a difference, even if the president goes on TV and sounds really, really mad. This requires something bold that will start to change the fundamental way our financial system is structured. Unless that happens this is going to be a very big political problem for the Democrats and an even bigger economic problem for the country.
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Delta is raising the charge for the first bag to $35 and the charge for the second bag also. There is some justice for this in that folks who don’t check bags shouldn’t have to pay for other folks bags that the planes have to carry. By that same logic, of course, folks who weigh 250 pounds should have to pay an overage fee versus those who weigh 125 pounds. And folks who don’t check any luggage are branded as terrorists and stripped searched so maybe it all comes out equal in the end. God bless America.
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Shouldn’t someone be worried? From http://digbysblog.blogspot.com/

I (Digby not Bud) hate to be a crank, but it seems to me that if an American state that has the 8th largest economy in the world, somebody ought to be worried about this. Aside from the sheer scale of human misery involved, it's hard for me to believe that it won't affect the rest of the country --- you have to wonder how great this alleged recovery actually is if this is still happening here:

The latest budget plan from California Governor Arnold Schwarzenegger would force 200,000 children off low-cost medical insurance, end in-home care for 350,000 infirm and elderly citizens and slash income assistance to hundreds of thousands more.

And that's the best-case scenario under Schwarzenegger's prescription for filling the state's $19.9 billion deficit.

Refusing to consider broad tax hikes, he is relying mostly on $8.5 billion in reduced expenditures including drastic cuts to health and social spending that has long made California one of the leading U.S. states in providing help to the needy.

Schwarzenegger also is counting on the U.S. government contributing nearly $7 billion that he says is due California because of various federal mandates.

If federal money fails to materialize, the governor's plan would trigger deeper cuts that would dismantle entire programs, including the state's welfare-to-work system, CalWorks.

Enactment of the Republican governor's proposal, with or without Washington's cooperation, is far from certain given that leaders of the Democratic-controlled state legislature immediately rebuffed it as too harsh.

Even representatives of Schwarzenegger's own government acknowledged the drastic scope of his proposed cuts, which the governor himself described as "draconian."

"They are major reductions in health and human services in California, whether we get the federal funds or not," said Amy Palmer, spokeswoman for the state agency overseeing many of the programs hardest hit. "If we don't get the federal funds, the reductions ... are devastating."

Critics say many such cuts ultimately would cost the state more money than they save, as when elderly patients forced out of adult day-care facilities end up in nursing homes.

[...]

Without extra federal money, CalWorks would be eliminated altogether, leaving California the only U.S. state no longer a part of transforming the nation's welfare system into a program aimed at moving poor, jobless Americans into full employment.

Others programs on the chopping block include transitional housing for foster youth; low-cost Healthy Families medical insurance for needy children, the Medi-Cal healthcare plan for the poor, and a network of subsidized in-home care for the elderly and disabled.

At least 200,000 children are slated to lose eligibility for Healthy Families, with that number growing to 900,000 if the program is gutted entirely.

Nearly 90 percent of the 400,000 recipients of In-Home Support Services stand to lose care under Schwarzenegger's best-case scenario, and state reimbursements to providers of those who remain would be slashed to minimum-wage levels. Otherwise, the program would be abolished, throwing 350,000 caregivers out of work.

For Medi-Cal, Schwarzenegger has proposed clamping new limits on health services while raising premiums and patient co-pays if he gets the extra federal money he wants. Medi-Cal for legal immigrants in the country less than five years would be eliminated, unless they were pregnant.

If additional federal funds fail to arrive, some 450,000 Medi-Cal recipients would be stripped of eligibility and most optional adult benefits, such as reimbursements for hearing aids and other medical equipment, would be scrapped.

 

All these health care programs being cut are especially worrying. These patients will logically be coming into the already stretched emergency rooms, costing far more money, so the only real purpose here must be to let them die. I (Digby) can't see how it will work otherwise.

The good news, though, is that the most productive members of our society are making 8 figure bonuses this year. At least we don't have to worry that the really important people are being unfairly compensated for all their hard work, so that's good.
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Wonder if Arnold wonders why he wanted to be governator.
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Maybe since Haiti has been destroyed by earthquake the countries of the world could use it as a model for rebuilding and re-economizing. We know, not possible, costs too much, let’s just appropriate another $200 billion for the endless wars in Iraq and Afghanistan.
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12 January 2010

Thoughts

Model Portfolio Value As of 12 January 2010

$ 605,566

Alcoa missed last night and that has the major stock measures lower in the early going. Trader thinking had been that everyone was going to beat and so the first DJIA component missing has given pause to that idea. But Intel comes on Thursday and so the big boys and girls still have some bull pans in the fire. Asian markets were higher overnight but European bourse indexes are lower at midday. Oil has an $80 handle off $1 and change and Gold is down $3 after its $50 plus run higher over the last few days.
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Fed earns record $46 billion. Bernanke salary remains fixed at $200,000 with no bonus. Of course the Fed was leveraged a gazillion to one to earn that return. He who makes the rules controls the game.
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Hiring the myopic to advice the myopic?

(WSJ) American International Group  has asked Thomas Russo, the former top in-house lawyer at Lehman Brothers, to be its next general counsel, according to people familiar with the matter. Mr. Russo was the chief legal officer at the Wall Street investment-banking firm for over 15 years through its 2008 bankruptcy, the biggest in U.S. history. He was a close aide of former Lehman CEO Richard Fuld Jr. and left the firm at the end of 2008. Mr. Russo, 66 years old, wasn't available for comment. The former regulator has been senior counsel at the New York office of law firm Patton Boggs LLP since April 2009...... Mr. Russo is a longtime friend of AIG Chief Executive Robert Benmosche, a person familiar with the matter said. Mr. Russo is on the board of the Institute of International Education, a nonprofit group that administers the Fulbright Scholarship Program. Mr. Benmosche's wife, Denise Benmosche, has also been involved with the organization for a number of years. Mr. Russo is one of the few Lehman executives to have spoken publicly about the firm's collapse. In a 2009 interview with a Legal Times blog, he faulted the government for failing to save Lehman from bankruptcy. "It's almost common knowledge that that was a terrible failure on the government's part. But in saying that, one must move on, and there isn't much one can do about it now" Mr. Russo is quoted as saying. "There were lots of other firms that were similarly situated and did not have that happen to them, and I am happy for them."

(LY) There is no accountability on Wall Street.
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We sold the balance of the Barnes & Noble and Coldwater. We did buy Alcoa for a trade as it is down 10% today.
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European stock markets finished little changed, retreating from early session gains prompted by stronger-than-expected Chinese trade data.
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Mortgage default rates for mortgages made in 2006: http://www.calculatedriskblog.com/

"The cumulative default rate on option ARMs is higher than on any other category of loans except subprime. For 2006 securitized issuance, 61% of subprime loans have defaulted, as have 49% of the option ARMs, 39% of Alt-A loans, and 11% of prime loans."
*****

An interesting short read with the usual cast of characters:

Larry Summers, Robert Rubin: Will The Harvard Shadow Elite Bankrupt The University And The Country?

http://www.huffingtonpost.com/harry-r-lewis/
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Oil lost $1.73 to $80.90. Gold dropped $22 to $1128.
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Stocks closed lower on the day (of course they did we sold out yesterday). Breadth was 3/1 negative and volume was light. One day wonder or more? Stay tuned.
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Sheila Bair has her say and it well worth the read:

http://blogs.wsj.com/economics/2010/01/12/

(WSJ) For anyone who thought the federal regulators were all on the same page regarding the best way to police compensation at banks, think again.

Tension behind the scenes spilled into a nasty exchange of words at a public meeting of the five-member Federal Deposit Insurance Corp. board of directors. The long and short of it: FDIC Chairman Sheila Bair and two other board directors support proposing a new policy that would tie the fees banks pay for deposit insurance to the risk-profile of the compensation plans at those banks. In other words, if the bank pays executives in a way that the FDIC feels encourages dangerously risky behavior that could ultimately lead the bank to fail, then the FDIC can charge them more for deposit insurance.

Comptroller of the Currency John Dugan, whose agency regulates national banks, and Office of Thrift Supervision acting director John Bowman, whose agency regulates federal thrifts, strongly disagreed with the proposal. They said, among other things, the FDIC was moving too quickly because the Fed and Congress were both looking to address of banker compensation using different standards. They also said it was unclear how much of a factor banker pay really played in causing banks to fail. And Mr. Bowman also suggested it was unclear whether the FDIC even had the authority to assess higher fees based on pay plans. Messrs. Bowman and Dugan voted against the proposal, which narrowly passed 3-2.

Ms. Bair wouldn’t let their criticisms go unanswered and launched into a lengthy unscripted rebuke:

(The only acronym worth noting is “MLR,” or material loss review. These are conducted after sizable bank failures, when government investigators go through the causes of the collapse)

Ms. Bair: I must say to take a position that we should not even be asking these questions is not one that I can understand. I also cannot understand why we need to keep waiting. We need to keep waiting for this or that, and in the interim, nothing changes. We just maintain the status quo, and the longer we try to [implement] meaningful reforms, the more momentum for that dissipates. We are simply asking the question.

There are a number of MLRs for the smaller institutions that draw quite a clear contributing factor to bank failures on losses. We don’t have MLRs for the larger institutions because they got bailed out. That does not mean to say that we shouldn’t be looking at the huge compensation systems of the larger institutions as well, and how that fed into risk taking and the credit crisis which has obviously imposed massive losses for the deposit insurance fund. We must rely on academic research and other work done by our own staff to determine whether there is cause and effect here. We are asking the question right now but we are obliged to have risk adjusted premiums. And we are obliged to evaluate risk to the deposit insurance fund, and we are obliged to try to factor in those risk elements into our premium structure.

So I think there is nothing we are doing that conflicts with the Fed is doing. It complements that. There is nothing we are doing that conflicts with what the Congress is doing…

To suggest this agency shouldn’t do anything when there is such an overwhelming amount of evidence that this is clearly a contributor to the crisis and to the loses that we are suffering, I just cannot understand that.

John, you made a very good inventory of all the regulatory and statutory provisions dealing with management and compensation, but I must say, how effective have those been? And maybe we should be looking at some other tools as well to again reinforce and complement those supervisory efforts.

I think the regulators have been roundly criticized for not fully exploring the regulatory tools we have at our disposal to address some of the root causes of this crisis…not to even ask the question I think would not be responsible for this board to do.
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11 January 2010

Thoughts

Model Portfolio Value As of 11 January 2010

$ 606,348

The selling we did Friday and will do this week is the result of a gut feeling (we and several clients spent the last few days taking about how well our accounts had recovered from the crash and feeling very smug about it) that it is time for the correction to occur. We have been anticipating a correction for six months and been wrong. But being wrong only cost us gains, not losses. Truth be told the technicals don’t suggest a collapse or even a correction. But the move off the March 2009 lows has been as relentless as was the drop in the markets from August 2008 to March of 2009. Moreover, the time frame of the rally about equals the time frame of the drop.

The economy has stabilized and unemployment will stop falling but the quality of the jobs being gained is much less than the quality of the jobs that were lost. And we don’t think folks are going to go hog wild on the spending side anytime soon. It makes sense to us that new home sales declined last month while existing home sales increased. With all the foreclosures and lower prices the value lies in the existing home market and folks that have the funds are taking advantage of the values. The media keeps harping on the fact that banks are not making funds available for borrowing. But then in the same breathe the media and Congress blamed the banks for making stupid loans in the past. We have no love for the banks but it does seem to us that prudence in lending is something we want the banks to exhibit.

We went back into stocks in November/December because of the time of year and with the hopes of making a few percentage points and with no dreams of untold riches awaiting us. We have done better than we expected more quickly than we expected and so we are again heading to the sidelines to beat what we think will be rush by others to get there also.
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Asian was higher overnight with china closed. Europe is also higher as are Gold up $20 and Oil with an $83 handle up over $1.
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To give or not to give, that is the question for Goldman Sachs:

http://www.nytimes.com/2010/01/11/business/economy/11goldman.html
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We sold the rest of our holdings except partials of Coldwater and Barnes & Noble and we will them soon.
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Congress is the exception on the Cadillac health plans- not by accident: http://www.dailykos.com/

The problem is that they define "Cadillac" not by the benefits a plan delivers but by how much a plan costs. But as any insurance maven will tell you, costs depend more on the people being covered (old, sick, or both?) and location (high-cost New York or low-cost Montana?) than on the level of benefits. "High-cost plans aren't necessarily generous plans," says Beth Umland, director of research for health and benefits for the Mercer consulting firm.

Indeed. Here's an example. Let's say that the 100 members of the U.S. Senate (average age: 63), where the excise tax idea originated, had their own health plan rather than being part of the Federal Employees Health Benefits Program (average policy-holder age: 46).

The federal plan's Blue Cross option with vision and dental care will cost $6,971 for individuals and $16,124 for families in 2010, well below the threshold ($8,500 and $23,000) at which the excise tax, which starts in 2013, would apply.

This same plan just for senators would probably cost about $14,000 for individuals and $32,000 for families -- way, way up in excise tax land. My estimate is based on the work of economist Henry J. Aaron, who has analyzed the way people's ages affect health-care costs. See? A Malibu policy for a big pool of employees becomes an Escalade if it covers only older ones.
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There is rotation from Google and Apple et al in the Tech area to U.S Steel, Caterpillar and other cyclicals occurring. Those cyclicals have already recovered at least 100% and more from their lows. When the institutional rotation runs its course reality may set in. Good earnings are expected. Will the markets move higher as better than results are announced or...
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The more things change: http://trueslant.com/matttaibbi/

Obama’s Health Care Reversals

During the presidential primary, in the spring of 2008, Obama ran a campaign ad aimed directly at Tauzin, chief executive officer of the Pharmaceutical Research and Manufacturers of America. In the ad, titled “Billy,” Obama tells a small gathering of seniors:

“The pharmaceutical industry wrote into the prescription drug plan that Medicare could not negotiate with drug companies. And you know what, the chairman of the committee who pushed the law through went to work for the pharmaceutical industry making $2 million a year. Imagine that. That’s an example of the same old game-playing in Washington. I don’t want to learn how to play the game better. I want to put an end to the game-playing.”

But Obama has played the game, and Tauzin was one of the first players he picked for his team. White House visitor logs show that between Feb. 4 and July 22, Tauzin visited his office an average of once every 15 days — about as frequently as Tauzin probably collects that generous paycheck candidate Obama derided. We don’t know how often Tauzin visited after July, because of the ad hoc nature of White House visitor log releases.
*****

Jeff Saut at Raymond James has been right on for the whole rally. These are some of his current views. We obviously don’t’ agree with the staying long stocks view but he has been more correct than we –so far.

Raymond James uber-bull Jeff Saut is still long, but he didn't like what he saw in Friday's jobs number. Here are some of his thoughts.

http://www.businessinsider.com/jeff-saut-stay-long-but-that-jobs-number-was-really-horrible-and-were-starting-to-near-our-longtime-targets-2010-1

Drilling down into the numbers, however, reveals some more disturbing trends.  Indeed, according to the household survey, jobs lost leaped to 589,000 for the month of December, while the broad-based U-6 measurement of unemployed and underemployed edged up to 17.3%.  Moreover, there was an astounding rise in discouraged workers year-over year (929,000 vs. 642,000).  Most troubling is Table A-9, which shows that the duration of folks out of work for 27 weeks (or longer) totals to 6.1 million.  If the U-6 report is right (15.3 million unemployed) it implies that ~40% of the unemployed have been collecting benefits for a pretty long time.  Adjusting for all the “noise” suggests the true unemployment rate should have been around 10.4%, not the reported 10%.

Nevertheless, the various markets didn’t seem to care as the S&P 500 rose 3.29 points on Friday and finished the week better by 2.7%.  The rise brought the SPX to within sneezing distance of our long-envisioned trading target of 1150 – 1160.  Bettering that level would suggest our strategy of “since credit spreads are back to pre-Lehman bankruptcy levels there is no reason that the SPX can’t trade back to the pre-Lehman levels of 1200 – 1250.”  That said, with ~94% of the S&P 500 stocks back above their respective 200- day moving averages (read: overbought), the S&P at the top of its Bollinger Band, and the MACD rolling over, we remain cautious, worried about the first two weeks of the new year historically being littered with “head fakes,” as well as trading tops.

Dynamically, participants should still be long half of the index trading positions recommended months ago, but with close trailing stop-loss points.  Strategically, we think it is appropriate to hedge, or harvest, partial positions in the investment account.  Take 8.5%-yielding Daylight Resource Trust (DAYYF/$10.60), which is followed by our Canadian affiliate Raymond James Ltd.  When we initially recommended DAYYF the price target was $10.50 per share.  Now that the shares have exceeded that target, we think selling partial positions is a prudent strategy.  As for new investment money, last week on CNBC we focused on three of this year’s Analysts’ Best Picks.  They were CVS (CVS/$34.00/Strong Buy), National Oilwell (NOV/$47.11/Strong Buy), and coal company Alpha Natural Resources (ANR/$51.14/Strong Buy).  Interestingly, our coal analyst, Jim Rollyson, penned an excellent report on metallurgical coal this morning.  We continue to invest, and trade, accordingly.

The call for this week: The most important development in the last 30 trading days has been the rally in the U.S. Dollar, which has been swift and large, suggesting the greenback is now in an uptrend.  However, this morning the Dollar Index (DX.1/77.09) has broken below its recent reaction low of 77.39, putting a “bid” back into the “stuff stocks” (energy, timber, precious/base metals, agriculture, etc.).  It will be interesting to see if this dollar weakness is a head fake.  If it is, and the “buck” strengthens again, it has significant implications for the various markets.  Stay tuned . . .
*****

Europe closed mixed. Oil closed 50 pennies lower at $82.50 and Gold gained$12 to $11.51.
*****

CNBC's documentary on AOL was one of its lowest rated, drawing just 150,000 viewers, Peter Lauria at the New York Post reports. Turns out CNBC's audience prefers pot and porn to a reheat of a decade old business story. "Porn: The Business Of Pleasure," drew 500,000, while "Marijuana Inc.," had 1.2 million viewers.
*****

The DJIA and S&P 500 closed higher while the NAZZ was lower in desultory trading. Breadth was positive on the NYSE and negative on the NAZZ.
*****

 

8 January 2010

Thoughts

Model Portfolio Value As of 8 January 2010

$ 607,448

The monthly employment report said 85,000 jobs were lost in December. The street was expecting a flat number and the major stock indexes are lower as a result. Asian markets were higher overnight and European bourses are mixed at midday. Actually the negative report is a positive because that means that the first positive report is yet to come. Say what!
*****

When we began buying in November we were just hoping to make a 3% gain since cash is yielding nothing. We have done better than that and since we are still looking for a correction we have sold a good chunk of our holdings today. The Model is now less than 40% invested down from 80% a week ago. Hopefully the markets will continue to move higher and we can do some more selling.
*****

There is no free lunch. This wire story caught our attention:

(Bloomberg) -- The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged. The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort. Annuities generally guarantee income until the retiree’s death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.

In the panic of last year, insurance company stocks tanked because they owned common stocks plus bonds and CDOs that were affected by the panic. Moreover, some insurance companies had sold annuities that guaranteed against losses in the markets but hadn’t hedged those guarantees or had hedged them with Lehman and Bear Stearns that went bankrupt and couldn’t pay on the hedges. Annuities are sold by insurance companies and they invest the money in stocks and bonds and all the funny instruments that Goldman Sachs creates in order to earn a return. That’s Economics 101. The Treasury and media didn’t talk much about that risk because the panic would have been greatly exacerbated if the public had realized that their insurance companies were in danger of not being able to pay on their claims let alone honor annuities.
*****

Europe closed slightly higher. Gold was $3 at $1136 and Oil gained small to $82.92.
*****

The major measures were higher at the close. Breadth was positive and volume was light. The bulls won the week.
*****

 

7 January 2010

Thoughts

Model Portfolio Value As of 7 January 2010

$ 610,902

Asia, Europe, Gold, and Oil were and are mildly lower as the trading day begins. Jobless claims were in line at 434,000 the same as last week.
*****

Individual retail store company numbers for December were mostly better except Abercrombie and American Eagle were worse than.
*****

The WSJ reports that Board members at Cadbury, resisting a hostile takeover effort from Kraft, have held talks with board members at Hershey to encourage a rival offer. We think Hershey is nuts to take on the debt to do this. Their own business has been mediocre for the past few years so what possesses the board - except ego- to think that can do better by spending $13 billion in debt/stock.
*****

More from WSJ : China raised a key interbank market interest rate for the first time in nearly five months, signaling a change in its policy focus toward pre-empting inflation risks.

And Fed officials last month acknowledged the economy is gaining momentum, but clashed over what to do about the asset purchases used as stimulus. And Remarks by Japan's new finance minister caused the dollar to shoot up against the yen in Asian trading on speculation that he might order intervention in the currency market to help exports.
*****

(Reuters) - Barnes & Noble cut its third-quarter earnings forecast on Thursday, citing lower-than-expected holiday sales, but the U.S. bookseller said it expected its stores to be fully stocked with its Nook electronic reader in the coming months. "Orders for Nook remained strong throughout the holiday season, and, in fact, accelerated after we announced that we had sold out our initial supply," CEO Steve Riggio said in a statement. "Demand remains strong in the new year and greater than our supply, however, we expect production to catch up with demand and be fully stocked in our stores in the next few months." Barnes & Noble said for the nine-week holiday period that ended Jan. 2, sales at its namesake stores fell 5 percent to $1.1 billion, while same-store sales were down 5.4 percent. Sales at barnesandnoble.com rose 17 percent to $134 million. The online sales include Nook revenue recognized since the product began shipping after the U.S. Thanksgiving holiday, it said. The retailer now expects third-quarter earnings of $1.20 to $1.40 per share, compared with a previous forecast for $1.30 to $1.50 per share. Analysts, on average, were expecting earnings of $1.40 per share, according to Thomson Reuters I/B/E/S.
*****

As senator Dorgan retires to make money in the private sector his vote against the repeal of Glass Steagall stands as a testament to foresight.

From http://www.huffingtonpost.com/2009/05/11/glass-steagall

When the Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8, it reversed what was, for more than six decades, a framework that had governed the functions and reach of the nation's largest banks. No longer limited by laws and regulations commercial and investment banks could now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp. The new law allowed it to be permanent. The updated ground rules were low on oversight and heavy on risky ventures. Historically in the business of mortgages and credit cards, banks now would sell insurance and stock.

Nevertheless, the bill did not lack champions, many of whom declared that the original legislation -- forged during the Great Depression -- was both antiquated and cumbersome for the banking industry. Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.

"Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy."

"I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).

"The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen. Bob Kerrey, (D-Neb.).

"If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world," said Sen. Chuck Schumer, D-N.Y. "There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive.".......

Not everyone looks back at that vote with regret. The repeal of the law, they argue, was responsible for the sharp growth that the market experienced in the subsequent years. Moreover, the argument goes, if not for the over-leveraging of credit in the housing market the gut shot that many major banks endured could have been avoided.

That said, the concept of regulation has, over the past decade, taken on a drastic shift in public perception, from being viewed as a hindrance to economic growth to a guardrail from future disaster. And spearheading that effort at revamping the regulatory system is the same senator who foresaw the problem in the first place.

"I'm from a little small town of 300 people in North Dakota," Dorgan told the Huffington Post. "Where I grew up, we have seen a history... of some of the larger banks and difficulties farmers have had in dealing with some of the larger banks over the last century or so. And so, my own view about these issues is that there needs to be, to the extent that you can, create a free market that works with price competition and product differentiation and so on, but there needs to be a referee with a whistle and a striped shirt, I mean the free market sometimes needs referees."

Ten years later, Dorgan has been vindicated. His warning that banks would become "too big to fail" has proven basically true in the wake of the current financial crisis. He seems eerily prescient for claiming then that Congress would "look back ten years time and say we should not have done this." But he wasn't entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin and Richard Bryan also cast nay votes.

As did Sen. Russ Feingold, who, in a statement from his office, recalled that "Gramm-Leach-Bliley was just one of several bad policies that helped lead to the credit market crisis and the severe recession it helped cause."

The late Sen. Paul Wellstone also opposed the bill, warning at the time that Congress was "about to repeal the economic stabilizer without putting any comparable safeguard in its place."

Outside government, doomsday-ing over the repeal of Glass-Steagall seemed far more palatable a position to take. Edward Kane, a finance professor at Boston College, warned that "nobody will be able to discipline a Citigroup" once the legislation passed, because the banks would be too big and the issues too complex.
*****

This article is the source of the new Timmy Geithner brouhaha that the Repubs are making:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXIvW4igKV38&pos=1
*****

Profiling with Courage

By Anne L. Thompson

In the wake of the failed terrorist attack aboard Northwest Airlines flight 253 on Christmas day, conservatives are once again calling on the U.S. government to engage profiling in counterterrorism efforts.

Radio host Mike Gallagher told listeners, 'There should be a separate line to scrutinize anybody with the name Abdul or Ahmed or Mohammed.' On Twitter and The Today Show, Newt Gingrich and Rep. Peter King (R-NY) have suggested that U.S. authorities should target individuals based on their ethnic and religious backgrounds.

These ideas suffer from terrible tunnel vision that fails to correctly isolate the terrorist threat.

Gallager's approach would let terrorists named Osama, Khalid, or Nidal slide by without increased inspection. And profiling on ethnicity or religion would have missed shoe-bomber Richard Reid, an American, and the alleged Anthrax killer Edward Ivins, a catholic. The recommendations of Gallager, Gingrich and King are clearly too close-minded and fail to appreciate the full scope of the threat facing America.

Re-examining the facts, what is the one characteristic that distinguishes the aforementioned terrorists, plus all of the September 11th hijackers and the 775 individuals who have been detained at Guantanamo Bay?

The answer: They are all men. It's not race, ethnicity, nor creed that is the best predictor of whether you will commit violent acts against innocent civilians. No, the best proxy is genitalia.

If there is any group that has earned increased scrutiny in the age of terrorism, it is the male population.

So what can we do to prevent the world's men from blowing up things?

As the recent case of Umar Farouk AbdulMutallab demonstrates, putting them all on the America's basic terrorist watch list-- the intelligence community's first level of surveillance-- does not offer enough protection. Yet placing 3.4 billion men on the No Fly List would be a preposterously extreme response. Instead, we are looking for an effective -- but moderated -- response that will both protect the American people and live up to our democratic principles.

An appropriate middle ground would require all men to be strip-searched before any domestic flight or international flight destined for the U.S. While full body scanners have received a lot of attention for being able to reveal explosives hidden under clothes, these devices cannot detect devices stowed within critical body orifices.

Now, I know you're thinking this is a great idea-- except for one thing. Just because men have carried out the vast majority of the history of terrorist acts, this doesn't mean women can't embark on global jihad.

It is true that last month the wife of bin-Laden's top deputy Ayman Zawahri called on women to join al-Qaeda's ranks. But from what we've seen in the past, we can't expect them to be as skilled at warfare as men. Remember the woman affiliated with al-Qaeda in Iraq who couldn't even get her explosives to go off at the hotel bombing in Jordan? This is not a group we have to take too seriously.

As Gingrich wrote in his recent op-ed in Human Events, if we want to address the threat of terrorism, we will have to stop being constrained by political correctness. We must target the population that is the source of the problem instead of creating a new slew of flight regulations that disproportionately affect everyday people.

During times of war it is sometimes necessary to place greater scrutiny on dangerous subpopulations in order to protect the lives of the innocent majority. If we are going to win the war on terror, we must refocus our resources on the single group that provides the greatest threat: men.
*****

We switched half our Palm to Ford. We also bought JC Penney and Abercrombie in a few larger accounts for a trade as both stocks dropped on lousy December sales.
*****

Oil ended at $82.64 down 50 pennies. Gold lost $3 to $1133.
*****

Palm will launch updated versions of its Pre and Pixi smart phones in an exclusive deal with Verizon.
*****

The S&P 500 and DJIA close higher and the NAZZ was lower as Google dropped again today. Breadth was positive on the NYSE and Negative on the NAZZ and volume was light.
*****

 

6 January 2010

Thoughts

Model Portfolio Value As of 6 January 2010

$ 606,394

Goodbye Senator Dodd.

“You have sat too long for any good you have been doing lately … Depart, I say; and let us have done with you. In the name of God, go!”

Oliver Cromwell to Parliament courtesy of BusinessInsider.com

*****

Stocks in Europe couldn't hold on to early gains as the market continued to drift after the year-opening rally. Asian stocks ended mostly higher, with Japanese shares advancing for the third straight session as exporters were boosted by weakness in the yen.
*****

Private-sector firms in the U.S. eliminated 84,000 jobs in December, according to the ADP employment report. It was the fewest jobs lost since March 2008. The private-sector has shed jobs for 23 months in a row. In November, a revised 145,000 jobs were lost compared with the 169,000 originally reported, ADP said.
*****

Walgreens said its December same-store sales declined 0.3%. Front-end same-store sales in the month fell 3.1%, while pharmacy same-store sales rose 1.8%. Total December sales increased 3.6% to $6.3 billion.
*****

(Reuters) - Telecom equipment maker Nokia Siemens Networks is not planning an offer for U.S. gear maker Ciena, a source close to NSN said, despite market speculation of a deal.
*****

Bulls dropped to 48% from 51% in the latest week in the Investors’ Intelligence survey. Bears rose to 17% from 16%.
*****

Interesting article on Robert Rubin, Treasury Secretary under Clinton and later highly paid CitiGroup pooh bah: http://www.businessinsider.com.
*****

Europe closed mixed; Gold was up $21 at $1140.

Oil rose $1.41 to $83.50. Why?
*****

The major measures closed mixed again today in light trading. Breadth was positive on the NYSE and negative on the NAZZ. Google was the party pooper on the NAZZ today down 2%.
*****

 

5 January 2010

Thoughts

Model Portfolio Value As of 5 January 2010

$ 601,405

Asian markets were mostly higher as are European bourses at midday. Oil has an $81 handle and Gold is a few dollars higher.
*****

Nestle dropped out of the bidding for Cadbury and Kraft has upped the cash part of its offer. Berkshire Hathaway is opposing Kraft using more shares in the offer. And the beat goes on.
*****

Pending home sales fell 16% in November as the tax credit expired. November factory orders were up 1.1%, better than expected.
*****

4 January: Canadian Industry Minister Tony Clement has approved Ciena Corp.'s application under the Investment Canada Act to acquire Nortel Networks Corp.'s Metro Ethernet Networks division, saying he's satisfied that investment is likely to be of net benefit to Canada. Clement said Ciena has committed to make Canada a key part of its global research and development operations and to maintain significant technology investment in Canada.  As reported, the $769 million purchase is one of a number of transactions related to the liquidation of Nortel, a Toronto-based telecommunications-equipment maker.
*****

Today Ciena calls are active as takeover by Nokia rumors are circulating. We didn’t start them but a takeover by Nokia would sure make sense.
*****

Ford December sales were up 23%.
*****

If you wish to peruse an unofficial bank problem list: http://www.calculatedriskblog.com/2010/01/unofficial-problem-bank-list-increases.html .
*****

Fannie, Freddie, and the New Red and Blue: http://trueslant.com/matttaibbi/
*****

Oil closed at $81.80 up 30 pennies and Gold unched at 1118. European bourses closed mixed.
*****

The major measures closed mixed. Volume was light and Breadth was positive on the NYSE and negative on the NAZZ.
*****

 

4 January 2010

Thoughts

Model Portfolio Value As of 4 January 2010

$ 595,435

Oil has an $81 handle in early trading and Asia was mostly higher although China was closed. Europe is higher at midday. Gold is up $20 at $1120. U.S. stocks look to open higher.
*****

Our Model Portfolio finished the year up 16.5%. Our larger accounts were up 3% to 10%. Most of those accounts were down 10% to 15% last year when the S&P 500 was down 37%. Our smaller accounts finished the year up 10% to 30%. It was a year to remember and to forget.
*****

Krugman: Here’s what’s coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.

But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.

This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.
*****

From http://in.news.yahoo.com

US stocks were the worst asset class over the past decade with an abysmal 0.1% 10-year annualized total return, the worst performance in 200 years. US stocks provided lower returns than cash while emerging market stocks returned over 10% and commodities over 7%.

Wall Street is on track to achieve its first annual advance in two years after staging a strong comeback from the March lows. But viewed in the context of the last decade, investors have little to cheer about. The benchmark S&P 500 is down about 10% over the last 10 years, which puts Wall Street on course to register its first-ever negative decade on a total return basis, even with dividends reinvested.

Even the Great Depression in the 1930s, which followed the stock market crash in October 1929 and spanned one of the worst periods for stock investing, turned out positive as dividends helped investors cushion some of the turbulence. But, excluding dividends, the S&;P 500 Index shows a drop of almost 25% this decade, compared with a gain of more than 300% over the 1990s.
*****

From http://firedoglake.com/

Terrorism Still Less Deadly in US Than Lack of Health Insurance, Salmonella
By: Blue Texan
Tuesday December 29, 2009 10:30 am

Since we still seem to be having a national freakout over some loser who got on a plane with a bomb in his underwear, which was apparently worthy of a presidential address, it might be a good idea to put the actual danger posed by terrorist attacks in some numerical perspective.

If you count the Ft. Hoot shooting as a terrorist attack, which even the likes of Pantload doesn’t, 16 people have died in the United States as result of terrorism in 2009. The other three deaths include the Little Rock military recruiting office shooting (1), the Holocaust Museum shooting (1), and Dr. George Tiller’s assassination (1), the last two coming at the hands of right-wing extremists.

On the other hand, 45,000 Americans died because they didn’t have health insurance and 600 died from salmonella poisoning.

Clearly, providing health care to all Americans is beyond our capabilities, so when do we launch the $700 billion-a-year War on Salmonella?
*****

AP Legal Affairs Writer Curt Anderson, AP Legal Affairs Writer – Mon Dec 28, 5:58 pm ET

MIAMI – It was a rough year for Ponzi schemes. In 2009, the recession unraveled nearly four times as many of the investment scams as fell apart in 2008, with "Ponzi" becoming a buzzword again thanks to the collapse of Bernard Madoff's $50 billion plot.

Tens of thousands of investors, some of them losing their life's savings, watched more than $16.5 billion disappear like smoke in 2009, according to an Associated Press analysis of scams in all 50 states.

While the dollar figure was lower than in 2008, that's only because Madoff — who pleaded guilty earlier this year and is serving a 150-year prison sentence — was arrested in December 2008 and didn't count toward this year's total.

In all, more than 150 Ponzi schemes collapsed in 2009, compared to about 40 in 2008, according to the AP's examination of criminal cases at all U.S. attorneys' offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state levels.

The 2009 scams ranged in size from a few hundred thousand dollars to the $7 billion bogus international banking empire authorities say jailed financier Allen Stanford orchestrated, as well as the $1.2 billion scheme they say was operated by disbarred Florida lawyer Scott Rothstein. Both have pleaded not guilty.
*****

From MarketWatch: Chicago purchasing index reaches 16-month high

More businesses in the Chicago region were expanding in December than at any time in the past 16 months, based on the latest data from the Chicago purchasing managers index. The business activity index rose to 60.0% from 56.1% in November...

Readings above 50% indicate expansion, and below 50% indicate contraction, so this suggests business activity is increasing.

This index is for both manufacturing and service activity in the Chicago region. In general the Chicago area is considered representative of the mix of manufacturing and non-manufacturing business activity in the nation.

The national ISM manufacturing index will be released Monday, and the ISM non-manufacturing index on Wednesday.
*****

Companies in the U.S. expanded in December at the fastest pace in almost four years, signaling the economic recovery is gaining speed heading into 2010.

The Institute for Supply Management-Chicago Inc. said today its barometer rose to 60, exceeding the most optimistic estimate of economists surveyed by Bloomberg News and the highest level since January 2006. The gauge, in which readings greater than 50 signal expansion, showed companies boosted production and employment as orders climbed.
*****

Anecdotally, Caterpillar in Dubuque has ads in our local paper for $23 an hour machinists and tool & die makers.
*****

Jobless claims reported last Thursday fell to 432,000. Continuing claims dipped under 5 million.
*****

Chuckle of the day. CNBC is discussing restoring credibility of the SEC and it has Harvey Pitt, former SECD Commissioner on as its only guest. Harvey quit/resigned/was asked to go after the following occurred: http://www.usatoday.com/money/companies/regulation/2002-11-05-pitt-resigns_x.htm .
*****

The Perfect Metaphor: The Makers of the Times Square Ball Filed for Bankruptcy

Each year Waterford Crystal designs a new pattern for the Times Square Ball that drops on New Year’s Eve. The new crystals, triangular in shape, number in the hundreds and are installed alongside the permanent Waterford crystals that remain in the ball year after year. This year, the company made a Celtic knot pattern dedicated to the theme “Let There be Courage.” It’s a fitting slogan considering the year we’ve had, but it hits even closer to home for Waterford–who also owns Wedgwood China–since the company declared bankruptcy in January of 2009. It’s almost too painfully symbolic. As we put one of the worst economic years on record behind us, we celebrate by lavishing attention on a colorful crystal ball that is produced by a company that fell victim to the recession. I would not want 2009 to go out in any other fashion. We came into the year broke and we should remember that as we exit it, even if they say things are looking up.

http://trueslant.com/nickobourn/2009/12/30/the-perfect-metaphor-the-makers-of-the-times-square-ball-filed-for-bankruptcy/
*****

December ISM reading shows greater-than-forecast U.S. manufacturing strength
*****

Ann Taylor and American Eagle were downgraded this morning. Our guess is that the analyst is negative on the December numbers. Since the stocks trade thinly to the upside and downside we are taking our loss on ANN and corresponding profit in AEO and will look for lower entry points on both. We also switched Chico’s to GE and took a one day 50 pennies profit on the Natural Gas ETF.
*****

Essay on Deficit reduction: http://www.businessinsider.com/new-year-same-old-deficit-hawk-rubbish-2010-1
*****

(WSJ) The U.S. manufacturing sector finished 2009 on a high note, helped by improving production and ordering activity, according to data released Monday by the Institute for Supply Management. Separately, U.S. construction spending tumbled in November more than expected, pulled lower by the housing and commercial sectors as the recovering economy deals with high unemployment. The ISM's manufacturing purchasing managers' index rose to 55.9 last month, from 53.6 in November. December's reading was above the 54.0 forecasted by economists surveyed by Dow Jones Newswires. Readings above 50 indicate expanding activity.
*****

GM's sales in China were up 67% last year.
*****

Global semiconductor sales rose 3.7% in November from the previous month--the ninth-straight month of sequential gains.
*****

(Bloomberg) -- Warren Buffett recorded his worst performance against the stock market in a decade last year. Berkshire Hathaway, the company Buffett has led as chairman for more than four decades, advanced 2.7 percent on the New York Stock Exchange in 2009, less than the 23 percent return in the Standard & Poor’s 500 Index. Berkshire fell 32 percent in 2008, better than the 38 percent slide in the S&P 500.
*****

Oil ended at $81.53 up $2.16. Gold rose $21 to $1117 and European bourses advanced over 1.5% after U.S. stocks gapped higher at the opening.
*****

( http://www.huffingtonpost.com/2010/01/04/too-big-to-fire-92-of-man_n_410478.html ) According to a new report by Emma Coleman Jordan at the Center For American Progress, 92 percent of the top managers and directors at the top 17 companies that received TARP funds are still in their same positions (hat tip to Barry Ritholtz).
*****

The S&P 500 closed up 18 at 1132 and the DJIA was up 160 points. Volume picked up and breadth was better than 2/1 to the good. Last year the major measures popped up 3%  the first trading day but then closed 9% lower on the month. So hold the celebrations for now.
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FAIR USE NOTICE

This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.


Website Information

For those folks who have accounts with us, you may now go to: https://eview.mesirowfinancial.com and fill out the account information and view your accounts online. If you have trouble filling out the form, or in getting online, call and we will help you with the process. NASD regulations require the eview site to be secure. Thus your password must be changed every ninety days. You will be prompted to make this change when needed.

For information on Mesirow SIPC and Excess SIPC protection SIPCmesirow.pdf.

For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending 09/30/2002 For Quarter Ending 12/31/2002 For Quarter Ending 03/31/2003
For Quarter Ending 06/30/2003 For Quarter Ending 09/30/2003 For Quarter Ending 12/31/2003
For Quarter Ending 03/31/2004

All future SEC Rule11Ac1-6 Quarterly reports may be found by visiting the diclosures at LY& Co Clearing Broker Mesirow Financial at: http://www.tta.thomson.com/reports/1-6/msro/.


Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.


Summary of Business Continuity Plan

15624 Lemley Drive, Soldiers Grove, Wi 54655 312-925-5248
The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.