Lemley Yarling Management Co
309 W Johnson Street Apt 544
Madison, WI 53703
28 August 2009
While we are away
26 August 2009
Asian markets were higher with
China up almost 2%. European markets are lower at midday and U.S. markets are
flat as the trading day begins.
Investors’ Intelligence had 51%
bulls and 20% bears in its latest report.
Stocks were down until new home
sales (plus 10%) were announced and then a mini rally back to even ensued.
WSJ: New-home sales climbed more than anticipated in July, staging
their fourth straight month of strong gains. Sales of single-family homes
increased 9.6% to a seasonally adjusted annual rate of 433,000, compared with
the prior month. That was the highest number sold since September 2008. Sales
in June and May were revised higher.
Earlier, the Commerce Department reported that manufacturers' orders
for durable goods jumped 4.9% in July to a seasonally adjusted $168.43 billion.
That was the largest increase since 5.4% in July 2007. Orders for June were
WSJ: Federal judge Jed S. Rakoff
fired a new shot in his challenge to a $33 million settlement by Bank
of America Corp. over investor disclosures, saying the government's
justification for letting individual executives off the hook is "at war
with common sense." The Securities and Exchange Commission reached the
settlement with the bank last month. The agency charged that a Bank of America
proxy statement in November misled investors about bonuses for employees at
Merrill Lynch, which was about to be acquired by the bank.
The SEC has said it couldn't
investigate individual executives' culpability because they said they relied on
lawyers' advice. Unless the executives waived their right to keep the advice
private, the SEC said it would face "substantial obstacles" to building
Judge Rakoff, who must approve
any settlement, criticized that reasoning. If that were the regulator's policy,
"it would seem that all a corporate officer who has produced a false proxy
statement need offer by way of defense is that he or she relied on
counsel." He said if the company insists on attorney-client privilege,
there is no way to test the assertion and determine whether executives or their
lawyers were culpable.
Toyota announced that it is
cutting output while GM and Ford are ramping up output. Interesting.
US Air is raising the bag fee for
the first bag to $20. Southwest is offering flights for $59. The discounts – $59 each way on some routes – aren't quite
as aggressive as a sale in July, in which some flights on shorter routes sold
for $30 each way. Pretty soon it will cost more to fly bags than people.
European markets ended lower, as mining, oil and gas shares came under
Stocks closed flat on Wednesday in desultory trading.
27 August 2009
Asian markets were mildly lower
and so are European markets at midday. Gold is $946 and Oil has a $71 handle in
New jobless claims 570,000.
Preliminary second quarter GDP
reading showed an annualized decline of 1.0%, better than the 1.5% decline that
was expected. That was unchanged from the advance second quarter reading.
Personal consumption during the second quarter fell 1.0%. Economists, on
average, had expected personal consumption to fall 1.3%. The advance reading
had been negative 1.2%. There are two more redigs before final is announced and
we are on tenterhooks awaiting that final number.
Boeing is up $3 per share today on its news that it will fly the
new plastic plane by the end of 2009. Good Luck. The new schedule, Boeing said in statement, will give the company
time to fix a structural flaw where the wings join the fuselage. The test
flight was initially expected at the end of 2007 with the first deliveries in
Only Goldman Sachs is allowed to know:
The Federal Reserve argued
yesterday that identifying the financial institutions that benefited from its
emergency loans would harm the companies and render the central bank’s planned
appeal of a court ruling moot.
The Fed’s board of governors
asked Manhattan Chief U.S. District Judge Loretta
Preska to delay enforcement of her Aug. 24 decision that the
identities of borrowers in 11 lending programs must be made public by Aug. 31.
The central bank wants Preska to stay her order until the U.S. Court of Appeals
in New York can hear the case.
“The immediate release of these
documents will destroy the board’s claims of exemption and right of appellate
review,” the motion said. “The institutions whose names and information would be
disclosed will also suffer irreparable harm.”
The new home and existing home
sales numbers have been positive this month. Supposedly the inventory of homes
available for sale is at a 17 year low. Of course that number doesn’t include
over 1 million homes that are in foreclosure that are not counted. Also the
average price of new homes sold is at $210,000. We the taxpayers are giving
first time home buyers an $8000 credit and so we are providing all the equity
on homes that require 3% down payments.
Shares of Citigroup rose Thursday on a report that closely watched hedge-fund
manager John Paulson has been quietly buying the stock in recent weeks.
The share price of AIG jumped 30% this morning. Reuters
reported that Robert Benmosche, the firm's new chief executive, has been
reaching out to ex-CEO Maurice "Hank" Greenberg. The talks could lead
to reconciliation between AIG and Greenberg, who was ousted from the company,
according to Reuters. Separately, The Wall Street Journal reported Thursday
that so-called pay czar Kenneth Feinberg is expected to formally approve
Benmosche's $10.5 million pay package as early as next week.
Boeing is up $4 and is skewing the DJIA which is down 10 points
while the S&P 500 is down 0.5%.
WSJ: The Federal Deposit
Insurance Corp.'s fund that protects more than $4.5 trillion in U.S. bank
deposits fell to just $10.4 billion at the end of June, as the banking industry
continues to struggle with souring loans and regulators brace for pain in
trying to clean up the mess.
The level of the FDIC's fund, the
lowest since the savings and loan crisis, almost guarantees that the government
will have to hit the banking industry with another special fee to recapitalize
its reserves. The agency said it had 416 banks on its "problem" list
at the end of the second quarter, up from 305 at the end of March.
AIG traded 150 million shares today. It only has 135 million shares
outstanding with a float of 115 million shares. The interim CEO Liddy received
$1 total for all the grief he took. The new CEO Benmosche who is still on
vacation is being paid about $5 million a year plus he received $3 million in
stock that is now worth $10 million and he hasn’t been to the office yet. And
AIG is still into the U.S. for $185 billion and counting.
The WSJ has a post on its website
suggesting that the new CEO has put the swagger back in AIG and the he isn’t
going to cower before U.S. Congress. Benmosche tells
employees, according to Bloomberg. “It’s time the people in Congress
stopped talking about you as the problem, because you’re the solution. It’s not
your fault, it’s their fault, it’s the regulators’
We suppose he means that if the
regulators had done their job AIG employees wouldn’t have made the dumb bets
they did. How about if the executives at AIG who are still there and were and
are being bonused had done their jobs..... We guess that kind of thinking is
not allowed in the new capitalism
where failure is the governments fault for letting them do it and success means
big bonuses all around and complaints about onerous taxes on those bonuses.
European shares lost ground, as auto-sector weakness and losses for
drinks maker Diageo offset gains from Credit Agricole and utilities.
Oil ended at $72.50, Gold at
The major stock measures closed mildly better on the day.
Breadth was flat.
28 August 2009
Last night after the close Dell reported much lower but better than
earnings and revenues; and this morning Intel
raised its revenues and margin estimate. Tech stocks are smoking higher on the
Citi raised J Crew to a buy (the shares are at $34 after trading as low as $8
in March). And Goldman raised Williams
Sonoma (wonder if they told the huddle folks first) which has the same
story as JCG. We left a good chunk of change on the table but both those stocks
are priced at 30 times 2010 earnings which is pretty
Asia was lower overnight- but
Intel had not yet spoken- and Europe is higher at midday. Oil has a $73 handle
and Gold is higher.
Consumer spending in the U.S.
rose in July as households took advantage of the government’s “cash for
clunkers” program to buy new cars.
The 0.2 percent gain in purchases
was in line with forecasts and followed a 0.6 percent increase in June, the
Commerce Department said today in Washington. Incomes were unchanged, causing
the savings rate to decrease.
Incomes were unchanged in July after
dropping 1.1 percent in the prior month. The decrease
in income in June reflected the fading boost from government stimulus-related
tax cuts and transfers.
Bloomberg: Banks are increasing
lending to buyers of high-yield company loans
bonds at what may be the fastest pace since the credit-market
debacle began in 2007. Credit Suisse Group AG and Scotia Capital, a unit of
Canada’s third-largest bank, said they’re offering credit to investors who want
to purchase loans. SunTrust
Banks Inc., which left the business last year, is “reaching out to
clients” to provide financing, said Michael McCoy,
a spokesman for the Atlanta-based bank. JPMorgan
Chase & Co. and Citigroup Inc. are doing the same for loans and
mortgage-backed securities, said people familiar with the situation. “I am
surprised by how quickly the market has become receptive to leverage again,” said
the co-head of syndicated loans in New York at Credit Suisse. The Swiss bank
has seen increasing investor demand for financing to buy loans in the past two
months, he said. Federal Reserve data
show the 18 primary dealers required to bid at Treasury auctions held $27.6
billion of securities as collateral for financings lasting more than one day as
of Aug. 12, up 75 percent from May 6. The increase suggests money is being used
home- loan, corporate and asset-backed securities because it excludes
Treasuries, agency debt and mortgage bonds guaranteed by Washington-based
Fannie Mae and Freddie Mac of McLean, Virginia or Ginnie Mae in Washington.
Broader data on loans for investments isn’t available.
The banks are getting money at 0 to 0.5% interest cost from
savers and lending it at 3% on up to speculators. And they are leveraging that
lending 10/1 which means they are earning 30% and more on every savings dollar
they acquire at 0.5% and less.
It is obscene that savers are being used by the Fed to
rescue the banks. Where are the Republicans who caterwaul about increased
taxes? The artificially low interest rates are the cruelest tax of all because
the low rates punish ordinary folks who have been prudent while rewarding the
An interesting story on the
debacle known as auction rate securities:
WP: J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions,
now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its
acquisition of Merrill Lynch and partly
government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus
government-rescued and -owned Citigroup, now issue one of every two
mortgages and about two of every three credit cards, federal data show.
We didn’t know
that Senator Kennedy had proposed the same solution to the health care crisis
as we did the other day. As the writer below says it is elegant in it
The reasons this needs to be a big part of the public
- This was Kennedy's last piece of unfinished life work.
All those reporters who claim to know what Kennedy wanted are doing a
disservice by not citing Kennedy's own legislation on the matter.
- Kennedy himself was personally pushing for a public
option in the form of Medicare for All (this negates any claim that Kennedy
would have not supported a public option).
- This is an example of what he would have wanted to pass
(he reintroduced the bill, so it wasn't just some one-time idea of his).
- The bill was amazing in its simplicity, countering
arguments that all health reform components are by nature arcane and
indecipherable: every 5 years (every 2 years in another version) the
eligibility for Medicare would be lowered by 10 years (and raised from below by
10 years), with those under 65 being asked to check a box on their taxes if
they signed up for Medicare (to be charged for it). It's a simple model for the
public option and hard(er) to lie about.
- I believe David Waldman at Daily Kos was correct when
he pointed out that it would make sense for the public option to be the
"Kennedy plan"; irrespective of the politics, it would make sense
because Kennedy's own bill was a public option bill, not a comprehensive reform
package with 100 moving parts.
This is an idea whose time has come, and there ought to
be robust public discussion about it
The action is more important than the news. The major measures opened
higher on the bullish Intel and Dell news but now are in negative territory.
The overnight heroes are holding their gains but trading below opening prices.
This action is giving the bears a sliver, a very small sliver of hope while the
bulls are attributing the action to the fact that it is the last Friday in
August and many are or will be on vacation till after Labor Day.
For those who say there are no
bulls left below and the headlines for four market opinions featured on
World Stocks Will Gain as Economies Grow
`More Optimistic' on Stock Markets Outside U.S.
Japanese Stocks Could Rise on Election
Bernstein's Moffett Likes Time Warner Cable
Gold ended the week up $10 at
$957 and Oil gained pennies to $72.85. Europe closed higher.
The Agriculture Department said
it expects net farm income -- a widely followed measure of profitability -- to
drop to $54 billion in 2009, down $33.2 billion from last year's estimated net
farm income of $87.2 billion, which was nearly a record high.
Farms with at least 1,000 cows
are losing $30,000 to $40,000 a month reports day. Revenue from dairy products
may fall 34 percent this year to $23 billion, while the value of meat animals
will drop 11 percent, according to the USDA. "
The major measures closed mildly lower on the day but were
up for the week and of course are on their highs for the year.
For your weekend
Helene Meisler, realmoney.com: The Investors Intelligence readings
came out today, and they were so fascinating I figured we had to take a closer
look at them. The bulls came in at 51.6%, which is a high for this cycle (that
is, they haven't been this high since the market made its highs in October
2007). Bears were at 19.8%, which is also quite low, as I wrote about two weeks ago.
Readings under 20% do not come along very often, even in bull markets.
So let's begin with a chart of
Bulls plus Corrections. Investors Intelligence categorizes correction-minded
folks as mainly bulls who are looking for a short-term pullback, so I like to
lump them together with the bulls. When we put these two together, we rarely
get a reading over 80%. This week's reading chimes in at 80.2%.
Going back to 2003 for the bulls out there, the first time we got a reading
over 80% was mid-June. For those who were there, you might recall that we went
into a six- or eight-week correction right after that. The charts are not lined
up by date; I have circled the time frame we are looking at on both charts --
June through August.
My point here
is that even in bull markets, a reading over 80% Bulls plus Corrections means
sentiment has reached an extreme.
Doug Kass, realmoney.com:
Kass: Market Has Likely Topped
By Doug Kass
8/26/2009 8:41 AM EDT
This blog post originally appeared on RealMoney Silver on Aug. 26 at 8:11 a.m. EDT.
in early March, there were signs of a second derivative U.S. economic recovery,
the PMI in China had recorded two consecutive months of advances, domestic
retail sales had stabilized, housing affordability was hitting multi-decade
highs (with the cost of home ownership vs. renting returning back to 2000
levels), valuations were stretched to the downside and sentiment was negative
to the extreme. These factors were ignored, however, and the S&P 500
sank to below 700.
most investors, back in early March, the fear of being out was eclipsed by the
fear of being in. Despite the developing less worse factors listed above, bulls
were scarce to nonexistent in the face of persistent erosion in equity and
was at this point in time, on RealMoney Silver, in an appearance on CNBC's
"Fast Money," on "Mad Money" and in multiple appearances on "The Kudlow Report," I confidently forecast
the likelihood that a generational low had been reached.
went on to audaciously predict that the S&P would rise to 1,050, a gain of
nearly 400 points from the S&P low of 666 during the first week of March,
by late summer/early fall. I even sketched a precision-like SPDRs (SPY)
expectation chart that would reach approximately the 105 level (a 1,050
S&P equivalent) within about six months.
the SPDRs peaked at 104.20, within spitting range of my intrepid March forecast
of 105, and the S&P nearly touched 1040 in Tuesday's early morning trading.
today investors face the polar opposite of conditions that existed only a few
months ago, with economic optimism, improving valuations and positive
most investors, today the fear of being in has now been eclipsed by the fear of
being out as the animal spirits are in full force. Bears are now scarce to
nonexistent in the face of steady price gains in equity and credit prices.
if the movie is now being shown in reverse, the bull is persistent, stock
corrections are remarkably shallow, cash reserves at mutual funds have been
depleted, and hedge funds hold their highest net long positions in many moons.
simply, in the current bull market in complacency, optimism and a boisterous
I have written on these pages, the investment debate has morphed in a dramatic
fashion from concerns as to whether U.S. economy was entering The Great
Depression II to whether the current domestic recovery will be self-sustaining.
primary question to be asked is, Will the earnings cycle dominate the
investment landscape and cause investors to overlook the chronic and secular
challenges facing the world's economies, particularly as the public sector
stimulus is eventually withdrawn and paid for and the economic consequences of
the massive public sector intervention manifest themselves in the form of
higher interest rates and marginal tax rates?
now have accepted the notion that due to the replenishment of historically low
inventories, extraordinary fiscal/monetary stimulation and the productivity
gains from draconian corporate cost-cutting, the earnings cycle is so strong
that it will trump the consequences of policy. More accurately, most believe
that they can get out of the market before the full effects of policy are felt.
am less confident as a decade of hocus-pocus borrowing and lending and 35-to-1
leverage at almost every level in both private and public sectors cannot likely
be relieved in the great debt unwind over the course of only12 months.
It is important to emphasize that
when I made my variant March call, I expected many of the conditions that now
exist -- namely, a resurgence of economic and investment optimism during the
summer to be followed by a multiyear period of weak
investment returns. Specifically, I expected a mini production
boom and an asset allocation away from
bonds and into stocks to be embraced and heralded by investors, who
would only be disappointed again in the fall as it becomes clear that a
self-sustaining economic recovery is unlikely to develop.
view remains that it is different this time. Again (now for emphasis), the
typical self-sustaining economic recovery of the past will not be repeated in
the immediate future for 10 important reasons that will weigh on the economy
and markets like the governor that controlled the speed of the Good Humor truck
I drove when I was in my teens during the summer:
- Cost cuts are
a corporate lifeline and so is fiscal stimulus, but both have a defined
and limited life.
- Cost cuts
(exacerbated by wage deflation) pose an enduring threat to the consumer,
which is still the most significant contributor to domestic growth.
- The consumer
entered the current downcycle exposed and levered to the hilt, and net
worths have been damaged and will need to be repaired through higher
savings and lower consumption.
- The credit
aftershock will continue to haunt the economy.
- The effect of
the Fed's monetarist experiment and its impact on investing and
spending still remain uncertain.
- While the
housing market has stabilized, its recovery will be muted, and there are
few growth drivers to replace the important role taken by the real estate
markets in the prior upturn.
real estate has only begun to enter a cyclical downturn.
- While the
public works component of public policy is a stimulant, the impact might
be more muted than is generally recognized. There may be less than meets
the eye as most of the current fiscal policy initiatives represent
transfer payments that have a negative multiplier and create work
have historically provided economic stability -- no more.
state and local taxes will be rising as the deficit must eventually be
funded, and high-tax health and energy bills also loom.
as I looked over the valley in March 2009 toward the positive effects of
massive monetary/fiscal stimulation within the framework of a downside
overshoot in valuations and remarkably negative sentiment, I now suggest
another contrarian view is appropriate as I look over the visible green shoots
of recovery toward a hostile assault of nonconventional factors that few
business/credit cycles and even fewer investors have ever witnessed.
the OMB/CBO provided an exclamation point to the secular challenges that the
domestic economy faces in forecasting an accumulated deficit of $9 trillion
over the next decade (up $2 trillion from the previous forecast just two months
ago), and public debt as a percentage of GDP is projected at an alarming 68% by
2019 (as compared to 54% today and only 33% in 2001). Thus far, the drop in the
U.S. dollar (influenced, in part, by the mushrooming deficit) has been viewed
favorably by the markets, but we must now be alert to a downside probe that
becomes a threatening market factor. In other words, what has been viewed
positively could shortly become negatively viewed.
double-dip outcome in 2010 represents my baseline expectation. When the
stimulus provided by the public sector is finally abandoned, it seems unlikely
to be replaced by meaningful strength or participation by any specific
component of the private sector, and the burgeoning deficit (described above)
will ultimately require a reversal of policy, leading to higher interest rates,
rising marginal tax rates and a lower U.S. dollar. My forecast assumes that the
market's focus will shortly shift from the productivity gains that have been
yielding better-than-expected bottom-line results toward these chronic and
more important, my forecast of a 2010 market peak reflects that the
aforementioned nontraditional influences (and the untoward policy
ramifications) will, at the very least, yield a broad set of uncertain economic
outcomes that (in consequence and in probability) tilt away from a
self-sustaining economic scenario sometime in the following 12 months.
bottom during times of fear. With the benefit of hindsight, the March 2009 lows
represented a dramatic overshoot to the downside.
Markets top during times of enthusiasm. I believe that the
markets are now overshooting to the upside and that the U.S. stock market has
likely peaked for the year.
AMERICANS should boycott the
No, I'm not kidding. And this
isn't going to be one of those funny columns.
In fact, I'm deadly serious that
investors shouldn't risk any more of their money until there are promises of a
thorough investigation of Goldman Sachs.
Over the past few years I've looked
into the much-too-cozy relationship between Goldman and Washington.
I've suspected that this Wall
Street firm has been acting, in essence, as an arm of the government. And I am
also pretty sure that if Goldman and Washington have something secret going on,
the investment firm isn't doing it for altruistic reasons. There's money to be
In 2007 I reported in this column
that Treasury Secretary Hank Paulson let the cat out of the bag when he
confessed on a cable TV show that it was "my job to talk regularly to
market participants . . ."
Paulson had been the chairman of
Goldman right before taking the job as head of Treasury.
So, if he felt it was his
"job" to talk with people on Wall Street then who else would he speak
with if not his old friends at Goldman?
The head of the US Treasury
would, of course, know lots of secrets. In the olden days, this would be called
And despite Paulson's contention
it would be entirely inappropriate for him to discuss sensitive matters with
people who could profit from the information. It is, in fact, illegal. And the
penalty could be jail time.
What has been of particular interest
to me is whether Paulson contacted his friends at Goldman after a lunch with
Federal Reserve Chairman Ben Bernanke on Thurs., Aug. 16, 2007.
That day Wall Street seemed to
get wind of the idea that the Fed was planning to do something big, and stock
prices rallied strongly at the very end of that trading session.
The very next morning Bernanke
cut interest rates, the first of many such moves.
This was the start of the Goldman
Lately, a media posse has been in
hot pursuit of the firm. Finally!
A comprehensive, though somewhat
antiquated, article ran in Rolling Stone magazine last month that laid out
Goldman's manipulation of various markets.
Then The New York Times got hold
of Paulson's phone records for Sept. 2008, which detailed loads of calls
between him and Goldman right before the government's decision to bail out AIG,
a huge insurance company.
AIG had taken large trading risks
including many with Goldman on the other side of the transaction.
The Treasury said there was
nothing wrong with the phone calls. Next
the Wall Street Journal reported two things.
First, the paper said that
Goldman has a habit of tipping off its big clients like hedge funds to
market-moving calls that its analysts were about to make public.
The Securities and Exchange
Commission and the Financial Regulatory Authority are looking into that. And
regulators in Massachusetts are supposedly now investigating that.
And, in an interview with the
Journal, Tim Geithner claimed the government never did anything to benefit
But then he also admitted that
Washington had been "forced to do extraordinary things and, frankly,
offensive things to help save the economy."
Nobody bothered to ask about
those "offensive" things and whether they had anything to do with
The most intriguing recent
mention of Goldman occurred back in July when a former employee of that company
named Sergey Aleynikov was arrested for stealing proprietary computer codes.
The Justice Department snapped
right to it, saying in court: "The bank (Goldman) has raised the
possibility that there is a danger that somebody who knew how to use this
program could use it to manipulate the market in unfair ways."
Is that what Goldman was doing
with the program? Was it manipulating the market in unfair ways? Why else would
it have had such abilities?
Goldman briefly converted itself
into a commercial bank last year so it could get taxpayer bailout money.
Yet even as it had our money in
its pocket, Goldman continued high-risk trading that earned it a huge profit.
Even Goldman customers, I'm told,
are annoyed about so-called "high velocity trading," in which
Goldman's computers allow the firm to jump in front of trades coming from
inside its own system.
Both investors and other firms on
Wall Street need to know what's going on, or the financial markets will never
be considered fair again.
Some ambitious politician like
Andrew Cuomo, New York State's Attorney General, might be up to giving Goldman
a full investigation.
But this is really a job that
Washington should do.
Either the Congressional
Oversight Committee or the Justice Department should start doing their job. And
if any investigator gets grief from the Treasury, then we will automatically
know that there has been wrongdoing.
Meanwhile, investors should know
they could be walking into the third act of a major drama.
And with the stock market in a
mini-bubble since March, even without justification in economic fundamentals,
be prepared if the curtain suddenly drops.
Free advice? Is worth what you pay for it
Bloomberg: In June 2005, Milan’s city council voted to hire four
banks to arrange Europe’s biggest-ever municipal bond sale at a fee of just
0.01 percent. That minuscule cost puzzled one councilman.
“I had a hunch something was
wrong,” says Basilio Rizzo, one of 14 politicians on the 60-member council who
tried to change the deal after becoming suspicious of the banks’ motives.
“Banks can’t do things for free.”
Rizzo was onto something. Depfa Bank Plc, now a unit of Hypo Real
Estate Holding AG; Deutsche Bank AG;
JPMorgan Chase & Co.; and
UBS AG charged Milan 168,532 euros
($239,189) to find investors for 1.69 billion euros of bonds -- the promised
0.01 percent. That wasn’t all.
As part of the deal, the same
four banks were hired by the city to advise it on how to use the new bonds to
restructure its existing debt in a way that would cut costs.
The banks had two pieces of
advice for Milan: First, the city could save money by buying interest-rate
swaps, which are derivatives designed to keep monthly payments low as rates
change. Second, the institutions best prepared to sell them those swaps were
none other than the banks themselves.
The four banks thus play four
roles -- as underwriters, advisers, swap dealers and counterparties in the
The group of banks wrote in a
June 3, 2005, letter that the bond issue would save Milan about 55 million
euros over the 30- year life of the bonds.
The firms never said what their
fees on the swaps would be, public records show. Today, Milan faces so-called
mark-to-market losses of 231 million euros on its swaps, according to council
member Davide Corritore.
In all, the city’s losses include
at least 101 million euros in hidden fees, according to Milan prosecutor Alfredo
Robledo, who’s investigating the swap deals. The fees were buried
because they were built into swap interest rates without any written
explanation, the prosecutor says.
That 101 million euro price tag
for Milan’s dealings with the four banks was 599 times the original figure of
0.01 percent for selling bonds and providing advice.
Without seeking competitive bids,
the city agreed on June 16, 2005, to let the four banks sell them swap
contracts. Neither the new swap rates nor the costs associated with them had
been part of the original vote by the city council.
Robledo said in July he would ask
Milan judges to indict Depfa, Deutsche Bank, JPMorgan, UBS and 14 individuals,
including two city officials, on fraud charges in connection with the swap
fraud WSJ: there are a lot of charlatans about.
In the wake of the mortgage meltdown,
regulators and law-enforcement officials are sounding alarms about the
potential for yet another type of mortgage fraud—this time, in the small but
fast-growing reverse-mortgage market. Such fraud, though still rare, "is
occurring in every region of the United States and reverse-mortgage schemes
have the potential to increase substantially," according to a recent
publication issued by the Federal Bureau of Investigation and the Office of
Inspector General at the U.S. Department of Housing and Urban Development,
which oversees the federally insured loans that account for some 99% of the
Available to people 62 and older,
reverse mortgages allow homeowners to convert their home equity into cash.
Instead of writing a check to the bank each month, the bank pays the homeowner,
who can elect to receive a lump sum, a line of credit or monthly payments. The
loan is repaid, with interest, when the borrower dies, moves, sells the house,
or fails to pay property taxes or homeowner's insurance.
Reverse-mortgage fraud, typically
committed by homeowners' relatives, caretakers or financial advisers, has also
been cropping up recently in schemes to unload distressed real estate.
Regulators cite cases in which real-estate speculators bought properties on the
cheap and then sold them, using inflated appraisals, to senior citizens willing
to take out reverse mortgages.
Lenders and administrators of the
HUD program say reverse mortgages, for the most part, are still working well.
"There are little scams around the edges," says Meg Burns, director
of Single Family Program Development for the Federal Housing Administration,
the HUD division that administers the reverse-mortgage program. But she
dismisses talk of widespread abuse as "unsubstantiated."
$5 million in
campaign donations for the mayor of Bolingbrook, Illinois.
Chgo Trib: He tools around town
in a Jaguar. He jets off to China, the Bahamas, Philippines or to California
golf resorts. He dines at swanky restaurants. And for entertainment, he's taken
people to a Bears playoff game.
He is the boss of Bolingbrook,
Roger Claar, who has brought a big-city style of money, power and influence to
serving as mayor of a mid-size suburb.
The high life is not funded by
Claar's $129,000 salary. Instead, the money comes from his campaign -- flush
with cash from donors, many of whom have gotten millions in village contracts.
Since 1999, Claar has taken in
more than $5 million in donations, according to records reviewed by the
Tribune. His campaign had a balance of more than $1 million in cash and
investments, in the latest reporting period.
Nearly half of his donations came
from companies and individuals who have done business with Bolingbrook. Those
contributors received more than $300 million in village work -- nearly 60
percent of the money that Bolingbrook spent on vendors over the last decade,
the Tribune analysis shows.
25 August 2009
comments continue while we are away and so we will be commenting haphazardly
the next two weeks.
Asian and Europe were both higher
Nokia was dropped to neutral from buy by Deutsch Bank.
The WSJ had a front page article
reporting that Goldman Sachs gave stock tips to favored clients and its own
traders before making that info know to all its clients. We aren’t surprised.
European shares ended higher amid continued hopes for an improving
economy, with gains from miners helping the advance.
Only in the United States:
Jim Lynch Hummer in Chesterfield has some new inventory. It includes
tactical rifles, handguns, shotguns, and ammunition. Lynch says he began
realizing about two years ago he was going to have to sell something besides,
or in addition to, Hummers.
"It slowly started going down," said Lynch. "And then
with the fuel prices, sales really took a big dip. And again with the economic
So Lynch was looking for a product that would mix well with his
Hummers. He opted for the sportsman's angle.
"Well a lot of our Hummer owners were gun owners, already,"
said Lynch. "So we had a very favorable response. Didn't have enough
business to keep this big, beautiful building going with the decline, so we
decided we needed to do something else. And the guns fit in with our customer
base... a lot of sportsman, a lot of outdoorsmen, and they've loved it."
Lynch said he had to get a license from the Bureau of Alcohol, Tobacco,
and Firearms in order to sell weapons. He turned to his current staff to make
"We were lucky enough we had some people that had been in the gun
business, before. We had a retired police officer who worked in the parts
department that had been a gun dealer and had been a competitive shooter. We
hired one gentleman that had been with Glock for eleven years as a regional
rep. He retired from Glock, came to work for us."
Lynch's customers seemed to agree that guns and hummers go together.
Graham Hill said, "I think it's pretty awesome, to be honest. I think he's
got a lot of interesting pieces and some guns I've not seen anywhere
Jim Prichard was asked if he was there for guns or Hummers.
"Guns," said Prichard. "I am a gun enthusiast, and their
prices are comparable to other shops in the area."
Russell Henderson admired Lynch's supply of ammunition.
"They've got a great selection. Got a great selection of ammo I
haven't been able to find in other places," said Henderson. "More
common ammo, the 9mm, it's getting harder to find. The 38-special is hard to
find, just because it's getting more popular. And they have a good selection of
Lynch's website is gunsandhummers.com.
A must read from: http://trueslant.com/matttaibbi/2009/08/21/aigs-new-chief-is-a-raging-dickhead/#more-702
Ladies and Gentlemen, AIG’s New Chief!
Benmosche told staff he was
working to get Kenneth Feinberg, the Obama administration’s so-called special
master for executive pay, to “buy into” a new compensation plan for all
employees expected within months. Benmosche will get $7 million in salary and
as much as $3.5 million a year in long- term incentive awards, AIG said.
“I want to make sure we all get
paid competitively,” he said. “If you shoot the lights out in a given year, we
should have enough flexibility to give you a big increase.”
This is via friend Eric Salzman
over at Monkey
Business Blog, who sent it to me under the subject line, “Low
The recently-crowned head of
international financial embarrassment AIG, Robert Benmosche, has launched a
campaign to “restore morale” to his beleaguered employees, who are apparently
a) cracking under the strain of public anger and b) having performance anxiety
that may be linked to a fear that they will never again be allowed to make
obscene and undeserved bonuses, so long as the taxpayer is writing their checks.
This is very sad, no doubt, and
must be a terrible burden for anyone working on Wall Street to have to bear. So
into the breach steps Benmosche, who became CEO of the firm last month. His new public mantra is that what happened to AIG
isn’t the fault of AIG, but rather the fault of the government regulators who allowed
AIG to destroy itself and iceberg the hull of the American economy. This is
how he put it:
“It’s time the people in Congress
stopped talking about you as the problem, because you’re the solution,” he
said. “It’s not your fault, it’s their fault, it’s the
In reporting this story
Bloomberg, following this quote, did not immediately add a phrase like,
“Benmosche after uttering this appalling horseshit quickly stepped sideways so
as to avoid the lightning bolt that rained down from the heavens, frying to a
crisp two senior executives and the company’s communications chief, Christine
Pretto.” Instead, Bloomberg saw fit to bolster Benmosche’s insane argument by
The Office of Thrift Supervision
“fell short” in its oversight of AIG’s credit-default swaps, Scott Polakoff, a
former acting director of the regulator told lawmakers at a hearing in March.
This is all part of a kind of new
legend AIG is trying to sell to the public, which is that AIG was actually a
very good, sound company that happened to be undone by a lone madman named Joe
Cassano, whose tiny AIG Financial Products division destroyed the firm with its
toxic CDS portfolio. According to this legend, the OTS should have caught wind
of what Cassano was doing and put a stop to it, since it is clearly the job of
the regulators, not senior management, to prevent the mismanagement of
hundred-billion-dollar portfolios by corporate underlings. Because the
government shirked those responsibilities, the more than 100,000 good employees
of AIG ended up suffering when in fact they and AIG
senior management was innocent of all wrongdoing.
Two things about this. One, let’s
not forget that AIG went out of its way to cherry-pick the weak and
understaffed OTS as its primary regulator by chartering an S&L called the
AIG Federal Savings Bank in Wilmington, Delaware back in 1999. By this little
maneuver AIG got itself declared a thrift holding company, which made the OTS,
which only had one insurance expert on its staff, the primary regulator for the
world’s largest insurance company.
Two, the notion that AIGFP was
AIG’s only problem is bananas. It may not even have been AIG’s biggest problem.
This legend obscures the fact that playing a nearly equal role in the demise of
AIG was AIG’s securities-lending business, headed by yet another bombastic
narcissist (AIG must lead the world in the hiring of these to senior management)
named Win Neuger. Neuger back in the earlier part of this decade issued a
clarion call to his subordinates, announcing a plan he called “10 cubed” —
securing 1000 million (i.e. $1 billion) dollars a year in profits. Back in 2005
he told his staff that anyone who wasn’t on board with the plan to make a
billion in profits a year could hit the road, literally, saying, “If you do not
want to be on this bus, it’s a good time to step off.”
But how does one make a billion
in annual profits in the normally staid, risk-averse securities lending
business? By taking the collateral from the securities you lend out and
investing it not in low-risk or risk-free instruments like treasuries, but in
residential mortgage backed securities!
Neuger’s insane decision to bet billions
in AIG collateral on the residential housing market was the other half of the
story of AIG’s death spiral. Fully $43.7 billion of the bailout monies paid to
AIG’s counterparties via the Maiden Lane facilities were tied not to Joe
Cassano and AIGFP, but to the sec-lending operation. So is it plausible that
AIG’s senior management could have simply not understood where all those
billions in revenues from AIGFP were really coming from all those years? I
don’t think so, but I know one thing for sure: it’s definitely not plausible
that AIG’s senior management could have been unaware where the money was coming
from both Cassano’s and Neuger’s operations.
This was a company that was tired
of the boring, safe insurance business and decided not only to take its assets
and bet them on the residential housing market, but to borrow massively and
double and triple down on those bets. This was a systemic, company-wide
insanity. So for Benmosche to blame all of this on the OTS is… well, it’s
characteristic of what these people are like. On some level they really believe
that if the government is not kicking their doors in and wrapping them all up
in hoods and zip-ties, then whatever they are doing is not only okay but good
Moreover, there’s this about Benmosche’s
comments. It wasn’t the OTS that kept Joe Cassano on the payroll for a million
bucks a month for seven whole months after it was revealed that he had
incurred tens of billions in losses via his CDS portfolio, among other things
by steering independent auditors away from his books, and after he had twice
declared publicly that he could not foresee even “one dollar” of losses. That
would be AIG that did that (they didn’t stop the payments until a month after
And it wasn’t the OTS that
decided to keep Win Neuger around as the Chairman and CEO of AIG Investments to
the present day. Hell, Neuger is still an Executive Vice President of AIG.
We the taxpayer are probably going to be giving this guy a nice bonus this
year, because AIG couldn’t see fit to fire the man who single-handedly inspired
$43 billion in bailout payments. It is for the right to increase compensation
to valuable retained personnel like Neuger that Benmosche is now going to the
mattresses with Kenneth Feinberg, Obama’s special master in charge of executive
It gets better. Benmosche’s Knute
Rockne address to the troops included a vote of reassurance to all those
subordinates who might worry that the company’s status as the ward of a bunch
of pissed-off, pitchfork-ready taxpayers should not deter any man jack of them
from passing up any ethically-dicey chance to make money. Are you worried about
what he regulators might think? Well, Benmosche says, don’t worry! Just
put the ol’ nose to the grindstone and keep cranking out that “creativity”!
Benmosche told employees not to
be immobilized by concern that they will upset regulators.
“My fear is that you’ll say, ‘I
don’t know if Treasury wants it, I don’t know if the Fed wants it, I don’t know
if the lawyers want it, I don’t know whatever,’” he said. “If you sit there
every day not making the right decisions to take us to the next level, we’ll
miss an opportunity.”
The Benmosche interview proves
what most of us have long suspected, that the trip these Wall Street dickwads
all took to the financial woodshed last year has taught them absolutely
nothing. They believe implicitly in their divine right to make gigantic gobs of
money, even if that money has to be borrowed from all of us, even if it means
the entire financial services industry has to be backstopped by government
guarantees. And the sad thing is that even a brief sojourn in the desert of
fiscal modesty might help not only politically, but help them not suck at their
jobs so much — but they don’t want to hear it. They just don’t get that
it’s exactly that hunger for big individual compensation that turns ordinary
sane people into Joe Cassanos and Win Neugers. I mean, the clock hasn’t even
struck a year on AIG’s bailout yet, and this clown is already whining in
public that the government isn’t letting him pay out giant bonuses. The
level of cluelessness necessary for a move like that is off the charts, like
Stephon Marbury-level insane.
I agree with Salzman, this is an
easy call for Tim Geithner. Or, it would be, if Tim Geithner had balls between
his legs, instead of a pair of Ford Foundation cufflinks his Daddy bought him
as a present for his graduation from Dartmouth. This guy Benmosche should not
only be fired immediately, he should be doused in barbecue sauce and dropped in
a pool full of mako sharks. At the very least as a signal to the public that
someone is paying attention, this guy has to go.
But would you bet money on that
happening? I wouldn’t.
Stocks jumped higher in early
trading but finished the day flat.
Obama reappointed Bernanke for
another term as Fed Chairman.
Asian and European markets were
and are lower. China was down 2.6%. Oil has a $74 handle and Oil is at $945.
After thirty minutes of trading
Fannie Mae ahs trade 300 million shares, yesterday it traded 1 billion shares
or half the outstanding shares. The average daily volume for the past month has
been 110 million shares. The low priced speculators are back.
The Consumer Confidence Index for
August came in at 54.1, which is above the 47.9 that was widely expected and
marks a sharp improvement from the upwardly revised July reading of 47.4.
One of President Obama's golfing
buddies Monday was a top donor to his campaign and the president of a bank at
the center of a U.S. investigation into illegal tax shelters.
Robert Wolf, the president of UBS Americas, a Swiss-based bank, joined Obama at
the elite, and difficult, Farm Neck Golf Club in Oak Bluffs. Deputy press
secretary Bill Burton described the two men as "friends."
Is Obama the next LBJ:
“I think it is serious and it is deteriorating,” Admiral Mullen said
Sunday on CNN’s “State of the Union” program. “The Taliban insurgency has
gotten better, more sophisticated, in their tactics.” He added that General
McChrystal was still completing his review and had not yet requested additional
troops on top of the those added by Mr. Obama.
Two stories from http://digbysblog.blogspot.com/
Look at this,
a media organization bothered to interview some of the people suffering the
most under the current health care system!
Such scaremongering has dismayed
and infuriated Sharon Lee, the doctor who now treats Manley in Kansas City.
"I'm very angry, very angry," she says. "Many of the people I
treat have already been in front of a death panel and have lost – a death panel
controlled by insurance companies. I see people dying at least monthly because
we have been unable to get them what they needed."
Lee's clinic, Family Health Care,
is a refuge of last resort. It picks up the pieces of lives left shattered by a
health system that has failed them, and tries to glue them back together. It
exists largely outside the parameters of formal health provision, raising funds
through donations and paying all its 50 staff – Lee included – a flat rate of
just $12 an hour [...]
Beth Gabaree, who came in to see
Lee for the first time this morning, has experiences that sound extreme but are
in fact quite typical. She has diabetes and a heart condition. Until two years
ago they were controlled through ongoing treatment paid for by her husband's
work-based health insurance. But he was in a motorbike crash that pulverized
his right leg and put him out of work.
That Catch 22 again: no work, no
insurance, no treatment. Except in this case it was
Beth who went without treatment, in order to put her husband's dire needs
first. He receives ongoing specialist care that costs them $500 a go, leaving
nothing for her. So she stopped seeing a doctor, and effectively began
self-medicating. She cut down from two different insulin drugs to regulate her
diabetes to one, and restricted her heart drugs. "I do what I think I need
to do to keep four steps out of hospital. I know that's not the right thing,
but I can't justify seeing the doctor when my family's already in money
The problem is that she hasn't
kept herself four steps out of hospital. Her health deteriorated and earlier
this year she became bedridden. Even then, it took her family several days to
persuade her to go to the emergency room because she didn't want to incur the
hospital costs. "It was hard enough without that," she says.
After an initial consultation,
Lee has now booked Gabaree for a new round of tests for her diabetes and is
arranging for free medication. "It's wonderful," Gabaree says.
"I'm so blessed. I didn't know you could get this sort of help."
That she sees basic healthcare as
a blessing, not as a right, speaks volumes about attitudes among the mass of
the working poor. Also revealing is the fact that Gabaree has absolutely no
idea about the debate raging across America. She hasn't even heard of Obama's
push for health reform, nor the Republican efforts to prevent it. "I don't
watch much television," she says.
There are 47 million voiceless people who have no access to the health care
debate itself, let alone access to participate in it. They would be the biggest
beneficiaries of reform, and yet they lack information about what is being
attempted, and they certainly lack the wherewithal to do anything meaningful
about it. At least this one news organization has offered a small voice to
those suffering through the horrors of the lifestyle of the permanent
underclass in America.
One thing though.
This story will never be read in
an American newspaper. It comes from The UK
Hey, at least the Brits are
getting the full range of debate...
And the other
Well, bowl me over
with a feather. The mainstream media finally looks at how the health
care debate has unfolded and who is benefiting:
Lashed by liberals and threatened
with more government regulation, the insurance industry nevertheless rallied
its lobbying and grass-roots resources so successfully in the early stages of
the healthcare overhaul deliberations that it is poised to reap a financial
The half-dozen leading overhaul
proposals circulating in Congress would require all citizens to have health
insurance, which would guarantee insurers tens of millions of new customers --
many of whom would get government subsidies to help pay the companies'
"It's a bonanza," said
Robert Laszewski, a health insurance executive for 20 years who now tracks
reform legislation as president of the consulting firm Health Policy and
Strategy Associates Inc.
Some insurance company leaders
continue to profess concern about the unpredictable course of President Obama's
massive healthcare initiative, and they vigorously oppose elements of his
agenda. But Laszewski said the industry's reaction to early negotiations boiled
down to a single word: "Hallelujah!"
Too bad they buried the lead:
One of the Democratic proposals
that most concerns insurers is the creation of a
"public option" insurance plan. The industry launched a campaign on
Capitol Hill against it, grounded in a study published by the Lewin Group, a
health policy consulting firm that is owned by UnitedHealth Group. The
lobbyists contended that a government-run plan, which would have favorable tax
and regulatory treatment, would undermine private insurers.
Opposition increased this month
when boisterous critics mobilized at town hall meetings held by members of
Congress home for the August recess.
The attacks, supplemented by
conservative critics on talk radio and other forums, drew national attention.
Leading insurers, including
UnitedHealth, urged their employees around the country to speak out. Company
"advocacy hot line" operations and sample letters and statements were
made available to an army of insurance industry employees in nearly every
Some insurers supplemented the
effort with local advertising, often designed to put pressure on specific
members of Congress. Late in the spring, Blue Cross Blue Shield of North
Carolina -- the home state of several conservative Blue Dog Democrats --
prepared ads attacking the public option.
You'd think that would be a big story in itself, but I suppose if people made
their way to the end, they'd get the picture.
Leading Democrats have fought
back, with House Speaker Nancy Pelosi (D-San Francisco) last month calling the
industry "immoral" for its past treatment of customers and suggesting
insurers were "the villains" in the healthcare debate.
Still, recent support for the
public option has declined, and the stock prices of health insurance firms have
Yes, funny how that happens.
Eric Boehlert pegged this correctly:
it's the Swift Boat technique and it continues to work like a charm. Someday,
maybe the media will find some interest in that as it's actually happening, but
I doubt it. The political establishment certainly doesn't seem to care about it
in the least since they keep reliving it over and over again like it's some kind
of sacred hazing ritual.
The end of excess?
NYDN: Even in death, Marilyn
Monroe is still snagging millionaires. An unidentified deep-pocketed
fan who clearly prefers blonds placed the winning $4.6
million bid Monday in an eBay auction for the crypt directly above the
sexy screen icon's grave. Beverly Hills widow Elsie Poncher
put her husband's strategically positioned crypt on the auction block with a
starting price of $500,000. Bidding soared to $4.5 million three days later.
"Here is a once in a lifetime and into eternity opportunity to spend your
eternal days directly above Marilyn Monroe," the eBay auction description
Who would have thunk it. If you
bought Intel in 1998 you would still
have a 10% loss on your purchase.
Bloomberg: Societe Generale SA, France's
second-largest bank by market value, plans to expand its commodities team about
35 percent by the end of next year, seeking to double the
size of the business. Bank of America
Corp., Barclays Plc and Morgan Stanley are also expanding their
commodity businesses as a doubling in copper and 66 percent gain in crude oil.
Timing is everything and the easy money may have been made and what
else is new? When was the Crash and layoffs? Oh that is last year’s news
although the real sell off was only 5 months ago. How quickly they forget when
someone else’s dime saved them.
European shares edged higher, notching a fresh annual high in the
process, as gains for telecom stocks offset losses for miners.
Thread: Why Didn't We Try Single Payer?
Tue Aug 25, 2009 at 09:14:59
Crude oil fell more than $3 a
barrel after prices failed to rise above a technical resistance level at $75 a
barrel. Oil dropped as much as 4.4 percent in its first decline in six days.
Earlier, it touched $75 following a report from the Conference Board that
confidence among U.S. consumers increased in August as people became less
worried about the outlook for the labor market.
Stocks ended better on Tuesday with breadth 3/1 positive.
21 August 2009
We are taking the
next two weeks off and will return the day after Labor Day September 8. Since
we will be making no trades and the Feds have lowered rates so much that no
interest is being earned the value of the Model on September 8 will be the
Asia was mixed overnight and
Europe is higher. Oil has a $73 handle and Gold is $945.
Occam's razor or Ockham's
- cite_note-0 is the principle that "entities should not be multiplied
unnecessarily" or, popularly applied, "when you have two competing
theories that make exactly the same predictions, the simpler one is the
better." It is apocryphally attributed to 14th-century English logician
William of Ockham. The principle states that
the explanation of any phenomenon should make as few assumptions as possible,
eliminating those that make no difference in the observable predictions of the
The principle is often expressed in Latin as the lex parsimoniae ("law of parsimony",
"law of economy", or "law of succinctness"): entia
non sunt multiplicanda praeter necessitate, roughly translated as
"entities must not be multiplied beyond necessity." An alternative
version Pluralitas non est ponenda sine necessitate translates
"plurality should not be posited without necessity."
When competing hypotheses are
equal in other respects, the principle recommends selection of the hypothesis
that introduces the fewest assumptions and postulates the fewest entities while
still sufficiently answering the question. It is in this sense that Occam's
razor is usually understood. To quote Isaac Newton:
"We are to admit no more causes of natural things than such as are both
true and sufficient to explain their appearances. Therefore, to the same
natural effects we must, so far as possible, assign the same causes."
To summarize the common
understanding of the principle, "Of several acceptable explanations for a
phenomenon, the simplest is preferable, provided that it takes all
circumstances into account."
Originally a tenet of the reductionist
philosophy of nominalism, it is more often taken today as a heuristic
maxim (rule of thumb) that advises economy,
parsimony, or simplicity, often or especially in scientific
theories. Here the same caveat applies to confounding topicality
with mere simplicity. A superficially simple phenomenon may have a complex
mechanism behind it. A simple explanation would be simplistic if it failed to
capture all the essential and relevant parts. Instead, one should choose the
simplest explanation that explains the most data.
The word "razor" in
this sense is not derived from shaving razor, rather both terms
derive from the verb to raze, the "cutting away of extraneous
Forget 1100 pages of health care
reform and extend Medicare to all on a gradual scale (lower eligibility to buy
in to 60 this year, 58 next year etc.) and require those under 65 to pay 5% of
their adjusted gross income if they wish to participate.
KKR has filed to make a public
offering of Dollar General shares in
the next few weeks. KKR took Dollar General private in 2007 for the price of $8
billion. Underwriters are going to price the new shares to reflect a value
about 50% higher that the take out price. In the last quarter Dollar General
earned $80 million. Multiply by 4 and that gives earnings of $320 million on a
$12 billion or more valuation. That’s nuts but them it will be a new name in
the retail space and there are institutions that have to own new names. And KKR
will pay itself and it investors $200 million of the $750 million raised on the
offering as a dividend. Pricing Dollar General at $12 billion means that it is
one of the few retailers to be worth more in 2009 than it was in 2007.
The game is on again.
According to the July existing
home sales report, annualized sales hit 5.2 million. Economists, on
average, were expecting a sales rate closer to 5.0 million following the rate
of 4.9 million that was originally registered in June. Based on the data, July
existing home sales increased 7.2% month-over-month, which was better than the
2.1% monthly increase that was widely expected.
Dick Arms, realmoney.com: After the sharp drop of last Friday
and Monday, the subsequent rally has gone further than would normally be
expected, but that does not seem to change the basic situation. It is
reflecting a high level of resiliency, and probably a great deal of
short-covering on the part of traders who were disappointed that the decline
found support so quickly.
But it still appears that the up
move that began in March, and then accelerated in July, ran into very tough
overhead supply, moved in a big lateral move for two weeks, and then gave an
unmistakable sign of weakness with the penetration of the bottom of the
It has been particularly
noticeable that the total market volume on recent down days has been heavier
than on the up days. That implies money leaving the marketplace and points to
further weakness ahead.
CNBC is running pictures of all
the Fed folks in Montana at Jackson Hole enjoying the weekend as they
conference with economists and CEOs and Bankers and Brokers. From the pictures
of the luxury where the conference is being held one wouldn’t know that
millions of common folk are losing their homes and millions of savers are
receiving 0 interest on their savings in order that the folks at the conference
can keep their jobs.
WSJ: A survey found that one in eight U.S. households with mortgages was
in foreclosure or behind on its mortgage payments during the second quarter,
putting added pressure on programs aimed at preventing foreclosures.
Take with several grains of salt:
August 21, 2009 (Bloomberg) -- Federal Reserve Chairman Ben S.
Bernanke said the global economy is “beginning to emerge” from a
recession after “aggressive” action by central banks and governments. “After
contracting sharply over the past year, economic activity appears to be
leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,”
Bernanke said today in a speech at the Kansas City Fed’s annual symposium in
Jackson Hole, Wyoming.
And here was Fed Chairman Ben
Bernanke on June 8, 2008: "The
risk that the economy has entered a substantial downturn appears to have
diminished over the past month or so."
From Wikipedia: grain of salt
is a literal translation of a Latin phrase, (cum) grano salis.
In common parlance,
if something is to be taken with a grain of salt, it means that a copious measure of skepticism
should be applied regarding a claim; that it should not be blindly accepted and
believed without any doubt or reservation. According to the Oxford English Dictionary "to take
'it' with a grain of salt" means "to accept a thing less than
fully". It dates this usage back to 1647. According to The New
Dictionary of Cultural Literacy, the phrase also means to
"view a statement with a skeptical attitude."
The phrase comes from Pliny the
Elder's Naturalis Historia, regarding the
discovery of a recipe for an antidote to a poison. In the antidote, one of the ingredients was a grain of
salt. Threats involving the poison were thus to be taken "with a grain of
salt" and therefore less seriously. An alternative account says that the
Roman general believed he could make himself immune to poison by ingesting
small amounts of various poisons, and he took this treatment with a grain of
salt to help him swallow the poison. In this version, the salt is not the
antidote; it was taken merely to assist in swallowing the poison.
European shares ended the week on a strong note, after data fed hopes
that the European economy is improving. The big three were up 2% and more.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a2YZUQ.RazXw has the story of mom and pop saver who bought
CIT and GMAC and Lehman bonds last year because they needed income and the
bonds were rated investment grade and the nice folks at InCapital were happy to
sell them to the innocents. The SEC and FINRA are looking into the sales
practices. Grandma and grandpa shouldn’t hold their breath waiting for the
regulatory authorities to act.
From Wikipedia: Under the
doctrine of caveat emptor, the buyer could not recover
from the seller
for defects on the property that rendered the property unfit for ordinary
purposes. The only exception was if the seller actively concealed latent
defects. The modern trend in the US, however, is one of the Implied
Warranty of Fitness that applies only to the sale of new residential
housing by a builder-seller and the rule of Caveat Emptor applies to all other
sale situations (i.e. homeowner to buyer). Many other jurisdictions have
provisions similar to this.
Before statutory law,
the buyer had no warranty of the quality of goods. In many jurisdictions, the
law now requires that goods must be of "merchantable quality".
However, this implied warranty can be difficult to enforce, and may not apply
to all products. Hence, buyers are still advised to be cautious.
In addition to the quality of the
merchandise, this phrase also applies to the return policy. In most
jurisdictions, there is no legal requirement for the vendor
to provide a refund or exchange. In many cases, the
vendor will not provide a refund but will provide a credit. In the case of software,
movies and other copyrighted
material many vendors will only do a direct exchange for another copy of the
exact same title. Most stores require proof of
purchase and impose time limits on exchanges or refunds. However,
some larger chain stores will do exchanges or refunds at
any time with or without proof of purchase- although they usually require a
form of picture ID and place quantity or dollar limitations on such returns.
a decision written in 1817 by Chief Justice John Marshall,
is believed by scholars to have been the first U.S. Supreme Court case which
laid down the rule of caveat emptor in U.S. law.]
In the UK, consumer law has moved
away from the caveat emptor model, with laws passed that have enhanced consumer
rights and allow greater leeway to return goods that do not meet legal
standards of acceptance.]
Many companies operating in the UK, as well as most consumer based economies,
will allow customers to return goods within a specified period for a full
refund, even if there is no problem with the product.
We have a fire in the fireplace today in august but:
Our warming world.
As NOAA reports, July 2009 was the
5th warmest July on record since 1880 when measuring the global land and sea
surface temperatures and higher than the average for the 20th century. Yet at
the same time, the North American temperature was cooler than average.
And meanwhile, the thinning
of the northern hemisphere's sea ice continues apace.
Just goes to show that local
changes aren't necessarily the whole story. Global climate change is entrenched
and we need to mitigate the worse and start planning for the next phase which
is on its way.
Oil closed at $74.03. Gold gained
$13 to $954.
U.S. oil consumption is 20
million barrels of oil per day. Since January the price of oil is up $30 per
barrel. That works out to $900 million more per day or $27 billion more per month or
$324 billion per year which is more than the consumer part of the stimulus
All the major stock measures closed on their highs for the
year with the DJIA up 150 at 9500. The S&P 500 gained 20 to 1027 and the
NAZZ jumped 30 to 2020.
Breadth was 4/1 positive and volume was light.
It will be a happy weekend for the bulls.
We’ll be back after Labor Day.
20 August 2009
Stocks were higher pre-opening
following on gains in Asia and Europe overnight until the jobless claims
report. There was an increase of 15,000 to 576,000 in the latest week and that
moved the major measures back to neutral. Oil and Gold are flat in early morning
China was up 4.5% overnight after
being down 20% in the last 8 trading days.
Bloomberg: Sears share price fell 13 percent in early U.S. trading after
reporting an unexpected second-quarter loss. Excluding some items, the loss was
17 cents a share. Analysts had projected profit of 35 cents, the average of six
compiled by Bloomberg. Sales
at U.S. Sears stores open at least 12 months declined 13 percent as consumers
bought fewer washers, dryers and refrigerators and clothing. Same-store sales
at Kmart fell 3.9 percent.
Yahoo: The Conference Board’s
Index of leading economic indicators showed a 0.6% increase in July. Leading
indicators were expected to show a 0.7% increase following the 0.7% increase
that was initially registered in June. June's data was recently revised to show
a 0.8% increase. Meanwhile, the Philadelphia Fed Index came in at 4.2, which is
considerably better than the -0.2 that was expected and up sharply from the
-7.5 that was registered in July.
AP: More than 13 percent of
American homeowners with a mortgage are either behind on their payments or in
foreclosure as the recession throws more people out of work, the Mortgage
Bankers Association said Thursday. The record-high numbers in the report are
being driven by borrowers with traditional fixed-rate mortgages, rather than
the shady subprime loans with adjustable rates that kicked off the mortgage
crisis. As of June, more than 4 percent of all borrowers were in foreclosure
and about 9 percent had missed at least one payment. One in three new
foreclosures between April and June was from a prime, fixed-rate loan, up from
one in five a year earlier. Last year, subprime adjustable-rate loans caused
the largest share of foreclosures.
The worst of the trouble is still
concentrated in California, Nevada, Arizona and Florida, which accounted for 44
percent of new foreclosures in the country. Nearly 12 percent of all loans in
Florida were in foreclosure, the highest in the country, followed by Nevada at
Chgo SunTimes: More than 30
percent of single-family homes in the Chicago metropolitan area had mortgages
that were greater than the value of the home at the end of June, according to a
report from First American CoreLogic. That's 550,572 Chicago area homes with
negative equity. Statewide, 29.4 percent -- 650,720 properties -- had negative
equity, also known as having an "underwater" or "upside
down" mortgage. The state and metropolitan area fared slightly better than
the nation, which had 32.2 percent of properties with negative equity, the
report said. It showed a bit of improvement from the end of March, when 32.5
percent of homes had negative equity nationally. The states with the greatest
percentage of underwater mortgages: Nevada, 65.6 percent; Arizona, 51 percent;
Florida, 49.4 percent; Michigan, 47.9 percent, and California at 42 percent.
European shares ended higher, as shares of oil producers and miners got
a boost from higher commodity prices.
Oil was up 10 pennies at $72.24
and Gold lost 3 to $942.
Stocks closed higher with the DJIA up 70 at 9350. The
S&P 500 gained 10 to 1008 and the NAZZ jumped 20 to 1990.
Breadth was 2/1 positive and volume was expiration
The bulls are smiling all the away to the bank.
19 August 2009
Everyone needs a vacation:
Audrey Steele, 82, from New Bedford, said she
does not want the government to get involved with health care because
"they just make a mess of everything," referring to the $700 billion
bailout of financial institutions that was used to pay for lavish conferences
and hefty executive compensation.
We read that quote in the
Wisconsin State Journal referring to a town hall meeting conducted by Barney
Frank in Massachusetts. The obvious of course is that Audrey is being supported
by and cared for by the two government programs which proves that the
government can do things better. And the bailout was the result of private
enterprise run amok. But if we point that out, we are considered
latte-drinking, sushi-eating, Volvo-driving liberals. Which we are.
Asian markets were lower
overnight with China down 4% and 9% so far this week on top of a 10% drop last
week. European bourse indexes are lower and Oil has a $68 handle wilt Gold is
Investors’ Intelligence has 48%
bulls and 23% bears.
AOL: According to an analysis by
the New York Times and David Cay Johnston for Tax Notes (subscription only),
the last IRS report on the top 400 taxpayers showed that they made a little
more than a penny of each dollar of total income in America, but paid income
taxes at a 17.2 percent rate. Add in payroll taxes and the figure still rounds
to 17.2 percent. Those top 400 paid a
tax rate roughly half that of a family making $75,000 a year -- which was
37 percent -- 25 percent for the income tax rate and 12 percent for payroll
WSJ: Hewlett-Packard's fiscal
third-quarter profit dropped 19% to $1.64 billion as revenue fell 2.1% to
$27.45 billion. The PC and printer maker reported lower international sales and
falling margins, and said profit at most of its segments also slowed. Results,
though, beat the company's own targets issued in May, and H-P gave a
fourth-quarter earnings forecast above expectations. The company said it saw
improvements in its consumer PC business. In its press release, Chief Executive
Mark Hurd said, "business is stabilizing, and we are confident that H-P
will be an early beneficiary of an economic turnaround."
The markets didn’t like the
results and the shares are trading $1 lower in the pre-market.
Deere posted a 27% drop in fiscal
third-quarter profit amid weak global demand for farm equipment and lowered its
sales forecast for the full year.
European stocks ended mostly lower for a second straight session as
investors moved to lock in profits, particularly in the banking, technology and
Oil gained $3 to $72 on lower
inventory numbers. Gold was also higher at the close up $5 to $945.
The DJIA gained 65 to 9280. The S&P 500 was up 7 to 996
and the NAZZ jumped 14 to 1970.
Breadth was positive and volume was moderate.
The bulls are back in control.
18 August 2009
Well, will it be Turnaround Tuesday or Tortuous Tuesday –as our granddaughter
the Princess Abby suggests. Asian markets and European bourses were and are
mildly higher overnight and at midday and U.S. futures suggest a higher
opening. Then the fun will begin. The bears desperately want another win today
while the bulls would like to regain the serve.
Home Depot and Target
earnings were lower but the outlook was hopeful and the markets are giving them
the benefit of the doubt with both trading higher
in the pre-opening.
And the beat goes on.
WSJ: The majority of companies
that improperly backdated stock options never were caught by regulators or
confessed to the practice, according to a new academic study. Researchers at
the University of Houston's C.T. Bauer College of Business used a sophisticated
statistical test to sift through more than 4,000 publicly traded companies for
those with patterns of granting options at abnormally favorable times, often at
low points for their share prices.
The study identified 141
companies with such advantageous options-granting practices that the
researchers concluded they were highly likely to have been involved in
backdating. Ninety-two of those companies never were publicly linked to
investigations or announced earnings restatements related to backdating.
Bonds –even low quality bonds-
are rallying (dropping in yield) and the talking heads are suggesting the rally
is a sign of better times to come. That may be so but our take is that bonds
are rallying because mom and pop saver are desperately looking for income from
their savings that used to sit safely in bank C/Ds which no longer yield
anything because the Fed has adopted the long dismissed tactic of the Japanese
Central Bank of keeping interest rates at zero so profligate bankers can
rebuild their depleted capital at the expense of the ordinary saver.
If and when the economy recovers
those folks buying bond funds for yield are going to be sorry-again. When
interest rates rise, bond funds drop in price more than the income received can
Yahoo/Finance: Producer Price Index for July had a
month-over-month decrease of 0.9%. That was short of the 0.3% decline
that had been expected and was down from the 1.8% increase registered in
June. Excluding food and energy, which are often more volatile, producer prices
decreased 0.1%. They were expected to increase 0.1% following the 0.5% increase
in June. Separately, housing starts
hit an annualized rate of 581,000 in July. That was short of the annualized
rate of 599,000 that had been widely expected. Housing starts for June were
revised modestly higher to reflect an annualized rate of 587,000. Meanwhile,
building permits for July hit a rate of 560,000. They were expected to come in
at a rate of 577,000 after the previous month's figure was revised upward to
A public option in health care won’t work. The Dems
should admit defeat and pull the plan. Whatever is passed after all the garbage
that has been added to the bill with subsidies and agreements not to negotiate
drug prices etc. makes the proposed program more expensive that what currently exists.
The Dems then should introduce a bill to extend Medicare
to all by initially lowering the Medicare edibility age to 50 the first year
and then lower by 3 years every year until all are covered. To pay for this
they should tax the folks receiving the new benefits (at 5% of income until
they reach 65) if they are in the program. Most folks are paying much more than
5% of income currently for healthcare.
The Medicare program already exists, doesn’t have to be
set up and those folks who don’t want to enter it and still want to pay for
private insurance can. We know that is too simple a plan and also supposedly
politically unfeasible but that is the only way reform will work and the plan
is easy to explain. If it is rejected, so be it.
Bloomberg: Manhattan office
(building) sales came to a near standstill in the first half, with less than
one-tenth the average number of transactions seen during the same period in the
previous five years, CB Richard Ellis Group said. Three office buildings valued
at more than $30 million sold from January to June, down from an average of 32
in the first six months of the prior five years, said the Los Angeles-based
firm, the largest publicly traded commercial real estate broker.
Oil was up $2 at $69.10 and Gold
gained $4 to $940.oepan markets closed higher.
The DJIA regained 70 points to end at 9210. The S&P 500
was up 8 at 988 and the NAZZ recovers 20 to 1950.
Breadth was 3/1 to the good.
The bulls are back in control after two days of teasing the
The Mathematics of Marriage
Following up on the mathematics
of a zombie attack, here’s some analysis of the mathematics of
choosing a mate, toward the end of this article
on gambling. Leave it to mathematicians to be this romantic:
Suppose you are told you must marry, and that you must choose your
spouse out of 100 applicants. You may interview each applicant once. After each
interview you must decide whether to marry that person. If you decline, you
lose the opportunity forever. If you work your way through 99 applicants
without choosing one, you must marry the 100th. You may think you have 1 in 100
chance of marrying your ideal partner, but the truth is that you can do a lot
better than that.
If you interview half the potential partners
then stop at the next best one – that is, the first one better than the best
person you’ve already interviewed – you will marry the very best candidate
about 25 per cent of the time.
Once again, probability explains why. A quarter of the time, the second best
partner will be in the first 50 people and the very best in the second. So 25
per cent of the time, the rule “stop at the next best one” will see you
marrying the best candidate. Much of the rest of the time, you will end up
marrying the 100th person, who has a 1 in 100 chance of being the worst, but
hey, this is probability, not certainty.
You can do even better than 25 per cent,
however. John Gilbert and Frederick Mosteller of Harvard University proved that
you could raise your odds to 37 per cent by interviewing 37 people then
stopping at the next best. The
number 37 comes from dividing 100 by e, the base of the natural logarithms,
which is roughly equal to 2.72. Gilbert and Mosteller’s law works no matter how
many candidates there are – you simply divide the number of options by e.
So, got that? Figure out your potential pool of mates (X). Divide X by
2.72. Then marry the next best one, after you’ve dated X/2.72 people.
Let’s say you determine your mate pool is 500. Date 184 people. Then marry the
first person who is better than the 184+ people you’ve interviewed.
Is this advice in any way practical? The first thing that might strike
most people as impractical is the idea of determining your mate pool. There are
billions of people in the world, hundreds of millions in America, millions in
many cities in America. How the hell would you determine your mate pool? I
I’d go about it as follows…
How many single people did you meet last year, people you can recall,
who could be considered plausible mates? People, that is, it’s reasonable to
imagine might have dated you — be honest, you can’t count that 10 at your
office if you’re a 4 — and that you might have possibly wanted to marry
yourself. Take that number, take the years since you were 18 until the last
year you’d want to get married — say, hypothetically, 18-34, 16 years — and
multiply. Are you picky? Say the number of potential mates you meet in a year
is 5. Multiply 16 X 5. You’ve got 8o potential mates you’re likely to meet
between the ages of 18-34. (This works whether you’re 19 or 33 at the time
you’re making the calculation — you’ve presumably already dated some number of
While it may sound limiting, the fact is that despite how large the
world is, we tend to meet very few people in our routine lives — unless we
engage in aggressive singles activities, online dating, etc. And even with
aggressive dating, I think most people would still be limited to, at best, low
double digits as to people they could actually marry and might actually
So, I think defining the universe of potential mates — at least in a
back-of-the-envelope sense — is quite doable.
What’s harder? Actually pulling the trigger based on the idea that
you’re statistically likely or not to do better. Say you’re in that universe of
80 potential mates. Under the model, you’re supposed to date 29 people, then choose the best one after that. First of all, it would
take a pretty cold person to toss guy or gal #27 because you haven’t gotten to
#29 yet. And what exactly as you supposed to think during “interviews” #1-#29?
That you’re dating someone with no chance of marrying them, just to set up a
baseline for your statistical model? Obviously, this is silly.
Furthermore, probably the biggest thing that influences a lot of
people’s decisions to marry is sunk costs. You’ve been with someone X number of
years. The higher X is, the harder it is to make the calculation to toss aside
those years and start over. Humans are notoriously loss averse — and that’s a big
loss to take. What’s more, women at least see their mate choices getting worse
as the years go by (the “all the good ones are taken or gay” effect). Yet
another finger on the scale urging someone in a relationship to pull the
It strikes me that the limited usefulness of this exercise is a fairly
depressing one: helping people calculate when it’s reasonable to settle. You’re
a 33-year-old woman. You figure you’ve dated 30 of your 80 potential mates.
You’re starting to feel anxious about all the usual reproductive stresses women
feel at such an age. This lets you know that it’s reasonable to assume, if guy
#35 is better than the rest of the ones you’ve dated, that — statistically —
you’re taking a pretty safe bet that it makes sense to settle down with him,
rather than “interview” the other 45 candidates.
It could hardly be used
scientifically. But perhaps it provides a useful exercise to rationally
evaluate your options.
17 August 2009
Markets around the world were
losers overnight. U.S. futures are down 1.5% pre opening following a large sell
off in Asia. China lost 5% overnight on top of its 6% drop last week. The
Chinese index still remains over 60% higher on the year so there will be no tag
day for that market yet.
Lowe’s missed and is 10%
lower. Today was not a good day to miss
numbers. Last week at this time a miss may have been greeted by a 10% higher
Oil has a $65 handle in the early
going and Gold is down $12.
Bloomberg posted this news over
Wall Street firms are again recruiting commodities traders with
promises of $1 million bonuses as prices of raw materials from oil to copper
Less than a year after oil tumbled a record 54 percent and the Reuters/Jefferies CRB Index was suffering its biggest drop ever, Bank of America Corp.
plans to boost commodity headcount by 25 percent. London-based Barclays Plc
will increase staff about 6 percent. Morgan Stanley is recruiting traders in
shipping. The banks declined to comment on compensation.
Some things never change. The
banks seem to have perfected the sell low buy high way of doing business.
Unfortunately they are doing it on the U.S. taxpayer dime now.
Business improved for manufacturers in New York in August, according to
the Empire State index released by
the New York Federal Reserve Bank. The index rose to 12.1 from negative 0.6 in
July. It's the first positive reading since April 2008 and the highest since
November 2007. Readings over zero mean most firms said business was improving
compared with the prior month. Two key components of the index -- new orders
and shipments -- rose to their highest levels in more than a year.
Capital One Financial in a filing Monday said the annualized net
charge-off rate at its U.S. credit-card business rose to 9.83% in July from 9.73%
the previous month. The company said 30-day delinquencies rose to 4.83% from
4.77% in June as borrowers struggle to keep up with their payments in the
Southeast regional bank BB&T Corp, which on Friday agreed
to buy assets of lender Colonial Bank, said it commenced an offering of $750
million of its common stock. BB&T said the proceeds will boost its equity
capital and will be used for general corporate purposes. Last week, the Federal
Deposit Insurance Corp said BB&T will buy about $22 billion of Colonial's
assets. The FDIC and BB&T agreed to share losses on about $15 billion of
those assets. The bank had deposits of about $20 billion as of June 30.
Deutsch Bank and Credit Suisse
are running the books on the sale. Today is not the best day to be selling
stock. Oh well, the FDIC is backstopping BB&T so the taxpayers on the hook
for this one too.
WSJ: For the 102 banks that have collapsed in the past two years,
the FDIC's estimated cost averaged 34%. That is sharply higher than the 24%
rate between 1989 and 1995, when 747 financial institutions were closed by
regulators ... At three of the five banks that failed Friday, increasing the
total to 77 so far this year, the financial hit to the agency's deposit-insurance
fund is expected by the FDIC to be about 50% of their assets.
Lots of mellow folks downwind:
LAT: A fire that has burned more than 75,000 acres in Santa Barbara
County over the last week was started in an illegal marijuana growing area
operated by a Mexican drug organization, authorities said. Authorities said
they confirmed that the blaze, which is burning out of control, started in a
cooking area of the pot farm. They believe those responsible are still in the
forest area and are trying to leave the forest by foot.
If you traded a clunker for this car the Feds would write you a check
GM is targeting the emerging
ultra-low-cost car market with plans for a compact for around $4,000, possibly
producing it in Asia.
An interesting discussion of stock buybacks and insider options:
Terry Savage, Chicago SunTimes: ... Americans are rolling nearly $1
trillion in card balances from month to month. And nearly half of those
cardholders are making only the minimum monthly payments. As you might imagine,
those accounts are very profitable to the credit card issuers -- until the
cardholders default or file for bankruptcy. Then those write-offs add to the
costs that must be borne by the remaining card users. Individual bankruptcies
are up 36 percent for the first half of this year, compared with last year. And
that translates into more defaults on card balances. Bank of America, the
largest bank in the country, reported its default rate jumped to 13.8 percent
in June from 12.5 percent in May. Other issuers such as JPMorgan Chase,
Citigroup, Capitol One, Discover and American Express have reported default
rates around the 10 percent level.
The Reader’s Digest Association today said it has reached an agreement
in principle with a majority of its senior secured lenders on terms of a
restructuring plan to reduce the company’s debt from $2.2 billion to $550
million. As part of the agreement, RDA expects to implement the restructuring
under a voluntary pre-packaged Chapter
11 filing in U.S. bankruptcy court.
What would the Pilgrims say?
... But psychologists have long
known that people tend to overestimate the odds of rare events. Applying that
behavioral insight, finance professor Peter Tufano of Harvard Business School
has devised a clever program called "Save to Win." Launched earlier this
year for members of eight credit unions in Michigan, it is a cross between a
certificate of deposit and a raffle ticket. Members who put $25 or more into a
Save to Win one-year CD are entered into a monthly "savings raffle"
for prizes up to $400, plus one annual drawing for a $100,000 jackpot. Only
Michigan residents are eligible to participate.
This unusual CD is federally
guaranteed by the National Credit Union Administration and pays between 1% and
1.5% annual interest, a bit lower than conventional rates. In 25 weeks, the
program has attracted about $3.1 million in new deposits, often from people who
have never been able to set money aside.
Takisha Turner, 33 years old, is
a dispatcher for the valet-parking department at Greektown Casino in Detroit.
Ms. Turner doesn't gamble, but she has always struggled to save. She had only
about $10 in her savings account at Communicating Arts Credit Union when she
walked in a few weeks ago and heard about Save to Win.
"The teller said somebody
else she told about it won," says Ms. Turner, "so I said, 'Well, you
must be good luck then.' I thought it was a good idea, because earning interest
means you win anyway. So I put down the minimum, $25." This past week, Ms.
Turner won $400. She plowed the $400 back into her Save to Win
account, getting a second shot at winning the $100,000 grand prize.
This article explains how the low interest rate policy of the Fed is
helping Ponzi promoters who promise 8% interest rates to investors. There is no
free lunch except for Goldman and friends.
European markets ended sharply lower, with banks and miners leading the
declines. Germany and France were down 2% and London lost 0.8%.
Oil ended at $66.75 and gold was
Stocks traded lower at
the start and the rallies were feeble during the day. At the close the DJIA was
down 170 at 9150. The S&P 500 dropped 25 to 980 and the NAZZ lost 55 to
Breadth was 7/1 negative
and volume was moderate.
The bears and bulls are
wondering about tomorrow. Will it be Turnaround Tuesday or the beginning of
searching for lower levels.
14 August 2009
European bourse indexes are
higher at midday and Asian markets closed mostly higher except China which was
down 3%. Gold is at $958 and Oil has a $71 handle.
July CPI unchanged with core up
0.1%. Year over year CPI is lower.
So banks, whose purpose used to
be to lend money and collect deposits need to add more folks to commodities
units so that they can make money from trading. Isn’t that how banks got in
Bloomberg: While Bank of America,
based in Charlotte, North Carolina, cut 46,150 jobs since credit markets began
to freeze two years ago, the company needs to add staff to profit from trading
commodities, which rose 32 percent since March. Commodity assets under
management in mutual funds, indexes and exchange-traded products rose about 19
percent to $209 billion in the second quarter, according to Barclays Plc, which
plans to hire about 20 commodity traders in the next year.
More giveaways to large trading
Consumer sentiment declined in
August and after that report caused the major measures sold 1% on a very slow
Income inequality in the United States is at an all-time high,
surpassing even levels seen during the Great Depression, according to a
recently updated paper by University of California, Berkeley Professor Emmanuel Saez. The paper,
which covers data through 2007, points to a staggering, unprecedented disparity
in American incomes. On his blog, Nobel prize-winning economist and New
York Times columnist Paul Krugman called the numbers "truly amazing."
Though income inequality has been
growing for some time, the paper paints a stark, disturbing portrait of wealth
distribution in America. Saez calculates that in 2007 the top .001 percent of American earners took home 6 percent of total
U.S. wages, a figure that has nearly doubled since 2000.
As of 2007, the top 10% of
American earners, Saez writes, pulled in 49.7 percent of total wages, a level
that's "higher than any other year since 1917 and even surpasses 1928, the
peak of stock market bubble in the 'roaring" 1920s.'"
Beginning in the economic
expansion of the early 1990s, Saez argues, the economy began to favor the top
tiers American earners, but much of the country missed was left behind.
"The top 1 percent incomes captured half of the overall economic growth
over the period 1993-2007," Saez writes.
Despite a rising stock market,
largely growing employment and an historic housing boom things were not nearly
so rosy for the rest of U.S. workers. This trend, according to Saez, only
accelerated during the George W. Bush's tenure as President:
"...while the bottom 99
percent of incomes grew at a solid pace of 2.7 percent per year from 1993-2000,
these incomes grew only 1.3 percent per year from 2002-2007. As a result, in
the economic expansion of 2002-2007, the top 1 percent captured two thirds of
The controversy surrounding the
bonus promised to Andrew Hall, the phenomenally successful energy trader at
Phibro, a unit of Citi, is coming to a head. Hall's contract entitles him to a $100
million bonus. But in order to make good on the deal, Citi, which is now hugely
supported and partially owned by taxpayers, must get the blessing of Kenneth
Feinberg, the Solomonic attorney who administered the 9/11 Victim Compensation
Fund and is now the Obama administration's Wall Street pay czar. Feinberg will
have to consider whether it is proper for an institution that, without
substantial taxpayer support, couldn't pay $100 bonuses to pay a $100 million one...
Citi CEO Vikram Pandit, of all people, should know that committing huge
sums of shareholders' capital to retain the services of a hot trader doesn't
always pay off. In the spring of 2007, Citi spent close to $800 million to
acquire the hedge fund Old Lane. Essentially, Citi was paying for the privilege of employing its
founders, who had racked up impressive results. A year later, after the fund
suffered losses, Citi basically folded it. One of the co-founders of the hedge fund
was Vikram Pandit.
Banks shouldn’t be running hedge
funds. And if the Phibro unit is as profitable as Citi says it is, Citi should
be able to sell it for a sizable gain.
In the savings and loan real
estate crisis of the early 1990s land values in the area where we live dropped
from $1500 per acre to $300 per acre even as the stock markets were recovering
from the 1990s sell off.
Current land values are down from
$3500 per acre to $3000 per acre. ???
European shares turned lower
Friday afternoon, with losses from Volkswagen and other auto makers exerting
pressure after an unexpectedly weak reading on consumer sentiment out of the
The major measures dropped more easily today than they
have in four weeks. We don’t know whether that is a function of the thin August
markets or the beginning of a change in trend. Stay tuned.
The major measures rallied a bit in the last hour but
still closed lower on the day.
The DJIA lost 77 to 9321. The S&P 500 dropped 8 to
1004 and the NAZZ was off 25 to 1985.
Gold was down $10 to $950 and Oil dropped $3 to $57.50.
The bears are licking their wounds and hoping.
13 August 2009
Europe is 1% higher at midday and
Asian market closed higher overnight.
Jobless claims were 554,000 and
retail sales for July were down 0.1% when a positive 0.8% was expected. But,
stocks look to open higher with the 1007 on the S&P remaining as closing
And so it begins again:
From realmoney.com: Private banks in Europe are "wrapping ETFs into
complex structured products," according to a report in the Financial
Times. Low-cost ETFs are competition for the banks, but the creation of
bundled ETFs leads to higher margins, as much as 1.5% to 1.8% on top of the
fees charged by ETF issuers. Not all banks were offering the products, however.
UBS Wealth Management UK said it would accept the lower margins
associated with unbundled products to keep clients satisfied.
Last year's financial tumult
marked the beginning of a long and difficult period for banks. No doubt a few
of these products will be worthwhile, but wrapping ETFs with derivatives and
leverage -- the strategies that led to the financial crisis in the first place
-- makes little sense.
WSJ: In Andrew Price's first year
on the job, airlines lost his luggage seven times. That would be bad enough if
he were the average continent-hopping businessman, but Mr. Price is the man the
airlines rely on to help them stop losing bags.... Baggage is one of the
aviation industry's great unsolved problems. Engineers have built jets that can
soar at twice the speed of sound, carry almost 900 people and stay aloft for
nearly 24 hours. But the industry has yet to ensure a piece of luggage reaches
its destination along with its owner. Last year, more than 31 million bags --
around 1.4% of all checked luggage -- arrived late, industry officials say.
Roughly 1.8 million bags never arrived. Some take unexplained detours.
Wal-Mart’s second-quarter earnings came in above analysts'
expectations, but same-store-sales fell. The world's largest retailer also
provided its first update for consumer buying since the spring, and the figure
was weaker than it expected.
Same-store sales dropped 1.2%,
when the retailer had projected sales to be flat to up 3%. The figures
reinforce the fact that retailers aren't recovering as quickly as other areas
of the economy. Wal-Mart is also adopting a conservative outlook for the third
quarter, seeing same-store-sales flat to up 2%.
at Wal-Mart's U.S. stores came in below expectations while Sam's Club outlets
met the company's projections, Chief Executive Mike Duke said in a conference
call after the retailer released its second-quarter results Thursday.
What recession, what losses?
GMAC Financial Services Inc. is proposing that its 25 highest-paid
employees in 2008 get $73 million this year, or an average of slightly less
than $3 million each. Bank of America Corp. is proposing average compensation of about $7 million per
executive, while Citigroup's proposal
is for an average of about $10 million apiece.
From Bloomberg: Fair value
accounting and bank capital: http://www.bloomberg.com/apps/news?pid=20601039&sid=a04oVutXQybk
If nothing else, today’s fair-value gaps highlight the arbitrariness of
book values and regulatory capital. Banks already have the option to carry loans at fair value under the
accounting rules. For the vast majority of loans, most banks elect not to, on
the grounds that they intend to keep them until maturity and hope the cash
Consequently, the difference between being well capitalized and
woefully undercapitalized may come down to nothing more than some highly paid
chief executive’s state of mind.
Fair-value estimates in the short-term can be a poor indicator of an
asset’s eventual worth, especially when markets aren’t functioning smoothly.
The problem with relying on management’s intentions is that they may be even
At least now we’re getting some real numbers, even if you have to dig
through the footnotes to get them.
The Total Notional Value of OTC
Derivatives Outstanding dropped from some $683 Trillion as of June, 2008 to
$592 Trillion as of December, 2008. If those contracts are mispriced by ½ of 1%
the difference is $3 trillion.
European bourse indexes closed
higher on the day. Oil ended at $71.02 and God leas up $10.
The S&P 500 closed above 1007 at 1012. We don’t know
whether that is enough to change 1007 from resistance to support but the bulls
will take heart for that close. The DJIA gained 30 to 9390. The NAZZ jumped 10
Breadth was positive and volume was moderate.
The bulls remain in charge.
While we were away.
When we turned on CNBC Tuesday
morning a talking head was marveling that Productivity was up 6.4% in the
second quarter. Of course it was, companies have been
firing folks right and left.
A nasty statistic:
Banks make $38 billion a year from
Now let's look at the internals
on that statistic:
3/4 of all accounts have not had
an overdraft in the last 12 months. This
means that one quarter of all accounts are responsible for basically all of
Of the remaining quarter, half of
those account for nearly all (90th percentile plus) of the overdrafts. This means that roughly 12.5% of consumers
are bearing the entire brunt of these fees.
70% of the overdrafts happen at a
POS terminal or ATM, not by writing a check.
The last statistic is the clear
one: There is no reason whatsoever for anyone to take such a hit. The bank knows before they approve the
transaction that the money isn't there in the account.
This is not the same thing as a
check, which the bank has no way to warn you about before you write it, as
there is no "connection" between your checkbook and their computer.
IF we had honest regulators it
would be strictly unlawful for a bank to intentionally approve a debit
transaction which it knew you did not have the funds to settle unless you had
an established overdraft line of credit (at a reasonable APR.)
In fact, it was not all that long
ago, in the 1980s and early 1990s, when this was the case: If you went to the
ATM and tried to withdraw $100, but didn't HAVE $100, the transaction would be
But then the banks came to
realize that if they let the transaction go through they could make an
unregulated loan for that $100 to you, charging you $30 or more for the
privilege - an annualized interest rate of thousands of percent!
This is clearly-predatory
behavior. Nobody with half a brain would
knowingly sign up for a "service" that would cover a POS or ATM
withdrawal at 5,000% interest, yet that is exactly what nearly every bank in
the land will currently do by default when you open a new account. They bury the "disclosure" in their
terms and conditions, but nowhere do they state these "fees" in
equivalent annual percentage rate terms.
It gets better: Banks will
intentionally "sort" transactions from a given day to produce the
maximum overdraft fee. They sort
withdrawals to debit them largest-amount-first, because the fee is assessed per
item. An example:
$1,000 in your account.
You write checks for $20, $50,
$100, $1,000 and all are presented on the same business day.
How many checks will hit you with
an overdraft fee?
THREE - every time. The bank will re-order the transactions so
that the $1,000 check is processed first, guaranteeing that the $20, $50 and
$100 checks overdraw, and thereby generating three overdraft charges. If they processed the transactions
"largest item LAST" you'd generate one overdraft fee - on the $1,000
It gets better.
You have $1,000 in your account.
It is after 2:00 PM, the cut-off
for a business day.
You go to the mall and use your
debit card four times to buy a $5 Latte, $15 lunch, a $40 pair of pants and $25
for a couple of movie tickets.
The next morning a $1,000 check
hits your account.
The bank processes the $1,000
check first, even though in terms of actual presentation time the debit card
withdrawals were approved first, and whacks you for four overdraft fees instead
of the one legitimate fee on the $1,000 check. That Latte just cost you as much as $45!
This sort of predation is responsible
for nearly $40 billion dollars a year in pure "profit" for the banks,
it is directed specifically at those who have the least in resource to cover
it, and it relies on lack of clear disclosure and intentionally-predatory
"sorting rules" to get past what would otherwise result in a howl of
protest by consumers and lawmakers alike.
This sort of practice should be
absolutely outlawed, and if we had anything approaching an honest Congress and
Federal Reserve it would have been years ago.
But then, it’s only $40 billion
Asia was lower overnight Monday
and European bourses also closed lower. Gold and Oil didn’t do much in
The Federal Reserve Bank of New
York is aggressively hiring traders as its seeks to manage its burgeoning
securities holdings, making the central bank one of Wall Street's most active
recruiters of financial talent. The New York Fed - the arm of the US central
bank that implements its monetary policy - plans to increase the staff in its
markets group to 400 by the end of the year - up from 240 at the end of 2007.
Area these folks in line for
bonuses? And if there are no bonuses what kind of traders are they since the current wisdom is that only good traders
get large bonuses. Goldman must be licking its chops.
Questions Merrill Bonuses (NYT)
"A week after the Securities
and Exchange Commission announced that it had settled the matter, Judge Jed S.
Rakoff questioned whether the $33 million agreement with Bank of America was
adequate. He refused to approve the deal, saying too many questions remained
unanswered, including who knew what and when about the controversial
Shares of bank stocks were
pressured on Tuesday, after Rochdale Securities analyst Richard Bove issued a
bearish note on the sector, saying that "fundamentals have not improved as
yet" in the group.
"We expect a short-term
pullback in prices," he added, though he maintained his long-term view
that the industry was attractive.
"The issue as I see it is
that bank earnings will not improve in the third or even fourth quarter this
year," Bove wrote to clients. "Many of these companies will show
losses. The rational investor would step away from psychology at this point and
take some profits."
Stocks closed lower on Tuesday
with no late hour rally.
China was down 4% overnight while
Hong Kong dropped 3%. European stocks were higher on the day.
China is up 70 % on the year
while having dropped 10% since August 1. That is not a market for weak hearts
Investors’ Intelligence has bulls
at 49% versus 47% the prior week and bears at 21% versus 25%.
The major measures are up 1.5%
ahead of the Fed statement at 1:15pm. Do the big boys and girls know something
No change by the Fed, Goldman and
friends can still borrow money for nothing and lend at 20%. We remember when
folks made fun of the Japanese Central bank keeping rates at 0% back in the
early 1990s. What goes around....?
Oil inventories were 2.5 million
barrels higher on the week but Oil is rallying with stocks and now has a $70
The DJIA closed up 120 at 9360
below its high for the day (had been up 180) and the S&P 500 ended at 1006
below 1007 resistance.
12 August 2009
Model Portfolio Update
11 August 2009
Model Portfolio Update
10 August 2009
The Prince and Princess have been with us for a year as
they were home schooled and they are leaving on Thursday to return to academia
in Kentucky. We are taking the next two days off to spend with them. Next post
is on Thursday August 13.
Major stock measures opened lower
on Monday except Financials. Every day during the present rally that the
markets have opened lower with financials higher there has been a rally to
positive by day’s end.
Asian markets were mostly higher
overnight and European bourses are lower at midday. Gold is at $956 and Oil has
a $79 handle as the trading day begins.
As an example of how markets have
passed us by as we gently age, CNBC now has a slot at the top of its screen -
for those with ADD who try to do three things at once - which show changes in
the VIX. We have no idea what the VIX is and we also have no interest in
learning what it is. We also noticed that the folks who rang the bell today to
begin trading at the NYSE were not celebrating the listing of their company’s
shares. Rather they were celebrating the listing of another ETF (Exchange
Paul Krugman has another
As with the lottery overdraft fees
prey on the poor.
From FT: US banks stand to collect a record $38.5bn in fees for customer
overdrafts this year, with the bulk of the revenue coming from the most
financially stretched consumers amid the deepest recession since the 1930s,
according to research. The fees are nearly double those reported in 2000.
They were probably trying to set
up a golf date:
During the week of the A.I.G.
bailout alone, Mr. Paulson, Treasury Secretary and former CEO of Goldman Sachs,
and Mr. Blankfein, CEO of Goldman Sachs, spoke two dozen times, the calendars
show, far more frequently than Mr. Paulson did with other Wall Street
Stocks are moving higher because
earnings are beating expectations even though earnings and in many cases sales
are down 25% or more than last year’s comparable news.
Since many companies no longer
provide guidance- at least publicly- the earnings beats that are declared by
the analysts and are causing analysts to raise their price targets are the earnings
that these same analysts incorrectly predicted.
How to raise the third quarter
Marshall & Ilsley Corp. on
Monday said it would revise its second-quarter loss after selling a pool of
mostly sour mortgages. The bank said it sold about 800 residential loans with
an unpaid principal balance of $297 million, most of which were first
mortgages. About two-thirds of the loans were located in Arizona, one of the
states hardest hit by the mortgage crisis.
The bank did not say how much it
received for the loan pool.
The sale resulted in Marshall
& Ilsley writing off another $151 million in unpaid loans, on top of the
$452.6 million reported when the company posted second-quarter results last
month. That brings net charge-offs for the period ended June 30 to $603.3
The sale also increased the
bank's provision for loan losses, or money set aside to cover bad loans, to
$619 million, from the $468.2 million previously reported.
The adjustments resulted in a
loss to common shareholders of 83 cents per share, compared with the 50-cents
per share loss reported in July.
The bank said the sale means its
loan-loss provision and net charge-offs for the third quarter will be
"significantly less" than those reported in July. Early third-quarter
results show nonperforming loans, or those considered seriously past due, are
Since the downfall of Lehman
Brothers, many of the biggest Wall Street banks have moved in lock step with
one another, as if to assume there is safety in numbers. Everyone took the
bailout money at the same time (not that they had much choice), and now everyone
wants to pay it back.
But now that the worst is behind
the banking industry, or so many of them hope, at least one bank is finding
reason to zig when everyone else zags. JPMorgan (JPM) is taking the unusual
step of auctioning off the warrants held by the US government, instead of
buying them back for a price negotiated privately with Treasury officials,
according to the New York Post. The auction will be held in the open market and
conducted by the Treasury department.
It's different. It's transparent.
It's also suspicious.
Here's how it works: When the
banks took bailout money from the government's TARP program, they gave the
government warrants. Those warrants give the owner, in this case the US
Treasury, the right to buy shares of the banks' stock at a later date for a
discounted price. In returning the bailout money to the US Treasury, the banks
are also buying back those warrants. So far, the deals with other big banks
like Goldman Sachs (GS) and Morgan Stanley (MS) have been struck behind closed
doors, with the banks buying back warrants for prices determined in closed
One finance professor who spoke
to the Post likened it to selling your house back to the person who sold it to
you. Maybe you'd have gotten a better price if you put it on the open market.
Since this is the taxpayers
money, critics argued, those negotiations should be out in the open. How are we
to know that Morgan Stanley's warrants, which it bought back from the
government for $0.68 on the dollar, were sold for the right price? Maybe
someone else was willing to pay more for those warrants, giving more money back
to the taxpayers' coffer. We'll never know.
Elizabeth Warren, the Harvard
professor charged with public oversight of the troubled TARP program, estimates
that taxpayers have lost about $2.7 billion on it so far.
Enter JPMorgan's Jamie Dimon,
with the idea of letting the market determine the price of the warrants instead
of striking a deal with Washington officials in a shroud of secrecy. Sure, JP
Morgan may very well end up paying more to redeem those warrants than we would
if we bought them back ourselves, but it's so much more fair than the way
Goldman Sachs, Morgan Stanley, American Express (AXP), and the others did it.
You can just imagine the talks
around the boardroom. "Hey, I've got an idea! Let's potentially lose money
by letting the public bid on our warrants instead of just lowballing the
Treasury like everyone else did. It would be so much more fair to
Forgive the cynicism, but
fairness has never been a driving factor in dealmaking before, so it's tough to
see why now is the time for it to start. It's also difficult to imagine how the
bank officials expect to get a better deal from the auction than they would by
spending an afternoon with Treasury officials.
Perhaps JP Morgan executives
believe in karma, hoping that the goodwill accumulated by this stunning public
relations coup will translate into more checking accounts and customer loans.
Perhaps it's all part of a bigger effort to give Americans a warm and fuzzy
feeling when they see the Chase sign down the street.
And perhaps they're right to do
so. After all, how many $33 overdraft fees does it take to make up for the
potential losses from a fair and open warrant sale?
Some folks are just lucky:
Bloomberg Aug 10: Pequot Capital Management Inc., once
the world’s biggest hedge-fund manager, was cited in at least 44 private
reports from exchange watchdogs in the past four years alerting U.S. regulators
to potential insider trading, market manipulation or other misconduct,
government documents show.
Trades linked to Google ,
Cox Communication, International Securities Holdings, Premcor and dozens of
other companies prompted surveillance units policing U.S. exchanges to make the
referrals to the Securities and Exchange Commission, according to agency
records obtained by Bloomberg News. Thirty-six reports flagged possible insider
trading. Four indicated possible manipulation and four were labeled “other.”
“The numbers would indicate they had trading that closely preceded 36
material events” said Bradley
Bennett, a partner at Baker Botts in Washington and a former SEC investigator who
focused on insider-trading cases. “Referrals are very strong at identifying
accounts that are worth additional scrutiny,” he said. “Not all referrals
result in enforcement actions.”
Pequot founder Arthur
Samberg, 68, told investors in a May letter that he planned to liquidate
his main hedge
funds after a federal insider-trading investigation “cast a cloud over the
firm.” People familiar with the inquiry said in January it stemmed from bets
Samberg’s company, now based in Wilton, Connecticut, made on Microsoft Corp. in
2001. Neither Samberg nor Pequot has been accused of any wrongdoing by the SEC.
From thedeal.com May 28,2009: http://www.thedeal.com
: News that hedge fund Pequot Capital Management Inc. would shut down because
of a government probe is likely to resurrect the controversy that led to the
firing of SEC lawyer Gary Aguirre.
Aguirre had been investigating
allegations of insider trading at Pequot, which led him to request an interview
with John Mack, who is now the head of Wall Street investment bank Morgan
Aguirre was investigating
allegation that in 2001 Mack, then an executive at Credit Suisse Group, had
informed Pequot about a pending deal between General Electric and Heller
Financial. The probe was abruptly halted in 2005, and Aguirre was fired.
Aguirre contended that he was dismissed for pursuing the powerful Wall Street
The SEC then tried to cover up
its reasons for firing him, he claimed. A recent investigation by David Kotz,
the SEC's inspector general, found that Aguirre's version of events was spot on
and the SEC faulted.
The issue seemed to disappear,
until Samberg's letter to investors announcing he was shuttering the $3 billion
fund because "public disclosures about the continuing investigation have
cast a cloud over the firm and have become a source of personal
The case Pequot is currently
being investigated for was closed in 2006 and focused on a former Microsoft
Corp. (NYSE:MSFT) employee, David Zilkha, who briefly joined Pequot in April
2001 and left in November of that year. The case was reopened after new
information came to light during Zilkha's divorce proceedings in Connecticut.
Gold dropped $15 and Oil closed
at $70.85 down 5 pennies. European bourses were lower.
The Municipal Market Data group's 2-year Muni AAA GO yield is 0.68%.
The 2-year Treasury is 1.23% for a ratio of 55%. The 30-year is 4.66% vs. a
Treasury rate of 4.52%, for 103%. So it doesn't look to me like front-end
Treasury yields are too low. It looks like muni yields are too low.
This appears to be a result of retail investors piling into the front
end of the muni yield curve, leaving the long-end relatively cheap.
Folks buying either 30 year
Treasuries or Tax Free bonds to hold at these yields may be very sorry in the
years to come.
The $5 trillion and more in money
funds and savings and bank NOW accounts is earning less than 1% interest when
it was earning 3% more last year. That amounts to $150 billion in lost income
to careful investors.
The DJIA lost 35 to 9335. These days stocks go up more
easily than they go down. The S&P 500 dropped 4 to 1006 and the NAZZ lost
10 to 19990.
Breadth was slightly negative and volume was light.
The bulls remain in control.
7 August 2009
Model Portfolio Update
6 August 2009
We are taking tomorrow off. Next post will be August 10.
Initial jobless claims were 550,000 versus 580,000 as the guess. The
stock markets are slightly higher on that news. Retailers are also higher as
analysts now say it is not the sales but the margins that matter and so even
though same store sales are down across the board there will be profits of some
sort or lower losses as stores are closed, inventories slashed and sales
Asian markets were mixed up or down 1% and more. European bourses are
higher at midday and Oil and Gold are about unchanged as the trading day
Cisco Systems reported net income for its fiscal fourth
quarter dropped 46% to $1.1 billion on flat margins and a tax charge, and
revenue fell 18% to $8.54 billion. Results, though, topped Wall Street's
expectations, and shares rose in after-hours trading.
AIG trade at $29 this morning up from its $22 close last night and $12
close the night before. Some shorts must be in real pain. Yesterday
miyanville.com had a story giving this reason for the pop in financials:
For those wondering the
reasons big rip in the big banks and PMI players, it's because of the
comments Radian Group (RDN)
made on its conference call this morning. The company said it saw a significant decrease in early default activity in its 2009
vintage mortgage business because of improved underwriting. Improved
underwriting... imagine that! The company also said its 2008 book is
showing a turn (a.k.a. not having to pay out as much insurance for
foreclosures). This shouldn’t be too much of a surprise because its worst
exposure was in 2005 through early 2008 subprime. That has already been flushed
down the toilet. Hence it's benefiting from improved underwriting. The extrapolation
by the market is that the banks and other mortgage players with big mortgage
exposure are not going to suffer as much in losses as have been modeled in.
Given that back in 2007 RDN and its brethren had perhaps the most whistling
past the graveyard, rose colored goggle wearing, Kool-Aid drinking attitude of
any group of companies
I have ever seen... I can’t help but express a little skepticism about its
comments translating into blue skies for housing loss mitigation.
Maybe the company has finally found religion... who knows.
Retailers reported declining sales in July as consumers continued to
spend sparingly amid a recession, though results largely beat Wall Street's
Discount stores, which have largely held up during the tough economic climate,
reported largely lower results. Costco
sales fell 2%, excluding gasoline, at U.S. stores open
at least a year. Target delivered a
worse-than-expected 6.5% decline. Department stores suffered again. Macy's 11% drop and J.C. Penney's 12% drop missed analysts'
targets. Penney boosted its fiscal second-quarter outlook.
Mall-based chains were hit hard: Abercrombie
& Fitch posted a 28% drop. Buckle,
which saw an end to its 22-month streak of double-digit growth last month,
reported a 2.8% increase. But that was well below analysts' expectations for a
European markets advanced, as investors welcomed better-than-expected
earnings and the BOE's surprise move to expand its asset-purchase program.
For those who say stocks can’t go lower: Proctor & Gamble is down $5 per share (8%) in two days.
We have to attend a meeting this
afternoon and so with two hours of trading left and the DJIA down 50 points we
are taking off. Tomorrow brings the monthly employment report which will set
the tone for Friday’s trading. We’ll be back on Monday.
5 August 2009
Asian markets were lower
overnight and European bourses are mixed at midday. Oil has a $71 handle and
Gold is down $1 in the early going.
The ADP monthly jobs number
reported 371,000 job losses versus 350,000 expected. This is a meaningless
number since it is often at variance with the Government number reported this
Friday but it gives traders a number to trade against for the day, and that is
the game these days.
Investors’ Intelligence had 47% bulls and 25% bears in its latest
Sept crude opened modestly lower
this morning in pit trading, but just before 10:00ET, crude began to fall
sharply, hitting pre-inventory data lows of $70.14. In recent trading, crude
has bounced off those lows ahead of today's inventory data. Following the data,
which showed a build of 1.67 mln barrels (consensus was a build of 600K), crude
did not see an immediate reaction, but fell to new lows of $69.71 shortly
after. Currently, crude is currently down 2.4% at $69.74 per barrel.
Analysts at Bank of America Merrill Lynch raised their 2009 and 2010
price forecasts for aluminum, copper, nickel and zinc. The broker said prices
have risen faster than it expected due to anticipation that the global economy will
recover. It added stocks of the metals have not built up significantly, so
there is only a small buffer from which to service rising demand.
Procter & Gamble reported Wednesday that its fiscal
fourth-quarter profit fell 18% to $2.47 billion, or 80 cents a share, from $3
billion, or 92 cents a share, but maintained its full-year forecast. Sales fell
11% to $18.7 billion. Analysts had expected the firm would earn 79 cents a
share on sales of $19.3 billion. The company said it expects full-year
organic-sales growth of 1% to 3% and earnings from continuing operations of
$3.65 to $3.80 a share.
U.S. service industries
unexpectedly contracted at a faster pace in July as concern over rising
unemployment gripped consumers.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent
of the economy, fell to 46.4 from 47 in June, according to the Tempe,
Arizona-based group. Fifty is the dividing line between expansion and
From Bloomberg (our bold and
italics for emphasis):
Goldman Sachs made more than $100 million in trading revenue on a
record 46 separate days during the second quarter, or 71 percent of the time,
breaking the previous high of 34 days in the prior three months.
Trading losses occurred on two
days during the months of April, May and June, down from eight in the first
quarter, the New York-based bank said today in a filing with the U.S.
Securities and Exchange Commission. The company made at least $50 million on 58
of the 65 trading days during the quarter, or 89 percent of the time.
Goldman Sachs, which was the
biggest U.S. securities firm before converting to a bank last year, posted the
biggest profit in its history during the second quarter as revenue from trading
and equity underwriting reached all-time highs. The company, which has returned
$10 billion to the U.S. Treasury and paid $1.42 billion in dividends and to
cancel warrants, also made its largest market bets during the period.
“It’s very counterintuitive to
think that they’d be able to generate this much profit and this much revenue in
the middle of an ongoing recession,” said William Cohan,
a former banker at JPMorgan Chase & Co. and Lazard Ltd. and author of
“House of Cards” about the collapse of Bear Stearns Cos. “But the fact that so
many of their competitors are out of business or severely wounded has put them
in a very strong position.”
In fiscal year 2008, the firm had
90 days in which traders made more than $100 million, compared with 88 in 2007.
In fiscal 2006, the figure was 49 days, up from 18 in 2005 and 14 in 2004.
Goldman Sachs changed its fiscal year in 2009 to end in December instead of
Goldman Sachs’s trading results
reflected the firm’s willingness to take on more risk during the period. Value-at- risk, an estimate of how much the
firm could lose in any given day, rose to an average of $245 million in the
second quarter from $240 million in the first quarter and $184 million in the
second quarter of 2008. Most of the increase in the second quarter came from
bets on equities, the company said.
“They take risks for their
clients and for themselves and they’ve figured out a way in this market, with
less competition bidding for these things, to make money,” Cohan said.
Trading and principal investments
accounted for 78 percent of the bank’s revenue in the second quarter of 2009,
up from 59 percent in the second quarter of 2008. Net interest income, the difference between the interest the firm pays
and what it charges, climbed 60 percent from the second quarter of 2008 as the
company’s interest expense dropped 83 percent.
Banks such as Goldman Sachs are benefiting from lower borrowing costs
after the Federal Deposit Insurance Corp. in October started guaranteeing bank
debt issues that mature within three years. Goldman Sachs said in today’s
filing it had $25.1 billion of debt guaranteed by the FDIC under the agency’s
Temporary Liquidity Guarantee Program. The bank sold about $30 billion of the
FDIC-backed securities between November and March, according to company
Today’s filing showed the weighted average interest rate paid by Goldman Sachs on its unsecured
short-term borrowings dropped to 1.70 percent in June from 2.14 percent in
March and from 3.37 percent in November.
Entertainment Resorts Inc. bondholders
plan to reject Donald Trump’s
attempt to take control of the bankrupt casino company because it would leave
their securities worthless.
Bondholders, who are owed $1.25
billion, say Trump’s deal undervalues the company. Trump and an affiliate of
Beal Bank Nevada agreed on Aug. 3 to invest $100 million in the company. Beal
would extend the maturity on a $486 million loan until December 2020 from 2012.
“The plan proposed by Beal Bank
and Donald Trump
is not capable of confirmation for many reasons,” said Kristopher
Hansen, co-head of the financial restructuring practice at Stroock
& Stroock & Lavan LLP in New York, who is representing bondholders.
“The stories of Mr. Trump’s regaining control of the debtors are simply
inaccurate,” Hansen said in an e-mailed statement.
Trump is attempting to retake control of the company he founded after
the three casinos it owns in Atlantic City, New Jersey, wound up in bankruptcy protection a third time.
General Electric was accused by
the Securities and Exchange Commission of misleading investors in 2002 and 2003
by reporting "materially false and misleading results in its financial
statements." GE has agreed to pay a $50 million penalty, without
admitting or denying the accusations, to settle the SEC’s civil suit.
“GE bent the accounting rules
beyond the breaking point,” said Robert Khuzami, Director of the SEC’s Division
“Overly aggressive accounting can
distort a company’s true financial condition and mislead investors.” David P.
Bergers, Director of the SEC’s Boston Regional Office, added. “Every accounting
decision at a company should be driven by a desire to get it right, not to
achieve a particular business objective. GE misapplied the accounting rules to
cast its financial results in a better light.”
The SEC found that GE's policies
for accounting for hedging commercial paper and transactions at its rail unit
were intentional violations of anti-fraud provisions of securities law.
has agreed to a new seven-year, $106.9 million contract that he is expected to
sign later Wednesday, according to a source familiar with the negotiations.
Though it's not the largest deal in NFL history, the average of $15.27 million per
year is a new NFL high.
European stocks turned around to finish in the red after disappointing
U.S. jobs data reignited concerns about the strength of the recovery.
Citigroup is going into the S&P 500 tonight and supposedly the
street must buy 650 million shares to rebalance S&P tracking portfolios.
Citi has already traded 1.2 billion shares today with an hour of trading to go.
Oil was up 34 pennies at $71.76
and Gold was flat at $969.
AIG is up 60 % today ($13 to $22) as those short are taken out and
From Reuters: The shares of battered insurer American
International Group Inc (AIG.N) rose strongly on Wednesday ahead of the release of second-quarter
earnings, which are expected to stabilize for the first time in five quarters.
The shares surged about 57 percent in afternoon trading on the New York
Stock Exchange, ahead of AIG's next quarterly earnings report on Friday and as
a new CEO prepares to take up the company's reins on Monday.
Short sellers were scrambling to cover positions, helping to fuel the
rally in AIG's share price, said William Lefkowitz, option strategist at
brokerage firm vFinance Investments in New York.
"With the potential of good news looming in AIG, investors who are
short AIG are being forced to cover their positions today. That has created a
short-covering rally," he said.
Hope springs eternal the bulls’
hearts. Hopefully the Treasury didn’t sell the 78% of AIG it owns to Goldman
Blowhard Charlie Gasparino is on
CNBC this afternoon August 5 presenting as news that BankAmerica hired Sanaz
Zaima, a partner at Goldman Sachs, for the sum of $15 million a year.
We checked the web and this
report was posted on July 14 at http://www.iranian.com/main/news/2009/07/14/bofa-rumoured-have-paid-enormous-guarantee-sanaz-zaimi
After negative coverage highlighting the outpouring of Merrill Lynch
talent from BofA, it must have been with no little pleasure that BofA/Merrill
Lynch announced that it had poached Goldman partner Sanaz Zaimi last week. But
how much did Zaimi cost? Rumour has it she didn't come cheap. Headhunters say
Merrill paid up to $17m a year for Zaimi over a two year period. BofA didn’t
immediately return a request for comment, but banks rarely comment on pay
issues anyway. The allegedly expensive acquisition of Zaimi follows claims that
Merrill bankers are getting twitchy about their bonus prospects this year.
Financials were strong all day
with it looking like the shorts were being fleeced.
The DJIA was down 40 at 9280. The
S&P 500 lost 3 to 1002 and the NAZZ lost 20 to 1990.
Breadth was negative and volume
was active with Citi trading a mere
1.9 billion shares.
The bulls are holding on.
4 August 2009
Oil ended yesterday at $72.50 but
is off $1.25 in early trading today. Asian markets were mixed overnight as are
European markets at midday. U.S. stocks look to open slightly lower.
Once again Donald Trump triumphs as ordinary bond and stock investors lose.
Look for Trump to sell this entity or refinance with debt again a few years out
with the major brokerages selling the debt to gullible individuals and unwary
institutional investors as he has done before. There ought to be a law.
Trump Entertainment Resorts / said late Monday that businessman Donald Trump and
BNAC, an affiliate of Beal Bank Nevada, will invest $100 million cash to buy
the reorganized company. Beal Bank and Beal Bank Nevada will separately
restructure about $486 million of the casino operator's debt. The plan has to
be approved by a bankruptcy court. Trump Entertainment filed for Chapter 11
bankruptcy protection in February.
Personal incomes fall 1.3% in June, reversing May's stimulus gain.
Stocks moved lower.
Pending home sales for June climbed 3.6% month-over-month. That
exceeded the 0.7% increase that was widely expected and was also the fifth
straight monthly increase. Stocks moved higher.
Obviously this is a traders only
UBS Securities is a major wealth
management broker. They advertise their expertise in managing customer
funds. UBS just announced its third straight quarterly loss. The loss this
quarter was in excess of $1 billion. UBS has plenty of company in the loss
department among wealth management
brokers and banks.
Loan modification lags foreclosure risk by a mile:
of America and Wells
Fargo were the worst performers among the
biggest U.S. banks in modifying loans for struggling homeowners, according to a
Treasury Department report. Bank of America began 27,985 trial loan
modifications, or 4 percent of its eligible loans, under the government’s
Making Home Affordable program started in March, the report today shows. Wells Fargo
had a 6 percent rate, trailing JPMorgan
Chase’s pace of 20 percent, and Citigroup’s
European markets retreated, with
banks and mineral extractors among the worst performers in a broad-based but
$12 billion Citadel Investment Group LLC said it will return $250 million on
Oct. 1 to investors who asked to withdraw money, after its main funds jumped
about 44 percent in the first seven months of this year. Chicago-based Citadel
said it will make a “similar distribution” to clients at the end of the year,
according to a letter sent to its investors today. Citadel suspended
redemptions in its Wellington and Kensington funds last year after they tumbled
55 percent and clients had sought to redeem $1.2 billion. Down 55% and up 44% still leaves the funds down 36%.
A gap from the close of Nov. 4,
2008 at 1005.75 has just been filled in the S&P500 cash index. This may
have some significance to traders and algorithmic trading programs. Some have
expressed this area as a resistance point if fulfilled.
Four of the top five cars
replacing Clunkers have Japanese nameplates: Toyota's Corolla and Honda's
Civic, Camry and Prius. Only Ford's Focus is an American nameplate.
The second quarter of 2009 saw
leasing and sales conditions across the U.S. office market plummet at a rate
unforeseen in previous analysis by CoStar Group, Inc. In particular, CoStar
confirmed that the value of Class A office buildings has declined by 57%
compared with prices paid at the peak of the market in 2007.
In addition, office-leasing
activity is off 39% from year-ago levels and all but three U.S. office markets
posted negative net absorption over the first two quarters of 2009. Retail
vacancies are at 7.5%.
Oil lost $0.25 to $71.25. Gold
was up $7 to $966.
The DJIA was up 30 to 9315. The
S&P 500 gained 2 to 1005 and the NAZZ up 1 to 2009.
Breadth was positive and volume
The bulls continue to control.
3 August 2009
Asian markets were higher overnight and European bourse
indexes are higher at midday. U.S. stocks are to open 1% higher as the bull run
continues. Since the thinking is that economies are improving around the world
Traders are moving oil with the price crossing $70 in early trade. Gold is also
Greenspan and Geithner and Summers were on the talk shows
yesterday predicating the bottom in the economic down turn has been seen.
An hour into the trading day the S&P 500 is over 1000.
optimistic, but with many caveats,” the former Fed chairman said. Housing
markets have “stabilized temporarily” though it is “possible” the economy might
relapse if there is a further slide in home prices of more than about 5 percent.
“I don’t think it’s
going to happen, but I do think it is possible that we could get a second wave
down,” Greenspan said. “But the important issue is that if we don’t, and I
think the probability is that we won’t, that we are close to stabilization.”
The SEC charged BankAmerica
with fraud and BankAmerica settled, without admitting guilt of course, for $33
million. So BAC borrows from the Treasury and pays the SEC.
rose, with banks among the strongest performers as investors welcomed earnings
reports from HSBC Holdings and Barclays.
heading out early with 45 minutes of trading left and the major measures all up
over 1% and near their highs for the day. The S&P 500 is at 1002 which is
the first day it has been over 1000 since November.
While we were away
Fed Beige Book:
Most parts of the U.S. see signs that the recession is
easing, but labor and real estate markets remain weak and credit conditions
still are tight, according to the Fed's latest beige book report. Most of the
12 Fed district banks "indicated that the pace of decline has moderated
since the last report or that activity has begun to stabilize, albeit at a low
level," said the Fed's survey of regional activity.
rose, led higher by chemical producers and auto makers while ignoring losses on
trade below $63 a barrel as data indicate plentiful U.S. stockpiles
Microsoft and Yahoo
struck a long-awaited deal on Internet search in which Microsoft (MSFT) will
power Yahoo's search tool while Yahoo (YHOO) will become the exclusive sales
force for both firms' premium search advertisers. Terms are for 10 years, in
which Microsoft will license Yahoo's core search technologies, and Microsoft's
Bing will become the exclusive algorithmic search and paid search platform for
Yahoo sites. Yahoo sees the deal lifting annual operating income by around $500
A selloff in Chinese stocks Wednesday, in part on fears that
loan growth could be braking, sent a jolt through other regional markets from
Mumbai to Sydney. The Shanghai Composite Index fell as much as 7.7% before
ending down 5% at 3266.43, erasing most of the gains of the past five sessions.
The decline is the biggest percentage drop at market close since Nov. 18, when
the index declined 6.3%. Hong Kong's Hang Seng Index dropped 2.4% to 20135.50,
Mumbai's Sensitive Index fell 1% to 15173.46, and Australia's S&P/ASX 200
declined 0.6% to 4142.80. The Australian dollar also fell sharply. Japanese
shares managed to edge up 0.3%.
DJIA down 25; S&P 500 down 4; NAZZ down 7.
Goldman raises GE to buy with a $15 price target. GE
is up $1 at $13.30 in morning trade.
Stocks open higher in first half hour with S&P 500
bursting through 980 resistances up 2% to 995.
Motorola reports revenues down 40% but reports $20 million in earnings and shore
price jumps 15%.
In the week ending July 25, the advance figure for
seasonally adjusted initial claims was 584,000, an increase of 25,000 from the
previous week's revised figure of 559,000. The 4-week moving average was
559,000, a decrease of 8,250 from the previous week's revised average of
The person said there are currently three players bidding
for Volvo, including a group led by China's Geely Holding Group Co., as well as
Beijing Automotive Industry Holding Co. and a Europe-based group of investors,
which the person wouldn't identify. Those three possible buyers were supposed
to submit final bids for Volvo in mid-July, and Ford had intended to choose a
buyer relatively quickly.... Ford is
"looking for the best buyer and most socially acceptable buyer possible
for Volvo," the person said.
Illinois will deny
the financial aid applications of an estimated 130,000 students -- the most
in Illinois history. They were denied because they applied for state aid after
May 15, a cutoff months earlier than in years past, thanks to Springfield's
budget woes. What's more, under the state budget compromise reached earlier
this month, which slashed funding for the state's Monetary Award Program in
half, no student at any Illinois school
will receive aid for the second half of the 2009-2010 school year. If
lawmakers don't provide more funding, "that would be horrendous,'' said
Andy Davis, director of the Illinois Student Assistance Commission, which runs
We get mail:
Sure. You lost your xxx at the casino and blew our savings
and now you're in hiding.
We are considering taking all our money to the
casino since we earned a 50% return in one day playing Blackjack.
Annualized, as Goldman did when reporting the return the Treasury received on
its money, that works out to 18250% on a yearly basis. Not bad.
Stocks closed higher o the day but the S&P 500 and DJIA
lost half their gains for the day in the last hour of trading. The bulls would
have liked to close on the high and the pullback in the last hour gave the
bears a small sliver of hope.
Advance GDP (the first of four numbers) for the second
Quarter was announced at down 1.1%. The markets were muted by that news.
The S&P 500 opened down and traded at support at 980
before rebounding higher.
We have tried to trade various short ETFs in the last few
months and all of them have not acted as we thought they would. Luckily we have
not lost much trading them. We are no longer going to trade them. We will
remain in cash when we don’t like the markets. The long ETFs buy actual stocks
and so they will give us the tracking we desire.
YAY! GREEN SHOOTS!
Gross domestic product, the broadest measure of economic
activity, fell at a 1 percent annual rate in the April through June quarter,
the Commerce Department said.
That compares with a
6.4 percent pace of decline in the first quarter, a revision from an earlier
estimate of a 5.5 percent rate of decline.
I'm always fascinated by the fact that nobody cares about
the revisions. Yes, in the most recent quarter for which we have data the rate
of economic contraction was "only" one percent annualized. But the
previous quarter was... much worse than previously thought!
An interesting story:
The economies of the world are deemed safe for the week end
at least and so the Oil Jockeys pump oil $2 higher today. Gold gained; Europe
was lower; and Asia was higher.
The major measures limped into the close but still managed
to end the day and week and month higher.
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Summary of Business Continuity Plan