Eyes Not Sold

Shopping for a car -- a personal view

2012-02-17T18:14:00.004-05:00

We need another car and it's my mission of the month to buy one. It's not so simple. There are so many variables, so many things to consider, some old, some new.

Here's the situation. First, we have four drivers and two cars. That could be called one and a half cars since one of them just had its 11th birthday, has over 100,000 miles on it, and has a very firm ride. No one likes it but me and the young adults will drive it only out of dire necessity. My wife drives it frequently but with a certain degree of anxiety. Second, while one young adult is at college and one lives in New York City, when they are here or when they take a trip, they take a car whenever they need it and this is somehow not a subject for discussion. We like them. Car number two is nearing six years old and while in great shape and fun to drive, it is small and is no spring chicken.

So the hunt for a new car has begun. From showroom to showroom I go. Here are the variables and issues that go through my mind:

GAS CONSUMPTION AND THE ENVIRONMENT - this was not on my mind at any time in the past when purchasing a car. In fact, while being aware of gas mileage, I always looked for powerful cars. The rationale was that it they were much safer to drive on New York expressways, getting on and off ramps, and changing lanes. That's true, but the fact is that I really like them. Yesterday in car number two, in leaving a KFC parking lot that was conveniently located near a car dealership that I was visiting, I needed to take a left turn across three lanes of traffic, no stoplight coordinating, on a road with a 50 mile an hour speed limit. I waited, waited, saw the opening and hit the gas. Purchased with my old mentality, the car crossed the lanes like a rocket and I was safe. I was also happy.

Now, however, looking at cars from that perspective, I feel like the E-trade baby when he says "it seems like that kind of behavior is frowned upon in this establishment." The thought leader on this is my older daughter who is very intelligent, strongly opinionated, and judgemental(I have no idea where that came from). Thrift on gas and thoughts about the environment are issues that I now need to keep in mind, whether to oblige or get around them.

SIZE - Of course the models that have the best gas mileage are often little tin cans that one would not choose to drive on major expressways in this area, if that one is me. More importantly, the hybrids seem to come two ways - in small cars that I do not fit into and in big cars that are incredibly expensive. I sat in a small Lexus hybrid yesterday which of course seemed relatively nice, but with the seat all the way down my sight line was into the visor(I am about 6'3" tall). I looked at big hybrids but did not even bother to get in the Lexus 600 or the Infiniti M after looking at the sticker. Even those small hybrids that manage to have a sight line that allows road vision are not big enough to be comfortable in on a long trip or to go pick up your kid's college stuff.

SHOWROOM - Showrooms are particularly dangerous places. Everything looks out of perspective. "When It's Strange" comes to mind. I am following the policy of going to showrooms with absolutely no possibility of making any immediate commitment. Two days ago visiting an Acura showroom, there was this Special Edition TSX that was really tricked out nicely and "what a beauty" was my thought. I sat in it, talked with the salesman about it, and agreed that I should probably come for a test ride. After leaving, I was less than a mile away from the dealership when it hit me with absolute certainty that the car was far too small.

My dear departed father was the opposite, which since I am genetically related of course is a reason that I try to be cautious. Here's an example. In 1960, when I was 11, on a Saturday morning when he was particularly upbeat, he announced that we would have shrimp cocktail that night, a special deal for us, a splurge. Several hours later he came back driving a giant new lime green Ford with fins, three on column, and no radio. He had gone into the showroom, traded in our beloved 1953 Chevy, and came home with a surprise. Such was the case with every car he ever bought. It is unclear whether any salesmen were ever injured trying to get to him first when he walked in.

While there are more stories that are humorous at this point, I must remember that one day when out of nowhere he drove home in a 1950's vintage Triumph Herald convertible that he had picked up for $400 at a used car lot. I was 16 at the time and that was a great day.

IS IT UNIQUE IN SOME WAY - this is one of the qualities that perhaps irrationally is attractive. A car will stay with us for a long time. Shouldn't it have some quality that allows one to identify it in a parking lot without checking for college stickers or license plate numbers. That's what got me excited about the Acura that was too little. I guess that's what the culture of wheel rims is about but I'm looking for something else and will know it when I see it.

TEST RIDES - I am trying to avoid test rides at this point while still being polite. Test rides can be extremely valuable in making a final decision but they can be a big waste of time if done indiscriminately. A test ride was pretty much forced on me at the Volvo dealership yesterday. I liked the salesman, my age, originally from Montreal, had lived in the Piedmont working the textile business etc. Almost immediately as the drive began I knew it was a waste of time. He kept up a constant patter of "don't you like this" type of stuff and I tried to politely answer until we were back safely in the lot, when I was honest - "too much torque pull, loosey goosey steering, and a suspension that Ford during their ownership must have taken from the Taurus, it no longer feels like a European car." From now on I will only take test rides when certainty of interest is clear.

SALESMEN - For the most part, salesmen(or women) are one of the biggest obstacles to buying a car. Most are fairly transparent and only mildly annoying, and they are just trying to make a salary for themselves and their family. A few can be terribly obnoxious and then there are are some, the really dangerous ones, that are actually charming, expert at what they do, and ready to take advantage of any misstep.

At both the Infiniti and Honda dealerships in our immediate town, a sales manager at the former and a salesman at the latter, treated me in such a patronizing way that I broke off the conversations and walked out saying "I don't feel comfortable here". The Infiniti sales manager was a big tall oaf with a crewcut and he kept putting his hand on my back and starting off sentences with "Don't you know that..." as in "Don't you even know that..." I think that perhaps the reason for these receptions in my town is that I don't dress up to go car shopping. I just wear my daily uniform of jeans, casual shirts, and outdoors wear jackets, not even all new stuff.

PRICE - this an important variable not only in the present but also in the future. Feeling as if you've overpaid is one of those things that sticks around. That's one aspect of price. The other that is always in my mind is marginal cost. In other words, if buying one car that seems attractive and is x price, it could be compared to a more attractive car at a higher y price, and that extra amount, the marginal cost, is all that I am really paying for the better car. How's that for expert rationalization.

Here's the origin of that supposed lesson. In the third car purchase of my life in 1975, I needed to trade in a functional, no fun, and balky Ford Maverick for something better. I ended up buying a sporty little Toyota Celica, five speed stick, not a bad motor, and much better quality and more fun than what I had been driving. The price was $3200, money that was mostly borrowed. Good for me right, but for $4300 I could have bought a BMW 2002 that would have been so much more fun, had so much more resale value, and lasted for at least 15 years. The money was all borrowed anyway, and I could have found a way to make it work with some thoughtful stretching out of my limited budget. That choice that I made came to be regretted often.

GOLDEN YEARS - Whenever purchasing cars in the past, I was either gainfully employed or doing well enough with some annuity investments and the market headwinds at my back. I was also not in my sixties. Now any decision is intertwined with long term thoughts of savings adequacy, the cost of supplementing the incomes of young adults, three more years of college for one, and everything the Golden Years entail.

Having worked in financial services for 24 years, the events of 2008/2009 didn't exactly surprise me, but the severity of the event was alarming. Timing is everything my bones said to me. This kind of stuff, dot com bubble popping, '98 LTCM precipatated credit and market near freeze up, '90-'92 recession, '87 market crash, all of them can be put much more into perspective when one has an ongoing job that is producing new non investment related money. This cannot help but be in my mind as I make a decision. Not to be profligate but still invest wisely in a long term asset that we like, that's the goal. Can I restrain myself and do that.

Anyone who has stuck with this for this entire personal self-analysis on car buying is to be congratulated. As they say in some places, it's been a big help to me.

Ancestry.com stock implodes - who knew what and when

2012-02-16T21:12:00.005-05:00

Ancestry.com reported earnings and gave forward looking guidance after the market close yesterday that led the stock to fall 17% today from roughly $28 to $23. Starting the week at $32 the stock began to sell off on Monday with double normal trading volumes and dropped to $28 by the end of trading Tuesday. On Wednesday trading volumes stayed high but retail(people like me but not me) must have come in and offset the institutional sellers.

There was no news on the company during those days, except for one of those unheralded brokerage firms upgrading the firm to a buy. With no news and significant volumes and stock price declines ahead of earnings, this was worthy of attention.

There were two reasons for this that one could consider. Reason one - an institution or several institutions with considerable gains were simply securing those gains ahead of earnings, given that there always can be surprises. Reason two - someone somehow had an inkling of what the earnings and guidance might contain.

With a gain in the stock concocted by buying too high early in 2011 and more than doubling the bet really low in late 2011, I considered the meaning of these pre-earnings release trades. If reason one was the right clue, I had no information and could act or wait and see as always. If reason two was the right clue, I should run for the hills.

I chose door number one. Now I have a loss in my position.

The reason that I own Ancestry.com is that the story is, I think, compelling and the management team looked exceptional when I bought in. In fact, the quarterly earnings reported yesterday evening were slightly ahead of analyst estimates as were revenues. There was a problem that can be quantified. The revenue outlook for coming quarters was not robust, but it was within the lower part of the range of 2012 projections by analysts. There was a problem that cannot be quantified from this perspective and that is the surprise that one of their key long time managers resigned and is now a "senior advisor", the kind of thing that happens when someone is gracefully fired, if there is such a thing as that.

If today's stock collapse has only to do with the numbers and the company maintains its dominating position in this esoteric area, then the idea would be to hold on and give it some time. The stock should come back. After all, this small and low capital intensive business has no long term debt and $311 million in shareholder's equity.

If today's stock collapse relates to an unraveling of the company's core management team, that's an ongoing problem. As said, this is not a financially capital intensive business, but it is an intensely human capital business. It's built on intelligence and creativity.

Which door does one choose this time?

It would be interesting to know where the selling was coming from earlier in the week and the rationale on which it was based. That's the SEC's job and the soonest that I will even be able to make a guess will be when the May 15th 13F filing is released. Oh well, just curiosity at this point, and a bit annoying.

One more thing about Jeremy Lin

2012-02-15T16:52:00.003-05:00

What could be added to all that has been written about Jeremy Lin in the past eight days. Here's one that catches our attention.

Watching parts of every game here, this observation stands out almost as much as his clutch shooting and daredevil acrobatic drives to the basket. When Coach Mike D'Antoni calls a timeout and the camera focuses in, there are times when D'Antoni makes some comments and then Lin takes over, intensely talking to his teammates circled around. On the floor it's the same. Last night when the Raptors had a half second to throw up a three on a final play, it was Lin on the floor who was seemingly instructing his team mates circled around him as he pointed out where everyone should be.

Six games as a starter and he seems to be the leader of the team. Some great players, on defense and offense, have spectacular careers yet never take on or are given that role.

Let's see how long this can continue. Obviously the streak can't continue. This is not college basketball. One can wonder how long Lin can hold up. At a skinny 6 foot three inches, he takes a lot of punishment. Last night on a drive to the basket in the fourth quarter he was crushed on three sides by muscular giants, the entire front line of the Raptors. I have heard of being sandwiched, so I guess that was being Big Macked. Lin looked like he couldn't get up at first, but he did and not surprisingly missed both free throws.

Undeterred as everyone who follows this knows, he recovered to score the final six Knicks point and get the win.

"The Audacity of Rope"

2012-02-14T20:32:00.007-05:00

That's the title of Mitt Romney's new book, subtitled "give me enough and I'll hang myself".

His attempt to not only explain his opposition to the GM and Chrysler bailouts begun by President Bush and continued by President Obama but also to take credit for the way the revival of the companies evolved is a prime example of this theme. The fact that all of the Republicans line up and say they opposed all of the "bailouts" of the financial industry and the auto industry is a lowest common denominator competition.

Late last week at some major industry conference(I did not take notes on the article), President Bush was asked how he could justify bailing out the auto industry. His simple answer was that he "did not want to see 21% unemployment in this country". Later at the conference his former chief of staff Karl Rove spoke and in the "severe" conservative manner of the day he criticized the "bailout".

It's as if the Republican candidates all want to showcase the solidarity of their stupidity. In 2008 we were in a state of extreme crisis. If one does not understand that statement it's not worth explaining. Panics have no bottom if not addressed in aggressive ways.

What is often conveniently overlooked is that the financial industry has paid back substantially all of the "bailout" money at an 8% rate of interest. Of the major firms only AIG has not fully repaid the government and it's likely just a matter of time before their stock reaches a point at which the government is whole. The two firms that were beneficiaries of the bailout that will never be able to repay their debt, which one could conservatively estimate will reach $500 billion combined, are Fannie and Freddie. They were of course overseen by a congressional committee and influenced by HUD and by Presidents.

The bank failures overseen by the FDIC were virtually all smaller banks that were not involved in derivatives or securities issuance, but were felled by the traditional achilles heel of banking since the Medici's, CREDIT. Since the FDIC is funded by required banking industry contributions that was not a cost to the taxpayer.

As to the auto industry GM and Chrysler are both revived and the government will almost certainly be paid back over time, again at high interest rates or returns on stock investments. Almost all of the parts suppliers and related vendors are now being revived as well. Some of those didn't make it, but the great majority did either on a stand alone basis or through being combined with another firm.

The "bailouts" that the Republicans hate simply provided liquidity in a panic, liquidity to the banking system so that it did not freeze up and working capital liquidity to the car companies so they did not collapse in such a rapid way that they could not be revived. Wouldn't the Asian and European car companies have enjoyed the market opportunities that would have presented.

So Mitt, no matter what the issue, and there are so many but this post must end now so I can watch J.Lin, you are looking so disingenuous that it's difficult to see how you can look in a mirror, although it's easy to guess that you still like to do so. Why not take the risk of losing with a shred of dignity intact. The coil of rope is getting thicker.

More on Greece and the sad picture

2012-02-14T09:01:00.003-05:00

Seeing more about the devastating Athens riots on television last night and reading more in media reports, it is obvious that the Greek security forces were totally unprepared for what happened. It was more on the scale of what is feared at the various world economic summits when anarchists on the left and right and just pure unaligned anarchists join forces to protest and do more than that if possible.

At those summits the security presence is immense and perimeters are secured everywhere. It appears that Greek security forces were expecting a "normal" major and even fiery protest march with some fringe elements engaging in physical confrontations. What happened appears to have been orchestrated, however loosely, by a small group of the marchers, a violent outburst and indiscrimate attack on property - 48 buildings burned beyond repair, hundreds more businesses big and small damaged and looted, all in central Athens.

Whether there is solely an element in Greece that would do this to their capital city or that old saw "outside agitators" also participated, who knows. Greeks are proud of their country and their culture and while the current economic situation has fractured the country's confidence and shaken its unsustainable system to the core, it is difficult to believe that the vast majority of Greek citizens are not appalled at the events of Sunday.

This is by no means only about Greece and their leaders. It was more of a show of force against the European Union and the power of capitalist economic forces globally. Poor Greece just happened to be the opportunity for the anarchists to have a field day.

Greece's dilemma

2012-02-13T17:39:00.002-05:00

Greece seems to be in one of those downward spirals that is self-reinforcing. Their parliament yesterday approved more budget reductions and austerity measures as part of the deal to receive significant added aid from the European community. At least in Athens, significant unrest that had been percolating became more violent.

The story is well known. The Greek government has, under the mask of the Euro currency, spent excessively. Bankers did not look behind that mask to see the underlying Greek economy. This is exacerbated by a long established cultural bias against paying taxes, at the personal and corporate level. It is further damaged by a culture of patronage and corruption that is long standing.

In some ways we should not be so judgemental. Greece could be a microcosm of what could happen to many countries, even big ones. Let's hope not.

The downward spiral that is Greece is reinforced by what is going on there now. While the news media loves to show over and over again any protests in a country, one has no idea whether much of the country is as pleasant as ever, just poorer and more uncertain. With tourism being the biggest foreign currency earner of little Greece, the images being broadcast are devastating.

As people in Europe and the U.S. look at planning their vacations during the major spring and summer tourist seasons, how many will be deterred based on what they are seeing. Sure, the rowdy Brits will almost certainly continue to show up but the French and Germans may feel that they will not be welcome. Americans and Canadians will have second thoughts. Who wants to plan their special vacation and be subject to strikes that disrupt airlines and basic services, much less have the uncertainty of whether there will be violent protests.

The almost certain downturn in this year's tourist business could be the final straw.

Santorum's wins

2012-02-08T23:00:00.000-05:00

It's all up in the air now.

Ron Paul's Minnesota speech tonight

2012-02-04T20:15:00.003-05:00

What a performance. For whatever reason, tonight CNN broadcast a Ron Paul speech to Minnesota supporters for almost 20 minutes uninterrupted. It was from about 6:50pm to 7:10pm and I guess CNN was just buying time before their promised Casino state election coverage.

We hear President Obama, of course in his position, giving his teleprompter speeches often, Mitt Romney gets lots of airtime as well now(yesterday's CNN coverage noted that the teleprompter screens had just been windexed as the stage was being set), and Newt Sociopath gets lots of airtime as well for his hyperbolic harangues. Ron Paul's airtime has mainly been through short responses at the debates.

This speech was a revelation. There were no telepromters. It was the best political speech that I have heard in years, maybe ever. That doesn't mean that I agreed with all of it, far from it. It was just the honesty of a politician whose ideas do not fit neatly into any cagetory.

Paul is libertarian on social issues. He is not a Republican type schizo-paranoid on gay rights or immigration issues. He is zealously anti-Patriot Act. Paul is a scorched earth Darwinian on economic issues and his ideas on monetary policy(none) and the social safety nets(minimal), if enacted immediately as he proposes, would create chaos at home and abroad. In an ideal world he may be right and that is why he is interesting on these issues, but has there ever been an ideal world?

What is fascinating is that his ideas on foreign policy, against the Iraq war, against the hopeless Afghanistan mission, for reopening normal relations with Cuba, all while maintaining a strong military to protect American interests, these sound more like George McGovern than George Bush.

Listening to him tonight was a revelation because he had a non-stop unscripted point of view that in a way that obviously made sense to him was all connected to his theme of personal liberty. My God, we have a politician that thinks, that passionately thinks, and has a committed point of view that will not change.

I can see why Paul has an ardent if relatively small following. I could not be part of that but his speech tonight was, for me, the most refreshing political event of this season. He could not be President.

Camilla Williams

2012-02-04T12:17:00.002-05:00

Yesterday in the New York Times there was an obituary for Danville, Virginia native Camilla Williams. The obituary took up three full columns of the newspaper, probably more than for any other Danvillian. I checked to see if Nancy Langhorne(Lady Astor) or Irene Langhorne(the Gibson Girl) had received the same attention but did not have the patience to go through the archives at length. Also looked at Enos "Country" Slaughter(from the county) and his obit was no comparison.

Why would I comment on the length of an obituary. Simply because, while Camilla Williams was certainly well known among segments of my hometown community, she was by no means widely known. As I write there is still no mention of her death in the local newspaper.

She was the daughter of a maid and a chauffer, grew up in Danville, went to Virgina State College for Negroes, and in 1941 was a third grade teacher back in Danville. Somehow by 1946 she was the lead performer in the New York City Opera's performance of Madame Butterfly. It was an amazing transition that was lauded by New York critics, ten years before her more famous contemporary, Marian Anderson, made to the stages of New York. The year after Miss Williams breakthrough, Jackie Robinson integrated major league baseball.

What a story.

Is it possible that Romney could be a viable choice?

2012-02-02T16:31:00.003-05:00

Following up on yesterday's post, one could wonder whether being an awkward campaigner, socially inept, and managing his message in a way to attract the votes he needs is necessarily a sign that Mitt Romney is not a viable candidate. If he can survive this ordeal, would he in fact be a relatively decent manager in the White House. I don't know, but don't want to completely write him off as implied yesterday.

Wait until the Southern primary states come up in March. The conspicuous serial philanderer, newly Catholic God anointed, and loose cannon Gingrich will most certainly get the Mormon issue going. If Romney can somehow successfully survive that, even attracting some eventual sympathy, he might be the nominee. If he hypothetically has any shot at the Presidency, it is possible that like Clinton he would appoint a professional staff and cabinet.

Again, who knows, but this is meant to take the edge off of yesterday's post.

Is it too late for the Republicans to find a normal candidate

2012-02-01T18:27:00.004-05:00

Here there is not one political party that rules. One would want a choice. While one could say that the intelligence of the Republican candidates is not in doubt, their sanity certainly is. The debates have been fascinating theater. Unfortunately there is not one candidate that is close to normal, at least from this perspective.

---Romney --- a robotic enigma and a compulsive liar who makes George Bush the First look like the salt of the earth. He is anti-social and incredibly awkward. He has no concept of how his comments might be viewed. He is not close to normal, despite supposedly being a good family man.

---Gingrich --- is an out of control egomanic and a compulsive liar as well who is supported by his barbie Castrista(did I spell that right?). Romney might be generally unattractive, but Gingrich is dangerous. He is not close to normal.

---Santorum --- based on his record in his years in the Senate he has almost Islamist beliefs about imposing his "values" on this country. He is a "wolf in sheep's clothing" and completely unprepared to lead this country. He is only normal in his milieu.

---Paul --- a world class eccentric, by far the most interesting person to listen to here, but he espouses immediately dismantaling our monetary system and military upon election, an action that would be borderline insane. Let's just see how bad the damage to the world financial system would be? He is an abnormally strict libertarian, part of which is good and part of which would be dangerous.

Here, someone to oppose Obama would be welcome. He has been a disappointment, but one who has faced incredibly difficult challenges set up by prior administrations and a radically obstructionist Republican opposition. That's partly his fault, as his Chicago cabal could easily be compared to Jimmy Carter's Georgia one.

His health care bill and especially the Dodd-Frank bill started out with good intentions and if kept simple would have been laudable achievements. They became more than 2000 page bills loaded with really bad inserts by the Democratic majority in Congress at the time. Some inserts could almost be called graft, well they could be, and some could be seen as resentful paybacks with broad consequences. Some are simply overly intense goverment intervention. Obama gave in to all of this to see his important goals achieved.

Republicans are absolutely right when they say that community banking is being absolutely crippled by the combination of Dodd-Frank and the Bush 2 bill Sarbanes Oxley. The regulators are destroying them, and after the debacle of the mortgage disaster, why would good policy seek to destroy community banks. That's just one example.

So all of that is to say one would want a choice in November. The Republicans are not on a course to provide one. Here, Huntsman seemed like a positive choice, no support, no chance. Jeb Bush is mentioned by some, conservative to a fault but he has run a multi-cultural state and has a multi-cultural family as well, and he certainly knows the drill of being President. The Republicans need a normal candidate. Maybe no one normal would run for President.

Postscript --- just saw tonight that the oddball Donald Trump is again considering his entry into the race. If that does not underscore what this post has said, nothing could.

Republican theater night continues

2012-01-23T22:49:00.004-05:00

If anyone just watched the first 20 minutes of tonight's Republican debate, they would have seen Mitt Romney crash and burn. His attacks on Gingrich were so out of character and so predictable that they made him look pathetic. Even if his observations were correct, he played into Gingrich's hands and simply looked desperate. Who greased up his hair, by the way. Ron Paul's supporters will not be swayed so easily.

Masochist that I am, watching the entire debate here was entertainment. Romney faired much better in the last hour when most people had probably tuned out. Gingrich stayed steady for the most part, loosing his mind completely only in the last half hour when he took credit for Carter's loss, Reagan's success, and everything possible that any Republican could lay claim to from 1974 to 1998. He went over the top but never raised his voice so perhaps many people did not realize how insane his words were.

Santorum stayed on message, a message that from this perspective is an artiface of contrived but maybe around the edges honest intent. Paul was, in this opinion, at his best. He's the columnist that you don't like to read but can't afford not to follow. He's serious and he did ok tonight.

Paul, of course, has no chance. Santorum is a significant long shot but who knows given the path of this campaign. Amazingly Gingrich is the front runner and Romney looks seriously on the defensive. With unlimited funds from Sheldon Adelstein, the Las Vegas Sands owner, Gingrich has momentum.

What about Adelstein. Old time Las Vegas money and everything that entails seems to go with that package. No media, not even The Nation or some other left leaning periodical, has done an investigation on this well known tyrant. An ardent supporter of Israel, is Adelstein immune from media attention? An admission, buying LVS stock at $1.50 in 2008 was a windfall here because it just seemed impossible that the banks would let him go - sold at a much higher price a month ago.

That's it from this spectacle.

Year of the Dragon - food for good luck

2012-01-22T23:03:00.002-05:00

It's Chinese New Year's Eve. Since some things have worked out well over the last few weeks after having blackeyed peas, collard greens, and pork chops on our New Year's Day(good luck meal and good meal), why not honor the Chinese New Year's Eve dinner with fish and oranges(for good luck, always needed).

Tonight we had sea bass broiled with a light olive oil covering, and sprinkled with a little salt and more than a little, but not too much, fennel pollen(rare Tuscan spice that makes everything taste good, not just fennel but the pollen from Zingerman's). Whatever. We also had pasta with lots of mushrooms, brown rice, salad, and broccoli. Thank goodness the dishes are washed because it makes me tired writing all of this. Grapefruit and oranges came while watching the Giants game.

Who knows if good luck will come, but missing bad luck is good luck so how will we ever know.

Google's earnings miss? from what perspective...

2012-01-20T21:59:00.003-05:00

Google stock dropped today by more than 8% after they reported earnings that missed securities analyst's earnings estimates after the close yesterday. With 25% revenue growth and over 10% earnings growth, one wonders what a good quarter would need to look like given the hurdles that are placed before this company.

How did this happen? Google has long been a company that focuses on long term strategic initiatives rather than quarter to quarter accounting numbers. With that focus they have almost uniquely in corporate America not kowtowed to the securities analyst community. They don't give guidance on earnings, they rarely speak to the investment community, and they rarely if ever attend investor conferences - the analysts must catch Google at a trade show where they talk about their products or at an acquisition announcement where Google talks specifically to the deal.

When from its birth until several years ago Google always stunned the analyst community with earnings and revenue growth that none would have dared even imagine, Google's approach to analysts was of no consequence. Now the analysts and the trading segment of the investment community focus on the short term and Google's moderating growth(? see above for growth numbers that almost any company as huge as Google would die and go to heaven for) and paddle ball the stock around on any disappointment. The analysts are begging to be spoon fed.

From another perspective, who are these analysts today and how is the aggregate analyst estimate calculated. Following the castration of the brokerage analyst community by awful Spitzer and the Feds, almost all really smart securities analysts who knew how to do the work found better pay and opportunity at investment managers or straight out hedge funds. What was left were quantitative analysts that could run accounting spread sheets, unqualified analysts that were in the hip pockets of trading hedge funds, simply honest unqualified clueless analysts, and all those people in India who at bargain prices could run the numbers and send the result back to the U.S. to be published by minor research firms with no credibility, mostly equal opportunity fronts.

Gone for the most part, except for areas like retail and commodities, were the type of securities analysts that knew their industry so well that they really didn't need the company to provide any kind of guidance. They researched the markets that a company was in and they tore apart a company's finances for any weak links.

What that means today is - Google's approach cannot be offset by smart people in the securities analyst community doing their homework. In the aggregate they are clueless, but traders and the media still live off of their numbers, just as credit community lives off of the ratings of S&P and Moody's after they were completely discredited.

It is unlikely that Google will change, and let's see if the stock drops a little more in the next few days and the people with a better grasp on the big picture will once again start building up and looking for the next incremental growth in the value of their holdings and the power of this franchise.

I know yesterday's story - margin compression and spending for research and talent. Why is that not transparent to a securities analyst who is well paid and is supposedly focused on only less than a handful of companies this big and this powerful. Not spoon fed - too bad.

Find any company in the world that is this big( in assets) and has 25% revenue growth in a quarter. I'll even give you a quarter for each one you find.

Just watched another Republican debate...

2012-01-19T22:46:00.003-05:00

Brief comments on the participants follow:

Romney - Still the starched shirt and personality - all he needs to do is say that a 15% carried interest tax is wrong but he was simply following the rules put in place by others - he will not do that as he believes in his own brilliance and in his ability to be promoting his latest incarnation as the Mr. Business Conservative. His stage demeanor is controlled but uninspiring.

Gingrich - when he walked on stage at the beginning, William Howard Taft, known as Big Bill, came to mind - he wears a full cut suit. Entertaining himself or entertaining others, he has an agile if totally cynical mind - a legend in own mind. Callista was watching intently and he was for the most part he was well-behaved.

Santorum - Here there was worry that his head would explode at any moment. This self rightious candidate is really full of himself now. His intensity cannot be doubted but as a member of Congress he focused on abusive attacks on segments of the population that did not share his point of view, except when he was leading the pack on K Street contributions and earmarks. He is the only true fascist of the group.

Paul - when Ron Paul speaks, this viewer is all ears. His comments reflect a genuine point of view that is a combination of outrageous, eccentric, and honest insight, some of it unrealistic. The highlight of the debate was when he told Santorum, "I never thought of you at all when I was answering that question. You are just too sensitive".

King the moderator - always have viewed this man as superficial and uninformed, but after being pilloried by the fat man at the beginning, he handled himself relatively well and did not insert himself into the forum in any grandstanding way.

CNN - began the debate with a voice over that among other things said something about the debate being in the South, "the heart of the Republican Party and where people still have values". What a horse manure statement to the rest of the country, and one that ignores South Carolina's rather dismal history.

forecasting financial markets - pitfalls ahead but encouraging signs are around

2012-01-19T17:11:00.006-05:00

Over the last week here, there has been a considerable amount of financial work done on planning ahead and final estimated tax to be paid for a joint return and two individual ones.
As that was done it seemed logical to come up with a good estimate of what we spent in 2011 and whether we were making rational choices.

What seems like an easy task is not so easy, and not necessarily so heartening. Across bank accounts, brokerage accounts, and a few other investments that fall into K-1 territory, what happens to our assets is heavily influenced by cyclical, or secular as the proverbial CNBC pundit might add, changes in financial markets. What had the most impact in 2011 was the fall in equity markets from April, then a further fall from July to a plateauing in the last months of the year. It was all incremental as opposed to harsh collapses.

From this distance, most of that slow but meaningful downturn could, by some, be attributed to Washington politics. The budget negotiations over raising the national debt limit were water torture to the markets, if not waterboarding. Almost five months were spent on this posturing, with almost no other substantive progress on important legislative issues. When finally resolved it was a two month solution but it did start a modest relief rally in late November and December, one that has now been meaningfully extended into January.

The issue will get ugly again soon. Why will the soon to be revived issue of the debt limit not be just as painful, as new uncertainty is introduced. Could it be that the economy is really improving?, and could it be that the House of Representative does not want improvement? Dysfunctional is a word that has often been used over the last two years to describe our Congress. Destructive might be a much better word. Caution is required based on last year's experience, at least from this perspective.

To follow on with the improvement observation, the statistics on jobs are slowly improving. The corporate profit picture, while not by any means a bubble and that's good, is showing steady improvement. Dividends are being added or increased at many companies giving those on fixed incomes some way to cope with this insane Fed orchestrated no interest to anyone environment. More important here is that the optics are improving. In late 2008 a post on ENS described the lack of traffic in the four block downtown here, the open tables and empty counter at the long established diner in the center of town, the closing of some small businesses, the extending of hours at some others that decided more work was necessary, and the lack of a need for a reservation at any restaurant in the area.

Today driving through a neighboring town, there was no place to park in the immediate downtown area. That made it click, wake up John. There are not places to park much of the time in our little downtown either. The local diner mentioned over three years ago is packed every evening and the lunch counter is packed at 12:30. That's real, but more real than that is my daughter finding a real job with a growing company three months ago and my wife having acquired one at the beginning of 2011 after many years of purposefully staying home.

There is improvement.

Getting back to where this typically rambling comment started, our expenses have many variables. First, the most important factor in our aggregate financial position will continue to be the state of the economy and financial markets. With an existential view of these financial markets, it is not worth worrying about too much but there is not certainty beyond what one sees today. Diversification is a key, but is it really effective when in any downturn everything seems to be linked. That's just life I guess. Second, our spending is radically impacted by having college expenses. They are extreme as we have no option but to pay what's charged and subsidize the scholarships of the majority of students. We are lucky to be able to do that, but there is no deductibility of any consequence for that opportunity. Third, prices for all services, at least in this area, are through the roof but they must be paid. Fourth, we cook and eat healthy food and enjoyable food. Finally, replacing anything, a car, a bathroom faucet, a front door lock, a double kitchen window, etc. bears no resemblance to prices just 10 years ago. No inflation?, just try to buy something of quality to replace something that originally was but finally wore out.

Financial markets, college costs, eating well, and higher costs in general for goods and services that have quality and staying power are the issues. We could be more frugal, we could be less generous to some, we could cut back in some ways for sure, but it's unclear how easy that is until our young adults are fully launched in a few years. One thing for sure, my clothing costs are not driving up our budget.

Going through it all, I have no idea how it all netted out in 2011. What we spent on specific items is well known here. The ins and outs of a reconciliation would have been a gruesomely tedious exercise. Here's hoping the need for that does not come anytime soon and an acknowledgment that we are fortunate enough to not be pulling out the graph paper yet.

S&P, Michael Lewis, please come to the rescue

2012-01-13T18:44:00.004-05:00

Now that S&P has downgraded a panoply of European and other countries it is time for someone to see who S&P is. Why is this company that completely missed, in fact, was endorsing the mortage fiasco, now being a market mover. Why are they now honored as those who have insights. You, Michael, should meet these folks to see what bureaucrats reside there.

They should have been shuttered for incompetence in 2009 along with Moody's and Fitch for gross incompetence, aside Bear Stearns and Lehman on the investment banking side. ------more to come

Student loan time bomb

2012-01-13T18:17:00.001-05:00

It was a surprise to me when I read that student loan debt of $860 billion far exceeded existing credit card debt of $655 billion.

NYT - "Pew Finds Rising Strain between Rich and the Poor"

2012-01-12T20:19:00.002-05:00

This was one article in the NYT today that focused on Pew surveys of the conflict between rich and poor in the United States. That was in the National section. In the business section there was "Economic Troubles Cited as the Top Risks in 2012". This one focused on research done in preparation for the annual World Economic Forum in Davos later this month. Their research uncovered "growing signs of discontent" with income gaps.

Both articles mentioned the Occupy Wall Street movement as an example of a catalyst that has caught people's attention in the U.S. and around the world, leading to a more widespread shift in opinion relative to last year. None of this is really news, although the Pew work did have value as it to some extent quantified that shift in this country.

What is a head scratcher here is that the articles, especially the writer of the Pew one on the U.S. only, did not mention the Tea Party movement which preceeded OWS by two years. Does anyone really think that economic conditions were not partially responsible for the formation of this rag-tag party of conservative "thinkers". While there is no real core to the tea party, or to OWS for that matter, this intangible party did heavily influence the Congressional elections of 2010. If one thinks that part of their formation is not economic, consider this. Over 75% of tea party members think that they deserve(are entitled to) all social security benefits, medicare and medicaid benefits, disability payments, and any housing subsidies that they now receive or expect to receive.

If that's not big government what is. Yet they rail against big government and taxation and the elites in government that want to tell them what to do on so many issues. The dichotomy between their entitlements and their resentments underscores the economic underpinnings, whether explicity stated or not, of the tea party movement as one part of the growing conflict between rich and poor, or should it be more bluntly stated as between the rich and everybody else.

N.H. primary as expected, with one or two wrinkles

2012-01-11T15:35:00.003-05:00

The New Hampshire primary came out much as expected. The big positive news of the primary was that Rick Perry had a vote total of 1,622 which was rounded up to 1%. Arithmatic would have required 2,385 votes to be 1%. Some could say that Perry should be impeached by the Texas legislature when he finally returns from this fiasco, impeached for making a mockery of his proud state. Of course being perceived as cocky and clueless by the rest of the nation is not an impeachable offense, but with his pay to play political record it would not be too hard to find something that is. Where there is a will there is a way.

Other than that the other standout poor performance was that of Newt Gingrich at 9%. Being unpleasant and angry is not often a winning strategy. It's possible that with a new $5 million of Las Vegas money added to his PAC's war chest Gingrich still can go on to more "respectable" showings but his intial focus on running a statesmanlike campaign has turned into roadkill.

Santorum had minimal campaign coverage and no advertising in New Hampshire so his 9% was much more palatable than Gingrich's, and in South Carolina he may find some more supportive voters to siphon support away from Paul and Gingrich. That's good for Romney as anyone who would vote for Santorum would be unlikely to have ever considered Romney.

Those aspects of this primary stood out. Other than that Huntsman did get some payoff from all of his effort in the state, but not enough. Paul's popularity among young voters is notable but it is unlikely that South Carolina and Florida will be kind to him. Romney came away with the victory margin that the polls predicted. That's big, and his only enemy was himself as he still manages to open mouth insert foot at times.

Post office mail service deteriorates

2012-01-10T15:31:00.003-05:00

Making aggressive moves for "efficiency" has led to a significant deterioration in mail service in our area.

The first move made several months ago was to rearrange the carrier routes. It is unclear why this was done, even to our former mail carrier. She had our route for the last 14 years, our time in this house. She sorted our mail, catching mistakes when someone misaddressed or misspelled something, and delivered it efficiently, often stopping to talk as she did her rounds. Her route was changed such that she now has the part of our street at the bottom of the hill but not our side at the top part.

Now it is unclear whether we have one carrier or multiple ones. We have missed a couple of bills and who knows what else. One credit card late fee, no laughing matter, has resulted and, really, we just wait to see what else we have not responded to or what friend's card or letter we missed(we are old enough to still know people who write letters). We have one of those slots in our front door that require pushing the mail through. Whoever delivers our mail now often fails to fully push it through leaving a draft of cold air if we are not home. That there is seemingly no rationale for the change is troublesome. I still see our former carrier at times as I walk to town and she honestly has no explanation.

The second major change is that magazines that are sent to our post office and until recently sorted there are now forwarded on by our post office to a central processing center somewhere on Long Island for sorting and then sent back to our office with a bar code strip for delivery. Now "The New Yorker" often arrives one week later than it did in the previous 14 years. Yesterday we received the January 9th issue, already off the newstands, and with all club and museum dates in the front opening section related to last week. This is not good.

I visited our post office yesterday to seek an explanation. While asking to speak to the local postmaster, I was met by an assistant. She explained that the central processing center was supposed to be a one day turnaround but acknowledged that it was not working out that way and that only one other local resident had complained, about his "Sports Illustrated". I know that was a lie because our former carrier has told me that many people are complaining, especially about "People".

The assistant told me that the postmaster would call me today and wrote down my phone number. Of course he did not call. Apparently the union has recycled several incompetent postmasters in my years here, but they are all invisible. An office door opens onto the main service floor but it is never open and a knock never gets an answer. The carriers joke that he hides in there with porn magazines. No doubt another door opens into the sorting room so our postmaster can move in and out undetected.

Given that kind of "leadership", there is almost no doubt that some consultants arranged the new system for a substantial fee. Service in now broken.

With the imminent closing of many post offices around the country, especially in rural areas, one has to wonder if the same amount of insight applied here is guiding these closings. That is a disturbing thought.

"Doc", historical fiction by Mary Doria Russell

2012-01-09T16:04:00.002-05:00

Westerns have not, for the most part, been part of my reading list since the 5th or 6th grade, quite a few years ago. So how did I end up in Dodge City and Tombstone this past week, entertained and entranced by this well researched but at the end of the day fictional account of the well trod territory of Doc Holliday, the Earp brothers, and Bat Masterson.

Several weeks ago at the end of the weekday PBS News Hour, the fiction editor of Washington Post Book World was interviewed. He detailed his five favorite books of 2011 and "Doc" was one of them. It happened to be sitting on the shelf at the local library and off I went.

The fact that most of the characters in the book actually existed, that the historical timeline and geographic timelines are explicitly honored, and that many of the events that are part of the book were researched thoroughly, gives the book some added credibility beyond just the easy flowing writing and touches of the literate strewn about. There is a humanity to the book that transcends a story of the past, such that there are times that a 2011 sensibility comes through, whatever that is. That's meant to say that there is at times applicability to the present, a nice quality that is representative of good fiction.

Give it a try if you're looking for something different. It didn't hurt me.

Big banks stocks rally on Thursday -WHY

2012-01-07T11:37:00.002-05:00

On Thursday the shares of large "too big to fail" bank stocks had a strong performance, all up more than 5%. Even the Eeyore of this languid group, BofA, was up, and 8% at that. On Friday they gave back some but kept the majority of their Thursday gains. Why?

The instant analysis crowd on CNBC and at Bloomberg had plenty of meaningless answers. My favorite was that it reflected the "Beta trade" of 2012. That's trader talk for a stock that has the ability to change for the positive given that it is so beaten down there is really only one way to move. But why Thursday. My intuitive answer is that it was due to Obama's appointment of Richard Cordray as director of the Consumer Protection Bureau.

That may seem counter-intuitive given that most banking institutions have concerns about the establishment of this new bureaucracy and, under Dodd Frank guidelines, its independence and lack of accountability, as in sort of the Fed of consumer protection.

Until now, the scope of the Consumer Protection Bureau has been limited to banks only, so it has had plenty of time to begin the process of vetting and criticizing the consumer banking practices and loan books of the big banks. With finally the appointment of a Director, the bureau is now empowered to look at non-bank financial institutions that do business with the consumer. That group includes pay-day lenders, check cashing shops, money transfer agencies, independent mortgage brokers, credit bureaus, private mortgage lenders, and maybe even pawn shops. This is a group that, in general, makes the big banks look like saints and will give the Consumer Protection Bureau plenty of new work in an area ripe for regulation.

Maybe that will lead to some breathing room for the big banks. Contrary to popular opinion as reflected by much of the media, the big banks really care immensely about their reputations. That's the first hurdle for success in financial services. They want to use their statistical models to risk price their offerings because otherwise they would just lose money. Even that basic premise of lending is frowned upon by some in political and regulatory circles as biased. Banks are still a business and not a public utility. The majority of the questionable practices found at the big banks relate to businesses acquired in 2008 through bad decisions or under duress - Countrywide thru BofA, Golden West through Wachovia to Wells Fargo, WAMU thru JPMorganChase, with Citi being the one that needed no acquisition to create its own problems.

So on Thursday, maybe there was some promising move in the interbank markets in Europe that led to the move or two or three big hedge funds that decided, coincidentally, to move into these stocks on the same day. Who knows. My intuition may be just as good as these answers.

Santorum as Lucky Pierre

2012-01-05T16:12:00.004-05:00

Santorum doesn't need major money in New Hampshire which is a good thing for him because he doesn't yet have the funds or organization of other main Republican primary opponents. He could be the "Lucky Pierre" of this primary and in South Carolina. Lucky Pierre is the person in the middle of three people sitting on a bench and passing something to share - a bag of Skittles, a bottle of booze, or something to smoke - lucky Pierre gets twice as much.

Santorum has Paul and Gingrich on either side. While Santorum will not be totally immune from attention, the primary focus of their media assault in the upcoming states will be Romney. That benefits Santorum tangentially, and he can ride his performance in Iowa to, perhaps, a respectable if losing showing in the upcoming states.

The media pretty much ignored Santorum until about two weeks ago. All of the focus on him was distilled into the 10 days before the Iowa caucuses. With an alarming lack of homework done, the media stories basically echoed Santorum's description of himself. Anyone with the ability to read a newspaper or watch a television news program got his message, "fresh as a daisy". He does not necessarily now need to have been out shaking every hand in the upcoming states.

At long last, there is now some examination of Santorum's history underway. While there are anomalies in his record that defy an easy label, his incessant pandering to K Street and his relentless exploitation of issues surrounding homosexuality and women's rights in hysterical self-serving fashion were abysmal aspects of his years in the Senate.

For now, Gingrich's highly personal campaign against Romney and Paul's libertarian crusade against "establishment types" like Romney will benefit Santorum. He will not win New Hampshire and will be only a "credible" long shot to do so in South Carolina with Perry splitting the vote tallies even more, but with the ways things have played out he will do better than anyone thought possible just month ago in those two states.

He is a differentiated candidate. Whatever one thinks about it, just the "take the dead baby home" story makes that very clear.

"Washington's Assault on American Expats"

2012-01-04T15:55:00.006-05:00

This is the title of an article on the Opinion page of yesterday's Wall Street Journal(written by William McGurn who writes the "Main Street" column regularly). It details one of the lesser known aspects of the Dodd Frank bill, lesser known to average Americans but very well known now to U.S. citizens working or retiring abroad. Two of my friends doing so told me about as much as six months ago, but other than an odd paragraph here or there, this is the first full article that I have seen published on the punitive and damaging aspect of the law.

It was inserted into the legislation at the behest of Carl Levin and written by his staff. Already the U.S. is the only developed nation in the world that taxes its citizens on income they earn abroad, income that they have already paid local taxes on. These new laws require detailed reporting of assets by all citizens with more than $10,000 of assets in accounts where they live and work. It also has incredibly onerous requirements for reporting by any financial institution that deals with American expats, replete with penalities and significant fines for those who do not comply with these tedious and intrusive rules. In the interest of perhaps finding the Mark Rich types of the expat class, this law punishes all expats. Many foreign financial institutions are now dropping all of their U.S. clients rather than face the cost and risk of compliance.

The opinion piece in the WSJ details all of this as well as making the case for the productivity and culture carrying roles that these U.S. citizens represent. How do we sell our products and develop new global expertise and opportunities if the reward is a punitive tax and regulatory structure. It's in some ways the mirror image of the immmigration rules that make the U.S. send home highly educated foreign students as they leave our finest institutions, taking their talent and skills with them.

It is a really bad piece of legislation that needs to be revised as soon as possible.

The lingering worry when one reads the description of this minor piece of the Dodd Frank bill is that the Health Care Bill and the Dodd Frank bill, in the immensity of their requirements, are replete with rules that turn on the peccadillos, biases, and resentments of the Democrats that fashioned these bills. These "minor" inserts may serve no purpose in advancing the valuable intentions of both bills, but they were allowed to be included in order to satisfy one politician after another.

The legislation on expats is horrific. How much more is in these bills that serves no real purpose relative to the advertised intent of these bills, and when will it all surface beyond those who are directly affected, penalized, or harrassed?

Chinese communist dictatorship tightens controls, adding one more market concern

2012-01-03T20:23:00.003-05:00

The Chinese government is going after dissidents(1) in a much more aggressive way in recent months. They have also tightened their censorship of media and the internet as well. It appears that the "Arab spring" has alerted the Chinese leadership to dangers lurking, and they are making every effort to clamp down and get ahead of any thoughts of political activity that could undermine their control. Eventually this may not end well, but government control when they assert it is so unyielding that in the near or medium term any threats will likely be crushed mercilessly, so that may be the meaning of "may not end well" in communist China.

Combining unequivocal political control with a carefully watched but at times corrupt market economy has been China's miracle formula for growth over the last 20 years. Now with inflation rising to levels well above the investment returns available to any member of the rising middle class and with economic growth set to slow down, albeit modestly relative to the rest of the world, the addition of this government human rights and free speech crackdown will not help their reputation generally and will put a damper on their ability to attract investors to their equity markets. That may be the one thing that could catch the attention of these leaders.

On that front here, after owning only FXI(the Hong Kong equity index that includes not only Hong Kong focused companies but ones with significant investments and activity on the mainland) and Baidu through 2010 and before, in 2011 investments were added in six other companies. FXI and Baidu had done well, why not do more than just have a toe in the water. Of those six, I sold four in the September/October time frame due to concerns about inflation, rising wage demands, and a potential slow down from China's exceptionally strong growth rates. The net effect was a small positive with two small losses and two modest gains. Thinking that the one area with unassailable growth opportunities was the internet related stocks, I kept Baidu, plus Sohu and Sina.

Why I ask now? The government was keeping foreign competition out, and the market for cell phones and computer interaction was booming and had plenty of room and plenty of people to expand further. Now my gains in Baidu are significantly diminished, there are modest losses for Sohu, and the Sina position has a substantial loss. I sold part of it last week as it became a candidate for offsetting capital gains and balancing out what I would report on 2011taxes.(2)

With Baidu being, generally speaking, the Google of China, Sina the Twitter of China, and Sohu the interactive gaming and media content leader of China, they have now become vulnerable to more government control. These types of communication vehicles allowed for the organization and message spreading that led to the fall of the Egyptian government and others. How far the Chinese authorities go in further restricting these businesses is unknown but my guess is that they are not done yet.

This series of events, fear of inflation, fear of slowing growth, and fear of more government intervention in publicly traded companies(plus of course lack of transparency in financial statements) has led to an examination of many Chinese companies listed on U.S. exchanges and whether they have legitimate right to be traded in the U.S. There's more to come.

Footnote 1 - dissident is an interesting media word. In communist countries like China, North Korea, and Cuba there are "dissidents". In the U.S., are the tea party or the OWS movement or even Idaho enclaves of skinheads ever called dissidents? No, they are called activists, or protesters, anarchists or bigots, but never dissidents. In the new Russia are there dissidents now? Putin's corrupt judges and thugs "take care" of his business, but people are accused of tax fraud or malicious lying or just beaten to within an inch of life on the street, but the state itself provides at times a course of due process that is at times phony and does not use the word dissident. It's nominally a democracy.

Footnote 2 - why would I seek to balance out capital gains and losses and avoid any capital gains tax exposure when the capital gains tax rate is only 15% for equities held for more than a year. First reason is that there were and hopefully always will be some meaniningful short term gains to cover. Second reason is that when one falls into the AMT trap that catches the modestly to relatively prosperous and misses the really wealthy entirely, all bets are off for any favorable tax treatment. Aggregate income is what gets the AMT "penalty", which is the only word that can really describe it.

A New Year's Day lunch to bring good luck and more

2012-01-01T17:28:00.003-05:00

Following a long southern tradition, that I have never previously followed, today for lunch I had blackeyed peas, collard greens, and pork chops. Southern folklore suggests that blackeyed peas should be eaten on New Year's Day in order to bring luck and prosperity in the New Year. The greens represent money, and if cornbread is available that represents gold. Pork is of course the meat of choice for this type of meal as it flavors both vegetables. I added a little potato salad to my plate so I hope that didn't hoodoo this voodoo.

Whatever it takes, a little more luck is never a bad thing. I enjoy that type of food and my heart can handle it. I do admit to feeling a bit sluggish after such a lunch but the peas are supposed to come as early in the day as possible.

I looked up the origin of this still honored food ritual and apparently it began when Sherman's army trashed the South in 1865. What food in the fields or farm animals they did not want for themselves, they destroyed. Fortunately they ignored the lowly blackeyed pea that was originally grown to feed livestock and slaves, and as a great source of protein it became an essential foodstuff for all at that time. From that time forward this tradition linking blackeyed peas and good fortune took hold. Who knows if that's true really, it's what the search engines tell me.

For what it's worth it was a terrific if unusual lunch, and with good luck no doubt just around the corner it may be worth something as well.

Now to go pick up a Lotto ticket.

U.S. economy stabilizes, even looks up slightly, as 2011 ends

2011-12-30T15:54:00.005-05:00

Adapting to structural change in the U.S. economy will not be quick and it has been and will continue to be painful. At least as we close 2011, there are some signs that a more positive slant can be contrived, real or not, and a fall into recession again near term is unlikely. Of course there are still plenty of challenges that defy easy solutions and our Congress would be defied by a game of Crazy Eights.

Unemployment, underemployment, and those who have given up trying to find employment is a number that is relevant and is generally viewed as be in the mid to high teens percentage area. The actual unemployment figure at 8.6% is a directional improvement but it is unlikely to crack 8% in 2012. This is the result of both technology development and globalization. One major economist postulated that a factory that required 1000 workers 20 years ago can produce the same output with 100 workers today due to advances in technology. As multinational growth of our corporations expanded, it made sense to manufacture closer to clients in other countries, as inside other countries. Taking advantage of cheaper labor in emerging market countries was the kicker to these trends, and none of them are going away soon.

This country will never be a country with manufacturing once again building the broad middle class, if only because of technology development. Our success rests on innovation, research, design, and service, in marketing, product development, distribution, and content. Manufacturing is beginning to show some rebirth perhaps, and it will grow as U.S. wages have been coming into alignment with other parts of the world, but it simply will not be the dominant engine of employment growth.

The other main weight on the domestic economy is real estate. Residential real estate is nowhere near the rinse cycle on cleaning up the damage from the sub-prime and then some mess. At some point mere demographics will require that new housing be built but as Congress is busy coming up with plans to potentially kick 11 million workers out of the country and keep as many immigrants as possible from coming in, that point may be pushed further out than would normally be expected. Commercial real estate, like all real estate really, is a matter of location but as Sears, K-Mart, Borders, Circuit City, Blockbuster, other big regional stores like Fortunoffs on Long Island and many small main street businesses have shut down or are in the process of doing so, there is a growing glut of retail space available to add to that already available in many sagging areas of the country. Manhattan, Silicon Valley, Austin, Research Triangle, and other growth areas need not worry about this, but much of the country has a growing problem.

All of this does not mean that financial markets are in for a terrible 2012. To the contrary, most of this misery is already priced into the market for stocks and the Fed has marked down fixed income rates to compensate so that's already in the mix as well. If the 85% of people who are fully employed at their potential are managed in a way to increase productivity and U.S. products stay globally competitive, which they increasingly are, then the stock market can rise even if the overall economy is not improving in any dramatic way.

Stepping back, today's problems of a diminishing middle class, stagnant wages, and the need for less employees is not just a phenomenom of the "Great Recesssion". The trends that have us where we are today have been in place for two decades or more. From the mid-1990's to 2001 they were masked by the internet/technology bubble and, with a brief period to catch our breath, they were then masked by the residential real estate and credit bubble. So when pay the piper time came in late 2008, there was a long way to fall. Trends that took over 20 years to develop will not be addressed in one year or two years, so 2012 will be a year in which the economic challenges continue against the backdrop of the November elections.

The snail's pace progress of 2011 can be expected to continue in 2012 and American entrepreneurship and innovation is certainly not dead. There will be success stories and opportunities will develop. The economy can show some continued growth and the official unemployment levels can continue to improve slowly. Credit spigots will drip a little more than now, and optimism will grow in areas of the country that represent concentrations of positive economic activity.

No "big bang" of government designed economic stimulus, no infrastructure bank of public/private partnerships, and no surge in home grown economic activity can be expected near term. It's an election year, and somehow much of the public as well as all Republicans believe that austerity is the key to growth. Does that make sense? Growth is what we need, it's the only way out, and it's all on the private sector's shoulders amid an uncertain tax environment and still developing regulatory frameworks on many fronts, especially in the financial sector.

So we wait. We watch Europe. We watch China. We, collectively, watch what we spend and look for opportunities to improve our prospects.

And that's the optimistic outlook for 2012!

Financial markets limp home

2011-12-29T13:06:00.003-05:00

With equity markets as a barometer, there is no clear direction in financial markets as we enter the year end close with thin volumes. Down yesterday, up today, the usual volatility but with a weakening slant over the last two months. In fixed income markets there is no yield of consequence without taking undue risk.

Going into 2012 the question for investors remains "where do you make some darn money of consequence, or at least keep up with what the real inflation rate is if you eat, heat, drive, need health care or send a kid to college". Certainly not in bank deposits, money market funds, or short to medium term treasuries. They're safe, and part of almost any portfolio because of it, but there is no yield. Any bonds of medium to long term duration have potential principle risk if rates begin to move up, and best choice there has been high grade corporates and carefully selected high yield(not real trash) but that's a crowded market already. Preferred stock funds have attractive yields but they will go down hard if there is any rate spike so need to be watched. Various "strategic income" type funds, a mix of government securities, emerging markets debt, and high yield(or various combinations) have and still do offer good yields but they have definitely been leaking of late.

Then we get to equities where perhaps the most opportunity lies, but also quite a bit of risk. The companies with major franchises, strong balance sheets, and 2%-4% type dividends have been recommended by everyone for the last six months so if their bonds are crowded these stocks can only be described as mobbed. Still, they belong in any portfolio. International stocks have really come up lame in the last few months, whether China, Europe of course, or most emerging markets, uncertainty has taken the sheen off of most non-U.S. stocks at the moment. Most investment advisors say you must have a significant international exposure, but there's an argument for just buying those U.S. multinationals with at least half of their income and revenues coming from foreign sources. The transparency and balance are reassuring, and they give you the international opportunity and risk.

Small caps and smaller mid-caps have been a wonderful area to play in recent years, but the risk is high, the homework required is significant, and important variables may not be available to a retail investor. Here, some of the best performances of individual investments by far have been in that area, but so have some of the worst. Sell fast if things begin to fall below a reasonable threshold and then just forget about them is what I try to do, but sometimes double up with mixed results.

For institutional investors, the venture capital markets can be a wonderful opportunity to invest in but that's not available to retail, and by the time they bring an IPO to market the initial value has already been realised and on the IPO open the majority of the value is taken by the mutual fund and pension fund institutions at the outset. Investing in a mutual fund with a savvy manager that finds these opportunities would be great, but finding funds that reliably beat their benchmarks after expenses is not easy.

With gold falling down now and the U.S. economy, while not robust, certainly showing some signs of life(or stability at a disappointing level), equities may do well in 2012.

Finding any outsized return these days is not the goal. Protection of assets and modest but real inflation matching or modestly better returns is. Nothing especially new or of note has been said here. It's simply a reiteration of the challenges that investors have faced in 2011 and will likely continue to face in 2012.

Twas the day after Christmas...

2011-12-27T23:05:00.004-05:00

Twas the day after Christmas and my true love said to me, "we're going to have a very busy day". We started off at 7am on the LIRR carrying bags of cookies, cakes, and pears, and first headed to the big heavily discounted opportunities that apparently awaited Kathy at Saks 8am to noon sale.

We made it to 50th and 5th just in time. I declined to enter and went to a nearby coffee shop with the packages while Kathy joined the lined up multinational crowd of people who had been sharpening their elbows for hours. Camera crews were there hoping I guess for one of those break the doors down trampling incidents, but while not especially orderly the crowd squeezed their way in at the appointed time without incident. The ninth floor shoe section was the prime target as reported to me and somehow did not turn out to be a success, although some lucky tough shoppers must have benefitted. Kathy returned to the coffee shop an hour or so later packageless but not deflated. She's a shopper and would have regretted it if she had not made the effort to find some great bargains for our daughters.

Then it was nine blocks up, two avenues east, to Bloomingdales to exchange a watch that had been bought as a gift for a daughter at a certain price and that had just been marked down by 25%. She wanted the new price and that transaction was successful but a bit time consuming. I sat on a sofa in the women's department that I am familiar with and did some reading. Then it was on the subway over to Macy's for one more brief errand and my real participation in the day could begin.

We left Macy's at 7th avenue and 34th with the goal of walking one block to the R train at 34th and 6th avenue. At that time, around noon, the sidewalk so crowded that it was almost unwalkable. 90% tourist or outer borough or suburban who don't regularly venture into Manhattan is my guess. They walked in groups in stops and starts, strolled focusing on their texting paying no attention to others, and clustered at certain points forming blockades. I felt like Ladamian Tomlinson, with a goal but somewhat diminished skills, as I looked for openings up the middle, sidestepped cell phone gazers, moved right and then left, hit the sideline near and into 34th street at times and then cutting back through the crowd to get to the subway stairs. Kathy was always somewhere in the vicinity but it would have been impossible to walk as a pair with any kind of acceptable New York speed.

We made it down to the R train and my presumption was definitely correct. The car we were on was only half full and the seat and space were so welcome. Those not so familiar with Manhattan don't do subways in mass.

Our destination was to visit K's more or less invalid parents and their caretakers with our packages of sweets and fruits, and just hang around and be with them for awhile. Their apartment was also the distribution point for some of the bounty for an elderly aunt and uncle that live nearby as well as a cousin who helps out with the management of K's parents caretakers and their purchases. These latter three only made it to the U.S. after living through Mao's various reigns of terror and, as formerly privileged members of Chinese society, these gentle people went through a lot... but that's another story and like many WWII or other war vets, they have little to say about those times.

This was a really nice visit. I go regularly with K or on my own. At first blush one would say correctly that it is really depressing to see. Somehow there is a value to it that feels right. It's hard to describe. This too is another story, but our visit was successful and a good break from the streets of the city.

It was a cool, windy, but sunny day and we left to walk down Mott Street to go to a favorite restaurant for take-out fare for the evening as well as a street walking snack. The name of the restaurant is "Big Wong", a name that is probably not replicated in many U.S. cities but it is well known in Chinatown. Always crowded, but it's a great advantage to be six inches taller than most of the others in front of the counter, and they do recognize me at this point. I bought an order of Spicy Fried Beef Chow Fun and another of Singapore Chow Mai Fun with Curry. The take-out portions are large enough to feed two very hungry adults each and still have leftovers. Added to the order were four spring rolls as the street walking fare. Total cost - $18.75. The food is great.

We could not slow down and headed to the newly opened REI store on Lafayette, the first in Manhattan. This was my interest as well as K's but I truly underestimated the distance of the walk. 100 Lafayette is a building that we know well for family reasons and it is two blocks south of Canal so I assumed that 303 Lafayette would be across Canal and a few blocks up. Big miscalulation as it was at least 12 blocks up, maybe more and at that point I was getting a bit tired - lucky I had those spring rolls.

The REI store is a really well done huge installation in the famous Puck Building. It was built in 1885, huge by that era's standards, in the "German Romanesque Revival style" whatever that is. I just looked it up on Google, but it is an impressive bit of architecture. After sitting on a bench for a few minutes I joined K surveying all of the sportsware merchandise from multiple global brands, much of it discounted, some not but good quality stuff. Most immediately we were looking for a warmer coat for her father, both for his wheelchair pushes around his neighborhood and more importantly for those trips to the hospital that are completely unpredictable. Most of his clothes were taken by another family member... again another story.

We identified a coat but decided to wait until I was headed back in later in the week rather than carry it out to Long Island and then back in a few days later. My observations of the store were positive but my personal shopping interest was nil. That's often the case but at this point of this day it was nil squared.

Finally down to another subway, back up to 6th and 32nd and the crowds had been reduced to sane levels, walk a block to Penn Station to get our train ride home. With the Times already consumed and the WSJ sold out, I bought a holiday issue of "The New York Review of Books", one article previously posted, a bottle of water, and a bag of popcorn. Our train was called and though somewhat crowded we got a three seater and could relax. That bag of popcorn during the 28 minute ride seemed like it was the best $1.50 I had ever spent in my life as we passed it back and forth.

Yesterday yes, it was the day after Christmas and it was a very busy day.

The new capitalism is growing in extremes

2011-12-25T17:12:00.002-05:00

In today's NYT's real estate section it is reported that a 22 year old daughter of a Russian oligarch, in her own name, bought an apartment at 15 Central Park West for "a record-shattering $88 million". She needed a place to live when in New York and going to college.

We have all probably read about the Indian industrialist who built a ten story house in Mumbai, essentially his own hotel. Of course, the titans of China's "controlled" market economy are not living in any shabby way either. Mexico's Carlos Slim(not really so slim) is the supposedly the wealthiest man in the world.

It's unclear whether the so-called "1%" here in the U.S. are leading the way or have just set an example that is now being taken to greater extremes elsewhere. Of course there has always been massive inequality in wealth in non-market economies and dictatorships where a few families control or government "leaders" control everything while the rest of the population lives in day to day poverty.

Capitalism by its nature leads to inequalities, but still allows for a relatively prosperous middle class to develop and often leads to governments that provide backstops for those at the lowest levels of the ladder. What is said here is nothing new, just rambling remarks with the observation that OWS is a result of the widening inequality of wealth that is obvious in this country with the shrinking of a prosperous middle class.

Instead of Russia, India, China and other countries now following the U.S. market economy model that has been viewed as such a positive development in the last two decades, maybe the tables have turned and we are now following those countries newer variations of the model.

Christmas day afternoon, shouldn't it be restful.

2011-12-25T13:46:00.004-05:00

This should be a time to rest if you are in a house with no small children. There are no stores open, our gym is closed, everything is closed really, and families are all recovering together from the Christmas Eve and this morning.

For some reason my wife has decided to bring new meaning to the phrase that "you can't make an omelet without breaking some eggs". She is on a clean the house binge. Everything is a complete mess now but within a few days, this will not be a one day event, it will lead to a big improvement. To partipate I did all of my desk filing, not an immediately completed chore as decisions must be made on what to keep and what files to use.

We are always behind on this activity as all of us tend to be the messy types(I would claim to not be the worst offender) with multiple desks and work tables, even the main dining room table, piled with partially sorted paperwork and the detritus of markers, pens, and saved schoolwork and correspondance that must ultimately be sorted for what's really important enough to be saved. There are also bookshelves packed beyond capacity(that is me), and tax and financial projects that need space(that's me).

I'm dropping out of this blog comment for the day as I was just interrupted to spend 40 minutes vacuuming as that is one of my long held official duties. Now to rest, watching some basketball or finishing reading almost all major parts of the December "Vanity Fair", which is packed full of really good articles if you can find them between the adverts, the widely distributed tables of contents, and then see the tiny page numbers.

Merry Christmas.

Postscript - I should note that my wife for the past year has worked full time. While these clean up moods rarely strike, the timing of this one is a result of her work schedule.

Pieces of China, by Peter Lighte

2011-12-14T21:53:00.007-05:00

This small book published in 2009 is worth a read to anyone who knows or knew Peter who still lives on at JPMChase apparently. It's self-aggrandizing in parts, but as a friend said to me just other day, self-regard and writing are synonyms. The chapter "Tibet 1984" should be published in "The New Yorker" today or any day in the future. It is simply that good.

Apart from that it is a history of an individual, Peter, and of the development of a country, China. There are no exact parallels here so the book has an asymmetry that does not tie the book together neatly. Who cares really, but book publishers, reviewers, and promoters probably do.

In my interactions with Peter over the years he was one of the most irreverent people in the banks we worked in, but in a way that was so charming or humorous that he got away with it. I did not bond closely with him as our backgrounds were so different, but we were more or less friendly acquaintances in our early days in banking. I wish him well and really enjoyed this book of essays, great cover too --- good job.

What I fail to appreciate at times

2011-12-14T00:55:00.005-05:00

Here ENS has not necessarily noted the company of the most beautiful sycamore anyone could possibly imagine(stark and strong) seen in my yard, a giant oak, a knawling maple tree, two towering pines, a growing chestnut tree, and bushes and flowers that I annually mangle and a couple of smaller trees that I cannot name. There is even a right leaning dogwood in the front yard, so southern and unusual here.

This is my community as much as the one that I have with Manhattan and the one that I have with all of the local vendors in our small downtown.

Yeah, I whine about the fact that I have no real compadres here, people who read what I read, care about what I care about, and who rather choose to focus their lives on lacrosse and bonds.

Eventually I must escape, but for now appreciate what I have. Everytime I walk back to my house I love to see those trees.

This problem with sleeping may create some posts that may seem just aloof to most.

Recent books that I have read

2011-12-13T01:35:00.006-05:00

Not quite relaxed about certain things, here I am at the computer. What an idea? I'll detail my recent non-periodical reading.

---"The Cat's Table" by Michael Ondaatje. What a precise writer. This book seems like autobiography but may well not be. Who knows. What a well written book, just beautiful at times.

---"27 Views of Hillsbourgh", by writers from that North Carolina small town. If you are from around there or interested in community focused small town development, it's a great read.

---"The Oracle of Stampoul", first novel by Michael David Lewis, --- can't really explain how terrific this historical novel of late 19th century Turkey really is --- a still undiscovered gem.

---"The Great Leader", by Jim Harrison. Harrison is an acquired taste and this is his best in quite a while. In France he's like the Jerry Lewis of films, his books get translated at the same time as here. Some are sort of weak, but this one, while still not being some literate gem, is terrific.

---"Swimming to Cambodia" Spalding Gray --- a rereading prompted by a magazine article.
Still with interesting anecdotes but not the stunner of those times. The talk still works well and the memory remains.

That's it.

Who really drools over being President

2011-12-12T17:18:00.010-05:00

As a follow up to yesterday's post, this is a short one. Some of those running would kill (metaphorically speaking) to be President. Some would not. In my mind the "would nots" are as follows:

Santorum - he wants to reestablish himself as a national figure but realizes the odds are way too long to be seen as President. He so much admitted that when he said the other night that few people even know him when he was first elected to Congress. That's more the case now, but he wants back on the national scale in some role.

Paul - he is committed to making points and establishing views that he firmly believes in on long term policy that veer from that of any other candidate, but longer term he is just establishing a base for his son Rand, the new Senator from Kentucky who has more time and the same if not more radical views on the makeover of the financial system.

Gingrich - he would love to be President, but more than that he just loves the attention. This is a win-win already for this supposed Republican front runner. Win- he gets the accolades, lose and his public speaking fees go to the stratosphere and he is a celebrity until death.

Obama - his passion is just not now there. There is this hand sign in Hawaii, pinky up, next two fingers down, next finger up, thumb down, that is ubiquitous. I can't tell you exactly what it means, but generally it is "everything's cool" and a kind greeting. I am certain that he wants to enact his programs but I don't think that he is willing to sacrifice everything he believes in to a possible Republican controlled House and Senate in his second term. So maybe he is turning the tables on them. If he loses, let them really destroy the country and come back with power in 2016, and Mahalo.

Yet another Republican debate and the President on 60 minutes

2011-12-11T20:29:00.005-05:00

This will, I hope, be a short post.

The most recent Republican debate had the home grown Texas braggert and near idiot Rick Perry, the self anointed saint Rick Santorum, the totally uninformed, scripted, but perhaps well meaning Michelle Bachman, the provocative, interesting, but at times completely unrealistic Ron Paul, the mercurial well groomed, well informed but anything goes including a foot in the mouth Mitt Romney, and the entertaining, often informed, risk taking, completely unpredictable, and reliably self loving Newt Gingrich.

There's is not much difference in what they say.

That about says it all. Who knows what will happen before the primaries. Maybe Herman Cain will sign up again with his wife, a choir, and a preacher by his side.

If I had to guess I would go with the ratings and say Gingrich may win in Iowa, Paul has a chance to sneak in a win in Iowa, Bachman is not out of it, and Romney has no chance there. Romney has a chance to win in New Hampshire as does Paul, but Gingrich is a long shot. If she miraculously gets that far, Bachman could surprise in South Carolina and Romney will lose big there. He needs to get beyond these little states. If the stupid vote comes out big in the deep South and the West, then Perry could be a threat. Who has any idea, but the point is that this is so far from over no one knows what the Republicans will come up with. Could Huntsman actually come up as a real candidate in New Hampshire and surprise everyone with his intelligence and his diligent work there. Or at the end of it all does Romney's money and campaign organization pretty much have it all pinned down.

These events are addicting but at the moment all based on debating skills(Gingrich), ideas(Paul), and money(Romney). The minor differences in their usually naive and recidivist views are minimal, with the exception at times of Paul and Gingrich.

Who knows.

Obama's interview on 60 Minutes tonight highlighted his political strengths and weaknesses. He understands why we are where we are without question and he sees the need for balanced compromise that does not do a mannah from heaven deal with the poor. But also he does not understand how passionless and entitled he sounds when he expresses his views and how well rehearsed he comes across as at all times. Reagan, Clinton, and even Bush #2 often did not sound rehearsed and often sounded like they were really seriously expressive of their views. Letting the mentally lame Steve Kroft manage the interview tonight without some seriously pissed off replies at some of his pre-orchestrated questions just is not going to gather support.

It's taking a bet on the possibility that his union, liberal, and racial base will not be able to live with any Republican that is nominated, and playing it safe and "Presidential" is his way to a second term. That might be a mistake.

Enough from ENS tonight. How many people did ENS annoy or anger - not my problem.

---Apologetic Postscript written just as the above has been written---ENS seriously respects the intelligence and insight of many people who live in some of our great deep South and western states. No disrespect was meant in my comments to those people. But even those who live there would have to admit that there is a substantial base of voters who would fall for Perry just based on his jargon and aggression.

An extreme idea for Euroland ---kick Greece out

2011-12-03T15:59:00.003-05:00

I have an idea that is probably not possible, but eliminating Greece from Euroland would be a big positive step. It's a wonderful little country, but with a culture of fraud, tax evasion, patronage excesses, and major shipping companies that maintain most of their assets offshore and rarely honor their financial commitments, and all of this rivals few supposedly cultured countries in the world. We are almost talking Nigeria and Zambia here.

Other Euroland countries with challenges have faced up to their challenges, like Iceland and more recently to some extent Ireland. Others under pressure like Portugal, Italy, and Spain have serious educated leaders and populations that may hate austerity measures but will fight for growth through their problems. Greece is essentially hopeless.

Kick it out, let the banks take their losses for failing to look through the Euro currency at the profiligacy of Greece, and let's get on with it. A few failed banks in France and Germany will not destroy the world economy. Letting this charade drag on could.

Goldman Sachs absurd mutual funds for individual investors

2011-12-03T10:12:00.005-05:00

Still relying on a gold plate name, Goldman Sachs today announced a change in its head of asset management. That may be good news for institutional investors, but for those individuals who fall for brand names it is unlikely that anything will change. Goldman charges an absurd expense ratio averaging 1.4% for funds that almost routinely underperform the S&P 500 indexes, with fees included they always underperform. Depending on the broker that sells these funds the up front charge can be as much as 5%. The veneer of reliability and honesty is now off this company almost universally in world corporate markets, it's just another firm to be judged on what it can offer at what price. For individual investors, it should be a pariah.

In its institutional relationship business Goldman remains as a major player, with many smart and savvy professionals. It's just not what it once was, and individuals should stay away.

College loans to pay back

2011-12-02T16:03:00.004-05:00

In response to my latest blog, 99?, there were several responses that referenced college loans to pay back. I will not get into defending major investment banks for some of their practices or their compensation, but college loans are just a basic function of the most traditional banks.

Are banks now expected to be government utilities that give away money for students to attend college? If college becomes unaffordable there are many community colleges around the country that can give a good education for the first two years, perhaps in some cases better than major universities because their teachers are not burdened by publishing and administative demands. They can just teach.

In getting my MBA at age 31 I was the beneficiary of a full student loan from the now departed First National Bank of Louisville. I was gratified to receive it and was 40 years old when it was completely repaid. I had no resentments.

This culture of something for nothing, for no obligation, is confounding to me. I resent being considered part of any 99% and I am not bringing in millions or basking in some kind of luxury. I would like to think that I am a responsible citizen, with some flaws like many of us would say if we were honest, but responsible and a supporter of charitable causes, responsible government, and the obligation to repay what one has agreed to do. How simple is that.

The 99%?

2011-12-01T16:42:00.004-05:00

We are the 99% is a catchy phase that has developed some currency in our current social disruption. There has been a growing inequality of wealth in our country, but 99%?

This is just guesswork, but one could suggest that 10 to 20% of our populace still lead, relative to most other countries, very prosperous lives that are secure barring any disasterous economic meltdown globally. 50% or many more may live with some worrisome financial uncertaintly but are members of supportive communities and have food on the kitchen table every night and probably two cars. Another segment pays little or no taxes and receives federal benefits that sustain a paycheck to paycheck lifestyle that provides opportunity to their children. Unfortunately, there may be as many as 25% that are certifiably poor.

The 99% phrase is the mostly justifiable resentment that relates to the fact that a fraction of our population receive salaries, benefits, and inheritances that are well beyond what the history of our nation was built upon(well let's not forget the robber barons of the late 1890's early 1900's). With the lack of progress in our country over the last 30 years in many areas, these outsized asset concentrations by a small number of individuals are unjustified. They are the benefits of a system that has evolved over the last few decades and accepted as earned until recent years. That acceptance is now over, as unacceptable unemployment, underemployment, and economic stagnation has been the result. The justification of a "merit system" is not quite working anymore.

Exaggeration is a powerful message, but that's what the 99% is. We need better leadership, a functional Congress, a powerful executive branch, and a corporate business environment that is not dominated by shareholder returns. We need an executive management system that does not reward leaders with outsized returns based on "that's what we need to pay to get the best management". Much of management is either inept or blandly bureaucratic at best. Even the best do not deserve the compensation that steals from both their shareholders and their workers.

OWS is serving a purpose that hopefully does not go to extremes. The 99% is an extreme. Maybe it's a result of the marketing of hopes and dreams that motivate everyone to be rich.
It is certainly a result of the exceptional assets of the few as unemployment stagnates or will rise, and real middle class jobs with job security, decent salaries, and adequate benefits have deteriorated.

But let's face it, the 99% label is not a valid number. We are still a prosperous country but one with problems that we have not faced since the late 70's and early 80's. Some would say with problems since the 1930's but that is hopefully an exaggeration.

There is a tough road ahead, but this country is resourceful and in many ways community focused. 70% of Americans devote some time to charity work, and more to charitable giving. There is no country in the world like this.

OWS and soon, as was suggested here some weeks ago, Occupy Congress will be challenging events. I don't really pray, but I do in this instance pray that this can all be overcome by the strength of this country and the goodness of most of its citizens.

OWS- a global syndrome or U.S. centric

2011-11-28T23:18:00.007-05:00

So much of what has been written and opined upon on this issue that this blog has been stymied from any comment. So here's some recognition of the issue from this perspective, perhaps dated or already commented on by others.

Overall, this seems to be an anarchist movement or at at times a libertarian movement that is spontaneous but driven by real but uncoordintated issues. It seems real for certain and not just a passing moment. Unlike the civil rights movement of the early and mid-60's or the anti-war movement of the mid-60's to the early 70's there is no one goal that makes for a cohesive cause. We are the 99% is a phrase that means little but resonates with some(Paul Krugman notes that the phrase could more aptly be we are the 99.9% as only a small sliver of our society has these almost absurd level of assets that are being protected by conservative interests and resented by almost all citizens). Unlike the demonstrations and encampments of the Great Depression, those protesting today do not look poor or malnourished, in fact they look relatively healthy and prosperous generally speaking. That's

said with the exception of some homeless who have joined the group for food and shelter, some mentally challenged, and then some predators who have latched onto the group for criminal activity and sexual assaults.

The current precedents are the persistent unfocused anarchist protests at various world economic summits and to some extent the long overdue uprisings against the long established middle eastern regimes.

What is missing from OWS is an Occupy Congress event. Congress and the executive branch were the regulators of the financial markets, and Bush II and Clinton pushed Fannie and Freddie into the low credit markets. They also benefitted handsomely from the taxes generated by lightly regulated companies across all industries, camapaign contributions, and the revolving door that benefitted those who worked for them and then went on to high paying jobs in the industries that they supposedly regulated. Obama is simply missing in action on all of this, highlighting his oratory, social, and basketball skills.

The highjacking of the Republican Party by the tea party and by Grover Norquist is a complete roadblock to any compromise. The arrogant orthodoxy of Pelosi, Levin, and other members of Congress during the Democrats four years of opportunity ruined Obama's goal of all for one action that President Bush and Secretary Paulson has already started. And now here we are.

The frightening precedents, if this grows exponentially, are the Paris Commune of 1870 and the Russian uprisings of 1905 and 1917(the populist U.S. uprisings of 1893 drew much attention but were really minor in scope, an analogy that should not be ignored), and then the collapse of the monetary system in post world war 1 Germany that led to what we all know. Those thoughts are extremely remote, but the world is unpredictable in nanoseconds these days and previous events were led by anarchists with no real plans but to overthrow an existing world order that was facilited by inept and corrupt bureaucrats, bad decisions by family anointed leaders, and by so-called economists and market pundits who had no basis for their commentary - sound familiar.

The motivating fact of OWS is that the establishment is moribund and so completely insitutionalized that any change of supposed consequence is really miniscule. While technology and globalization have roared ahead leaving U.S. job losses in their wake, other aspects of U.S. society have not materially changed in 30 years or much more - infrastrusture, education systems except for the most advantaged, methods of healthcare, penal systems once that called for rehablilation and are now highlighed on popular televison shows as places for young people to get raped, immigration reform and an acceptance that that this is a historic aspect of America's growth and prosperity, and the functioning of a political system that has stagnated. It really started with the Supreme Court's completely contrarian validation of the Bush win in Florida. It went against all precedent of that court - not that Gore was any solution or even really sane.

The establishment is no longer functioning in a way that points to a better future either for near term future generations or for the majority of the current populace. That may be the OWS underarticuladed thesis and it seems to be an anti-intellecutual television generation point of view.

In the non-urban areas of this great country much of this brohaha may seem like a sideshow. Close down their local post office/ meeting places/ and gossip clubs and that may change. Let Alabama's draconian profiling rules become widespread and expect urban gangs, older people, and former middle aged office workers to harvest crops and mow lawns and then the whole order may break down, tea party or OWS or both.

There is no question that the U.S. economy is anemic. On the positive side, corporate profits are still strong, technology and globalization roar ahead, creating growth and dividends but leaving job creation stagnant or worse. Add to that the unmitatging attacks on the financial industry through regulation, litigation, and presidential distate and there is not an environment for growth. How can you have a growing economy of this scale without financial intermediries(the Mafia revived maybe). The contructive aspects of the financial industry are being undermined by Obama, and if by fiat he can tell them what to do he is simple minded and inexperienced.

All that said, OWS could become a positive catalyst if the anarchists and old hippies are thrown aside, and the young people realize that getting back to their books, their innovative thoughts, and their opportunies for entrepreneurship, all almost unique to this country, are more important than this mindless lark with no cohesive center.

There is a serious unemployment problem in this country due to many factors - industrial dislocation, underwater housing disincentives, technology advances, and government incentives to not work that are being scammed. For the youth that participate in these OWS events, there are endless opportunties. From our 17 year old with a steady job to our 24 year old with a real company in her interests, it simply requires a willingness to get off the couch. My 17 year old and 24 year old have jobs, with possible long term opportunity. They want to work, and are not in a postion to need immediate financial assistance.

For the middle aged with family obligations that is not so simple, as for the elderly who saved their entire lives and now have no interest to live on. These are not easy times, and with no real serious leadership there is no end in sight. President Obama reminds me of Bush number 1, an effective leader in foreign policy but an ineffective leader in his home country.

Thanksgiving food expansion

2011-11-25T16:05:00.002-05:00

Once upon a time Thanksgiving's meal was a turkey, a few traditional items, and maybe some special desserts. It was about conversation and football and relaxing. Maybe it still is in many places.

Today's foodie revolution has certainly changed that around here, for both better and worse. New exotic dishes show up on the table, untried recipes are unveiled, wonderful creations are presented, surrounding the lonely turkey with an array of unfamiliar fare. The fun for some is in the cooking and the experimenting with special offerings to family and friends, but the end result can be a buffet of food well beyond the capacity of the table. It can be sampled and tasted by all, and what's leftever can be saved or divided up and sent home with some or delivered to others unable, mostly by age restrictions, to attend. Little is wasted. That's all fine and festive.

What is not festive is the clean up from this massive undertaking of multiple talented cooks, many who vanish soon after mealtime. The simple old days become nostalgic when three hours after dinner the clean up and packing and sorting continue. Separating the fine chinaware from the mundane, separating what leftovers will go to whom in different packages, filling the dishwasher and still having a sink full of pots and pans to scrub, debating what to keep and what didn't really make the grade.

Back in my grandparent's days when extended famililies filled their houses, even folks with modest incomes had hired help to help with the task. In my childhood family it was all kept simple. Today, even with a small group, the food fascination of this generation overwhelms the table with delights, and wearies those few who clean up at nights. I was dragging by bedtime.

It was certainly worth the effort, but it was definitely work towards the end.

Should Corzine and Flowers be charged with a crime

2011-11-04T15:52:00.002-04:00

The collapse of MF Global was painful to investors, and something that could not be foreseen in any way based on their financial statements and comments. Was the collapse just a liquidity panic that can happen to any financial firm with issues or was it a result of intentionally manipulated reporting, window dressing, and misleading statements.

Much has been said by some about the lack of charges against anyone associated with the mortgage banking fueled economic crisis of '08/'09 that is really in many ways still with us. From this viewpoint that was a systemic event that overwhelmed almost everyone in financial services. To charge anyone with a crime would require opening a new Federal prison for rating agency personnel, multiple regulators, some elected officials, bankers, processors, securities analysts, pension fund managers, mortgage brokers, etc. The key major players that benefitted from this systemic overlay were Fuld of Lehman(macho competitive arrogance), Killinger of Wamu(naive and purposeful ignorance), the Sandlers(the Ma and Pa Kettle of the mortgage market who sold Golden West to stupid Wachovia just before the collapse) and Mazzili of Countrywide(openly willful and almost gleeful exploitation of a market). Some would add Blankfein of Goldman to this list but the firm survives and no laws were broken. The aura of their actions is poor, but the legality is under no reasonable scrutiny, except by the odious Carl Levin who plays by no rules and benefits from his own stable of lobbyists.

MF Global's bankruptcy comes at a time when there is no systemic event that would wrap itself around the entire investing world. It stands alone in the U.S. at the moment. Here one can think back to Enron, Worldcom, and Tyco and the punishments received by managers. Worldcom obviously broke laws, in Enron's case it is certain that with Merrill Lynch's help the CFO(turned prosecutor's witness) broke laws but not really anyone else, and with Tyco the only real law broken was buying major artwork from a Vermont address to avoid New York tax and then displaying in a company paid for Manhattan apartment.

In these cases, not part of any systemic event, Ken Lay of Enron, a major philanthropist and good person, essentially got the death penalty, Schilling, the brilliant but alcoholic protagonist of the event got 24 years in prison, the turncoat CFO who orchestrated it all got 12 years, the Worldcom guy got 25, and Tyco's Koslowski(sp?) received 25 years in Attica for a state crime of tax fraud and partying too hard on company money that was approved by the Board of Directors of a firm that is ongoing and never caused shareholders any loss.

Why now are Jon Corzine and J. Christopher Flowers not subject to prosecution. Corzine ran the company and Flowers was the major investor who hired him and orchestrated the whole event. They manipulated financial statements and publicly misled investors. Other financial firms are now not producing the returns they once had and are working to reassure investors at all times, but in fact most are solid. It's the lack of a good growth outlook that concerns investors rather than any chance of failure. The President, regulation, and the economy have taken the sheen off of even the best financial companies.

Full disclosure here, as a retail investor I bought some MF Global, no big amount but not completely trivial either, when Corzine took over. My assumption was that the addition of Corzine, former co-CEO of Goldman, and the role of Flowers, former head of the financial services practice at Goldman and a hedge fund manager focused on that sector, would stabilize a global firm that had already been through a fall and would benefit from the Volcker initiative that would, I thought, lead to a spreading out of derivatives trading to the benefit of mid-sized firms like MF Global. Obviously I am either too far away from the business now to make such judgements or, given some of the major shareholders of MF Global until the last weeks, I had no way of knowing what was going on.

Continuing personal disclosure, I bought in the high 7's on the annoucement, sold in the mid-4's several weeks ago, about 2/3rd's of what I had, on concerns that all was not right, and the last third is a total write off. I definitely have a bias in this post.

Why would Corzine and Flowers not be criminally prosecuted. There is no systemic event in the U.S. going on. Corzine obviously misled investors, a Reg FD crime in itself. Flowers facilitated this although he lost a lot of his investors' money as well. If Koslowski is up at Attica for what he did at a firm that is ongoing in all parts and prospering, why would Corzine for sure, and Flowers perhaps, not be charged with a crime of defrauding investors.

This at least deserves some attention. I wish prison on no one, but do think that this is a unique case of inadequate and misleading disclosure by egomaniacs who let their success at Goldman become their guiding light. They deserve no special treatment. If there is anything that signifies the Goldman culture it was the attention to detail, and these guys knew what they were doing.

THE 6:53am --- Recovery?

2011-11-03T17:55:00.004-04:00

The 6:53am is the LIRR train that I took most often when I worked full time in Manhattan and had moved to the suburbs. With lots of errands to do in the city today I took that train. It was not due to any urgency, but just the fact that I woke up early and with no chance to go back to sleep had already read the NYT, had my coffee, juice, toast, and jam and was ready to get out.

The 6:53 out of my suburb, 26 minutes to Penn Station, was until my last days of regular work a complete scrum. People jammed at the entrance doors on our platform, had planned their spots in advance based on previous experience, and did the aggressive save seating act if they got there in front of any companion. New York. I figured it out and got used to it. I learned to never get a middle seat.

Today was a revelation. I had not tried this train in 3 or 4 years, and went to my usual experienced advantage point. The car was almost empty. It's an express train so at the next stop we added more and some would have been standing in the past. The LIRR has since added one additional stop to this express and while it for the most part filled the train there was still no one standing and no one seated next to me in my three seater( and I had taken a shower for sure).

The 6:53am from my town was, was, a train of financial service folks like myself, garment district workers at the higher and middle levels, and legal firms both major attorneys and their sub-partners or assistants.

So to get the point of this post, this was an amazing observance of what has happened to our economy and how broadspread the damage has become.

To me, the 6:53 was totally annoying and vibrant at the same time. Multi-cultural and linguistic, in hindsight it was the signpost of a vibrant economy. Now there is simply no comparison to four years ago. I'm not kidding you, no pushing, no shoving, extra seats, I was astonished today. Today is not a holiday, no special day, what I saw was what is going on.

My take, just a signficantly lower amount of economic activity, everyone stuck in place, no one hiring, using part timers, no optimistic outlook, and no clear way to invest for productive futures. The redepression of 2008 and 2009 is behind us, but there is now no new path. People that survived are stuck. People that did not are stuck. Entrepreneurship at the personal level is still alive and well, vigorously in some sectors like tech(potentially productive but no immediate payback) and restaurants(rarely productive ever if books and tv don't follow).

Today the old 6:53am with all of its annoyances seems like something we will never get back to. I hope that I am wrong. Today was alarming.

Pack your bags Jimmy

2011-11-01T16:10:00.005-04:00

Daniel Ortega is running for a second term for his klepto dictatorship, aka socialist in this part of the world, and this time is widely viewed as leading in the polls by those in control of the political process. Control leads to more control in these types of governments. His family now has a significant ownership in the largest oil company in Nicaragua in partnership with Hugo Chavez, his man, or should I say dealer at discount prices.

Five years ago Ortega re-established himself as the leader of this country in a three way presidential race. He won with 38% of the vote after coming to an agreement with the outgoing leader, from one of the other parties, to drop all of the already filed and well documented corruption charges against him in exchange for his support. With that support and stolen loot behind him, he won a slim victory.

Jimmy Carter went to Nicaragua to certify that the elections were fair, and assured the world that they were. More publicity and attention for Jimmy, and it is unclear whether he was simply unknowingly used or just can't get enough of the spotlight. The election was obviously rigged by behind the scenes agreements and who knows what else.

Mr. President, it's almost time for another trip.

Snowblower or shovel?

2011-10-30T17:28:00.003-04:00

When there is a windy rain and sleet storm yesterday and snow on the ground this October morning, even only an inch or so, after last year it does raise the question -- do we finally buy a snow blower?

My view has always been that snow blowers are a nuisance that require maintenance and often moments of frustration with balky start-up. Then there is the storage issue. Our garage already requires precision parking on either side as it has bicycles, ladders, a refrigerator, firewood, and shelves of all kinds of stuff that we should throw out if we ever took the time to find a safe disposal area, meaning a dump for old paint, etc. One more piece of equipment in there and it will take the Dale Earnhardt of garage parking to get in and out.

Considering all of that, we still need to consider a snowblowing machine. Last year was just amazing, an amazing amount of work. Of course there are a few folks roving around with jeeps fronted with plows or my yard guy's son who for $75 or so will do the job in 15 minutes, but when it snows every other day for several weeks that can really add up, add up into a lot more money than buying a machine.

Of course, if we did buy one that would also make temperate weather for the coming winter almost a certainty. After two years of really significant snow, in 1996 I succumbed to the need for a Jeep Grand Cherokee - did a three year lease since at the time those things began to come to pieces in that amount of time(when we returned it the interior side panels were falling off and any back support in the seats had vanished, among other things). It was a lark though, a rumbling V-8, bought with the excuse that we had young children then and what if one needed to get to a doctor or be picked up from school and that was a valid thought.

Guess what, no snow of any consequence for the three years of the lease.

So what to do? At least this early snow reminded me to turn off and drain all exterior faucets and make sure that the yard guys drain the sprinker system asap.

Valuation or Volatility

2011-10-23T16:03:00.007-04:00

Real valuation analysis seems to be part of history in the last year. Technical market analysis, incredibly technology enhanced trading systems, and an ignorance of how to really value stocks has made this year's daily and monthly market moves almost impossible to predict. Go Vanguard and Pimco and a few other anti-volatility indexers, I guess, you're in your sweet spot, but not every month or even each year it seems in any meaningful way.

What has really grabbed my attention is the sector that I know best. "Once upon a time", a banking concern with multiple business lines could expect a lower p/e on more volatile businesses and a higher p/e on more consistent ones. When I look at JPM this quarter I saw a highly predictable shortfall in its more volatile trading and investment banking businesses(lower volumes, regulatory harassment)) but an improvement in its more predictable, once supposedly higher p/e, businesses like retail, operating services(back office financial) services for corresponding banks all over the world, asset management, and a modest increase in commercial loan growth. What happens, the stock got hit by 6% on the day it reported.

"Once upon a time" a blowout quarter in trading or private equity could have been met by only a 1%increase in stock price despite the addition that they were making to the firm's overall capital account. Now a short fall crushes the stock.

If this type of analysis is endemic to firms in multiple sectors, then no real aggregate of analysis is possible for retail of even mid-sized funds. It's all in the hands of the hedge funds betters, manipulators, and the high speed traders.

Maybe a quarter or more of securities analysis has already been outsourced to Excel spreaders in India or elsewhere to be reported here by small U.S. firms who were anointed by Spitzer and Sarbanes Olxey, another quarter possibly to fulfill mandates to equality and not experience anointed by Congress, and the big firms now are rarely quoted and quite remote due to their fear of getting sued for any miscues.

So who knows what will happen tomorrow or in the last two months of the year? My guess is market up over the next four months, through February that is, barring some economic catastrophe in some other part of the world or some geo-political event that supercedes economic valuation. Is my intuition right, or just a hope.

Enough of this. It's just hope based on the performance of many corporations around the world with sound balance sheets and a focus on expense management. It's also my bet on some small caps in the U.S., tech, materials, and transportation, that could go completely wrong, but TMT. You got nothing on me Mr. 999.

Jim Beam announced tonight that it is inviting an attractive $11.2 billion takeover and at least two firms are interested. Is that good news or bad news for my four month thought - depends on your point of view.

From 1850

2011-10-16T20:45:00.005-04:00

"Fire off a shotgun under a bloated cow such that the animal makes such a desperate spring that the problem in the stomach may out the obstruction and end the problem at once".

That's from a mid-19th century family diary that survived the dismantling of my family's life after my father's death. When my mother died a combination of his obsessive orderliness and his resentent of anything not related to him led to a purge of all of my mother's stored cards and letters of maybe 60 years(impossible for me to believe at the time and still) -- just in the trash before I could get there after her death. My father had some great qualities of resiliance and a love of life. He certainly loved me in the best way that he could, given his background. It's impossible to explain here, as it may be for my children to eventually explain me, not in the same mode I hope.

The quote above is from a "Borden" diary from the mid 1800's that has remedies for everything, books to read, sayings to live by, it's fascinating. These folks ran a barrel making company for apples growers and looked like a fairly poor lot, but were more literate than any average American today. Sixteen days before his death and being called by medical professional friend Renee, doctors, and others, I flew down immediately to be with my father for his last 16 days. He had been in and out of the hospital repeatedly over the past year and always rebounded in an amazing way, with an amazing interest in going out to eat. This finally was coming to an end. He was not in much pain at all. He was 91 and his body just wore out.

When in the hospital under multiple drug regimens, run by so-called doctors called hospitalists, he indadvertantly told me many things that I suspected but did not know for sure, mainly things that he did to my mother when he lost his temper when she misplaced things during her early stage Alzheimers. That was sad to hear, but she had more or less already told me what she was going through. As much as I admire my father and miss my father, I have a little problem with some of the final months of my mother's life that will not really ever be reconciled.

The quote above is from a diary that survived Delta. When returning from Danville I had to pack several bags and my carry-on was full of essential estate and financial documents. In 35 years of domestic and international travel for mostly business and some for vacations I had never lost a bag, but this was the time. A bag filled with photographs of most of my family's life was lost or stolen, and after 8 months of haggling Delta rewarded me with $750 for the few tangible items in the bag, sweater, jacket, etc. There was no amount of money that could have compensated this individual without siblings for the loss of all pictures of my childhood, all pictures of my parents except ones that I already had from their earliest days and their aging days.

One major discovery was immediately lost. That was the photos of my father's shot down B-17 as a Flying Tiger in 1942. He survived obviously, but this was always a blank spot in his comments, WWII, in general, of anything he talked about. I found the photographs and a long time friend of my father's named Bobby showed up at his memorial service and talked about it. I never knew except maybe a little on the edges. Those photos disappeared as well, courtesy of Delta.

I've just written this same post in a different way on Facebook, but here you may expect to see random diary posts from time to time, just maybe titled 1850.

"For what it's worth"

2011-10-13T21:21:00.016-04:00

The suggestion of a "confluence" of the tea party movement with the nascent Occupy Wall Street onslaught is a thought that probably insults both groups. Frustration, resentment, and legitimate gripes are themes of both groups. They have momentum and are changing the political landscape.

For perhaps completely different reasons and mental constructs, the growing uneven distribution of wealth in this country is obvious to both groups. That the national political system, in particular Congress, is dysfunctional is obvious to both groups. That the declining availability of real middle class jobs, with a a wage that could support a family in a modest but sustainable way and has constructive health, job safety, and retirement savings benefits should be a significant tea party issue and may be, but may be in its own way be a more conscious Occupy Wall Street issue if OWS becomes more than just a passing moment. I have no idea how to digest this, but it is a serious issue.

Then there is the incendidary issue that affects both groups, which is the the conspicuous display of wealth by the 1% or really one half of 1% who have really benefitted from the gap in wealth becoming ridiculously wide. This phenomenon is not necessarily completely purposeful, although at times is and it can be seen as spiteful. It is at times just inherited and at times felt as a deserved reward, as in the cases of the laudable Warren Buffett and Bill Gates and their philanthropy or on the other side of the coin the hideous Donald Trump and quite a few members of the hedge fund community(I could name so many). There are almost certainly a very few members of Occupy Wall Street that come from that top 1%, revolting from their heritage but not any consequential part of their wealth. They may have their sleeping bags downtown but they have back-up. Whether some small fraction of the exceptionally wealthy is part of the protest is really inconsequential. The majority of the top group, top one half of one percent, is in general now back to displaying their wealth in Maserati's and an attitude of arrogance and entitlement that merits the Sun King's reign. Enough of this part of the rant, maybe New York City based.

Both groups, tea party and OWS, no doubt have some "thinkers" who have a conceptual constructs of what they want other than change, different types of courses of action, different policies, but neither group has an agenda that is in any way coherent. That may be the way the world works now, making the traditional political parties look out of touch.

The tea party movement has been nurtured and has built steam for almost two years, and it has been able to take credit for some electoral results that have been meaningful. Facts, research, and thoughtful insight rarely seem to have little to do with this amalgam of voters. It's opinion, right or wrong, that rules. It's resentment and it's fueled by the lack of jobs and the constant reminders from all media outlets and most advertising that this is not a fair system. There's also a sense of personal entitlement that does not translate into public entitlement. Then there's the evangelical side of the equation that creates a little righteousness, and then add in a dose of racism. That's our tea party and they are making their mark.

Occupy Wall Street is almost entirely different, other than the broad thematic attributes previously mentioned. It is based on the economy and the economy, the growing absurdity of the distribution of wealth in the U.S. and the feeling that the general public has been financially raped by the titans of the financial industry. Opportunities for the future seem limited for the young, and anyone who already doesn't have a job, young or old. That there is almost no focus so far on the government, some focus on the Clinton and the Bush administration's encouragement of Fannie and Freddie to build home ownership through "community relaxed credit standards" and to the mandate of Congressional oversight committees and leadership to commit to widespread home ownership at any opportunity in order to only approve mergers in agreement(as advocated by such groups as Acorn and accepted by Congress), is not an Occupy Wall Street issue at the moment. The Bush/Clinton SEC "oversight" is not on their party list either. Obama's lack of consequential leadership is ignored. As they grow into a more cohesive group it may be, and this is too early to see, there is the potential for the Occupy Wall Street and its open and more passive supporters to become a counterweight or moderator of the Tea Party's Sean Hannity obliviousness. At the moment OWS is just a strong sentiment that could become disruptive to targeted financial firms which are only one part of the whole deal here.

There is no doubt that Wall Street, a few firms in particular, created completely corrupt products and that some hedge fund managers kept their eyes shut(or wide open) and kept going to the bank. None of these people are respectable. There is no doubt that the government dropped most constructive oversight throughout most of the Greenspan years, and that some did so with the blind zeal of creating a more democratic home ownership society. There is no doubt that the majority of the "refinancing" lending at low or step up pawn shop rates was done by a couple of large thrift regulated banks and the almost totally unregulated brokers(not the major banks) who found certain firms on Wall Street and at a level below top Wall Street that would securitize completely untenable financial and in some case undocumented financial instruments.

For this writer, it is not possible to come up with some coherent summation of all of this, but I do know that "there's something happening here".

Postscript #1 : here in NYC, Occupy Wall Street is part of a deal that is mainly just a party at the moment, hey, 1960's, should I say that I remember that. On Saturday the 8th we were in Manhattan doing some normal shopping in the Flatiron district(Paragon for one, Miramekko or however you spell it for my other) and and after a hamburger and fries lunch at Shake Shack at Madison Square Park we could not succeed in trying to cross the street at huge 23rd and Broadway intersection. There was an unending wave of skateboarding(mostly) and bicycling young people barreling down Broadway ignoring all stoplights, crosswalks signs, and people. ME. Seeing this as a party for Columbia students heading to the rally at Washington Square and after ten minutes of waiting I became tired of waiting, at least 100 people on each side of the street waiting for this barrage of entitled young people to pass, WELL, as in Paris at major roundabouts I just walked in. In that country the idea is just to walk sensibly and predicitably and you are safe. I had to dodge a few and then a young man, maybe 18, with a some since of consciousness or conscience, I think as scared as me, came right at me. He yanked his board left at the last second and lost it, but thankfully kept his balance and did not fall on his face. I twisted my knee. After that at least ten or fifteen people on each side, including my wife, crossed and continued to accept our right to cross a street legally. POINT - - most of this parading young crowd was just having a lot of fun, ignoring people who may even support them even if they were not civil. They had no real cause, other than to show their power and exert their existence and have a good time, "have us a time" as in "Choctaw Bingo".

Postscript #2: Despite the plight of our current economy, there are more opportunties for entrepreneurship in this country than exist in most. Sarbanes Oxley, passed under Bush, did the most damage to this opportunity, and Dodd Frank could be the icing on the cake. Even with these, the OWS crowd has more opportunity in this country than almost any other, in my uninformed opinion. Ridding the immigration code of rejecting foreign graduates of our finest schools for employment here would not only build on this opportunity significantly, and correct an obvious sign of U.S. xenophobia and inbreeding, but would also simply amplify the opportunity that already exists. To further insult others in this post, the OWS crowd often expects to start out doing jobs that meet their skill levels. That was rarely the norm in any past, except for the well connected or silver spoon set. There are so many examples. You work, you have ideas, you prove yourself, and sometimes things work out. There are not guarantees, unless you are part of the OWS crowd from the elite, taking a break from the inheritance that awaits you.

Sure, I await my next challenge or opportunity even at this age. I'm not pointing fingers at any specific group(except maybe FOX). I did ok, as Meschiya might say I was a "Lucky Devil". I admire some of my peers that have reinvented themselves as I have sort of stagnated. Is that society's fault, is it the environment's fault, is it my fault - mine. Doesn't matter really, but a reliable and sound government and an honest business system would at least be a foundation to promote confidence.

Earlier post wrong, tonight's debate stayed on track

2011-10-11T22:57:00.003-04:00

Tonight's Republican debate was far better and more focused than I had earlier expected. The roundtable forum worked and Charlie Rose and his colleagues did an excellent job. The debate stayed almost totally on topic, jobs and the economy. I have just made these notes before listening to the follow-ups, so here they are:

---The focus on the regulatory burdens of Dodd/Frank, Sarbanes/Oxley, and Obamacare were all worthy of discussion, especially as they apply to small and mid-size businesses. A core debate for the future was almost maturely established as to costs, compliance, and business uncertainty. Were these acts designed to reign in, hold responsible, and in some cases punish big business, but are now handcuffing the real job engines of our economy, community banks, small and mid-sized businesses, and potential creative start-ups.

---The uniform "balanced budget" talk of the last debate was less pronounced, indicating that some of the participants realize that this is not a one year deal, especially as we are on the edge of another recession.

---Romney---may well be the most knowledgeable and even capable candidate but came across as arrogant and chameleon-like. His answers were the ones most designed to be in line with my earlier post of pandering to all. His smirks that at times he made while others made remarks reminded me of George H.W.'s look at his watch in the debate with Clinton. I for one don't like him, although he may be the best of the bunch.

---Cain---I can't believe his continued poll numbers. All he kept saying was 9-9-9 with no real explanation or back-up. What was refreshing to me in the other debate that I saw made him look like a simpleton this time.

---Bachman---this time a much better performance, less stridently self righteous and right wing when scripted to stay on economic issues. She remained unconvincing as a real thinker or leader, but was well prepared and did not pander to the evangelicals as I had expected.

---Perry---really had so little to say of any consequence. Every comment began with a minute of near blather as he collected his thoughts, which always went back to his stories of his "accomplishments" in Texas that would have been even better without any Federal aid. Following a video clip of a Ronald Reagan comment that was an exceptionally slow pitch, he completely whiffed.

---Paul---strange as this may sound, I think that while he is not a viable national candidate he could make some mark in New Hampshire. He remains the most unpredictable and at times interesting participant, even with his answers that for the most part lack viability. He is the one that brought up the Republican's passage of Sarbanes-Oxley being just as damaging to business as the pending Dodd/Frank.

---Gringrich---still just having a good time being there, with an occasional comment of some value.

---Huntsman---I like him but he's just not a player at this point.

---Santorum---his attempt at a conversion to passionate family man from the backstabbing vindictive extreme right wing politico that he was as a Senator just has no chance of working.

That's it from me. I'll see what Bloomberg news and the NYT say tomorrow. Signing off.

Tea party pandering parade, tonight's special

2011-10-11T17:55:00.003-04:00

I'm looking forward to tonight's Republican debate. I've only seen one, so it's time for another. It's in New Hampshire, which presents a dilemma for the candidates - certainly not an evangelical state, certainly a libertarian state in some ways, neither openly liberal nor conservative but held at an intellectual captital of conservative intellect, the highly respected Dartmouth College.

Despite that, this nationally broadcast debate will bring out the worst of most of the candidates. It's supposed to be focused solely on the economy and jobs, but let's see how many of the candidates actually can stick to the topic. More importantly, do any of them offer any intelligent defense of their responses to the economic problem, or is it just trust me, or "I know what you tea party folks think so you can hear now what will get your vote back in Iowa and South Carolina".

This morning on a Tom Keane Bloomberg interview with an informed observer and pollster, it was noted that tea party members surveyed believed that 20% of the U.S. budget went to foreign aid. They postulated that this would solve our Medicare issues. The actual number is that less than 1% of the U.S. budget goes to foreign aid. I might add that if you would add our police actions in the Middle East 20% might make some sense, but that most of the tea partiers likely supported these intrusions, even the continuing failure in Afghanistan.

Sometimes, only once or twice really, I wish that Donald Trump had actually run for the nomination as well. The absurdity of it all would have become a potential Monty Python rerun.

Not to be too negative, I admit that all of the Republican candidates are well groomed and well scripted, Perry on the scripted side excluded although tonight he may be under control. They seem serious, and they do represent the thoughts of perhaps even a majority of the people in our democracy. That's why that in the one debate that I saw one of my favorite comments was Ron Paul's, "those fences might just as well be used to keep us in".

Anyway, democracy in action - I never plan these comments but I have one on Obama coming, at least in my mind, soon. He's certainly lost any potency. He speaks beautifully and in many ways sensibly, but when done I can't remember anything that he has said that is new or inspiring. He always seems to have enjoyed himself.

October 10 New York Times --- two front page articles, so different, so similar

2011-10-10T22:24:00.006-04:00

Today's NYT had a front page article on China entitled "As Its Economy Sprints Ahead, China's People Are Left Behind". A second front page article focused in the U.S. had the title "Median Incomes Shrank Further After Recession, a sobering new report, overall drop of nearly 10% helps to explain grim public mood".

They are both worth reading if you have access via newsprint or internet. I will only briefly explain. The China article focuses on how middle class families are stressed as they try to save for their children's education and their own safety net. They don't trust the highly volatile stock markets so deposit their money in the state owned banks that pay roughly 3% interest at a time when official inflation rates are 6%(many say this is wildly understated because of the rise in cost of many basic food items). The article explains that the Chinese state banks use the savings to finance major infrastructure projects like dams and high speed rail that are state owned and at the same time are cutting back on personal government "guarantees" like health care and subsidized basic food prices(what was it once called? the iron rice bowl or something like that). The end result is that some state officials, bankers and industrialists are becoming vastly rich while the middle class is falling behind and feeling increasingly vulnerable.

The U.S. article is more familiar. The middle class is spending less and saving more, but for some that savings is partially being used to repay banks for past unwise credit decisions. For what I would guess is the majority of the, and more prudent and educated, middle class those savings are cared for as in the China article. With little faith in the volatility of securities markets, the saved money is put in banks, short term treasuries, and money market funds that pay interest of less than 1%, while the government suggests that inflation is 1.5% or so. As in China, that government figure is generally viewed as significantly understated. There is a sense that the "recovery" is primarily benefitting big bankers, the already wealthy, the entitled elderly, major industrial companies, and Obama's pet projects like green energy and nutrition education that offer new jobs way off in the future, as well as simply subsidizing state and local municipal unions with outsized pensions and rigid work rules. The middle class continues to fall behind but some modest economic growth of 2% is still claimed by government statistics.

I could debate some of these beliefs but that is not the point of the post. It's just pointing out the similarities of two articles that one may not have expected.

Befuddled and frustrated

2011-10-09T12:19:00.002-04:00

Those are the words that have kept me wondering what to write in recent days.

Last night while reading Andrea Camilleri's most recent novel I came upon the following:

"Ingrid's husband was a ne'er do well, so it was only logical that he should turn to politics. The inspector recalled a popular saying from his childhood, which an uncle of his used to repeat: "If you've got no art or trade, in politics you'll make the grade".

Of course that does not apply to all of our "dedicated" public servants, but the phrase appealed to me.

The stalled trade agreements

2011-09-30T09:23:00.003-04:00

In one of his many economic commentaries in recent weeks, President Obama mentioned the employment benefits of new trade agreements with South Korea, Columbia, and Panama.

They all sit unsubmitted on his desk. It is estimated that the agreement with South Korea alone could lead to over $10 billion in new exports for the U.S., and these are industrial jobs, infrastructure development jobs, and upscale consulting jobs. A Columbia agreement could create over $1 billion in new export revenue of like kind. Panama, who knows, golf course mowers for our military that hides there in riskless jobs and expats who enjoy a better life than here in this heavily taxed and harried country.

All of this sits on Obama's desk because he refuses to break any actions into pieces that can be digested by the House of Representatives. In this case it is a job retraining stipend that he will not allow to be voted on separately. Most of the jobs that this is associated with are call center jobs which have nothing to do with the kind of higher paying productive jobs that could be produced by the trade agreements.

Job retraining expenditures are a laudable concept, but let's face it. With 99 weeks of unemployment insurance, with the housing "depression" that prevents mobility, and I use quotes because that's exactly what it is, and with the many lame bureaucrats that run these job retraining programs, they produce little benefit.

One could wonder whether Barack Obama and Michelle Obama's minds are focused on only personal bias, or political positioning, or wonder upon wonders the actual benefit to the public and job creation.

There are aspects of Obama's administration that I admire, but this roadblock to new good jobs is not one of them. His open lie about supporting these initiatives is just awful. He should get on with it, submit the proposals, and then let the House of Representative which was elected by U.S. citizens decide on the next step. In the interim, good jobs will be created, exports will expand, and he will have lived up to his word.

Florida's Republican straw poll - Cain makes his mark

2011-09-25T10:46:00.002-04:00

Straw polls in primary states are mostly meaningless exercises with relatively small groups of voters with individual agendas. Rarely, however, has there been a surprise like yesterday's resounding win by Herman Cain.

He is certainly considered a fringe candidate. He is politely ignored by the other panelists in the debates. Yet he has ideas, a well timed sense of humor that shows a real personality, and he is the only candidate to advocate a complete overhaul of the tax code and not haircuts around the edges.

His double digit trouncing of Perry and Romney, combined with Bachman's 1% support, was a laughable treat, short lived with almost no doubt, but still some welcome unpredictable news. So much of today's politics seems scripted sentence by sentence, quip by quip, and this certainly broke that mold for at least one day.

Is any follow up possible, or was this more of an indication that these straw poll voters are not enamored by any of the "media anointed" candidates. At least Cain will not be edged out of the debates anytime soon.

The fragile side of globalization

2011-09-24T13:22:00.006-04:00

Look at the parallels between today and 2007.

In 2007 it was generally accepted knowlege that approximately $2 billion of sub-prime mortgage loans were in serious trouble. That was alarming, but $2 billion was only a fraction of the overall mortgage market. It looked like some companies and investors would take some hits, but nothing was viewed as calamatous.

What wasn't generally known was that credit default swaps of 60 times that amount had been written against the securitizations holding these trash mortgages. The concern mounted and moved into the so-called Alt-A mortgage market, a step above sub-prime. Then the construction market stalled, new buyers vanished, new financings stopped, and much of the prime mortgage market became suspect as well.

Mortgage securitizations that had been sold broadly, to everyone from supposedly sophisticated global institutions to clueless U.S. retail investors, became toxic and subject to the attacks of the bond vultures. Employment suffered, consumers pulled back, Lehman, Bear, and Wamu were overexposed and collapsed, and without the uninformed largesse of Wachovia and Bank of America, Golden West and Countrywide would have gone down as well. Global credit markets nearly froze up, and a serious recession was underway.

The point is that what looked like a small containable event at the outset ballooned into a massive economic disaster from which no one can say that we have even yet recovered from.

Looking at today, in 2010 it became apparent that a small country of seaside resorts and historical monuments had debts beyond its capacity to repay. Greece has almost no real industry other than tourism, olive oil, a large shipping industry that has much of its wealth offshore, and goods that are mainly for domestic tastes and consumption like ouzo and retsina. The country also has a tradition of tax evasion, patronage, and restrictive work rules that would be viewed as corruption in many countries but is almost a source of pride there. It's part of the culture.

Due to its inclusion in Euroland the country was able to issue debt in amounts that would never have been possible had the drachma still been its currency. And almost amazingly, many banks and institutions did not look through the facade of the Euro and funded huge amounts of debt to support Greek profligacy.

But as in 2007, this is one small country in a prosperous Europe. With some work, shouldn't it be containable. And as in 2007-2008, the answer is no. With one crack in the wall, little Iceland imploded, Irish banks were unmasked as completely irresponsible real estate lenders, seemingly viable Portugal became a bond vulture target, and even Spain and Italy, real important members of Euroland, are now under pressure.

Having a region as important as Europe under financial stress has impacted the rest of the world. Brazil growth retracted 27% in the most recent period, India's growth is slowing, and China is under pressure on several fronts being lower exports and more pressure by workers for better treatment and wages.

U.S. commentators constantly mention Europe as the drag on our economy, but any idiot knows that is only one piece of the puzzle. Political gridlock could be a polite term to describe the approach of Congress to unemployment and economic slowdown, and an insular xenophobic idiocy could be another way of saying it. The U.S. Congress is incapable, mentally and culturally, of looking constructively beyond its borders. They seem to be blind to the fact that the political dysfunction in the world's largest economy undermines confidence in the rest of the world.

So for now, little wonderfully attractive tourist destination Greece, a small fraction of the global economy, has set in motion a chain reaction of events that threaten a global recession. In 2007 it was a minor subset of the U.S. mortgage market that did the trick. In 2011 we are retracing the momentum of a seemingly small problem becoming a global phenomenom.

We can only hope that lessons learned from 2008 and 2009 are somehow remembered despite the challenges in Europe and the rigidity of U.S. politics such that a collapse of liquidity is avoided and potentially viable countries don't lose any sense of political control.

What's the bright side of all this. Every day brings interesting news. Watching investments eliminates too much watching television or reading crime novels. Wealth is being diminished and portfolio allocations are changing automatically. It's an unnerving time, but maybe for those with balanced portfolios and some savings it's a time to appreciate what we do have - and of course look for opportunities that become absurdly oversold.

Apotheker must be out at HP

2011-09-22T14:07:00.002-04:00

We learned in recent days that CEO Leo Apotheker was hired sight unseen by much of the Hewlett-Packard board. We know that he has no sense of how to communicate to the investment community, which may be ok in Germany but does not work here. His radical ideas for the company may or may not be prescient, but he convinces neither his employees nor investors. He's out, a terrible choice for which board heads should be chopped as well.

Hewlett-Packard is a stand out brand, their damn toner sales could sustain them, and with a capable CEO they could attract the talent to revive their already substantial p/c division.

Fire Apotheker immediately, and the risk/reward on this beaten down stock may not be so bad.

An idea

2011-09-10T17:42:00.002-04:00

Of course what I am saying is that what I have been writing has been proven right. Obama is a nice guy who knows nothing about finanical markets, does not listen to advisors who do, and acts on long held resentments. We do need nice guys, but the extreme right wing is on a tear.

My suggestion --- Jamie Dimon should run against Obama for the Democratic nomination. His advantage is that he is smart and understands economics and that he did not come from a rich background. His obvious disadvantage is that he made money on so called Wall Street.

Obama's job plan

2011-09-08T21:30:00.003-04:00

Short thoughts -- too much information from the President:

His Start -- reflecting on a long gone jobs era where companies guaranteed life security and pensions like in Danville at the lost textile mill(modest golf course that had a guy that beat Jack Nicklaus at the Tour of Champions event in a playoff and came in #2 at the Masters) or playing myself in Dayton at Armco's exceptional course( where as a banker I helped them stay on life support as we joked and drank our way around their beautiful surroundings) until they could no longer function or compete or manage, well Obama's reflection back to that era was just stupid. The CEO's at those companies still lived liked kings because everything had not been inflated. Looking back at those days was such a toss by Obama to labor. He didn't mention the many companies thrived in that era, but I thought of what a modest life my family lived by any means with my father being a corporate accountant at the Danville mill. It was fine, but that's not the current marketing life of America or the globe. We should all be vastly prosperous as we watch our televisions or dig into our computers. It will never happen.

My family did not just live a grand life, and that's false understanding from the start. A sandwich was two slices of white bread, mustard on one side, mayo on the other, a slice of bologna in the middle, that was lunch. For all I knew it was a great life. What was there was not bad, sports, neighbors, friends, but it was it was many good trade offs for one week vacation one year, two the next, one the next, and never more. Obama harks back to a life that did not exist. We, many of my friends and I, worked and tried to get good grades, have a decent time, make friends and eventually found jobs. That's the only deal now, Jobs.

Other than initially harkening back to a time that really did not exist, Obama tried to be creative and positive but did not say too much of substance. If he can't break all of this into smaller possible passable actions that the Congress and even me can understand, nothing will happen. It was noticeable that Boehner rarely stood or clapped even if part of constituency did.

There were mentions of the tax code, small business, school vouchers, infrastucture projects, all good stuff, BUT THIS NEEDS TO BE BROKEN UP INTO PIECES OF LEGISLATION THAT IS NOT BUNDLED INTO ONE REGULATORY MANDATE. This could be done if the President cared about it in any real way. In a bundle it will not pass, in pieces maybe it can!

Only other observation at this point was that in the first two thirds or so of the presentation the President said "we" and in the last part he said only "I".

The Republican "debate"

2011-09-08T16:37:00.007-04:00

Last night I watched one of these, the first that I had seen. All of the commentators have had their say, but some of what is said here may not have been said, regardless of its merit. I had never seen Perry but generally found him to be alternatively repulsive and resilient, purposefully ignorant, and completely capable of winning the Republican primary.

The one thing that I missed in all of the media commentary was the most appalling event of the evening. When Perry was asked about the 234 executions under his reign as governor of Texas, the audience applauded more loudly than at anytime during the droning one hour and forty five minutes, even before he responded. When he did respond that he never missed a minute of sleep about this, the applause was resounding. Who are these people. Who is this man. Who are these Americans?

A month ago in Costco I saw a pile of paperbacks of John Grisham's "The Confession" on sale at $5.59. Grisham is a good story teller but it had been at least 15 years since I had read one of his books, even on airplanes. This one had the same one dimensional characters but was, as the Washington Post said, "a superb work of social criticism in the literary troublemaker tradition of Upton Sinclair".

To revert to what may be book review cliche, it is a "compelling and scathing" tale of the Texas judicial, penal, and execution system. It is fiction, but it is a well researched book and Grisham is no off the wall leftie. Read it, skim it, whatever, and you will have some idea of what Perry is proud of and what this ignorant audience applauded. I can't imagine that Nancy Reagan felt comfortable there, and she was only pressured to be present to respect the honor to her husband. She certainly did not look pleased to be part of this group. Maybe it's just age or grief that I saw, but her work in the total anti-tea party stem cell research area over recent years would certainly not put her in that camp.

Short comments:
---I like Huntsman
---Paul was as predicted but interesting, and his comment that "putting up a barbed wire fence and machine gunning people who tried to cross is un-American" was refreshing, despite his other Monty Python like beliefs.
---Cain has no chance of course but said a few interesting things. His 999 plan for taxation may be unfair and unworkable, but it had some radically interesing aspects if reworked and further explained. I had never heard of it. But the real true thing he said about the taxation system is "that we can no longer work around the edges". It needs wholesale change.
---Gringich was a clown and enjoys the role, but makes some good points when he is not showcasing himself.
---Bachman is a phony as a politician, to the right of Genghis Khan, but may be a wonderful person otherwise. She is certainly more credible than Palin if we would ever need to get into comparing women candidates.
---I don't know if Romney can ever overcome his sort of perceived "elitist" evasive presentation style. As said by a few, the word "elitist" once had some connection to being smart but now to many Americans it is just a curse word. My opinion, he should be the "Democrat" opposing Obama. Switch parties, and get out of these crazy people who in the South will be spooked, word intended, by the "Mormon" phrase. Let Huntsman take on that burden and see if Perry just self-combusts himself with his comments on Social Security, legal killing, complete isolation imprisonment for years before any judgement, and his extreme denial of any responsibility for the health care and education and feeding of the poor within his juridiction, much less his complete lack of knowledge on global issues.

Given the repeated applause at the execution rate comments, I am completely disheartened. Maybe Ron Paul is right. Don't let those fences go up because they may be used to keep us in.

Obama's huge challenge tomorrow evening

2011-09-07T17:18:00.002-04:00

Notwithstanding my Friday post, every word of which was meant with the exception of one embarrassing misspelling that has since been corrected and I hope that no one noticed, it must be acknowledged that Obama has a challenging mission tomorrow. Does he dare cut spending in an economy under pressure. Does he dare raise spending on programs that will make no difference and just perpetuate the current state, fingers crossed that more support of state shortfalls and ineffective housing programs will buy enough time for the economy to revive. Could he even think of raising taxes without creating a poltical brouhaha.

Tax reform broadly and public/private infrastructure projects are nice ideas but are not overnight or even one year solutions. Those words still might be nice to hear.

My biggest fear is that he will direct the majority of his comments to partisan words and finger pointing, that he will use this speech as a political platform. The majority of Americans might even like to hear him take this approach, but the majority of Americans don't move the stock markets and make major capital investments. Without a better market environment, nothing will improve. I am not even sure that he understands this and what alienating the people, like 'em or not, who make investment decisions of any magnitude could cause.

It not an easy speech to make, maybe having as much danger as opportunity.

Obama loses all credibility

2011-09-02T11:02:00.004-04:00

The news that the federal agency that oversees Freddie and Fannie will sue all of the major banks is a travesty with huge implications. Fannie and Freddie were run by a Congressional committee and dictated their mandate by the Clinton and Bush administations. Strong financial institutions are fundamental to any recovery. Obama seems to want crisis as he and his family try to emulate a Kennedy life, vacations, vacuous words, and simulation of a vibrant spirit. He sees his 2012 chance as an opportunity to provide no choice. Crisis and blame, and economic damage --- the Boeing plant in South Carolina, the ATT/TMoblile block, these are political moves to secure his election in 2012 and are insuring a weak economy.

If only there were a Democrat who would challenge him. If only there was a Republican who wasn't an obvious jerk. Huntsman is the only exception and he appears to have no chance.

Power back on, mental health recovering

2011-09-01T15:02:00.002-04:00

Finally last night our power was restored. Resetting timed devices is still underway. Sprinkler system is on for no reason, but no harm done as we are allowed to water on the odd days, like the first.

Five days without power was no treat. I went into Manhattan several days to eat fresh food and read in cool places, but that's not the safest way for me to live. Worked out ok, perhaps. Bought too much good take out food than was prudent, took it home and didn't always make the right choices, so some spoiled and my good intentions were ridiculed. What's new.

The financial markets did what they were going to do without me, and tomorrow looks like a mess. At least I can now watch the carnage.

All things said, everyone is safe, all trees are intact, the house is fine, and our favorite take out places are back open - not a bad outcome given some of what happened around us!

Goodnight Irene

2011-08-27T23:14:00.002-04:00

"Sometimes I take a great notion to jump in a river and drown" sang Huddie Ledbetter in either an original or traditional ballad many years ago. Ken Kesey took note of Leadbelly's lyrics. Both nature and ourselves can be unpredicable.

By sheer coincidence I just last month had all of my trees trimmed, dead limbs out, and house overhangs removed. Of course that's no guarantee, but I can say goodnight Irene with the confidence that I did what I could.

I hope that all is well with any of you in Irene's path, and the power stays on. Hot beer and cold beans are not a desired diet.

Market in decline, positives, if any, and negatives

2011-08-25T17:28:00.010-04:00

What was a rebounding market from March 2009 is now rivisiting the late 2008 and early 2009 crisis. It is more complicated than expected. Structural unemployment is endemic due to both technology advancement and to a lesser extent employment benefit fraud - do we need a real war like in 1941 to get people off their couches and into new locations to make money, me included maybe.

There are some positives that are obvious now that should not be overlooked:

---there are very few ways to get a return on money. Stocks, especially reliable dividend stocks, are a clear answer. Abandoning these opportunities in favor of treasuries is not a phenomenon that is long lasting. With recent market action, dividend yield on some great lasting companies are compelling.

---CNBC and other full time media market outlets go with the scare, and have had every known extreme bear highlighted in the past two weeks. Retail has been inundated with the negative. There is, hopefully from this point of view, just pure panic selling. Institutions pick and choose carefully the postions they reduce but overall they hold tight to their diversification mandates. Hedge funds are a question mark.

---Large U.S. corporates, with the exception of some exceptionally strong notable standouts, are generally in good shape with more than ample cash and strong capital positions. With the withering of the middle class and an uncertain regulatory and tax environment they are standing still. The absurd theatrics of the debt ceiling charade ruined any confidence in near term expansion.

---Every savvy investor knows that the rating agencies are second rate players in the capital markets. Unfortunately they are built into some credit agreements as functional components, at least for now and especially in Europe.

If those are the positives, they mostly affect the U.S. equity market's possibility for some revival in the next few months. The financials need to revive, and the viable consumer, now hurt by equity market contraction, needs to step back in. It's possible. Months move like years in the past.

The negatives are sort of daunting.

---U.S unemployment rates are not going away. Under-employment rates are not even counted in these numbers. While off the books work is vibrant, they do not include social security, health benefits, or any job security. The equity market does not necessarly need strong employment for growth, but with an equity market collapse and loss of consumer confidence the consumer spending that was compensating for the unemployment will decline, and that will slow growth and corporate earnings.

---Uncertainty about taxation and regulatory issues on all fronts is especially damaging to small business growth outside of the technology area. Inheritance tax uncertainty is a big issue rarely mentioned, but a really big issue for small business. Why grow to give gains to the government.

---Europe is a mess. Relatively responsible northern Europe, relative even to the U.S. by leaps and bounds, is willing to deal with chronically corrupt Greece and relatively poor Portugal, and they will somehow deal with their English speaking Irish counterparts who supported business development but mimicked the U.S. in their housing bubble, more so with foundling banks who build towers of towheads. The big question is whether German, French, and Dutch voters will form their own "tea party type groups" and reject support of the profligates in the Euro system. Italy and Spain should by any measure remain solvent but the bond vultures may try to take them down anyway, complicating everything and leading to a definite credit freeze up.

---Back in the good old U.S.A., states and municipalites are being forced to either downsize workers and avoid new hires in a way that offsets whatever headway the private sector is making. Longer term, this may be a good thing as municipal worker's collusion with corrupt politicans had led to a system where union dominated workers with limited schdules, significant overtime, and non-market rate pensions related to limited years of service could be called absurd. At the moment, however, these promises must be kept and workers are being reduced. Don't get me wrong, there are plenty of public servants who don't benefit from these mainly urban union contracts and are real mainstays, even heroes, in many communities. Many are even voluteers who with a little insurance, lunch meat, and a ping pong table may risk their health or even their lives for their communities.

As for me, I do believe we can get through all of this with a revival of business, a hiatus of business and banking bashing by the President and his administration, a development of Republican and Demcratic center groups of America and not a politics first mentality. That seems like a long shot now, but if things get worse...

Jackson Hole tomorrow. The Germans must laugh at that name. No real news expected here, because the concept of raising interest rates is off the table. That's the only real solution. Banks will not lend at any rate with such regulatory uncertainty and Congressional dysfunction. High yield debt is at a standsill. Small caps have no options except at the smallest community banks, many being closed by the FDIC.

Raising rates would rewards savers, i.e. retirees who saved their entire life, and would incent housing buyers and car buyers before there are any further increases. This is not 1937 and all historic comparisions are not the same. We don't want a war, we want a recovery.

Solid start, some promising revivals, but then the loss of key players and a slow decline by a still solid team with a hard working but inexperienced manager. With the exception of the manager, it sounds like my Long Island Mets.

The Rating Industry collapse into what should be obscurity

2011-08-20T23:26:00.006-04:00

This happened in 2008 and 2009. A probably known writer to a recent ENS post asked "how the rating agencies could have believed that if you bundled high risk mortgage loans the bundle then would become AAA." My brief answer was that rating agencies drank the kool aid like most of the market, they were greedy and happy, and in fact rating agencies are mostly financial clerks who were not capable enough or aggressive enough to be hired at leading Wall Street firms. Decisions were made by a few at the top whose compensation benefitted.

There is more to the story that goes a few years back. It's built around a belief that diversification and a belief in satisfying investor preference in order to more efficiently distribute loan originations by the big banks was a good idea. A couple of JPMorgan folks, Demchek and Masters I think, came up with the idea. Instead of just offloading originations in bulk to correspondants in need they organized loan originations into diversified tranches, such that investment managers could both diversify their risk and choose their risk profile(even conservative loan and bond funds wanted some sliver of higher yield and higher risk components to their portfolio to diffentiate their returns).

So while at the time not subject to ratings, these loan baskets functioned well for the most part, especially for the distributors. Fund managers could load up on high rated securities and then dabble in highly diversified lower rated, or high yield, securities to augment their returns.

It was really a remarkable idea for the syndicated loan market.

The concept then migrated to the rated securities markets with some mixed results but so much of the high tech bubble was financed with private equity that there was not a significant warning sign in the early 2000's.

But then the tranche security market hit the mortgage market, and worked well in the early years. There were the 20% payers in the top tranche, then the so-called Alt-A's, then the real sub-primes, then the immigrant cash no-docs, and finally the PICS, meaning no pay but just add to principle. This was a perverse interpretation of the original concept of loan diversification.

It somehow worked for the rating agencies as housing prices soared and the agency financial clerks took notes.

Then the entire market imploded and all mortgage securities became illiquid to some degree, regardless of tranche heirarchy. Lesser tranches collapsed and went into foreclosure meaning loss of principle and interest. Servicing firms were overwhelmed and completley understaffed and under managed for the debacle.

An initial constructive idea for the loan market in the late '90's became perverted almost beyond belief, and a complete absense of a look at the macro environment created a cataclysm of losses for the financial system from which we will not recover for at least three more years.

That's my long answer, JR, to your ENS question. My answer may be flawed and simplistic to real market professionals in many ways, but there are grains of truth here that would never be found in the NYT or WPost, just in my opinion.

The really frighening thought is that we are once again focusing on the mechanics of financial solutions and not a macro picture. How can a mediterranean beach resort, olive oil producer, and country of super rich and hyper corrupt tanker owners destroy Europe. How many Americans have seen most of prosperous Europe's infrastucture which makes the U.S. look like some quait relic of the 1960's. How can an infantile politial squapple in this country derail the world?

As in 2008, the macro environment seems to be lost on the populace of the world's most prosperous country with ultimately the most potential to be a leader. We need an answer, and a new awareness. We need a global look at the world's potential and a return to the optimism as expressed in the ENS post of July 30th on the absurdity of a balanced budget amendment to the Constitution.

We may need some divine help, but self proclaimers are always charlatans.

This is not a defense of the rating agencies folly but merely a chronology of how Wall Street and the agencies perverted what was once a sound idea.

OR ...

2011-08-18T18:38:00.007-04:00

As a follow up to the prior post, the or ... is it that we are entering a global recession. This will not be a Lehman based debacle or sub-prime mess. The word recesssion may not be adequate. Austerity everywhere will crush growth.

This should not happen. Corporations around the world are generally performing adequately if not quite well. Many balance sheets are loaded with cash. Unfortunately cash at the moment has no value except to be used to crowd the world with more organic expansion or to play pacman in a merger frenzy. This will lead to more efficiency perhaps, but also more concentration of wealth, more decimation of small business, and more pruning of workforces. Eventually these mega-corporates will have the power to make many products with the best of technology but unfortunately few buyers as the middle class disappears.

This may sound like science fiction, like some Kurt Vonnegut ironic nightmare. The resilience of ordinary human endeavor would be limited to communities of survival while titans ruled. Compliant politicians and corporate lackeys may benefit but the system as we know it can be changed, and would be even more of a shadow of democracy than it already is.

Gloomy stuff, but worth thinking about.

Volatility or ...

2011-08-18T17:58:00.007-04:00

Is volatility an indicator of a leaderless society?

Recent radical volatility in financial markets, in political opinions, and maybe even in personal lives is not a healthy sign. How obvious is that statement.

It is a sign of no confidence. In a way it's a throwing in the towel by the general popualace. In a more sinister way it's perhaps a subconcious but still real manipulation of both finanical markets and political outcomes by an extremely privileged few for extracting ever more financial gains and political power.

This is the outcome of a vacuum of real political leadership, the kind of leadership that stands for principle and not solely self preservation and attention seeking. There's the Sarkozy Merkel tandem. Have co-CEO's ever worked. There's Obama's worthy and well worded but empty platitudes that leave nothing to grasp the imagination. There is a U.S. Congress that seems oblivious to the world scene. There's a reeling Japan. There's a United Kingdom doing its best to keep its own house in check and paying no attention to the global situation. And then there's the behemoth China, awash in funds with the U.S. still the haven and deathly afraid of political upheavel in their own country that makes economic distresss in the U.S. and elsewhere seem paltry.

Maybe some leaders in New Zealand, Switzerland, or Andorra make some sense but who knows and who cares. And only Michelle Bachman sees herself as having been anointed by God.

We can take it day by day and do our best to help ourselves and those around us. No leadership from traditional real powers seems to be forthcoming. No leader or leaders seem capable of galvanizing support for solutions. This is not only a concern. It could open the door to something more dangerous.

"It's not the heat, it's the stupidity"

2011-08-04T10:32:00.001-04:00

The title is an ongoing quote from reporters covering the debt ceiling debate over the past few weeks in 100 degree swamp built Washington heat.

Moody's moody incompetence still reigns

2011-08-03T16:05:00.002-04:00

It is baffling that the major rating agencies still are seen as being relevant. More than that they have once again become fundamental to the media and generic investors. These same agencies were thoroughly discredited during the '08/'09 financial crisis, yet they live on.

European countries seem to be hanging on these agencies every pronouncement. Having been stung by their incompetence in judging mortgage securities, the agencies are hyper-conservative, judging every sovereign in the shortest term possible and overlooking the residual strength of some major economies, notably Italy and Spain. They have reflexively become tools of the credit default swap market, and the bond vultures have the same backing that the sub-prime mortgage securities issuers had until 2008.

In the corporate market they have become provocative as well, in a completely destructive manner. Today Moody's put JPMorgan Chase and Bank of New York Mellon on negative watch for a ratings downgrade. These are two of the strongest capitalized as well as most profitible banking concerns in the U.S. The reason - since they received TARP money they are dependent on the U.S. government to avoid a default. That both banks were pressured to take TARP money and paid it back promptly is not stated.

Moody's, S&P, and Fitch are now in a race to see who can be the most defensive and the most sanguine in terms of short term events. Is that what rating agencies are for? Is the short term what there focus should be? That was never their mandate, but now it is their m.o.

In the 80's, 90's, and into 2003, when I was aware of these firms and had slight interactions, they were never viewed, even remotely, as having especially sharp people on the ratings side. Bizarrely, SEC rules lets rating agencies come into firms and receive confidential information that regular securities analysts have no access to, as if they are somehow the Fort Knox of corporate secrets. Companies just hand over their analysis to these folks, and the "analysts" type it up, and some senior person makes decisions. It's not much in the way of real research.

To digress further, I once worked on a banking team with a fellow business school graduate who dressed better than any of us and certainly looked the part. Unfortunately he just sat at this desk like a deer in headlights. He could not produce any work, and he could not communicate about anything other than social events. He was fired for good reason. His next stop, it was Moody's as an energy analyst. For some years he was successful there as they obviously just needed suits to fill places. I don't think that institutions change their cultures at anything other than a glacial pace unless they are shaken up by mergers or radical management change. My guess it that the Moody's that I knew is the same lightweight place with a few senior managers calling the shots to save the franchise.

One could say that these firms should have gone down with WAMU, Bear, Lehman, and Countrywide. Somehow they live on, and they are complicit now in undermining market confidence and any hints of optimism.

Economy weakens in wake of two months of political chaos

2011-08-02T22:03:00.003-04:00

With Treasuries a safe haven again and more data that shows continued weakening of the economy, stocks continued their sell-off today with an afternoon collapse. Did the politicians think that they could terrorize the financial markets for two months and then, with a mangled compromise, step out into the cheers of an appreciative nation and adoring investors?

During the final month or more of this embarrassing display of bipartisan political petulance, businesses have been on hold. Hiring slowed generally, or stopped in small businesses, and new investment and borrowing decisions were put on hold as the coming state of the credit markets became more and more opaque. M&A activity presented a facade of real financial market activity and benefits for some stockholders, investment bankers, and private equity firms, but one must remember that M&A activity is often about cutting overlapping functions or, in other words, eliminating jobs.

Recovering from this slowdown in most productive business activity, otherwise known as growth, will not come overnight. There is now still the nagging issue of the rating agencies and how they view U.S. Treasury obligations. There is the overhang now of where $1.2 trillion in future committed spending cuts will from and how that will impact the consumer. There are foreign trade deals still held hostage and a $1 billion Boeing plant in South Carolina idled. There are state governments which fear, with good reason, reductions in Federal outlays that had been expected.

As the debt ceiling and budget balancing discussion dominated Congress, progress on other fronts stopped. At a time when the U.S. Congress could have set a positive example to other countries, especially at the moment European ones, it demonstrated almost unprecedented dysfunction.

There is now, I would guess, a 50% chance that we will be back in a recession by January. I sure hope not.

Akamai collapse continues

2011-07-30T11:49:00.002-04:00

My apologies to anyone who listened to me.

On May 17th there was a post here, "Akamai, a jewel on sale", that suggested Akamai as an undervalued stock that was ripe for acquisition. The stock was at around $30 then. After yesterday it is at $24, about half of what it was 9 months ago. What a disaster for any short term investor.

For long term investors that have already been rewarded well over the years the dilemma now is whether to just give up and take leftover gains or hang in there. Akamai remains a cash rich mid-cap tech company with no debt. It now trades at just a 14x forward p/e. 20% of all internet traffic flows through its servers. What has happened, however, is that it is no longer seen as a high growth company.

The competitive landscape has changed, the cloud competitors have taken a slice of the high valued added and high margin business, and Akamai's core business is becoming a commodity subject to pricing competition and compressed margins.

Accepting that, Akamai is still growing earnings and revenues in the double digits. It has a global franchise. It's services are still essential. What one can't really know as an investor outside of the narrow world of this tech space is whether their MIT related algorithym prowess has in some way diminished. Are they cutting edge or are they institutionalized now.

Whatever the answer, they are more than ever an acquisition target for some cash rich large firm, but now the question is at what price?

I am mulling over my next move, which is muddied by the debt ceiling political dysfunction. Who really knows the price of anything until this political impasse, this suicide attempt, is resolved.

Balanced Budget amendment would be un-American

2011-07-30T11:18:00.002-04:00

The balanced budget amendment that is gaining currency among certain groups of Republicans is just plain stupid.

The United States obviously has a debt issue that needs to be addressed over a time frame that allows for thoughtful solutions. Notably, we need to end our massive and hopeless police actions in Iraq and Afghanistan and, while staying involved, be an advisor and supplemental enforcement resource rather than a significant armed force that deepens anti-Western resentment. Beyond that, there are solutions that will be related to the tax code, entitlement programs, and the long term purpose of our military, among others issues. Ultimately, however, the way out of this dilemma is GROWTH.

A growing economy will result in more tax revenues and a more self-reliant population. To get there, there is a need to invest in education and infrastructure and a need to embrace all people who can contribute to our prosperity, regardless of gender, race, or national origin.

A balanced budget would preclude the investment needed to nurture growth. Growth is fundamental to the American spirit of optimism. This optimism had been part of our DNA since 1776 and now the misnamed tea party wants to reject that part of our country's genetic code. Any business with opportunities knows that an option to support potential growth is to borrow. Any family knows that, to grow opportunity for family members, borrowing for needs that extend into the long term, prudently done, is essential. That's because the businesses and the families are optimistic. They believe that through work and consistency there is opportunity ahead.

The budget needs to be brought into a better balance. An actual balanced budget would forego opportunities for the future at a time when investors are willing to throw money at us for amazingly low interest costs. How stupid is this idea? We need to invest for growth and this can only be partially self-funded through immediate cuts.

The tea party ideas are simply our of sync with the best of the American tradition. Perhaps education spending is already doomed to be coming too late. What time is Dancing With The Stars on?

Picard hoisted on own petard

2011-07-29T06:03:00.004-04:00

Who is Irving Picard and why is he out of control? The Madoff trustee, who has filed over 1000 lawsuits seeking to obtain over $100 billion in judgements(total Madoff losses for investors were reported to be $65 billion but most of that was not principle, just fake profits), is finally being held accountable by the legal system that he has been abusing.

No matter how obvious this abuse was, the media never questioned anything and any "villain" that Picard attacked and sued was viewed as likely to be culpable, especially since they were finanicial companies(see Gretchen Morgensen). Yesterday the U.S. District Court in Manhattan threw out Picard's suit against HSBC and confirmed that this precedent would apply to all other similar suits as well.

Picard's suits were against firms that served a back office operating function for Madoff and his investors. There was no legal precedent for his suits and plenty of precedent for the bank's innocence(as a simple example, if someone has a bank account at Wells Fargo and then writes some checks to do something illegal, say buy some cocaine for resell, is Wells Fargo now guilty of illegal drug dealing? No.) In the case that I am familiar with, Picard, on behalf of Madoff victims, sued JPMorgan Chase for $6 billion, over $5 billion of which was punitive damages. In a legal sense this was a "hail Mary", but in a PR sense the media gobbled it up with no questions asked.

All of those abusive and irresponsible suits are now tossed. Thank goodness for a dose of sanity in this world for once.

On top of that it was reported separately today that the General Accounting Office, at the direction of Congress, has opened an investigation into Picard and his huge "claims" against investors with clawback provisions. They will also investigate Picard's selection for this role, his compensation, and his expenses in being trustee. This is long overdue.

Madoff investors have already been provided unprecedented tax relief by the IRS. Picard was on a path to compensate investors for every penny of false profits that they blindly accepted(and many of these investors were not stupid people) plus some.

Finally Picard's actions are being examined.

Economic anarchism at work

2011-07-27T16:45:00.002-04:00

McConnell and Boehner's two and a half year non-cooperation approach against anything Obama has now backfired on them as they try to bring the Tea Pary contingent under their umbrella. Despite their consistent intransigence, those two leaders were essentially classic Republican supporters of business, the wealthy, and a view that an unfettered market economy eventually cures all. Their Tea Party brethren have no such allegiances and no certain belief, or at least it seems that way.

The funny thing is, is funny the right word today, that the constituency, as in voters, that elected these Tea Party demons has no clear point of view. Who are Tea Party voters?

There are for sure some scorched earth libertarians like Ron Paul, types of intellectuals that are certainly not commonplace. There are wealthy right wingers who simply want no part of government, and see no function of government in contributing to a fair or humane society, but they are not so many as to be able to elect someone. They can contribute plenty of money of course.

There needs of course to be a significant critical mass of tea party voters that will scare the Republican status quo and that will elect politicians that will cater to their resentments and fears. Have you ever met a real Tea Party voter. I've only known one and randomly had contact with a few others.

The one that I have known(and I will blur this to conceal identity) detests Obama as a starting point. He adores anything related to the military. He receives disability payments for some supposed back injury although the off the books job that he does certainly couldn't be done by someone who was disabled. He only gets his health check-ups and health care at a veteran's hospital(he served in the military but never came within 3000 miles of combat). In other words, we have a person who wants to balance the budget, cut government spending, and thinks he deserves every possible benefit because the government owes it to him.

Does this make any sense?

From my sort of cloistered New York life that's my exposure, except for some brief conversations with crazy people in the library or at the local diner and having to listen to a rant by a young cab driver who must have been tweaking. I've talked to some friends, however, whose families or friends still run deep in southwest Virginia in one case and in the Long Island area in the other. They describe the same phenomenon of Tea Party obsessives who think they personally deserve every possible government entitlement and then some, then some since they manipulate the system to get as much as possible. Balance the budget, shut it down, give me mine, are these the citizens that have become the marginal voter and have scared the almost the entire Republican caucus into a belief in economic anarchy.

As painful as today's market performance was, at least maybe it will shake Boehner, McConnell, Cantor, and others down to their shorts, and if not the market then maybe their corporate donors will give them a ring.

Ikea's Swedwood faces union vote in Danville tomorrow

2011-07-26T05:21:00.002-04:00

From the Washington Post to the Daily Show, other major newspapers and international wire services, this vote to unionize has received an immense amount of attention. That's especially considering that it concerns just 325 workers in a small southside Virginia city.

Why is that. Ikea is a global company and that's a start. It's an unusual example of a foreign company being accused of abusive labor practices at a U.S. subsidiary, using the company to produce goods at a cost well below what they would do in their home country, as opposed to Nike in Indonesia or some such example. The Daily Show called Danville "Sweden's Mexico". It is also a rare instance of an attempt at unionizing in the generally union free South of this country.

From this perspective, the coverage has been easy to view as one-sided. If the abuses chronicled are institutionalized and not one-offs, there is a big problem and a union may be the answer. Only one person is ever quoted, it seems, in the articles and that is a Bill Street, who speaks for the workers who want to unionize and who one would think is from Danville if they didn't know more. He is professional union organizer from the big union, headquartered elsewhere. Ikea, however, is generally viewed as being a good employer and company elsewhere, so what went wrong and how pervasive is it?

I do know that while an average wage of $14 - $15 an hour for a manufacturing job, plus health benefits, sounds anemic in most places, in Danville that would be a coveted job in many families with few options in a city with a low cost of living and two decades of decreasing job opportunities. Ikea corporate of course defends its practices in general but is cooperating with the union election and apparently not interfering in any way.

Tomorrow's vote will tell us more than most of the news coverage. Regardless of the outcome, it is unclear whether this whole episode has any real benefit for Danville, a city that desperately needs to attract more companies and more entrepreneurs to the area if it is to enter a needed period of renewal.

Opposing views, depending on their responsibility

2011-07-22T15:48:00.004-04:00

While Virginia representive and House majority leader Eric Cantor is one of the most obstructionist of the Republican leaders on getting any deal done, a fellow Virginia Republican is taking a different stance.

No one would call Virginia Governor Bob McDonnell moderate in his views as a conservative. Yet he has written a letter to all members of Congress and President Obama stressing how damaging not raising the debt ceiling would be to state finances, and Virginia is one of the soundest states in terms of ratings and market access.

States build budgets around what they expect to receive from the Federal government. Rating agencies have models for states finances with those expectations.

So the difference in responsibility is clear. Cantor manages nothing. He is in Congress. He is an ambitious politician. McDonnell manages a state government with thousands of workers and with obligations to meet.

Maybe they should have a showdown in front of the Virginia State Capital, old style like Virginia gentlemen.

the aforementioned corn on the cob blog

2011-07-08T22:41:00.001-04:00

June 13, 2010, a little disturbing that I didn't realize that it was just a year ago that I was making this salad - oh well.

Eyes Not Sold search keywords

2011-07-08T17:37:00.003-04:00

On May 28th, this year, I posted a comment about my late realization that Google kept accessible data on their free blogspot service, and have done so since May 2009. There is country of origin data which I previously highlighted, but there is also URL data, usual suspects and not especially analyzable by me, Referring Sites led again by the usual - Google, eyesnotsold.blogspot.com, Yahoo, Facebook... and then there is Search Keywords top ten list.

For this blog eight of the top ten are more or less expected, John Borden at the top, five variations of eyesnotsold, two related to JPM, and then two more. One is not really a surprise and that is John McGillicuddy. A note here on his passing apparently is still read. He influenced so many people. The other top ten seach keyword is "what to do with leftover corn on the cob". I certainly wrote something about this, no idea when, but that seems to be my contribution to the food world. Nothing like my daughter Lynna and her thoughtful blog www.wholeytreats.blogspot.com, but somehow noticeable?

Changes

2011-07-06T16:40:00.001-04:00

Today I learned that the equivalent to the S&P 500 Index in Vietnam is named the Ho Chi Minh Stock Index. First a trail, then a city, and now the heart of a market economy.

It takes time, but maybe positive things can evolve without us.

Positive words from Liaquat Ahamad

2011-07-04T20:50:00.005-04:00

This weekend's Barron's has an interview with financial historian Liaquat Ahamad. The 58 year old Cambridge graduate's book, "Lords of Finance: The Bankers Who Broke the World", was a history of central banker's actions in the late 1920's and the 1930's that led to, and exacerbated, the Great Depression. It focused on the central bank heads of the U.S., Germany, France, and England.

The book is a compelling read, and won the Pulitizer Prize for History in 2010 and the Financial Times Best Business Book of the year in 2009. Ahamad, formerly of the World Bank and more recently an investment manager, had as his motivation for writing the book a realization that in current times as well, the late 1990's and the most recent years, who is in charge, the individual people, is crucially important.

The interview mostly reviews some of the key tenets of "Lords of Finance", but in the final parts moves to today. Of these times Ahamad says,

"If you take the whole group of people running the finanical system in 2007, 2008, and 2009 - particularly the trio of Fed Chairman Ben Bernanke, Treasury Secretary Timothy Geithner and his predecessor Hank Paulson - they were slow to appreciate the magnitude of the problem. But once they recognized it, they basically saved the world from a Great Depression. We should build statues to those guys."

The U.S. financial leadership team, in Ahamad's view, led the world away from the abyss. Second guessed frequently, often ridiculed by members of Congress, and always in a tough spotlight, they perservered and are not yet fully recognized, especially in this country, for what they accomplished.

Come on, it's July 4th, and we could stop and consider the necessary decisions that were made and what has been avoided, no matter how challenging the future seems to be. We could even go so far as to acknowledge the support of President's Bush and Obama. Their decisions created or complicated issues at times, but they certainly took some heat for ultimately supporting their Treasury secretaries and financial teams.

I can hear fireworks in the distance, I'm eating a bowl of watermelon, and I face no huge crowds or traffic jams. Maybe next year I'll head back to the East River for the fireworks, they are spectacular, but would the ordeal of getting back be worth it?

Watermelons are heavy

2011-07-02T18:49:00.002-04:00

Today I went into the city with a specific errand. That was to buy and take a watermelon to my invalid in-laws in their Chinatown apartment. Their caretakers are generally good, but bringing in a watermelon..?

The genesis of this idea was that for the last two years of my father's life he ate and loved his watermelon every morning. The local Food Lion store seemed to have it year round chopped up and in plastic containers. At first I just viewed it as a tasteful way for him to hydrate himself, but a few months ago in my Nutrition Action newsletter I learned that watermelon is an incredibly healthy melon, full of things that our body needs. Who would have thought? Maybe that was my father's successful every morning recovery mechanism, tasteful, and forget about Revive Vitamin Water.

My father in law can still eat foods that are not too dense, he always loved watermelon, and even though he no longer talks he does understand things and appreciates visits. So off I went this morning.

85 degrees and humid in New York is not like the same measure in other places. With all of the concrete, all of the 98.6 degree bodies, and all of the cars, taxis, and trucks, it is really serious sweaty hot weather. I took the subway down from Penn Station and walked over to East Broadway where the major vegetable and fruit stores are located. That's maybe three quarters of a mile from my in-laws apartment building. The seedless watermelons, best for him, were really big. The store triple bagged one and off I went.

Manhattan Chinatown is one crowded place, sidewalks packed more with locals than tourists, but certainly with both. I kept switching hands with this heavy item, trying to get around strolling locals, gawking tourists, and balky children, while still being polite. I had never appreciated either how heavy a big watermelon is or how age can diminish one's strength. By the time I arrived at their apartment the caretakers took one look at me and brought a role of paper towels for me to dry off with and turned up the air conditioning.

Hey, it was a success. I visited. I hope that the watermelon was good for all.

My day, as always in Manhattan, continued. I went to Big Wong on Mott Street and bought some ribs in black bean sauce over rice and some Singapore Chow Fun to take home. Then I walked up Mulberry and saw that despite it not being a Feast week in Little Italy the street was blocked off and festive. My wife's financial interest in 142 Mulberry seemed to be thriving, her almost no control of the situation notwithstanding(I could say so much more but even my disclaimer heading for this blog might not be good enough for the controlling "partner").

Next was buying some "Chinese broccoli" on the street at upper Mott still in the expanded Chinatown. This stuff is terrific, can't be bought at any regular supermarkets, and at $2.50 for two pounds is a bargain. Steamed with garlic, salt, olive oil, a little fennel, and a little fresh lemon juice at the finish, I can make this healthy food delicious. That said, my wife Kathy does it better.

Then it was up to McNally Jackson bookstore, as mentioned before the best independent bookstore in the city, and a few books picked up because they highlight literature that almost no else does, good stuff. On to Dhaba for a quick Indian buffet at Lex and 27th, not too much as the heat had muted my appetite for what can be heavy Indian food. I did simply take a long rest there over my rice pudding, reading and being cooled down by the a/c, enjoying the always cooled down music as well and the eclectic crowd.

Finally off to Penn Station, while walking Kathy called and reminded my that the trains were on the :19 on weekends, as in 3:19 and 4:19. It was 3:10 and I was not going to make it. I went into Szechwan Gourmet on 39th and had a second small lunch, hot and sour seafood soup and sauteed spinach with lots of garlic - enough left to bring some home(I'm almost 6'3 and rarely exceed 165 pounds, so if the least bit hungry my metabolism allows me to eat) --- that was not always the case when I was working all of my waking hours but that's another story.

So that was a good exhausting day that finished in a sort of amazing way. Going to my train in Penn Station I quickly grabbed a Barrons and handed over the 5 buck price and the Asian Indian proprietor wouldn't take it. I was confused. He explained that I had given him a 1953 silver certificate $5 bill that was worth at least $70 to collectors. How honest is that, beyond all reason really. I gave him a regular five, thanked him profusely, and made the 4:19.

I was in Manhattan yesterday as well doing errands and dealing with my broker on some transfer of mortgage backeds from MSSB to Fidelity that are being blocked. Morgan Stanley Smith Barney is such a poorly managed if not corrupt firm. What a pain, inherited from my father's completely hoodwinking preppie self serving broker who he adored.

Tomorrow I'm staying home, reading, writing, no rithmetic unless a bill or two gets paid, but Manhattan has gotten all of me in the last two days. I will rest.

The Mortgage Servicing Fiasco

2011-06-30T17:22:00.009-04:00

Back in the very early 1990's, a company that I worked for acquired a fairly obviously screwed up mortgage company that the business managers coveted, more for girth than quality it seemed to some(this comment may seem elitist to some but the CEO of the to be acquired company did not know how to hold silverware at dinner, had a caveman grip, and he treated women in his attitude and attempts at jokes, well, poorly is the polite word).

The investment banker and fairness opinion advisor for our company was Lehman. To no avail I called hq from their offices late on a night of prospectus editing a few days before closing and reported some of my serious concerns. Unheeded, but sympathetically understood by some, I got off of the phone and the Lehman securities analyst that covered the mortgage business laughed and said, "there are more ways to lose money in the mortgage business than there are ways to get shot in Beirut" (early 90's remember).

Here we are today and the banks are taking almost all of the blame - not the facilitating regulators, not those customers that were dishonest, not the Government Sponsored institutions like Freddie and Fannie that were mandated by Clinton, Frank, Cuomo and company to expand into subprime, and certainly not the brain trusts at Pimco and other exceptional firms that bought the securities that could have been researched thoroughly before investment. Just the evil banks it seems.

There are two major parts to the business. Origination is sourcing the loans through offices or brokers, with terms decided and evaluated by the originating bank. Countrywide, WAMU, Golden West, and a host of smaller players like the dead IndyMac, Taylor Bean, and others really stretched the imagination and at times legality on origination terms and a few of the bigger firms partially followed in order to compete.

Servicing is the other big aspect of the business. After origination, servicers manage the payment flows and enforce the terms of the mortgage agreement. It's a white collar clerical administrative function primarily, but with a substantive hedging capability needed, through derivatives, to protect the sourced loans from the time of the servicer's acquistion until they can be packaged and sold to investors. This deriviatives function allowed the Congressional oversight committee to pay Fannie and Freddie CEO's at levels only exceeded by Goldman Sachs, even though they were government sponsored and primarily back office functions.

The major origination culprits are well known but many are out of business. So now the deep pockets of the servicers are under attack. Servicing firms did make mistakes. They were in no way prepared for the collapse of the mortgage market in '08 and '09, as they, like almost everyone, considered the subprime issues to be a contained event, of concern but in the larger scheme of things a small part of the mortgage market. Credit default swaps were, at the time, the little known catalyst for the disaster that was coming.

Servicing firms or servicing divisions at major institutions were often run, at the top, by non-tech admin types, trusted colleagues of the CEO's and others who were expected to be able to bridge the gap between the techies and quants and the executive management, and explain in layman's terms what was going on the businesses. When the disaster happened, these managers did not have the skills to manage, and their executive bosses knew next to nothing about the intricacies of this back office function.

Bank of American(Countrywide) and Wachovia now Wells Fargo(Golden West) had made conscious, so to speak, decisions to acquire major poor originators, while JPMorgan(WAMU) had taken a company off of the government's troubled hands with the expectation of some bias toward protection. BofA is getting hit at every turn and all of the major servicers are expected to be the subject of huge penalities at both the federal and state levels, as well as through civil suits as the trial bar gets their teeth into this.

Those are pretty much the facts seen from here. Here are some major problems seen by this admittedly former banker. I've done worse things but they probably have been diminished considerably in the minds of some by my role in my former profession(missed this debacle but left in 2003 after trying to explain the Enron disaster for over a year).

---Bank of America is estimated to be paying $5.5 billion to Fannie and Freddie for selling poor originations to those government backed organizations whose only, sole, primary, mandated, function was to know and understand the mortgage business, and they were under executive order and congressional mandates to broaden their credit standards to the subprime arena. With the precedent set, others will pay as well. This is paying the government for their bad management, private companies following the lead of their government sponsors.

---With the various penalities and with the civil suits on the horizon there will be judgements for not only losses but outsized punitive damages as well. Administrative mistakes in a crisis whose magnitude virtually no one foresaw is neither a crime nor a punishable offense. Many of the mistakes were made as overwhelmed servicers outsourced large portions of the work to admin "consultants" and there is the source of the robo-signing disaster, consultant fraud but they have no deep pockets and are mostly being sued for what little money they didn't squander or they are out of business.

---Laying virtually all of the blame for the mortgage fiasco on the major banks is no way to get an economy back on its feet. Like them a little or hate them a lot, banks move money from savers to investors to entrepreneurs and manufacturers. If they are generally discredited and their capital is depleted in an unpredictable way over several years the economy will suffer. Many politicians and particularly our executive branch think that the government can recycle investable funds in a more moral and efficient way than the banks. There is no track record to prove this, and recent uses of government funds to primarily prop up unsustainable public service practices rather than invest in infrastructure or near term projects(not green energy solutions 10 years away) is current evidence that the economy needs a vibrant private banking system. As laudable and reliable as some regional and community banks can be, they do not participate in a world in which funds are sourced and priced globally, and they will only be able to facilitate a micro recovery in a macro world.

---Giving Blackrock and Pimco and others of the most sophisticated and well educated groups of investors massive compensation from the banks that were selling mostly legal paper with highly detailed, at times obtuse, but researchable information under securities laws is almost ass backwards in the servicing cases. Servicers are facilitators of administrative functions, they are not MBA's or PHD's. Where is the shared responsibility?

Banks made mistakes(some inexcusable ones at firms like Lehman, Bear, Merrill, Citi, and the bad mortgage originators previously mentioned). All involved banks should have some financial penalties and they should be held accountable, but held accountable on some kind of level playing field. It's as if major investors, hedge funds, regulators, the GSE's, the fraudulant buyers, the non-Wall Street retail brokers that loaded up retirees portfolios with small illiquid pieces of these securities, the system gamers, all of them, were just the victims of the banks. It's the easy answer for the politicians, it's the easy answer for people who made their own bad decisions, but it's not the quick way out of this mess.

It does, however, give everyone someone to hate, and that is for some reason a comforting alleviation to the human condition.

Economic confusion - we are not alone

2011-06-27T15:01:00.006-04:00

We wonder about the economy in a way that has become a national obsession. Are we just on a plateau with little clear direction, is there a cliff just beyond the sightline, or are we just catching our breath before making the next climb.

Do we wish that economics had been our course of study years ago? Do we hope that a trusted friend, smart relative, Bill Gross, or Warren Buffett will enlighten us? Do we waste our days listening to people with nothing more important to do than blather their time filling thoughts on CNBC, hanging on every word and changing our minds every 15 minutes? Do we miss Dylan Ratigan who didn't even pretend to have any idea what he was talking about? Well, at least we still have that Brit guy named Simon in the mid-morning who makes no sense at all.

We are certainly not to be criticized for hoping for answers and looking for guidance. Unfortunately there is none to speak of, so I guess fortunately we cannot consider ourselves alone.

After the Fed's two days of meetings this past week, I quote from Chairman Bernanke's public comments including some NYT synthesis.
---"We don't have a precise read on why this slower pace of growth is persisting. Some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, may be stronger and more persistent than we thought."

Headwinds on the plateau but no way to measure them and no way to construct a consistent paragraph that says anything beyond what a smart sixth grader might know.

---"The Fed's policy board voted unanimously to maintain its two year commitment to hold a benchmark interest rate near zero 'for an extended period of time'. Mr. Bernanke said the language meant that it would not raise interest rates for 'at least two or three meetings'. Economists consider it likely that the central bank will hold interest rates near zero well into next year."

So as we sit waiting for some direction or insight, the government keeps robbing the elderly and all others on fixed incomes and penalizes savers at a time when they are at the same time they are blaming excessive borrowing for our woes.

---"Mr. Bernanke renewed his warning that short term cuts in government spending could retard growth, while at the same time urging a long-term deficit reduction plan, which he said could spur short term growth."

Say that again please. There was an old time Texas banker, a successful one, who often said "the long term is just a series of short terms".

This is not meant to belittle Bernanke and his serious attempts to deal with a difficult situation. He has made some tough decisions. The comments quoted here may well be the best that are possible at the moment. Unfortunately they reassure no one, and could be seen by some as having somewhat of a patronizing tone.

ESBI scam and Verizon's complicity

2011-06-23T16:06:00.011-04:00

ESBI is some sort of outfit that charges for unordered services through Verizon and other phone service providers. They are a scam operation. Here's my story.

My Verizon bill, not a small one, comes monthly and with two land lines and four smart phones operating, plus maybe a movie or two ordered by my daughters, I usually just pay the bill pretty much unexamined. This month the bill seemed to be a little bloated unless someone made way too many land line long distance calls or viewed more pay films than usual. I examined the multi-page bill and found a $14.95 charge from ESBI(?) labeled "miscellaneous charges" billed on behalf of "Total Protection Plus" for "Electronic Fax Mofee". What the heck?

I found a phone number for ESBI and they explained that I had signed up for an ongoing monthly plan to send faxes directly from my computer. I had done no such thing, and have a fax capability already. They explained that they were just a collection agency and some other outfit had told them that I had agreed to this service. Not so I said, but they said that I had without a doubt responded to a pop-up and given appropriate information and permission. Not so, and I am sure of that because the number that it was assigned to is my personal land line that is used only by me for business purposes. No one else in the family touches it.

Then, of course, I called Verizon and questioned the charge. They gave me some rigamarole about how the FCC requires them to honor all charges that have been authorized and add them to the bill. They were adamant that they had no responsibility. I asked to speak to a supervisor but that request was refused as I was told that the supervisor would give the same answer. I asked to speak to the legal dept. and was told that there would be at least a 45 minute wait on hold and I would still receive the same answer. I admit to making a quick curse and hanging up.

Then I went to Google and other search engines and found numerous complaints about this scam. Many people have seen these charges come through with no clue as to how they originated. I called Verizon again and of course spoke to another representative who gave the same answer. I said "do I need to call the New York State Attorney General's office and lodge a complaint on my own when there are an entire class of people being hit by this scam that is facilitated by Verizon?" The Verizon rep's answer was go ahead and do that. We are only following FCC rules.

Then I called ESBI again with the same information about what I found on the search engines and a threat to report them to authorities. They then agreed to reverse the charge and end the "contract". We will now see what happens and if they follow through. Of course I have already deducted their charge from my just paid monthly bill with appropriate comment that will no doubt screw up Verizon's automated bill processing. Ha! for little victories, maybe.

Several conclusions: given the size of these wireless and land line phone bills it is almost a certainty that many people are not noticing the extra charge; ESBI is acting illegally; and Verizon is acting irresponsibly at best, illegally at worst.

Be forewarned and check your bills. I am absolutely certain that I never signed up for this service, and my search results bear out the fact that this is a scam that Verizon and maybe other carriers refuse to step up to and take any responsibility for halting.

Postscript: During the review of search engines, I see that there are a few apparently legitimate firms with the acronym ESBI, further confusing matters. The one in question stands for Enhanced Billing Services Inc.

The Achilles Heel of Euroland

2011-06-20T23:29:00.003-04:00

With the situation in Greece and pending crises in southern Euroland, what we are seeing is the collosal mistake of creating the European common currency, central banking, and governance standards. Certainly a European zone of more open borders, more cultural exchanges, and trade liberalization would have been a brilliant move, but what we now have is a mess.

We can see the American model with its heritage of one main language and a relatively homogenous culture as a unified large land mass of relative prosperity(we hope) but could anyone imagine an Asiarama central bank combining Japan, China, South Korea, Vietnam, and Thailand among others.

That's obviously a wildly exaggerated comparison to what Europe has become, but combining countries with multiple languages, disparate cultures, and a history of 20th century wars was an ambitious goal. Robbing these sovereign countries of the ability to manage monetary policy, currency policy, and independent debt funding in the coin of their own realm has really destroyed their financial flexibility.

Some point to the continued strength of the Euro as proof that the concept is still viable and even successful, but that is open to question. The Euro's strength is just the mirror image of the dollar's weakness in light of a slowing economy and a ridiculous budget ceiling sqabble that should be settled by legislative spending debates rather than threats over U.S. near term solvency.

If only the crazed but tough and bullying DSK hadn't turned out to be such an actively scandalous and physically threatening weiner there might be some leadership capable of stabilizing this situation. At the moment, the market is frightened and looking at the possibility of interbank credit freeze-ups once again, good for no one.

Risk takers that make mistakes

2011-06-20T18:15:00.005-04:00

Every Sunday the NYT has a page 2 column in the business section titled "Corner Office" and it features a Q and A with a CEO. Inevitably the CEO being questioned cites their encouragment of risk taking by employees, often with the phrase that "the best learning comes from mistakes".

This cliche was borne in the '90's tech boom and then morphed into the popular culture of corporate America speak. Opinion here is that it is a popular myth among the powerful, a self-promoting style of narcissism and the effort to become "legends in their own minds".

Sure, a few companies like Google famously allow for lone wolf experimentation but that's not the rule. Corporate America remains rigidly heirarchical and deviating from one's expected role is not a normal or desired behavior.

There are exceptions, and these allow the theorizing CEO's a sense of truthfulness. Within most corporates not run by outright tyrants, there are the knighted ones among the broad base of employees. They range from: eccentrics that are tolerated due to their brilliance; top college lacrosse players from good schools; the especially charming, attractive, or handsome; the most talented of the obsequious; the star examples of diversity; the brash barrel chested never satiated friend of all; and of course the well-connected by family connections, wealth, old college ties or a propitious marriage. Please don't feel excluded if other knight categories have not been mentioned. And of course there are a few non-knighted risk takers that slip through the cracks because the risks they take actually work.

But the real knighted ones mentioned can take risks and can make mistakes, and more often than not they are mistakes. They do learn from them, and what they learn is that they are more suited for "management" than actual work. In a corporation of, for example, 5000 people there may be as many as 200 or so of these knighted souls and the other 4,800 employees better just stick to their dictated tasks, hoping to safely move up the ladder to what in a different era was called job security.

So this was a cynical post, but week after week of these CEO's, male, female, minority, all, crowing about their encouragement of risk taking and the value of mistakes just grated on me to the point of writing these caustic words.

Late night probably unadvisable thoughts

2011-06-05T23:46:00.002-04:00

Just watched Treme on HBO, clicking back and forth to see Miami and Dallas.

Tomorrow may be a buying opportunity in the U.S. equity markets. It feels right but who knows what news could arrive and sour the feeling. Financial firms are being clobbered by government attacks so for good reason are down, but technology should not be such a victim, as it has been in recent days. Materials should firm up and industrials have taken their hit.

Barring more bad morning news, tomorrow should be an add day.

Representative Paul Ryan's misguided health care overhaul

2011-06-05T15:58:00.004-04:00

First off, I must admit a bias. I think Ryan is a twit. His acknowledgement last week that he would consider running for President if there was a call for his participation says it all. He is smart enough to be dangerous but not so smart that he is any better than warmed up leftovers.

I'll agree with the consensus that confronting spending issues and the promises of the past is a worthwhile cause. Ryan, unfortunately, has bent over for every hocus pocus belief of what are called Republicans these days.

Privatizing Medicare is such a terrible idea. Elderly people are the least empowered, mentally and physically, to make the choice Ryan envisions that would make a free market solution work. In a broad sense, the responsible sons, daughters, and relatives for the elderly do not live nearby, and are working hard to maintain their own lifestyle and support their children. The beauty of the current plan is that it requires minimal paperwork on the part of the sick beneficiary and with any supplemental plan like the affordable AARP one, there becomes no cost whatsoever.

As an example of the challenges that Ryan's plan could lead to, Bush's boon to the pharmaceutical companies, known as Part D, is no easy thing to manage. My father couldn't fathom or read it in his last years, and since he took no drugs of consequence except during Medicare covered hospital stays, 550 miles away I did not pick up the challenge. My wife's parents have differing solutions, her father has the plan that must be tediously revisited every year by her and her mother may not because of guardianship and sibling issues that are unclear.

There are ways to make Medicare and Medicaid more efficient. With today's technology there should be ways to cut out the significant graft and mismanagement involved with the plans. There are likely intelligent ways to fund the younger generation's health costs if social security was once again separated from useable government funds, reversing a Clinton move that made him look good but, like AMT, is still a hangover from his governance.

Ryan's plan is flawed beyond belief. Let's let our sick, crippled, and senile folks make a free market work???

It's always the same feeling...

2011-06-04T20:49:00.006-04:00

When financial markets begin to get difficult there is always the realization that today's price is just that, and nothing that happens the next day has any relationship to some former baseline. It's the existential market thought.

Here we are again, not so dramatic yet but certainly offering that familiar feeling of uncertainty. Anything can happen in an area where that illusive term "confidence" rules, but today's market has none of the potential calamity attributes of the fall of '08.

There are no major financial firms in danger of collapsing and corporate profits are for the most part growing at well managed firms. There will always be poorly managed firms but they are not a barometer of the market unless in the majority, and they are not at present.

There are three distinct reasons why this month is different from two months ago. First, one of the world's four largest economies suffers from a catastropic earthquake and tsumami that disrupts its power supply and makes a large region potentially toxic. Japan is a part of the supply chain for automobiles and technology that is now a high value added producer. Japan makes things that cheap labor in China and southeast Asia does not. That has affected manufacturing output globally, and likely will no longer be an overhang by the fourth quarter of 2011.

Second, the U.S. has had an amazingly lousy weather season this year. Major floods all along the central midwest and south are at levels not seen since the 1930's. Tornados and storms have been more frequent than at any time since the 1970's. Then there is the residual economic drag from the gulf spill, both to fishing and tourism, that weakens a vulnerable area.

Third, the lingering impact of the great recession still inhibits market participants and causes the still prevalent avoidance of risk by many to move to the extreme rapidly when the market looks unsettled.

These three reasons for market weakness will all pass. The marginal weakness in jobs and once again in housing are both follow-ons from these concerns.

There are issues that can be troublesome for sure. The new aggression of the government against corporates and the overstepping of individual civil rights is disturbing. The whistleblower awards are simply inviting corruption for payoff and the widespread wiretapping and taking sets of words out of context to force plea bargains and tainted testimony is hideous. Obama and Levin's resentments are not the stuff of healthy capital markets and they could care less. Some more stringent regulation of securities law can be a good thing(SAC scrutiny is long, way long, overdue) but bending rules for enforcement actions can be a slippery slope for our democracy.

Another issue rarely mentioned in the slowdown now is the move away from the Bush era's see no evil approach to immigration enforcement. Immigrants, legal or illegal, fuel growth. They do things, make things, buy things, and add to the economy. They always have. With more enforcement and criminalizing hiring even by unknowing companies, there is now an end to that growth component. Obama has kowtowed to the rigid xenophobes and not succeeded in getting any concessions for citizenship and rights for long time residents.

Those are creeping, creepy, issues. The "debate" over the debt ceiling is not. There is zero benefit from the current impasse and showmanship. There is simply not any sane leeway at the moment to make dramatic spending cuts and there is too much risk to curtailing normal debt service and government services in August. Tax increases for the richest somehow are not possible but we have a completely screwed up tax code that could be rejiggered to be simpler, more fair, and raise more money without any change in the most well known benchmarks. That would require work, not political posturing, to accomplish. Hell, let's just have some Captain Crunch and watch a Law and Order rerun, and then get some shuteye. All this political stuff leaves no time for constructive work, and the whole World sees our lazy asses.

QE2 ends soon. We all know it and that's a good thing. An almost zero interest rate is good for the government and no one else. Look at Japan. We need to get beyond the natural disasters and climate disruptions, focus on corporate profitability, and move beyond the politics of resentment and self-righteous phony Americana. Will that happen?

Probably it will. We still have more luck than we deserve. We have problems but the U.S. still functions more reliably than most countries. That might not be the case ten years from now, but it still is today.

www.bespokeinvest.com

2011-06-01T18:01:00.002-04:00

This website is the free information service and teaser for Bespoke's more extensive analysis. No subscription to the full site here, but this is still a terrific source of market thoughts and stats.

Take a look at the many city charts of residential real estate prices from two days ago. All up from the 2009 trough until early 2011 and then mostly uniform steps down again.

Think about the analysis today of the impact of Japan's earthquake on global economic growth, and the parallels now with the 1995 Kobe earthquake.

Just a suggestion...

The unemployment problem - Krugman perspective

2011-05-31T21:50:00.003-04:00

On Sunday's op-ed page Paul Krugman discussed the serious unemployment problem in the Western world. That's stubbornly high unemployment rates in the U.S. and destructive levels of joblessness in some European countries. He bemoans the "tragedy" and even more so bemoans the come what may attitude by governments who are letting this issue be tangential to goals for economic growth.

The problem is that the 2008/2009 financial crisis left a gaping hole in the economic structure of many countries. It can't be filled with business as usual, as has happened in "normal" recessions of the past 30 years. Job training programs, tax incentives for hiring, and the pace of economic growth that is possible now will not compensate for the loss of the benefits(and flaws) of securitization markets. There will be less credit, less private stimulus, for several more years. Public stimulus is mostly misspent, and although Krugman might not acknowledge that so openly, he knows it.

The man does offer some solutions, some ways that he thinks will take the unemployment rate lower.

His first is to create W.P.A. type work programs "putting the unemployed to work doing useful things like repairing roads" and creating new and improved infrastucture I might add. What a great idea, one that was highlighted by the government but given almost no funds. The great majority of stimulus money went to allowing the federal, state, and local government to continue doing exactly what they had been doing. It was spent to maintain the status quo when seismic structural changes meant that it was just throwing money into a one off one year solution. If this, the recycled W.P.A. idea, was a serious government effort, it could be beneficial.

Krugman's second idea is a "serious program of mortgage modification, reducing debts of troubled homeowners". This is an extremely complex issue. There has been no effort by the Administration or Congress to understand the role of mortgage servicers, one that is very clear in legal precedent and statutory protocols. This must be sorted out. More importantly, this may be the biggest black hole proposal ever. It is possible that there are many problematic "homeowners" who could not support a home short of it being gifted to them. Krugman's thought is not conducive to a rational price clearing point of the market, which is what must happen to get back on a growth track. That may sound heartless but everyone, the great majority of people I would guess, was not just suckered in by mortgage brokers. They knowingly stretched for the American promise of something for nothing. Loan forgiveness will not give them good jobs, assets, monthly payments, or maintenance costs.

The third idea is just really far-fetched, and oddly I agree to some extent that the goal would be attractive. Krugman wants the Fed to manipulate a 4% rate of inflation so that debts could be repaid with cheaper money. To think that markets can be controlled with any precision is not liberal thinking, it's state planning thinking. There are so many ways this could backfire. Economist be practical, you are looking for answers that are not there.

This of course is a presumptuious commentary in the extreme by yours truly, a little followed blogger commenting on a Nobel prize winner and star NYT columnist's thoughts. This is a difficult time, and our penchant for partisan answers will not solve anything. Reaching for simplicity, be it Paul Krugman or the 15 minute man Paul Ryan, will only complicate things.

"Still Bill"

2011-05-31T14:05:00.002-04:00

"Still Bill" is a documentary about Bill Withers, with Withers at 70 looking back at his life. It's an unusually pleasant film, gentle, thoughtful, and just nice.

This is the story of Wither's break into the music business at the age of 32, his determination to keep his music straightforward and simple, his unwillingness to cover race defining songs, his devotion to family and his relaxed striving for self-awareness. Any possible areas of controversy are left to the viewer's angst, as the film gives the tools but does not waste energy or emotion on strident commentary.

In an interview with Cornel West and Tavis Smiley, they try to bait Withers into some kind of agitation, but he will have none of it. He either turns their rhetorical questions around and politely throws them back, or he simply refuses to answer. In one sense the almost always obnoxious West seems like a mistake, but in another sense it brings out the character and mindset of Withers in a way that could not be achieved otherwise.

This story of an aging man's look back is full of both fond and painful memories but bitterness or regret is not part of it. He is comfortable with his achievements even as he withdrew from the spotlight over 20 years ago. He reflects that life can be "alright" and that may be as far as it goes. For him he had the next step of life being "wonderful" for a number of years and he appreciates it.

This short film is worth a look.

For the end of May 2011

2011-05-30T22:16:00.002-04:00

"The biggest loss of innocence has got to be a refusal ever to believe in coincidence again."

"Bluffing Mr. Churchill", aka "Riptide", by John Lawton

Eyes Not Sold stats

2011-05-28T18:17:00.002-04:00

Not much attention is focused here on anything but writing from time to time. I was surprised to see that statistics are now being kept by Blogspot and have been for two years.

Those two year stats show that 78% of ENS page viewers are from the U.S. Roughly 3% each come from Canada, the Netherlands, and Russia. Germany chalks in at 1.5% and, in order of numbers, Latvia, Slovenia, the U.K., Brazil, and South Korea all come in at around 1%. Latvia and Slovenia? I've actually been to Slovenia twice which is a fairly weird claim to fame. There is a beautiful lake there whose name escapes me, a lake where Tito had his hideaway mansion. The first time there, so was Tito, and later his 20 car Mercedes caravan interrupted a drive to the Adriatic coast for several hours.

Browser activity is 55% Internet Explorer, 24% Firefox, and 14% Safari, with all others in low single digits. Operating systems are 76% Windows, 10% Mac, 4% Blackberry, 3% IPod, 2% IPhone, and others with miniscule shares.

The geographic data is of particular interest. One would think that it is primarily random hits in foreign locales, or does ENS have a few devotees in Russia or other places where no one knows John Borden.

Flowers redux

2011-05-28T18:06:00.002-04:00

With the expanded beds for planting, referenced in the last post, today in went Coleus, named by the purveyer Wizard Rose. These are annuals with green leaves centered with reddish purple that has a white border. I know these flowers from my childhood, I know not where.

Hot and humid today, planting again had lost its novelty and became work. Work is not bad either. Let's see if the Coleus growth reawakens the place of the past.

Planting my annuals

2011-05-25T21:02:00.002-04:00

No market commentary, no politics, no book comments, and no opinions worthy of debate are here today. This post is about planting flowers, inspired no doubt by J's Human Flower Project, a website about flowers that goes way beyond flowers. Flowers are the cover, a beautiful one there.

Here the annuals needed to go in. Almost two weeks ago they were purchased. First was a deck of the usual Impatiens of various colors that were named "Super Elfin Rose", and this year included some unusual bright orange ones that almost looked fake. Second was a deck of Begonias aka "Bada Bing Scarlet", nothing Sopranos about them really but all with the bright green almost shiny leaves and the red flowers struttin' their stuff. Third was Celosia, new here and named "Kimono mix". These are spiky looking flowers, like tiny Christmas trees, with distinct dark reds, bright yellows, and muted purples, all needing direct sun.

When purchased there was a day of planting in the front and side yards that left me surprisingly sore. That was unexpected. I guess all of that bending and standing and kneeling is not routine enough these days. The pleasure of having jeans, hands, and nails covered with dirt must have made for too much enthusiasm. That day accounted for two thirds of the flowers. Then it rained for a week and a half and the remainder sat on the patio table and survived while I contemplated where to plant them, and when I would have the chance.

Then, almost coincidentally, I decided, with the help of my tree service guy who had come by to assess a thinning out job on the giant oak and the gorgeous Sassafras, to remove a rotting formerly white wooden fence that surrounded the backyard. Big job, big improvement, everything looks bigger and removing the fence opened up the opportunity for new beds beneath the six foot shrubs that separate our yard from the next. Rain free finally, today was the second day of planting. Somehow the planting day of two weeks ago seems to have conditioned my body somewhat for the motions required and Advil seems unnecessary.

Today was beautiful, even hot which is fine here. Shirt off and digging in dirt, little pleasures more or less free. Now we wait for the results which by July will likely be fully evident. With a little water early on, these annuals are generally foolproof, as they need to be.

Patience now, and something to look forward to week by week.

Financial market fragility hits the frontal lobe

2011-05-23T08:46:00.004-04:00

It's lizard brain time again. Financial markets have participants on edge. Can traders and investors stay calm or are we on the edge of rash decision making and pundit panic.

Continued sovereign debt challenges in Europe are the biggest threat to create systemic issues and credit market uncertainty. The rating agencies that were completely discredited during the financial crisis now move markets dramatically with their pronouncements on sovereign ratings. Now on the defensive, the agencies can only protect their franchises by focusing on the little picture, looking at any constructive outcomes with anxious bowels. We seem to be stuck with them. Who among the smartest ever left their college or MBA program with the goal of working for a rating agency. Anyone?

The other catalyst for Friday's weakness and today's follow-on was the weak sales and earnings numbers reported by The Gap. While corporate earnings in general have been healthy, the skittish market put Gap in the spotlight. Wait a minute. Isn't this the Gap that is going through a multi-year period of management changes, product differention challenges, and a loss of relevance to any specific customer demographic. The market is in the mood to look for problems.

More important to the economy's outlook is the continued near flatlining of the residential housing market. The foreclosure overhang is well known and the incentives for new investment are few. The cyclical trough is in place until at least 2013. Looking at the 1989 to 1995 period as an indicator, the market will eventually clear, but with the absence of vibrant securtization activity it will do so at a lower pricing level.

On the positive side, as often mentioned here, equity markets do not necessarily require that all boats float. With strong corporate earnings and money looking for a home that offers more than a miniscule money market return, a market sell-off that appears to be widely expected may be short-lived. That thought leaves investors with the current dilemma of whether to lighten up and restructure portfolios now in advance of a downturn or to hang tough and look for buying opportunities. The sell now because of the prospect of buying back cheaper in the near future mentality may be dominant at the moment, but is it wise.

It may finally be the time when investments shift dramatically into the safer large cap dividend paying stocks, those with global exposure and staying power. Any such shift will send the averages down at least temporarily and create greater uncertainty in the short term.

In the absence of a crystal ball, many investors will be inclined to inertia if panic can be forestalled. Old "wisdoms" are now coming out of the mouths of pundits such as "sell in May and come back in November" and "as summer approaches investors go on vacation(literally)". Knee jerk comments such as these are of no value. That's not how the market works in our wired and intensely short term focused era, and they are reassuring to hear. If that's the mentality driving the market, it will pass.

These rambling thoughts may congeal into something more coherent soon, the sooner the better from this perspective. Memories of late 2008 and early 2009 are too fresh to promote restful sleep.

John Lawton's "Troy" series

2011-05-21T16:44:00.004-04:00

Troy is a Scotland Yard detective. John Lawton has written a book series of historically based espionage fiction set in the time frame from mid-1930's to the early 1960's that have captured my attention recently. Captured is the right word, as I have read three of these 400+ page books in the last two weeks and am half-way through the fourth in this seven book series. When you can't sleep, books like these are a godsend.

As always with this genre, when a good writer comes along the book cover dredges up a comparison to John LeCarre. That comparison may ring true for many, but not being one that has ever been taken by LeCarre, Charles McCarry comes to mind here. Nothing can really compare to McCarry, but in the sense of creating an alternative world of characters that move in and out of different time frames in no linear order, Lawton is in the same rarified territory. Each book takes a different period or an overlapping one and continues the main story, as if starting with Lawton's first book in 1996 the overall chronology was already in development.

Reading here completely out of order, there is no problem picking up the threads and tying it all together. Introduced to the series by picking up at the local library his most recent 2010 continuation of the series, "The Lily of the Field", I have backtracked to various other periods depending on what the library had to offer. "The Lily of the Field" and "Second Violin"(2007) are both as intensely or perhaps more intensely focused on the historical attributes of their time built around WWII as they are the murder that our detective Troy must solve. "Flesh Wounds"(2005) is set in the late 1950's and, while absorbing, is more focused on the lead characters and the mystery than it is on history and in that sense is, from this perspective, not the stellar read that the previous two mentioned turned out to be. In my hands now, "A Little White Death" is set in the early 1960's and is 100 pages in solely focused on Cold War spy shenanigans and no mystery at all. That's to some extent preferred.

Lawton's writing is for the most part easy flowing and literate, except for the occasional times that he stretches to be consciously literate. McCarry never does that while maintaining an extraordinarily consistent descriptive tone. That's a big difference but the historical work by Lawton is at times exceptional.

As an example, he describes the effort by the English to move an elderly Freud to England after the Nazis had moved into Austria. While Freud wants to stay in Vienna, he is convinced by his English friends that everything will soon deteriorate, and they most certainly do later with the Austrian brown shirts killing and looting indiscrimanately and unchecked in Jewish neighborhoods. Freud reluctantly agreed to leave, and upon doing so the Nazis required him to sign a document saying that he had been treated well by them and could live and work in freedom there etc. When the Nazi functionary arrived with the document Freud obligingly and politely signed and asked if could also write an endorsement. The military functionary allowed it, and Freud wrote "I can heartily recommend the Gestapo to anyone". With great thanks Hitler's emissary left, as did Freud.

Those kinds of anecdotes based on historical research are worth the time with some of these books even if the "mystery" is not the end game in brilliance.

A few of Lawton's books have received recognition in their genre, but "The Lily of the Field" was one of the New York Times Book Reviews top 50 books for 2010. I am not alone.