Lemley Yarling Management Co
309 W Johnson Street Apt 544
Madison, WI 53703
Katie's Coast to Coast Biking Blog
Our better half is setting off next week on a coast to coast bicycle ride of 3200 miles from San Diego California to St. Augustine Florida.
A link to her blog of the trip is above. We also will be giving daily weather and mileage updates.
26 February 2010
Outlook: The market
anticipates. It looks six to nine months out. The fact that the financial
system did not collapse was the reason for the rally off the lows. Earnings for
this quarter have been good. The earning season is almost over, except for
the retailers and so there is not much news on which to hang a hat. The
pullback from mid-January to mid-February was about 10% which was also the
pullback in July 2009. We think there may be a more significant pullback after
May but think the odds of moving 10% higher from here are greater than
going 10% lower.
Today is a snow day in NYC. And
so the big boys and girls may decide not to come out and play. Asian and
European markets were mildly higher overnight and U.S. futes are predicting a
flat opening. Gold is unchanged and oil has a $78 handle as the trading day
Looking in the rear view mirror
Preliminary (the second of three reports, the better to trade- Advance, Second
Estimate, and Final) 4th
quarter GDP was a positive 5.9%. 5.6% was expected. Hooray. But
unemployment remains over 10% so.....
(WSJ) Deutsche Telekom AG said Thursday it
reduced its net loss in the fourth quarter on lower charges and write-downs but
gave a weaker outlook for 2010 compared with the prior year, citing current
economic uncertainty. The net loss for the quarter ended Dec. 31 was €3 million
($4.1 million) compared with a net loss of €730 million in the prior year.
Deutsche Telekom's fourth-quarter bottom line was hit by a €900 million
impairment on its South and Eastern Europe operations, chiefly due to Hellenic
Telecommunications Organization and restructuring charges. A year
earlier, write downs and charges totaled €1.6 billion. Sales for the period
rose 0.6% to €16.2 billion.
The company committed to return
€3.4 billion a year to its shareholders and said it will reduce its cost base
Closely watched earnings before
interest, taxes, depreciation and amortization, or Ebitda, adjusted for
one-time items and restructuring, the company's preferred measure of operating
performance, rose 8.6% to €5.07 billion. Both figures were boosted by the
contribution of OTE, which was fully consolidated by Deutsche Telekom from
February last year. Excluding the OTE consolidation and at constant currencies,
full-year sales were down €2.2 billion or 3.5%. For 2010, Deutsche Telekom said
it expects adjusted Ebitda of around €20 billion and free cash flow of €6.2
billion. In 2009 the company achieved its target for adjusted Ebitda of €20.67
billion and free cash flow of €6.97 billion.
Deutsche Telekom late Wednesday
committed to pay back €3.4 billion a year to shareholders in the next three
years, guaranteeing a dividend of 70 European cents a share and mulling
additional share buy backs to achieve the pay-out target. The
Bonn-based company intends to pay a dividend of 78 cents a share for 2009,
steady with 2008. Deutsche Telekom's dividend policy is closely watched by
investors as the company has the highest dividend yield among the DAX companies
to make up for sluggish share price development, underscoring the defensive
character of the stock. In the last 12 months, Deutsche Telekom shares gained
just 3.4%, significantly underperforming a 44% rise in the DAX.
Deutsche Telekom said it
generated savings of €5.9 billion since it launched a cost-cutting program in
2006 and wants to reduce its gross cost base by another €4.2 billion by 2012.
In the U.S., once the company's
growth engine, fourth-quarter service revenue was $4.65 billion, down from
$4.73 billion in the third quarter and $4.9 billion a year ago. Still, T-Mobile USA, its wholly owned subsidiary, gained 371,000 customers in the December
quarter, mainly for pre-paid services, after losing 77,000 customers in the
From the National Association of
Realtors: Existing-Home Sales Down in January
Existing-home sales – including
single-family, townhomes, condominiums and co-ops – dropped 7.2 percent to a
seasonally adjusted annual rate1 of 5.05 million units in January from a
revised 5.44 million in December, but remain 11.5 percent above the 4.53
million-unit level in January 2009.Total housing inventory at the end of
January fell 0.5 percent to 3.27 million existing homes available for sale,
which represents a 7.8-month supply at the current sales pace, up from a
7.2-month supply in December.
We added shares of
Boston Scientific to accounts at $7.80. The company is priced at twice revenues and
excluding debt 1.2X revenues, when most health care stocks are priced at three
times and more. We have traded BSX profitably over the past few years, most
recently selling shares at $9 in January.
Freezes and Rate Increases
There are two stories on the
front page of the Chicago Sun Times internet edition whose juxtaposition
exemplify the times.
The first story is about a shortfall of revenue at the Chicago Public
Schools. The Sun Times Editorial Board writes: Chicago Public Schools CEO Ron Huberman on Thursday painted the
grimmest financial picture the Chicago schools have ever seen. The budget
deficit could top $900 million, a hole so big that Huberman says he needs major
concessions from teachers -- a move that could easily lead to a teachers'
strike if the unions refuse to play ball. We're not alerting parents to cause a
panic or to bash beleaguered teachers. We're alerting parents now, when there's
still time, to try to resolve this crisis and avoid a strike. The best hope is for the Chicago teachers
to accept a wage freeze.
The next article is about a rate increase for Commonwealth Edison: ComEd has tipped its hand. The electric
utility plans to seek a rate increase this year on top of one it's due to
receive this spring.
The company said it will ask the Illinois Commerce Commission for a
rate hike in a few months. It declined to say how much it will seek. Spokesman
Bennie Currie said the utility cut costs by $200 million in 2009 while still
spending to upgrade its system. He said ComEd needs to be compensated for that
work. The utility disclosed its plans at a Feb. 3 investor conference for its
parent company, Exelon Corp. The ICC has given ComEd permission to implement a
$70 million rate increase in April. The money will cover escalating costs from
unpaid bills and is expected to cost the average residential customer about $1
per month. In September 2008, ComEd raised its rates by $270 million.
We aren’t holding our breath for
a Sun Times editorial asking the ICC to freeze rates for CWE. By the by, CWE’s
parent company Exelon reported earnings of $3 billion last year and free cash
flow of $7 billion and its CEO John Rowe made $3 million in pay and exercised options
granted to him over the years that netted him another $27 million.
When government works (and how many $$$$
have been saved by illnesses prevented. It must be billions.): From LaCrosse
Something’s missing from the traditional flu season this winter — the
flu. The La Crosse area has yet to have a seasonal flu case reported so far
despite being well into the colder months that normally mark the peak period
for the illness, health officials said.
“I can’t think of a time when the seasonal flu wasn’t here by January,”
said Dick Matushek, Franciscan Skemp infection preventionist. “But I don’t
think we can say the flu season is over.”
H1N1 illness seems to have disappeared as well, officials said, and
some now think a predicted third wave of H1N1 is unlikely.
That might be due to 1 in 5 Americans already having had H1N1 and 70
million immunized against it, said Dr. Rajiv Naik, a Gundersen Lutheran
pediatrician and vaccination expert.
“Time will tell what happened this season,” Naik said. “We still know
H1N1 was a serious and significant illness, causing three times as many
pediatric deaths as usual, but it wasn’t doomsday.”
In fact, the rise of H1N1 might account for the lack of seasonal flu,
Europe closed up 1% and higher.
Oil was up $1.50 at $79.70 and Gold gained $8 to $1120.
Stocks closed to the
upside The S&P 500 was up 3 points. Breadth was positive and volume was
25 February 2010
This morning the glass is half
full as stocks look to open lower on a higher than expected Jobless claims
number and snowstorm in NYC. Gold is under $1100 and Oil has a $78 handle.
Asian and European markets were lower overnight. In the week ending Feb. 20,
the advance figure for seasonally adjusted initial claims was 496,000, an
increase of 22,000 from the previous week's revised figure of 474,000. The
4-week moving average was 473,750, an increase of 6,000 from the previous
week's revised average of 467,750.
In the never ending trading market that is
modern capitalism Coca Cola is going to repurchase the North American bottler
of Coke that it spun off in the last century.
Coca Cola’s CEO says the time has come to realize the synergies that
obviously the CEO in the last century didn’t see. And its investment bankers
say thank you.
(WSJ) Deutsche Telekom on
Thursday reported a narrower fourth-quarter loss and issued a cautious outlook
for 2010. U.S. durable-goods orders rise 3%, fueled by aircraft deals. Weekly
U.S. jobless claims rise -- sixth increase in 2010's first eight weeks.
In the shoulda coulda market
we were going to sell Palm at $9 on
Monday. Instead we bought more shares at $8.50 on Tuesday. The market action
was telling us that bad news was in the offing but we were smarter. Today Palm said
sales of its new phones were punk and that they would miss quarterly and yearly
numbers and we sold at $6.50. The
markets still punish dumb decisions. The dumb decision was to buy Palm. It is
an also ran but we bought for a trade on the hope of takeover talk. Hope is not
an investment criterion. Fortunately we haven’t had many dumb mistakes
recently, but this one hurt. Trade and learn.
With the proceeds we
bought Nokia (4% yield) which is largest smart phone seller in the world.
We also sold BankAmerica and Walgreen for small trading profits
Two hours into the trading day the major measures are 2% lower and breadth
is 5/1 negative. We should have gone snow shoeing.
Oil closed at $78.21 down $1.80
and Gold was $1105 up $8. (WSJ) Stocks
fell across Europe amid rising concerns about Greece's fiscal woes and the
British pound slid sharply as pessimism about the U.K.'s economic outlook
When the Madoff
scandal first broke we told a friend that the money stolen went to prop up the
trading firm. It’s always fun to be right.
F.B.I. Arrests Former Madoff Aide http://dealbook.blogs.nytimes.com/2010/02/25/f-b-i-arrests-former-madoff-aide/#more-185103
February 25, 2010, 9:54 am
1:25 p.m. | Updated
A senior executive who worked for
Bernard L. Madoff for more
than 30 years was arrested Thursday on federal fraud and conspiracy charges,
including claims that he helped Mr. Madoff survive a cash crisis that almost
derailed the gigantic Ponzi scheme five years ago, The New York Times’s Diana
B. Henriques reports.
The executive, Daniel Bonventre,
63, joined the Madoff firm in 1968 and was its director of operations,
overseeing the back office record-keeping staff, since at least 1978.
In a criminal complaint
filed Thursday in Federal District Court in Manhattan, Mr. Bonventre was
accused of doctoring records to conceal for a decade that the firm was being
propped up with money illegally siphoned from investor accounts and that money
borrowed by the firm was illegally used to cover withdrawals when the Ponzi
scheme faced a cash shortage beginning in late 2005.
The United States attorney in
Manhattan, Preet Bharara, said the
phony records “effectively hid the doomed state of an investment firm founded
in fraud,” adding that his investigation into “this colossal deception” was
In a parallel case, the Securities
and Exchange Commission filed a civil fraud complaint against Mr.
Bonventre, accusing him of helping “manufacture plausible lies” that concealed
the fraud from regulators and investors.
Andrew Frisch, a lawyer for Mr.
Bonventre, had no immediate comment on his client’s arrest. Mr. Bonventre was
scheduled to appear before Federal Magistrate Judge Theodore H. Katz in
Manhattan federal court on Thursday afternoon to arrange bail.
The charges against Mr. Bonventre
are the first to report that a nearly calamitous cash crisis, caused by a spate
of investor withdrawals, threatened Mr. Madoff’s Ponzi scheme beginning in late
According to the S.E.C.
complaint, Mr. Madoff preserved his fraud, in part, by borrowing bonds from an
unidentified investor and using them as collateral for loans to his brokerage
firm, which he used to cover redemptions from his corrupt investment advisory business.
Mr. Bonventre arranged the loans
and created the false paper trail that concealed the bailout, according to the
The Ponzi scheme got so low on
cash during this crisis that Mr. Madoff had to draw on his firm’s operating accounts
to meet four separate investor redemption requests totaling nearly $262 million
from Jan. 30 to April 13, 2006. Prosecutors say that Mr. Bonventre handled the
ledger entries that concealed the illicit use of the funds.
Federal prosecutors have previously said in court that Mr. Madoff
sometimes used cash from his Ponzi scheme to sustain his apparently legitimate
brokerage firm, which handled securities trades for other Wall Street
institutions and traded for its own proprietary accounts.
But the S.E.C. complaint against Mr. Bonventre provides additional
details about that support, asserting that the firm — widely considered to be a
successful wholesale trading house on Wall Street — “normally operated at a
According to the S.E.C., Mr. Madoff used more than $750 million of his
investors’ money to “artificially improve the firm’s reported revenue and
income” from at least 1998 until his arrest in December 2008. As operations
director, Mr. Bonventre concocted the ledger entries and financial statements
that concealed the illegal cash infusion, the regulatory complaint said.
Mr. Bonventre is also accused of
personally profiting from the scheme through phony transactions in his own
Madoff accounts that generated nearly $2 million in illegal gains, and of
failing to accurately report his income on his federal tax filings.
Mr. Bonventre, who reported
directly to Mr. Madoff, is the fifth person to be arrested in the fraud case
since Mr. Madoff pleaded guilty last March.
Analysis of Chico’s earnings report from www.minyanville.com
Last year, it appeared as if baby
boomer-age women would be faced with a shortage of stylish retail options.
Every retailer targeting older women was falling apart. Not only did its target
market reign in spending at an unprecedented rate, but companies were missing
major fashion trends and not offering attractive merchandise.
For the most part, that still
stands as the case today. However, two companies -- Talbots (TLB) and Chico's (CHS) -- have demonstrated some success in their
turnaround programs. An update from Chico's arrived yesterday in its fourth
quarter and fiscal year-end results.
Sales increased 16.7% and comps
increased 14.6%. Keep in mind, though, that that comps decreased 15.1% in 2008
and 8.1% in 2007. Total sales for the year fell just below those in fiscal
The quarterly gross margin
expanded a whopping 1,000 basis points to 56%. Sounds impressive, but a little
digging into the historical records shows that Chico's posted a 59% margin in
2006 and over 60% margins in the first half of the decade. Same story for its
operating margin; it posted a 6% operating margin compared to last year, but
its five-year average is over 11%.
Like its clientele, Chico's
slowed down with age and will never return to its spunky growth days. But in
comparison to its peers, Chico's may be the last brand standing. In addition to
Talbots, Coldwater Creek (CWTR) and Ann Taylor (ANN) have achieved far less gross margin
and no operating profit in the last 12 months.
Save for Coldwater Creek, all are
expected to return to profitability next year, but Chico's has been the first
to show signs of life. And with no debt and plentiful liquidity, it has the
necessary balance-sheet strength to continue turning around. Like its peers,
Chico's stock has had an enormous run over the past year, returning 220%. (At todays price it still sells at only half
its 2007 price.) However, it was an anomaly caused by a correction from a
mass sell-off due to internal problems combined with the financial crisis. Two
years ago, I didn’t think Chico's stood a chance either.
The company's turnaround progress
certainly warranted a higher stock price, but I’m concerned that too much
optimism has been priced in. According to the historical price-to-sales ratio,
Chico's still appears quite cheap. But on a forward P/E ratio basis, the stock
If the stock returns a more
rationale 15% this year, a reasonable expectation given the stock’s risk, and
it meets earnings expectations, Chico's will still sell at 18 times earnings --
an expensive price to pay for a recovering retailer facing years of slumped
Chico's deserves attention for
its progress. At current prices though, any slipup could result in a sell-off;
a sell-off I recommend watching for as an entry point. (We agree with the analysis but want to own the shares now with room to
buy more lower.)
closed lower on Thursday but well above their worst levels of the day. The
S&P 500 after being down almost 2% at 1085 closed down 0.3% at 1103.
Breadth was 5/4 negative at the close and volume was active.
24 February 2010
The WSJ reports that U.S. banks
posted last year their sharpest decline in lending since 1942, suggesting that
the industry's continued slide is making it harder for the economy to recover.
Since banks were making so many bad loans in the years before the financial
crisis less lending would seem to bus to be a good thing over the long run.
of new single-family homes in the U.S. sank 11% in January to a seasonally
adjusted annual rate of 309,000. It was an unexpected tumble that sent sales to
their lowest level since records began in 1963 and wiped out much of the
progress made in the last year. Economists surveyed by Dow Jones Newswires had
expected sales last month rose 3.8%. Sales in December fell 3.9%, revised from
an originally reported 7.6% decline.
(RTTNews) - Women's specialty retailer Chico's FAS, Inc. on
Wednesday reported a net profit for the fourth quarter, which surpassed Street
view, as compared with a loss in the corresponding period last year. The profit
reflects higher net sales, improvement in comparable store sales and a
significant decline in impairment and restructuring charges. Separately,
Chico's declared its first quarterly dividend since it became a publicly traded
company in March 1993.
For the fourth quarter, the Fort Myers, Florida-based company's net earnings were $17.51 million or $0.10 per share compared
to a loss of $40.54 million or $0.23 per share in the prior-year period. The
quarter's results included a non-cash impairment charge of about $1.3 million,
resulting from an additional write down of a note receivable to current market
On an adjusted basis, net income was $18.83 million or $0.10 per share versus a
loss of $24.85 million or $0.14 per share a year earlier.
Securities and Exchange Commission voted 3-2 Wednesday in favor of a final rule
that will curb short selling for individual securities that decline at least
10% in a single day. http://sec.gov/news/speech/2010/spch022410mls-shortsales.htm
The rule change is a sham. It is the Index ETF’s that are moving
markets and since the major index ETFs have corresponding futures components
the disconnect is going to make trading screwy on volatile days. This rule
change is like Obama’s health care bill, both are for show and will have few
positive effects and may have unforeseen negative effects.
(WSJ) European stocks ended a choppy session in the green, as investors
took heart from Fed Chairman Ben Bernanke's reassurance that interest rates
will remain low for an extended period.
Oil closed at $80.08 and Gold was $1098.
The major measures closed higher but
were up a tad less than they were down yesterday. The S&P 500 gained almost
1% after losing a bit more than 1% on Tuesday. Breadth was 2/1 to the good and
volume was light.
Senate passed jobs bill with votes, 70 - 28,
including support from six GOP hypocrites who voted for filibuster on Monday
Monday night, the Senate broke a GOP filibuster of the $15 billion jobs
bill with votes from Senators Bond (MO), Collins (ME), Voinovich (OH), Snowe
(ME) and Scott Brown (MA). And, wow, the tea
baggers aren't too happy with Brown because of his vote. And, Ben
Nelson sided with the GOP, but we're used to that.
Today, the final passage of the jobs was secured by a vote of 70 - 28.
So, this means that a number of GOP Senators who voted to block a vote
on the bill on Monday, ended up voting for the bill today. Once the roll call
list is online, I'll post the list of the GOP hypocrites. These are the hypocrites
who were willing to prevent the jobs bill from even getting a vote, but ended
up supporting it: Alexander (TN), Cochran (MS), Inhofe (OK), Lemieux (FL),
Murkowski (AK) and Wicker (MS). Senators Burr (NC) and Hatch (UT) didn't vote
on Monday, but voted yes today.
Matt Taibbi, always informative at http://trueslant.com/matttaibbi/
Dems Get Religion on Health Care Antitrust Exemption
health insurer here in California is Anthem Blue Cross. So far, my group policy
hasn’t been affected by Anthem’s planned rate increase of as much as 39 percent
for its customers with individual policies — but the trend worries me, as it
should everyone. Rates are soaring all over the country. Insurers have been
seeking to raise premiums 24 percent in Connecticut, 23 percent in Maine, 20
percent in Oregon and a wallet-popping 56 percent in Michigan. How can insurers
raise prices as much as they want without fear of losing customers?
the health insurance industry is exempt from federal antitrust laws, which is
why a handful of insurers have become so dominant in their markets that their
customers simply have nowhere else to go. But that protection could soon end:
President Obama on Tuesday announced his support of a House bill that would
repeal health insurers’ antitrust exemption, and Speaker Nancy Pelosi signaled
that she would put it toward an immediate vote.
Contributor – Bust the Health Care Trusts – NYTimes.com. http://www.nytimes.com/2010/02/24/opinion/24reich.html
This is how politics is supposed to work. Well, not really — in
reality, you’d like to see your leaders actually lead, i.e. do the right
thing first, before being forced into it by circumstance. But we’ll take the
The sequence: Obama and the Dems got whipped in Massachusetts and it
suddenly occurred to them that they might want to start doing things that would
be popular outside their Rolodex of campaign contributors. A bailout tax was
one early idea. They started searching the landscape for outrages they could
get on the other side of and found a good one: Anthem Blue Cross in California
raising rates by 39 percent.
Suddenly the Obama administration decided to come out against the
antitrust exemption for the insurance industry. Like they only just noticed the
The insurance antitrust exemption has been an outrage for over fifty
years. The original bill formalizing the industry’s exemption from the Sherman
Antitrust Act, the McCarran-Ferguson Act, was dreamed up by two Hollywood
villains. Nevada Senator Pat McCarran was the inspiration for the “Senator Pat
Geary” character in Godfather Part II (”Senator… my final offer is this:
nothing” — that guy), while Homer Ferguson was the inspiration for the
Lloyd Bridges character in Tucker who whored himself out for the auto
makers to get Tucker’s new car struck from the market. These two gigantic
assholes teamed up to help the insurance industry avoid the albatross of
McCarran-Ferguson was supposed to be temporary. Franklin Roosevelt
clearly thought so when he signed it into law in 1944, saying that after “a
moratorium period,” the antitrust laws “will be applicable in full force and
effect to the business of insurance.” The law was supposed to expire in 1947.
As a result, all the evil shit that made for such high drama in Kurt
Eichenwald’s book The Informant – about a bunch of agricultural firms
who get together to fix prices for an additive called Lysine — that’s actually
legal in the insurance business.
This is why insurers (especially insurers with large market shares in
small states) are easily able to gouge customers and deny coverage. There’s
really no legal mechanism for preventing the firms from getting together and
arranging price-fixing and other outrages. In a normal market customers would
be able to get better coverage and cheaper rates from a competitor, but
insurance is really more like a series of competition-free fiefdoms where the
customers can’t go elsewhere for a better deal. State Farm even denied coverage
to Trent freaking Lott after Katrina and got away with it because State Farm
has Mississippi by the nads. It’s crazy.
This is, again, another reason Obamacare was such a joke from the
start. The White House vision clearly called for “health care reform” without a
repeal of McCarran-Ferguson. Which is technically almost impossible, but they
That didn’t work, naturally, so now they’re finally getting around to
doing the obvious. They’ll fail — every attempt to repeal McCarran-Ferguson
inevitably does, mysteriously — but at least they’re talking about it. But
Jesus, why does this stuff take so long?
23 February 2010
Markets were mostly higher while
we were away. This morning stocks in the U.S. look to open a bit lower.
Overseas markets were lower overnight while Oil is at $80and Gold at $1109 both
prices being higher than a week ago.
The market anticipates.
It looks six to nine months out. The fact that the financial system did not
collapse was the reason for the rally off the lows. Earnings for this quarter
have been good. The earning season is almost over, except for
the retailers and so there is not much news on which to hang a hat. The
pullback from mid-January to mid-February was exactly 10% which was also the
pullback in July 2009. We think there may be a more significant pullback after
May but think the odds of moving 10% higher from here are greater than
going 10% lower.
Norris writes at the NY Times:
It snowed this month in much of the United States. ... Both the
household survey (which produces the unemployment rate) and the employer survey
(which produces the job count) ask about workers in the week during which the
12th of the month fell [the week of the blizzards]. ... That means that a lot
of people who had jobs may report they did not work during the week, and
companies may say they had fewer people on the payroll than they would have
cited a week earlier or later. If so, we may get a truly horrid job number.
Nvidia sales were higher but earnings
were as expected and the shares sold off last week. We added shares on the
selloff. Dell announced lower
margins but revenues were higher than
and we take that as a good sign. Yesterday we added Huntington Bank shares as a speculative buy in many accounts.
was cut to underperform from buy at Bank of America
Merrill Lynch which said the group's superior platform hasn't translated into
sufficient carrier support and consumer demand. The broker also slashed Palm's
price target to $10 from $20. Separately, Macquarie cut Palm to neutral from
outperform -- and with a $10 price target -- citing weak sell-through checks at
Verizon and ramping operational spending.
(marketwatch) The first drop in a key German business gauge in 10
months and concerns over disappointing results and outlook from lenders Commerzbank
and Raffeisen weighed on Europe stocks. Hong Kong stocks rose while Shanghai's
fell during a mixed session in Asia.
Press) Wall Street bonuses were up 17%
to over $20 billion in 2009, the year taxpayers bailed out the financial sector
after its meltdown, New York state Comptroller Thomas DiNapoli said Tuesday. Total
compensation at the largest securities firms grew beyond that figure while
profits could surpass what he calls an unprecedented $55 billion for 2009, Mr.
DiNapoli said. That's nearly three times Wall Street's record increase, a rate
of growth that is boosted in part by the record losses in 2008 of nearly $43
billion, the Democrat said.
(cnn.com) Stocks swayed on both
sides of uneven in the early going, but turned lower after the release of the
Consumer Confidence index. The Conference Board said its index fell to 46.0 in
February from 56.5 in January. Economists surveyed by Briefing.com thought it
would fall to 55.
We added Verizon
and AT&T to accounts. The 6% plus yields are hard to ignore. We had sold some of each for
cash a few weeks ago but decided to reenter for the April 1 dividend or a 10%
move whichever comes first. We sold T-Bills in some accounts to fund the
purchases. We also added to Palm, Goodyear and Alcoa in some accounts
European markets slumped after
weaker-than-expected economic news from Germany and the U.S. renewed fears
about the fragility of the economic recovery. The euro lost ground against the
Gold ended at $1104 was $79.02
Feb. 23 (Bloomberg) -- When a congressional panel
convened a hearing on the government rescue of American International Group
Inc. in January, the public scolding of Treasury Secretary Timothy F.
Geithner got the most attention.
Lawmakers said the former head of
the New York Federal Reserve Bank had presided over a backdoor bailout of Wall
Street firms and a cover-up. Geithner countered that he had acted properly to
avert the collapse of the financial system.
A potentially more important
development slipped by with less notice, Bloomberg Markets reports in its April
issue. Representative Darrell Issa,
the ranking Republican on the House Committee on Oversight and Government
Reform, placed into the hearing record a five-page document itemizing the
mortgage securities on which banks such as Goldman Sachs Group Inc. and
Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.
These were the deals that pushed
the insurer to the brink of insolvency -- and were eventually paid in full
at taxpayer expense. The New York Fed, which secretly engineered the
bailout, prevented the full publication of the document for more than a year,
even when AIG wanted it released.
That lack of disclosure shows how
the government has obstructed a proper accounting of what went wrong in the
financial crisis, author and former investment banker William Cohan
says. “This secrecy is one more example of how the whole bailout has been done
in such a slithering manner,” says Cohan, who wrote “House of Cards”
(Doubleday, 2009), about the unraveling of Bear Stearns Cos. “There’s been no
The document Issa made public
cuts to the heart of the controversy over the September 2008 AIG rescue by
identifying specific securities, known as collateralized-debt obligations, that
had been insured with the company. The banks holding the credit-default swaps,
a type of derivative, collected collateral as the insurer was downgraded and
the CDOs tumbled in value.
The public can now see for the
first time how poorly the securities performed, with losses exceeding
75 percent of their notional value in some cases. Compounding this, the
document and Bloomberg data demonstrate that the banks that bought the swaps
from AIG are mostly the same firms that underwrote the CDOs in the first place.
The banks should have to explain
how they managed to buy protection from AIG primarily on securities that fell
so sharply in value, says Daniel
Calacci, a former swaps trader and marketer who’s now a
structured-finance consultant in Warren, New Jersey. In some cases, banks also
owned mortgage lenders, and they should be challenged to explain whether they
gained any insider knowledge about the quality of the loans bundled into the
CDOs, he says.
“It’s almost too uncanny,” Calacci says. “If
these banks had insight into the underlying loans because they had
relationships with banks, originators or servicers, that’s at the least
The identification of securities
in the document, known as Schedule A, and data compiled by Bloomberg show that
Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG
insured -- more than any other investment bank. Merrill Lynch & Co., now
part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche
Bank AG underwrote $9.5 billion.
These tallies suggest a possible
reason why the New York Fed kept so much under wraps, Professor James Cox
of Duke University School of Law says: “They may have been trying to shield
Goldman -- for Goldman’s sake or out of macro concerns that another investment
bank would be at risk.”
Goldman Sachs spokesman Michael
DuVally declined to comment.
Schedule A also makes possible a
more complete examination of why AIG collapsed. Joseph
Cassano, the former president of the AIG Financial Products unit
that sold the swaps, said on a December 2007 conference call that his firm
pulled back from selling swaps on U.S. subprime residential CDOs in late 2005.
The list shows that the $21.2 billion in CDOs minted after 2005, mostly based
on prime and commercial mortgages, performed as badly as or worse than the
earlier subprime vintages.
A lawyer for Cassano declined to
As details of the cover-up emerge,
so does anger at the perceived conflicts. Philip
Angelides, chairman of the Financial Crisis Inquiry Commission, at a hearing held by his
panel on Jan. 13, questioned how banks could underwrite poisonous securities
and then bet against them. “It sounds to me a little bit like selling a car
with faulty brakes and then buying an insurance policy on the buyer of those
cars,” he said.
Tavakoli, founder of Tavakoli Structured Finance Inc., a
Chicago-based consulting firm, says the New York Fed’s secrecy has helped hide
who’s responsible for the worst of the disaster. “The suppression of the
details in the list of counterparties was part of the cover-up,” she says.
To read the rest: http://www.bloomberg.com/apps/news?pid=20601109
Major stock measures
closed lower with the S&P 500 down 1%. Breadth was 2/1 negative and volume
22 February 2010
19 February 2010
12 February 2010
(WSJ) Retail sales last month increased 0.5%, the Commerce Department
said Friday. Economists surveyed by Dow Jones Newswires had forecast a 0.3%
increase. The report also showed December retail sales were adjusted upward, to
a 0.1% decrease from a previously reported 0.3% decline. Excluding the car
sector, which was flat in January, all other retail sales rose 0.6%, in line
with expectations. Ex-auto sales in December fell 0.2%. The data were
originally scheduled for Thursday release, but there was a rare delay because
of a crippling storm that struck an already snowbound Washington.
China's central bank unexpectedly increased the amount of funds
banks must set aside as reserves -- the second such move this year. The action
follows data released a day earlier showing rapid lending, accelerating
property prices and a mixed inflationary outlook. From Feb. 25 banks will be
required to set aside an additional 0.5 percent of deposits as reserves, the
People's Bank of China said on its Web site. After the hike major banks will be
required to set aside 16.5% of deposits. Smaller banks are currently required
to set aside 14% of deposits.
European stocks pulled back from early gains and are now
mixed as the trading day in the U.S. begins after China's announcement and as
data from Europe underlined worries about economic growth. Asian equity markets, which had already closed when China made its
statement, ended mostly higher Friday, helped by gains for resource sector
We are heading
down to Northern Kentucky to visit the prince and princess for the week and to
watch a couple of basketball games. We will return on Tuesday February 23.
Is anyone surprised?
(Bloomberg) -- Former regulators
hired by Toyota Motor
Corp. helped end at least four U.S. investigations of unintended
acceleration by company vehicles in the last decade, warding off possible
recalls, court and government records show.
Tinto, vice president of regulatory affairs in Toyota’s Washington
office, and Christopher Santucci, who works for Tinto, helped persuade the National Highway Traffic Safety
Administration to end probes including those of 2002-2003 Toyota
Camrys and Solaras, court documents show. Both men joined Toyota directly from
NHTSA, Tinto in 1994 and Santucci in 2003.
While all automakers have
employees who handle NHTSA issues, Toyota may be alone among the major
companies in employing former agency staffers to do so. Spokesmen for General
Motors Co., Ford Motor
Co., Chrysler Group LLC and Honda Motor
Co. all say their companies have no ex-NHTSA people who deal with
the agency on defects.
The DJIA is down 100 points out
of the gate.
said late Thursday that it plans to split itself up into two separate companies,
which would put its mobile handset and cable set-top-box business into a new
publicly-traded company. The split is due to be completed by the first quarter
of next year. The company has announced similar plans before, only to call them
off given the weakness of the mobile handset business until very recently.
We wonder if Motorola is offering
the cell phone business for sale with this announcement. And we also wonder
what this announcement says about the future profitability of its cell phone
In a discussion yesterday we
mentioned that the health care bill should have just been re-importation of
drugs and expanding Medicare by buy in to folks 55 and over and 20 and under.
The Clinton healthcare bill failed in the 1990s because it was too complex. The
same goes for this year. Too bad the Obama folks never heard of Occam’s razor
(Wikipedia) Occam's razor (or Ockham's razor), entia
non sunt multiplicanda praeter necessitatem, is the principle that
"entities must not be multiplied beyond necessity" and the conclusion
thereof, that the simplest explanation or strategy tends to be the best one.
The principle is attributed to 14th-century English logician,
theologian and Franciscan friar, William of Ockham. Occam's razor may be
alternatively phrased as pluralitas non est ponenda sine necessitate
("plurality should not be posited without necessity")].
The principle is often expressed in Latin as the lex parsimoniae (translating to the
law of parsimony,
law of economy
or law of succinctness). 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."
markets are closed on Monday in observance of President’s Day. (Wikipedia) Washington's Birthday is a United
States federal holiday celebrated on the third Monday
of February. It is also commonly known as Presidents Day (sometimes spelled as
Presidents' Day or President's Day). As Washington's Birthday or Presidents
Day, it is also the official name of a concurrent state holiday
celebrated on the same day in a number of states. Titled Washington's
Birthday, the federal holiday was originally implemented by the United States
Congress in 1880 for government offices in the District of Columbia (20 Stat. 277) and expanded in
1885 to include all federal offices (23 Stat. 516). As the first federal
holiday to honor an American citizen, the holiday was celebrated on Washington's actual birthday, February 22.
On January 1, 1971 the federal holiday was shifted to the third Monday in
February by the Uniform Monday Holiday Act. A draft of the
Uniform Holidays Bill of 1968 would have renamed the holiday to Presidents' Day
to honor the birthdays of both Washington and Lincoln,
but this proposal failed in committee and the bill as voted on and signed into
law on June 28, 1968 kept the name Washington's Birthday.
: Euro area and EU27 GDP up by 0.1%
GDP increased by 0.1% in both the
euro area1 (EA16) and the EU271 during the fourth quarter of 2009, compared
with the previous quarter, according to flash estimates published by Eurostat,
the statistical office of the European Union. In the third quarter of 2009,
growth rates were +0.4% and +0.3% respectively. Germany's economy stalled (no
change), and Latvia saw the biggest decline (-3.2%). And Greece's economy
shrunk by 0.8%, possibly exacerbating the Greek debt crisis. Note:
Europe numbers are quarter-to-quarter. In the U.S. the GDP is annualized.
Roth Capital Partners upgraded
Nvidia to Buy from Hold.
Though we have been concerned
about the loss of the Intel (INTC) (rated at Hold) chipset business, we would
be remiss if we did not consider the possibility of significantly higher
corporate margins as non-personal-computer businesses grow,
graphics-processing-unit (GPU) margins recover with the ramp up of Fermi, and
the low-margin chipset business disappears. Our new target is $21, based on 19
times fiscal 2012 (calendar 2011) earnings per share of $1.10.
We purchased a few
shares in aggressive accounts yesterday but weren’t’ able to get an ax into it
before is jumped $1.
Stocks in Europe ended lower, snapping a four-session run of
gains, as weak economic data from the euro zone and more signs that China is
trying to slow its economy weighed on shares.
High speed rail, it’s time has come—For China- it’s called jobs, jobs,
jobs. Of course China isn’t spending hundreds of billions of dollars a year on
useless and wasteful wars.
From the NY Times: China’s
Project to Build Fast Trains Is Spurring Growth http://www.nytimes.com/2010/02/13/business/global/13rail.html
The Chinese bullet train, which has the world’s fastest average speed,
connects Guangzhou, the southern coastal manufacturing center, to Wuhan, deep
in the interior. In a little more than three hours, it travels 664 miles ...
Even more impressive, the Guangzhou to Wuhan train is just one of 42 high-speed
lines recently opened or set to open by 2012 in China.
This is part of the stimulus package: Faced with mass layoffs at export
factories [due to the global financial crisis], China ordered that the new rail
system be completed by 2012 instead of 2020, throwing more than $100 billion in
stimulus at the projects. Administrators mobilized armies of laborers — 110,000
just for the 820-mile route from Beijing to Shanghai, which will cut travel
time there to 5 hours from 12 when it opens next year.
Gold was down $2 at $1093 and Oil finished at $74.09 down $1.19.
We added Alcoa
and Goodyear back to accounts that
own Verizon. Both are about 10% lower than when we sold in January. In a few
accounts we sold Verizon to pay for
The sellout to the drug companies and Billy Tauzin by Obama:
The major measures were lower all day and after some big boy and girl
games towards the close they rallied a bit but still closed down wiping out
about half of yesterday’s gains. Breadth was negative and volume moderate.
11 February 2010
(NYT) European leaders, facing a crucial test
for the credibility of their common currency, said Thursday that they had
reached an agreement aimed at persuading jittery bond market investors that
Greece would not be allowed to default on its government debt.
for last week were less than expected at 440,000. Markets around the world are
mildly higher and Oil has a $75 handle while Gold is at $1090 as the trading
day begins. The dollar is firm at $1.37.
Fun essay by one of the best
writers about Wall Street, Michael Lewis, the author of Liar’s Poker and many
To this day, the willingness of a Wall Street
investment bank to pay me hundreds of thousands of dollars to dispense
investment advice to grownups remains a mystery to me. I was 24 years old, with
no experience of, or particular interest in, guessing which stocks and bonds
would rise and which would fall. The essential function of Wall Street is to
allocate capital—to decide who should get it and who should not. Believe me
when I tell you that I hadn’t the first clue.
I’d never taken an
accounting course, never run a business, never even had savings of my own to
manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much
richer three years later, and even though I wrote a book about the experience,
the whole thing still strikes me as preposterous—which is one of the reasons
the money was so easy to walk away from. I figured the situation was
unsustainable. Sooner rather than later, someone was going to identify me,
along with a lot of people more or less like me, as a fraud. Sooner rather than
later, there would come a Great Reckoning when Wall Street would wake up and
hundreds if not thousands of young people like me, who had no business making
huge bets with other people’s money, would be expelled from finance.
When I sat down to
write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a
young man who thought he was getting out while the getting was good. I was
merely scribbling down a message on my way out and stuffing it into a bottle
for those who would pass through these parts in the far distant future.
Unless some insider
got all of this down on paper, I figured, no future human would believe that it
I thought I was
writing a period piece about the 1980s in America. Not for a moment did I
suspect that the financial 1980s would last two full decades longer or that the
difference in degree between Wall Street and ordinary life would swell into a
difference in kind. I expected readers of the future to be outraged that back
in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million;
I expected them to gape in horror when I reported that one of our traders,
Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed
they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea
of the risks his traders were running. What I didn’t expect was that any future
reader would look on my experience and say, “How quaint.”
I had no great agenda,
apart from telling what I took to be a remarkable tale, but if you got a few
drinks in me and then asked what effect I thought my book would have on the
world, I might have said something like, “I hope that college students trying
to figure out what to do with their lives will read it and decide that it’s silly
to phony it up and abandon their passions to become financiers.” I hoped that
some bright kid at, say, Ohio State University who really wanted to be an
oceanographer would read my book, spurn the offer from Morgan Stanley, and set
out to sea.
Somehow that message
failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State
who wanted to know if I had any other secrets to share about Wall Street.
They’d read my book as a how-to manual.
In the two decades
since then, I had been waiting for the end of Wall Street. The outrageous
bonuses, the slender returns to shareholders, the never-ending scandals, the
bursting of the internet bubble, the crisis following the collapse of Long-Term
Capital Management: Over and over again, the big Wall Street investment banks
would be, in some narrow way, discredited. Yet they just kept on growing, along
with the sums of money that they doled out to 26-year-olds to perform tasks of
no obvious social utility. The rebellion by American youth against the money
culture never happened. Why bother to overturn your parents’ world when you can
buy it, slice it up into tranches, and sell off the pieces?
6 more pages at
European shares ended mostly lower Thursday after European leaders said they stand ready
to support Greece's economy but provided few details.
(thestreet.com) Palm swayed in the warm
market breezes Thursday as Citi lifted its sell rating and regulatory monitors
offered a sunny forecast that called for the Pre to arrive at AT&T in May.
Palm was higher this morning on the upgrade but sold off
later in the afternoon when the following article was published:
Dell is certainly getting
its money’s worth out of David Johnson, the mergers-and-acquisitions
specialist it hired away from IBM in 2009. Last fall, the PC maker announced plans to buy information
technology services outfit Perot Systems (PER) for about $3.9 billion. Now,
just a few months later, it’s snapping up another company — and no, it’s not Palm.
Dell is acquiring Kace Networks, a systems management appliances venture
with clients in government, education and health care. Terms of the deal were
For Dell, which is
pushing harder than ever to expand its tech-services offerings, the deal seems
a savvy one. Certainly, it dovetails nicely with the company’s acquisition of
Perot and will serve it well peddling services to the
small-to-mid-sized business market–something it clearly needs to do with profits in its core
personal-computer business dwindling.
Another take on Palm:
challenged" fundamentals, Citigroup
boosted Palm's rating on Thursday. Palm shares are ahead today after Citigroup analyst Jim Suva boosted the
stock's rating to Hold from Sell. While the stock's fundamentals leave
something to be desired, and no overtly bullish signals are coming from
carriers Sprint and Verizon, Palm has some "potential
short-term technical catalysts," which Suva says limit the stock's
near-term downside. Among these catalysts are a rising short interest and
increasing difficulty or cost to borrow shares, and consolidation of ownership
among institutional investors. In the month leading to Wednesday's close, Palm was easily the worst performing
component of the Personal Computer and Smartphone Stocks Index, falling by -21%. As a whole, the Index has
been painted in red for the period, with the singular exception of Blackberry
maker Research In Motion (RIMM).
According to Bespoke Investment Group, newsletter writers
haven't been this bearish in ages.
Bespoke: Although the S&P 500 is down less than 7.5% from its January
high, bulls are heading for the hills. According to Investors Intelligence, bullish sentiment among newsletter writers
is currently at 34.1%, which is the lowest level since March 2009. At the
same time, bearish sentiment (26.1%) is the highest since November, while the
percentage of newsletter writers in the correction camp has sky-rocketed all
the way to 39.8%, which is a level that hasn't been seen since 1983.
The euro closed at
$1.36. With the Greece bailout the experts expected the dollar to fall.
Maybe tomorrow or when the details are released, or maybe not.
The major stock measures were higher
all day and closed on up over 1%. Breadth was 3/1 to the good and volume was
moderate. Tonight and tomorrow are Triple Witching days.
10 February 2010
for Wednesday, February 10, 2010: tarradiddle \tair-uh-DID-uhl\, noun; also taradiddle:
1. A petty falsehood; a fib.
2. 2. Pretentious nonsense.
(WSJ) European shares rose strongly, boosted by hopes that a solution
will soon be for Greece's financial woes, while steel giant ArcelorMittal
declined after disappointing earnings news. Major Asian markets advanced, with
resource and shipping stocks posting some of the biggest gains across the
Gold is up a few dollars and Oil
has a $74 handle as the trading day begins.
Dell was upgraded to buy from neutral by Bank of America
Merrill Lynch on the computer maker's underperformance since November, which
the broker attributed to skepticism around gross margins.
Dell earnings are coming next week and we are going to buy
ahead of them at lower than we sold in January.
Up 100 on the DJIA, down 100 on the DJIA and the big boys and girls are
having fun, not so much for the rest of us. The DJIA is down 100 after an hour
Intelligence had 32% bulls, 26% bears and the rest correction.
the S&P was 10% higher and the bulls were over 50% with the bears under 20%.
Stock prices rose in Europe and
the euro eased against the dollar as policy makers continued to mull
rescue for deficit-plagued Greece. Gold and Oil were lower.
Walgreen is down 10% in the last two
weeks and 20% from December after disappointing same store sales and we added shares
Stocks sashayed on
Wednesday finally closing mildly
higher in moderate trading. Breadth was positive.
9 February 2010
Stocks are going to open 1%
higher as last nights late session sell programs are reversed on news that
Greece may be saved. And we are all relieved. Asian and European markets were
higher overnight and Gold is up a couple of dollars while Oil has a $72 handle
as the trading day begins.
(WSJ) Asian and European stocks were stronger, helped as news that European
Central Bank President Jean-Claude Trichet was returning early from a meeting
in Sydney raised hopes of an imminent rescue of Greece.
Asian markets ended mostly
higher, with a rebound in commodity prices and Swiss banking major UBS's return
to profit spurring late buying in Hong Kong.