In March we were comfortable being fully invested in the
panic although we must admit we didn’t enjoy the turmoil. It is now May and the
S&P 500 is 40% higher than its March 9 low and we are comfortable in cash.
Our theme for the past ten years has been that the markets are gambling casinos
that must be traded to survive and not investment areas and we have no evidence
to alter that view. The ferocity,
rapidity and depth of the February-March decline were an experience not easily
forgotten. We survived it but were chastened. And so we are reevaluating
our manner of managing accounts.
Until we arrive at
some conclusion we will remain in cash.
Housing starts were down 12% in
April and permits down 3% both of which were worse than expected.
The Credit Card Reform bill that
Congress is going to pass is a sham. No company that is able to borrow money at
less than 1% from the Fed should be able to charge 20% and more interest when
it lends that money. That is usury pure and simple. The interest rate charged should be set at 12% higher than the cost of
funds that they can borrow at the Fed.
Moreover the credit card
companies are raising rates on consumers who have always paid their bills on
time. Obama has failed consumers on this bill. And so has the Democrat
When the Treasury rescued the
banks last year the Treasury was given warrants to purchase shares in the banks
as an upside carrot for lending the money. Now the banks that are repaying the
TARP are trying to retire the warrants without testing the prices at which they
will repurchase them from the Treasury in the marketplace. Geithner continues
to work for Wall Street instead of the American taxpayer and Obama is folly to
let him do so.
The “Me” generation has returned.
Last fall TARP program created by the Treasury to save the banking system was
premised on the notion that whole country was in a financial mess and that
everyone (the taxpayer and C/D buyer especially) had to sacrifice to assure the
survival of the capitalist system. The TARP loans assured the survival of JP
Morgan and Morgan Stanley and Goldman Sachs. Had the TARP funds not been
provided, those companies would have failed along with all the other financial
institutions as the failure of a few would have affected the survival of all.
Moreover the rescue of AIG provided $10 billion to Goldman Sachs which wouldn’t
have been there if the government hadn’t provided the funds. The same holds
true for other insurance companies and banks who had engaged in speculative
transactions that were recklessly insured buy AIG. Moreover, as we have often
stated the artificially low interest rates being maintained by the Fed are
providing extraordinary profits to financial industry at the expense of those
ordinary folks who saved and were cautious.
But now the “Me” has resurfaced
as Goldman and JP Morgan and others boast that they are solvent and shouldn’t
be beholden to the American taxpayer or controlled in any manner by the
government. Hogwash. Obama needs to quit paying to Wall Street. He and the
Congress need to stand up to the charlatans. We know they won’t because
Washington and Wall Street are back scratching each other as they always do.
We are angry, very angry, because
we and our clients continue to earn artificially low interest while the Wall
Street’s wonders begin to again weave their magic spell of speculation and
Oil closed at $59.25 and Gold was
up $4 at $926. European markets closed 1% higher.
The DJIA closed down 28 at 8477.
The S&P 500 lost 2 to 908 and the NAZZ was up 2 at 1734.
Breadth was 2/1 to the good on
the NYSE and flat on the NAZZ and volume was moderate.
There were more new highs than
new lows on the NAZZ.
The Memorial Day weekend upcoming
suggests that traders will begin flying the coop tomorrow at noon.
The bulls remain in control.
This story from Friday’s Wall Street Journal displays the perfidy of many
of the folks who run money on Wall Street:
Simons Questioned by
Disparity Is Seen in
Running of Two Renaissance Funds
By SUSAN PULLIAM and
Investors in a hedge fund
run by James Simons are asking questions about why a fund held by Mr. Simons
and fund associates is racking up big gains while another held mostly by
outside investors is losing money.
In a conference call
Wednesday, investors asked Mr. Simons about why the Renaissance Institutional
Equities Fund lost 17% this year through April, lagging behind the stock
market, while another fund -- held nearly exclusively by Mr. Simons and his
colleagues -- surged 12%. The fund, known as RIEF, also lost money in 2008
while the internal fund jumped 80%.
In his monthly letter
to investors, Mr. Simons said RIEF suffered a "performance onslaught"
during an "extreme market rally," adding: "We certainly
understand our clients' discomfort." Mr. Simons reiterated those views in
the investor call.
It is a rare misstep
for Mr. Simons, who is one of the hedge-fund industry's biggest stars. The
71-year-old manager rose to fame on Wall Street using sophisticated computer
models to engineer trading strategies that indicate when to buy and sell
stocks, bonds and futures. Mr. Simons -- the top-paid hedge-fund manager in
2008, receiving $2.5 billion, according to Alpha magazine -- declined to
RIEF, a $5.5 billion
fund, invests in U.S. stocks, typically holding many positions for a year in an
effort to outperform the S&P 500 Index over the long haul. The other fund
at issue, the roughly $9 billion Medallion fund, has a rapid-fire trading style
and flexibility to roam the globe to find stocks and other securities its algorithms
consider mispriced. The performance gap was even wider last year, when
Medallion surged 80% even after its higher-than-average fees were deducted, and
RIEF declined 16%.
say RIEF never was advertised to provide the same returns as Medallion, which
they say has a different investing strategy.
Few Sure-Fire Profits
The gulf in returns
signals how much the markets in recent months have favored investors whose
strategies are tied to fast-action trading among many types of assets. It also
underscores the pitfalls of making investments based on a manager's reputation,
especially with expectations for making a quick, sure-fire profit.
Mr. Simons was among
five hedge-fund managers called to appear before Congress last year amid calls
from lawmakers for regulation of the industry.
The government has
said it plans to require hedge funds to register with the Securities and
Exchange Commission amid a push to require the $1.3 trillion hedge-fund
industry to disclose more information about risks the funds' trading poses to
markets and investors.
The SEC also is
examining hedge-fund trading and whether sophisticated strategies -- including
ones driven by computers and known as "quantitative" -- involve
manipulative or abusive practices, a person familiar with the matter says.
interest is part of a broader effort by the SEC to examine whether hedge funds
are manipulating trading or engaging in insider trading using complex
derivatives called credit-default swaps, the person says.
In April, the SEC
began an examination of Mr. Simons's fund company, Renaissance Technologies,
looking at its books and records, along with the other information that the SEC
typically requests as part of such a procedure for funds registered with the
agency. The examination is "routine" in nature, a person close to the
situation says; there is no evidence that the SEC believes Renaissance has done
Renaissance investors have voted with their wallet. In 2008, investors pulled out
$12 billion from the fund company; total assets have fallen to about $18
billion from a peak in mid-2007 of about $35 billion, according to Renaissance.
Mr. Simons launched
RIEF four years ago to great fanfare, saying that he could manage as much as $100
billion under the new vehicle, which represented the first time Renaissance,
had taken outside money in more than a decade.
Beating the Index
In the Wednesday
conference call, with 250 investors and analysts, Renaissance managers and Mr.
Simons told investors that RIEF has done what it is intended to do: beat the
index over the long term.
They note that last
year's decline of 16% in RIEF still beat the S&P 500, which swooned 38%,
they say. This year through April, however, RIEF's 17% decline lags behind the
roughly 3% decline in the same period for the S&P 500.
In recent weeks,
Renaissance told investors, it has moved some members of its research staff
away from Medallion to focus more of their time on RIEF.
18 May 2009
The Congress Party in India won a decisive victory in elections and
that caused the Indian market to jump 17% which in turn led to higher markets
around the world including the U.S. which is up 1% in the early going. There
are rumors of pipeline bombings in the Middle East and so Oil is also higher as
the trading week begins.
The Sunday NYT had an interesting
article on one family’s credit crisis. http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?hpw
Ideally we would like to see a 10% or greater pullback
from whatever level the March to ? rally
reaches before recommitting any money to the fray.
Gold finished at $920 down $11
and Oil was up $2.71 at $59.02. European shares ended higher, led by sharp
gains in the banking sector. London's FTSE rallied 2.3%.
The SJTI gained 240 top 8510. The
S&P 500 was up 27 at 910 and the NAZZ jumped 52 to 1732.
Breadth was 4/1 positive and
volume was moderate.
The bulls won the day.
15 May 2009
Model Portfolio Update
14 May 2009
We are taking
Friday off. The next post will be Monday May18.
Asian markets were 2% to 3% lower
overnight and European bourse indexes were mixed at midday. Gold is $923 in the
early going and Oil has 56 handle.
Wal-Mart reported flat earnings and revenues that were $3 billion
short of consensus and Jobless Claims rose 32,000 in the latest week.
Secondary offerings of common
stocks and new issues of bonds by companies in need of capital and even those
not in need like Microsoft may have
absorbed a lot of cash. Our thought is that there isn’t a whole lot of new news
to continue to push stocks higher until second quarter earnings in July.
Folks now know that banks aren’t
going to fail but the markets need time to see if the stimulus package will
work its magic. Until then traders will have to manufacture news and rely in
tidbits for buy and sell motivation.
Europe markets closed a choppy
session in positive territory, helped by financial shares.
Oil closed at $58.60 up 65
pennies. Gold gained $3 at $929.
The DJIA closed up 50 at 8330.
The S&P 500 gained 9 to 892 and the NAZZ rose 25 to 1688.
Breadth was 2/1 to the good and
volume was active.
The bulls continue to hold serve.
13 May 2009
Stocks are going to open lower this morning
because retail sales in the U.S. unexpectedly dropped in April for a second
month, indicating that rising unemployment is prompting consumers to boost
The 0.4 percent decrease followed a revised 1.3
percent drop in March that was larger than previously estimated, the Commerce
Department said today in Washington. Excluding auto dealers, sales fell 0.5
Asian markets were higher and
European markets were mixed overnight. Gold and Oil are flat.
Paul Otellini, Intel's chief executive officer, in
April said demand for its computer chips appeared to have "bottomed
out" in the first quarter. At a meeting with analysts here Tuesday, Mr.
Otellini said that the company's recent order pattern indicates business in the
current period is "a little better" than the company expected.
Ford sold shares at $4.75 last night. The shares were trading at
$6.20 Monday but the sale of $1.4 billion in stock is considered a success by
To die — to sleep.
To sleep — perchance to dream: ay, there’s the rub!
For in that sleep of death what dreams may come
When we have shuffled off this mortal coil,
Must give us pause.
We have never understood why
institutions trade with Goldman Sachs
or listen to their salespeople. Goldman works for Goldman. They need the
gullible to take the other side of their trades and because folks at
institutions are invited to play golf in exotic places and eat expensive
lunches with Goldman sales people and traders they are the children to
Goldman’s Pied Piper sales pitches.
The following excerpt from the
WSJ illustrates what we mean. http://online.wsj.com/article/SB124217307257813061.html#mod=testMod
One of Goldman Sachs Group premier real-estate funds is in discussions
with its lenders to restructure debt on some of its biggest investments: Nevada
casinos, German office buildings and a U.S. hotel chain.
The wrinkle: One of the main
lenders on those deals is Goldman Sachs.
Investors were warned about potential conflicts of interest when they
put money into this group of real-estate vehicles, which use the Whitehall
name. Such funds were billed as "opportunity funds," huge, highly
leveraged investments funded directly by Goldman, its employees and a group of
outside investors. Overall, Goldman has raised $31 billion for various
Whitehall funds over the past 18 years, with outsiders usually investing
two-thirds or more into each one.
With commercial real-estate values plunging, investors and their
advisers have begun focusing on the conflicts. They say that Goldman is able to
use its position as investor, lender and fee-collector to benefit itself at the
expense of outsiders.
That Goldman owns 33% of the fund
is a straw dog. Goldman places money in the fund and also loans the fund money.
If the deal works Goldman profits. If the original investment plan flails
Goldman still is in the game since as a senior debt holder it gets the new
equity when existing equity is wiped out. Where are the customers Hampton
One reason we are in cash:
For the first time since the
Bloomberg Professional Global Confidence Survey began in 2007, investors are
forecasting that the Standard & Poor’s 500 Index will climb.
Wednesday, May 13, 2009 -
April Retail Sales Dip on Weak Employment and Heavy Discounting
April retail sales dipped
0.4% in April (0.5% excluding auto sales) after being revised down in
At least a portion of the
weakness was due to heavy discounting, which means the inflation adjusted
figures will show more of stabilization than the headline figures
suggest. (Deflation has a way of doing that.)
refinancing, cuts in payroll taxes and $250 checks mailed out to 50
million Social Security recipients will help to keep retail sales from
collapsing in the second quarter. Additional weakness in employment and a
recent increase in prices at the pump, however, suggest we are not out of
the woods yet.
Moreover, the composition
of retail sales suggests that we still have a lot of healing to do.
"Affordable" luxuries like eating out continue to be
substituted by carry-out, and discount retailers continue to outperform
traditional department stores. We have even seen some trade-offs within
the discount sector as outlets are losing to the discount superstores.
Indeed, Filene's Basement just filed for bankruptcy.
Finally, in what has become
a sign of the times, consumers are buying super-sized bottles of liquor
when they have money at the start of the month, and then switching to
airplane-sized bottles as they run out of money at the end of the month.
Drink carefully...make it last!
Read this first: http://www.forbes.com
And then this: http://www.bloomberg.com
The National Debt and future generations.
If we can run a deficit to spend
$500 billion a year on war then we can spend $500 billion on health care and
education and mass transit.
More on this subject from: http://www.truthout.org (we
made a few changes for clarity)
Suppose that the federal government decided
to give every newborn baby $200,000. That might seem like an extremely generous
gift. However, by the peculiar accounting of those who claim to be watchdogs
for future generations, this policy would be bankrupting our kids.
is hard to understand then you haven't been reading The Washington Post or
listening to the Blue Dog Democrats or following the work of the Peter G.
Peterson Foundation. This crew, along with the other deficit hawks inside the
beltway, has decided that the way to measure intergenerational equity is to measure
the size of the national debt.
bit more than 400,000 kids born every year, a gift of $200,000 to each of them
would add more than $1.6 trillion dollars to the national debt over the next
two decades. No doubt the Peterson-Post crew would be decrying the unfairness
of handing down this huge burden to our children.
quest to cut Social Security and Medicare they have promoted the notion that
the size of the national debt id the measure of how well we are treating our
children. In the Peterson-Post world view, programs that spend money to better
the plight of our children ( For example, improving the education system or
rebuilding the infrastructure or developing clean energy technology) all make
our children worse off, since spending on those programs will increase the size
of the government debt.
reality, what determines the well-being of future generations is the whole
world that we hand down to them: the public and private capital stock, the
state of technical knowledge and the specific skills and education that we give
the future workforce as well as the natural environment and resources.
If we let
the capital stock deteriorate or destroy the natural environment, then our
children and grandchildren should be furious at us, even if we hand them a
country with zero debt. The national debt is not only a bad measure of the
burden born by future generations; it is not even a measure of
intergenerational equity at all.
point, everyone alive today will be dead. At that point, the government bonds
that constitute the debt will be owned by some of our children or grandchildren
and all of our children and grandchildren will be paying interest on that debt
through their taxes. In other words, our children and grandchildren will be
paying the interest burden to themselves. If future generations both receive
and pay the interest on the debt, then how can it be, on net, a burden to them?
an issue of foreign ownership of debt. But this is due to the trade deficit,
which is a result of the over-valued dollar and has no direct connection with
the budget deficit. If we had the same overvalued dollar, but no budget deficit
or even national debt, then we would be in the same situation relative to
foreign investors, except that they would be buying up more of the private
capital stock rather than public debt. The outcome for future generations would
be the same; a larger share of future income would be paid out to foreigners.
the Peterson-Post crowd doesn't want to talk about the overvalued dollar; that
would offend the Wall Street crew. A lower dollar would give them less clout in
the world, even if it would increase the competitiveness of US manufacturing
and improve the economy that we hand down to our children. No, the
Peterson-Post crew just wants to talk about cutting Social Security.
Peterson-Post crews’ line on the debt is just straight bad logic and bad
economics. If the money being spent today helps boost the economy out of the downturn,
then it will lead to more growth, an improved public and private capital stock,
better technology and a richer, cleaner world for our children and
grandchildren, even if it is a world that comes with more government debt.
people who care about future generations should be insisting that the
government spend whatever is necessary to get the economy back on its feet,
just as we spent as much as was necessary to win World War II. There is no
serious prospect that we will face the same debt burden as we did after World
War II, which happened to precede the most prosperous
three decades in US history.
Peterson-Post crew strongly disagrees with this analysis. But remember, these
are people who somehow could not see the $8 trillion housing bubble that
exploded the economy. Remember that fact.
European shares fell sharply, as
a big retreat for bank and mining stocks offset gains for drug companies. Gold
gained $3 to $927 and Oil closed at $57.83 down 85 pennies.
The DJIA lost 185 to 8285. The
S&P 500 was down 25 to 883. 882 is very important support level. The NAZZ
lost 50 to 1665.
Breadth was 4/1 negative and
volume was active.
The bulls are rolling over. It is an expiration week so
anything can occur in the next two days.
12 May 2009
Stocks rallied while we were
away. Oil and gold also moved higher and the strength in banks and retailers
gave confidence to traders and pain to those short. The S&P 500 was up 6%
last week but did move lower yesterday. Today is Turn around Tuesday but will
it be Turn up or Turn Down?
Oil has a $59 handle and Asian
stocks were mixed overnight with European bourses mildly mixed at midday.
Banks have been raising a ton of
cash in the last week to reload their balance sheets after the losses they have
absorbed. Interestingly, last year at at this time
banks were doing the same thing.
Microsoft sold $3.5 billion in bonds last night even though it has
$25 billion in cash on hand. Its’ borrowing rate was super low and would
suggest that MSFT is making a call on interest rates. Of course many of MSFT’s
recent decisions have been suspect.
Ford is selling 300 million shares of stocks to rub their ability
to stay afloat without government help in GM’s face. Of course, selling shares
at $6 to raise cash when Ford bought back shares at $30 in 2000 doesn’t really
suggest great decision making.
The media taking heads continue
to focus on the trillions in dollars that the government has lent to banks. But
these same talking heads never mention that low interest rates are the real and
continuing tax on savers. Banks are able to pay 0.5% interest on deposits
because the Fed is keeping rates artificially low. These same banks then lend
the money at from 5% to 30% to mortgage borrowers and credit card borrowers.
A $100 bank deposit supports at
least $500 in loans. And so banks are earning a total of a 50% to 100% annual
return on the money on which they are paying less than 1%. That is how the
banks will earn back the capital they so wantonly lost by dumb loans. And as
bank operating earnings increase bank executives will of course be bonused for their astute money management.
BankAmerica is selling its interest in China Construction Bank for
$7 billion to raise capital. Two years ago that interest was worth three times
as much. Too bad CEO Lewis never learned the old trading adage: Sell when you can, not when you have to.
Six executives at General Motors recently sold more than
200,000 shares of the automaker, liquidating their direct holdings in the
struggling automaker. The biggest seller was Vice Chairman Bob Lutz, according
to filings with the Securities and Exchange Commission. Mr. Lutz, who used to
head GM's product-development efforts, sold 81,360 shares for $130,990. The
five other executives, including Mr. Lutz's successor, Thomas Stephens, GM
North America President Troy Clarke, Chief Information Officer Ralph Szygenda
and manufacturing chief Gary Cowger and head of European operations Carl-Peter
Forster also sold all of their GM stock holdings, according to the filings. The
executives sold at prices ranging from $1.45 to $1.61 a share, according to the
filings. GM shares tumbled 20% trading Tuesday to $1.15 a share on the New York
Home prices in the U.S. dropped
the most on record in the first quarter from a year earlier as banks sold seized homes
and foreclosures in California and Florida dominated sales. The median price
fell 14 percent to $169,000, the National Association of Realtors said today. Prices
dropped in 134 of 152 metropolitan areas, with the deepest declines in Cape
Coral-Ft. Myers, Florida, and the San Francisco and San Jose areas. The
steepest price decline was in Cape Coral-Fort Myers, down 59 percent from a
year ago, followed by Saginaw, Michigan, with a 54 percent drop. The next
biggest decreases were Akron, Ohio, with a 48 percent decline, San Francisco,
down 43 percent, and San Jose, California, with a 42 percent drop.
Oil ended at $58.83 and Gold was
$923 up $10. European bourse indexes closed lower.
Stocks were lower most of the day
in desultory trading but rallied haltingly to positive in the final hour. The
DJIA gained 50 to 8468. The S&P 500 was down 1 at 907 and the NAZZ dropped
15 to 1715.
Breadth was 2/1 negative and
volume was moderate.
The bulls are holding.
11 May 2009
Model Portfolio Update
8 May 2009
Model Portfolio Update
7 May 2009
Model Portfolio Update
6 May 2009
attended a first communion party on Sunday with many children. Last night
we came down with the 24 hour flu and since we are only 12 hours into the flu
we are not posting today.
we are heading out tomorrow to visit clients in Chicago and will return next
week. And so our next post will be on Tuesday May 12.
5 May 2009
The rich get richer and the regulators do too. From the WSJ:
The Federal Reserve Bank of New
York shaped Washington's response to the financial crisis late last year, which
Sachs Group Inc. and other Wall Street firms. Goldman received speedy
approval to become a bank holding company in September and a $10 billion
capital injection soon after. During that time, the New York Fed's chairman,
Stephen Friedman, sat on Goldman's board and had a large holding in Goldman
stock, which because of Goldman's new status as a bank holding company was a
violation of Federal Reserve policy.
The New York Fed asked for a
waiver, which, after about 2½ months, the Fed granted. While it was weighing
the request, Mr. Friedman bought 37,300 more Goldman shares in December.
They've since risen $1.7 million in value.
Mr. Friedman also was overseeing
the search for a new president of the New York Fed, an officer who has a
critical role in setting monetary policy at the Federal Reserve. The choice was a former Goldman executive.......
(This is the best part)
In Washington, the Fed's general
counsel, Scott Alvarez, also says Mr. Friedman was needed during the New York
Fed's transition. He adds that Mr. Friedman was in compliance with the Fed's
rules when he first joined the New York Fed board and was put in violation of
the rules by events "outside of his control."
Because he wasn't allowed to own
the stock he had, the Fed doesn't consider his additional December purchase to
be at odds with its rules at the time. The Fed had no policy requiring
directors to inform it of new stock purchases, and Mr. Friedman didn't. The
Federal Reserve Board is now in the process of rewriting its rules for handling
situations like Mr. Friedman's.
Asian markets and European bourse
indexes were mixed overnight. Oil is at $54 and Gold at $904 as the trading day
European shares mostly advanced, with gains from the banking sector
offsetting earnings-related weakness seen in Adidas, Alcatel-Lucent and Metro.
Hain Celestial is off 12% today on
disappointing earnings and at a level ($16) where it has found support. We are
buying for a recovery trade.
Gold closed at $898 down $4 and
Oil was $53.90 off 57 pennies.
The DJIA lost 16 to 8410 and the
S&P 500 was off 3 at 903. The NAZZ dropped 10 to 1754.
Breadth was 2/1 negative and
volume was light.
The bulls remain in control.
4 May 2009
Asian markets were on fire with
Hong Kong up 5% DN India up 6%. Japan was closed for the day and European
markets are higher with London closed for the day. Oil has a $53 handle and
Gold is up but still under $900.
March pending home sales was up
3% and that has ignited a rally. Volume is light and our guess is that today’s
move is mostly short covering. Whatever is the cause, it is impressive.
European bourse indexes closed 2%
and higher. Gold was up $14 to $900 with Oil up $1.22 to $54.35.
Stocks were strong all day and
the DJIA closed up 215 at 8426. The S&P 500 gained 30 to 908 and the NAZZ
jumped 45 to 1763. Volume was active and Breadth was 4/1 positive.
The bulls remain in charge. And we remain in cash.
1 May 2009
Swine Flu Tip
Don’t do this:
Next post Monday May 4
Click here for April 2009 Thoughts
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