Wednesday, December 31, 2008


Is over financially, and I'll probably never see another one like it. That's a good thing.

It's almost over officially as well. I probably won't stay up until 12:00 (again this year). The baby is in bed, the boys are lounging in the play room and my feet are up.

The wifey and I are going to have a glass of champagne around 10:00 and that'll be it.

Thanks to those of you who checked in here in 2008. Who knows what 2009 will bring, in this blog or elsewhere. Be happy.

This Should be Good

I think some financial media kingpin ordered this up on one of the slowest news days of the year.

Madoff Will File List of Assets Today, Lawyer Says

And by the way, nobody is going to trust that list as presented today. Madoff pulled off a long-running scam in the billions of dollars. Apparently he told his sons that he had $200 - 300 million left. It could just as easily be $2 billion.

It's going to take the authorities forever to find out where the money isn't.

CNBC is Killing Me

It's 6:53 and I've had CNBC on in the background since around 5:30. So far I have bought a blanket with sleeves (2 for 1 + nightlites kids), glue for my pants (really) and miracle hangers that make my closet up to 90x bigger.

Seriously, I imagine that there are lots of viewers who watch CNBC less often or for less time in the morning because the commercials are so sickening and repeated so frequently. How about shaking it up, CNBC?

Happy New Year

“The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values.” Warren Buffett
What's your outlook for stocks in 2009? I think it depends on what everybody else's outlook is - what is already priced in.

U.S. stocks are down by more than a third. Earnings have been very weak and 2009 estimates have come down a lot. The dollar is finishing up its worst year vs. the yen since 1987. Global investors have priced in U.S. economic weakness in spades. A Russian professor is predicting the end of the USA and nobody is particularly shocked.

It's impossible to know whether 09 can be less bad than real expectations unless you know what expectations are, which is kind of circular but necessary analysis. There's no need to rush into anything.

Tuesday, December 30, 2008


There is very little going on today which fits well with my holiday-induced lack of energy.

GMAC got some Fed money which will help prolong the agony, especially GM's agony.

A Democratic Senator is poking around the cell phone companies looking for dirt on sky high text messaging bills. Not surprisingly, the cell phone network operators don't want to disclose their costs.

The futures are perky. Thin to win?

Monday, December 29, 2008

Statistical Significance

The USA Today today does a wonderfully incomplete analysis of the U.S. war on illegal immigrants.

The facts:
  • U.S. border patrol efforts caught 705k would-be immigrants in the year ended Sept. 30, down from 1.7 million/year in the mid-80s
  • In addition to building a wall, which was very uncool when Germany did it, border efforts have included increasing staff from 4,000 agents in 1993 to 18,000 currently

What is left out:

  • How many are still getting in? How is their batting average?
  • How much of the decline is attributable to the economy? Are they staying home because there are fewer jobs?


Crude is up 8% this morning as Middle East tensions have speculators worried that global oil output will be hampered.

Yes, I wrote "speculators".

OPEC has already said that they will cut output - more than once and more than a little. Still, crude futures have gone straight down. In my opinion crude getting a bid on this weekend's news is speculators trying to get in front of a supply shock that probably won't happen. The trade is probably a good one, though, since they got oil up to $147 in July when it never should have been there based on supply and demand.

Again, just my opinion.

Monday Morning

Time to get back to work.

There was a spooky chart in this weekend's New York Times, and I'm sure elsewhere, listing the Madoff clients, or victims. Charities and foundations, Funds of Funds, European banks all litter the list. It's strange to see one name on the list - Madoff Family Foundation - Charity - $19 million. I'm not sure what to make of that. Part of me understands that if you have a scam that good, you might as well put your money in it. I'd still like to know where the rest of the money went, if it went anywhere at all.

Bring on 2009.

Sunday, December 28, 2008

NJ Climate

It's 7:16 am on December 28 in Central New Jersey. It's 58 degrees and not raining.

That can only mean one thing. Golf at 9:00. W00t.

Saturday, December 27, 2008

Church and Bank

There is a wacky situation unfolding in Germany this weekend. According to the FT, on Christmas Eve German Protestant Bishop Wolfgang Huber called out Deutsche Bank CEO Josef Ackermann in a newspaper interview.

"Speaking to the Berliner Zeitung newspaper, Bishop Huber argued that bankers had a duty to look beyond the short term and to ensure stability: “Never again should a Deutsche Bank chief executive set a profit goal of 25 per cent.” Such goals drove up profit expectations to unsustainable levels and amounted to “a form of idolatry”, he said. “In the current circumstances, money has become a god.”"

FT's take seems to be that this is a populist tangent to the idea that the financial crisis was caused by excessive greed and leverage at U.S. financial institutions. That may be true but these big financials are all truly global.

The whole thing is crazy. Who wou;d question the idea of a bank having a profitability goal? Even in Europe? That a religious leader took it upon himself to wave the flag makes it even stranger.

Friday, December 26, 2008

Last Ditch Shopping Push

CNBC hosts and U.S. retailers are pinning their hopes for 4th quarter retail sales on the next 6 days. Good luck.

November/December sales were down 1 - 5% and more for high end items. Consumers have for the right reasons pulled in their horns and I don't see them splurging between now and New Year's.

I can't find it now but I read something this morning about the sale of men's bras taking off in Japan. A killer new product like that would really help things out over here.

Thursday, December 25, 2008

Wednesday, December 24, 2008

Encouraging, or Different This Time?

These two charts from Bespoke Investment Group (BIG) are encouraging.

The obvious conclusion is that despite how inept the Fed and Treasury seem at times, they have gotten better over time at getting the economy back on track when it falters.

Whether this recession is an outlier of big and bad proportions is open for debate.

Which Multiple?

I'm not really listening but some guys on CNBC are arguing about what multiple to use to value the S&P 500. 10x? 15x?

The "which multiple?" argument is an old one. I think the more interesting question is "what earnings?" The S&P earned $87 last year, might do $52 or so this year. Who knows for next year. 2010 should be good.

Quoting P/E ratios sounds good a lot of the time. In my opinion, current price divided by last year's earnings tells you nothing. This is not an awards show. Current price divided by current earnings is an observation that a 6th grader could make, not analysis.

Current price divided by what the underlying will earn over your investment horizon is the only bone with any meat on it. Since that calculation is different for every investor, the P/E ratio used by financial media is useless.

Just my opinion.

"Valuation is a lazy way to make an investment decision."
Arnab Chanda

Tumbleweeds, Crickets, Short Day

Futures are flattish which makes sense because nobody will be working today.
The Madoff fallout continues. In retrospect I think he will end up being the financial story of the year for 2008, despite the myriad other marquee bad news.

Dominic the Christmas Donkey

I never heard this song until I moved to America, so clearly this is all your fault.

Tuesday, December 23, 2008

The AIG Era

Ho ho ho

  • the economy

  • 2010
  • puppies

I'm still sick and I have a ton of stuff to get done today. Oh well.

Monday, December 22, 2008


It's not surprising that rea estate developers are raising their hands for relief. Everybody is feeling it.

What is surprising is the intractable situation with money market funds and the fact that it's happening under the radar for now. Money market funds are supposed to be like cash. The NAV is always $1.00 (only 3 or 4 have ever lost any value) and they pay a low interest rate, usually 1.5 - 3%.

Short-term treasury interest rates have moved so low that the real interest rate of some funds is about to turn negative - that is the interest earned on portfolio investments will be less that the expenses incurred in running the fund. That is downright unfixable.

The futures are down a little, I'm fighting a cold and this week looks like a quiet one.

Sunday, December 21, 2008

Step Away From The Statement

The New York Times today has a story about something I touched on earlier in the week - that more companies are cutting back or eliminating their matching payments for 401(k) plans. When Forbes compiles its list of the 100 best companies to work for list, I hope these fine corporate citizens get passed over, but that's a topic for another day.

If your company is shifting even more of the responsibility for you retirement income to you, what should you do? The market is down by more than 1/3. Your 401(k) balance is bound to be smaller than it was. You can't fix it overnight but don't compound the situation by making mistakes.

  • Do not stop making contributions. By contributing now, you are paying much less for the same investments than you were months ago. Deal.

  • Question your allocations but don't get too conservative, unless you are very near retirement.

  • Have a pro take a look. At some point, hopefully now, your 401(k) could be your biggest asset. Don't just wing it.

Efficient Markets

It's bad and will probably get worse in Detroit.

  • Unemployment is above 21% vs. 6.7% nationally
  • One in five residents are delinquent of their local taxes
  • Almost half of children live below the poverty level

Pretty soon East Coast companies are going to start outsourcing work to the Midwest. It should have already happened. The economic disparity is unsustainable.


¿oƃ ɹɐǝʎ sıɥʇ pıp ǝɹǝɥʍ ˙sɐɯʇsıɹɥɔ ןıʇ sʎɐp ɹnoɟ

Saturday, December 20, 2008

Math or Something

There are three men on a train. One of them is an economist and one of them is a logician and one of them is a mathematician. They have just crossed the border into Scotland (I don’t know why they are going to Scotland) and they see a brown cow standing in a field from the window of the train (the cow is standing parallel to the train).

The economist says, "Look, the cows in Scotland are brown."

The logician says, "No. There are cows in Scotland of which at least one is brown."

The mathematician says, "No. There is at least one cow in Scotland, of which one side appears to be brown."

This is not Different This Time

Some news plays well in bull markets, some in bear markets.

DIGG is a cool web site - Web 2.0 and all that. Businessweek had comments on the cash burn and prospects of the company and summed up its prospects for a liquidity event with the following:

"Digg CEO Jay Adelson's repeated attempts to sell the company to News Corp., Current Media, and Google, at a valuation of $300 million or more, came to naught because there's no real business there."

No journalist would write that sentence in a tech bull market. It's not true, for one thing, as there are myriad business models which might come out of their biz and existing web traffic. More importantly, though, is that fact that when stocks are up, journalists pander to the gee whiz wow thingy. Stocks are down so the "Yeah, these guys suck" is a much easier sell.
That's a nice looking tiger.

Friday, December 19, 2008

What Could Go Wrong?

Dec. 19 (Bloomberg) -- State insurance regulators are seeking to ease reserve requirements for life insurers, increasing the companies’ liquidity as investors and banks curtail funding of the industry.
National Association of Insurance Commissioners advanced a proposal to reduce the amount of money carriers must hold against guarantees made to variable annuity clients. The potential reform, criticized by a consumer advocate, may be adopted in time for 2008 financial results, the NAIC said yesterday.
“Typically insurers would turn to the capital markets for reserve relief,”
Roger Sevigny, president of Kansas City, Missouri-based NAIC, told reporters yesterday on a conference call. By relaxing standards, “it becomes easier for the companies to meet the requirements of banks and other credit facilities.”
That sounds to me like a plan put forward by insurance lobbyists, not regulators. Of course when capital and reserve requirements are out of whack it is inconvenient to go out and raise new money. Now has got to be a very dangerous time to lower reserve requirements for anybody.

Now I've Seen Everything

Burger King introduced a meat-scented body spray. Damn.

The home of the Whopper has launched a new men's body spray called "Flame." The company describes the spray as "the scent of seduction with a hint of flame-broiled meat."

Deconstructing Madoff

Lots of people have asked me how the Madoff Pozni scheme actually worked. From what a hedge fund is, to what a fund of funds is, to the options strategies he used, most people don't really understand what was happening.

According to Bloomberg, the whole thing had been masterfully simplified, because there is no way he was actually doing those options trades. He might have been doing little more than typing up fake statements. I want to know who was in the meeting when he was drawing up that strategy. "OK guys, I have worked for years to devise the perfect, risk-free investment strategy and it is impossible, so what do you say we pretend to have one? Sound good?"

Dec. 19 (Bloomberg) -- The options trading strategy Bernard Madoff said he used to help produce profits for 17 straight years would have required at least 10 times the contracts that trade on U.S. exchanges.

“It was never done,” Michael Schwartz, chief options strategist at Oppenheimer & Co. in New York and a trader since 1965, said of the strategy. “If he did it on an exchange, we would have heard about it, and if he did it over the counter, the person he bought it from would have hedged it on an exchange.”

Twilight Zone

There are a number of things going on in the financial markets that are unprecedented or were unfathomable six months ago.

  • Oil has gone from $147 to $36

  • The 10-year treasury is yielding 2.08% and might go below 2
  • The Fed funds rate is about zero
  • Equities have done nothing but go down for the last year
  • The U.S. Government is intervening everywhere
  • Housing prices cannot find a bottom
  • AIG, Fannie, Freddie, Bear Stearns, Lehman, WaMu, Wachovia, Merrill Lynch are all gone

  • Two of the big three auto makers may be bankrupt within the week

  • The 90 year old Ponzi scheme is alive and well. Just like in the film classic "The Sting", the oldies are the goodies.

It's Friday and a storm is coming in the Northeast. Enjoy the weekend.

Thursday, December 18, 2008

Tomorrow's News Maybe

CNBC just ran a teaser (not a commercial but not a ton more than a sound byte) that the Feds are actually up on their preferred + warrants investments in the financials.

I would love to see the math but haven't. If this is good analysis it should make for good, confidence-inspiring media if presented correctly. Further, it would underline the fact that parts of this program may not actually be a "bailout."

Go taxpayers.

Maybe I Got It Wrong

Fedex, world leader in shipping and perfectly healthy company, announced that it too will be cutting salaries and eliminating 401(k) matches.

Maybe this isn't the red flag that I thought it was.

Motorola Got This One Wrong

They must have, right?

Motorola yesterday announced that they are getting out of the pension fund business (no surprise) but preserving benefits for those who already have earned them. No problem there.

They also announced that they will be suspending 401(k) matching payments. Who does that? I didn't realize they were that desperate and maybe they aren't. If they aren't then this was a very bad message to send to the market, not to mention current (loyal?) employees.

More 2008 Irony

Fairfield Greenwich partners is/was a Fund of Funds whose purported reason for being was its expertise in vetting other money managers. Price Waterhouse Coopers is a public accounting firm with a mission of auditing the numbers as presented.

Fairfield was apparently Madoff's biggest investor, and the Financial Times is reporting that they are looking to sue PWC to recoup some of the money they lost. That in itself is a joke. Fairfield failed miserably at its core missions - asset allocation (as much as 50% of assets may have been with Madoff) and due diligence.

GM + Chrysler = TBTF

WSJ is reporting that GM and Chrysler have gone back to the table to discuss their long-awaited merger. There is no reason for this merger not to happen. An obvious issue though is the fact that both are running out of cash short term and a merger won't help that.

The genius of the move at this point is a little more subtle. The government's reticence to give them bailout money to date may mean that each company individually has not reached too-big-to-fail status. The merger would likely shove them over that goal line.


Wednesday, December 17, 2008

This Feels Very Wrong

Investors who were smart enough or lucky enough to withdraw money from Madoff before last week's events may be forced to pay money back according to Reuters.

"Because of a legal concept known as "fraudulent conveyance," they could be forced to return their profits and even some of their initial investments to help offset losses incurred by others entangled in the long-running Ponzi scheme."

I never heard of "fraudulent conveyance" until last night. If this transpires as some legal pundits are speculating, it amounts of even further disincentive for anyone to invest in private partnership. There already exists no guarantee that you won't suffer big losses, as many funds have this year, no regulation to speak of in practical terms, no SIPC or FDIC protection, huge fees and the prospect that you may be gated, or delayed/denied getting your money. Add to that this retrospective profit-plus-principal-give-back risk and the whole proposition gets even worse.

Interesting Day Ahead

The futures are down big after yesterday's afternoon euphoria. Is that right?

It's clear that Bernanke and Co. will do all they can to keep the U.S. out of depression, in addition to the steps taken yesterday. The credit markets almost have to improve after yesterday's action. As investors get more comfortable with those two things being true, the rally is likely to continue. Maybe today.

Tuesday, December 16, 2008


As far as I know I've never used an exclamation mark in this blog. I don't like them. I almost did in the title above.

Borrowing money in the U.S., thanks to Fed actions today, is as cheap as it ever has been or ever will be. Banks and borrowers need to get back to business, with the possible exception of over-leveraged consumers.

The Fed also redoubled its pledge to throw every kitchen sink available at the problem of credit availability and lack of growth. Like any other good-sounding idea, we won't know whether it is one until after it has been proven one way or another.

Jokes of the Times

From Urban Dictionary, a lexicon of contemporary slang:

Ponzi Crawl

A pub crawl that adds a new person to buy a round at each location. Each new person is promised that they will get free drinks at all the future bars if they buy this round. Obviously, whoever joins the ponzi crawl last gets screwed!

Online Poker - Somebody is Making Money

I guess this guy thinks the Internet gambling wave isn't over.

"The biggest shareholder in PartyGaming, the UK-listed online gambling company, has agreed to pay US authorities $300m and plead guilty to a charge relating to illegal web betting in the most prominent prosecution so far in the US clampdown on internet gambling."

The Financial Times dispassionately cover's one of PartyGaming's founder's apparent willingness to shell out $300 million. A betting man might wager that U.S. Internet gambling is going to be legalized or decriminalized or exonerated based on this.

Monday, December 15, 2008

Structural Issues Indeed

If you had $10,000,000 right now and wanted it managed, who would you give it to?

The equity mutual fund managers are all down 40% this year.

The Fund of Fund guys, to the extent that they steered money to outfits such as Madoff & Co., have lost a lot of credibility.

The hedge funds? Many of them, including some of the best, are down 30%+ and refusing to allow investors to withdraw their money, even under the client-unfriendly terms stipulated in the partnership agreement.

My guess is that a new form of fiduciary is going to emerge that is more investor-friendly and more diligent. The business of managing money is in many parts of the system about raising money, not managing it. That is going to change.

Barron's Bernie Madoff Interview

Too bad it's from 2001.

"When Barron's asked Madoff Friday how he accomplishes this, he said, "It's
a proprietary strategy. I can't go into it in great detail.""

Seriously, though, Barron's did make an effort to question the Madoff returns years ago, but the guy was walking on water at the time. The fact that this could go unchecked for such a long time and on such a large scale is going to further undrmine folks' confidence in the players in the market, not just the markets.

The SEC needs to start hiring some real talent, pronto.

Saturday, December 13, 2008

Attribution Missing

This came in a random email.

Just over a year ago, Royal Bank of Scotland paid
$100bn for ABN Amro (80% cash).

For that amount today, RBS could buy:

Citibank $22.5bn,
Morgan Stanley $10.5bn,
Goldman Sachs $21.0bn,
Merrill Lynch $12.3bn,
Deutsche Bank $13.0bn and
Barclays $12.7bn,

And still have $8bn change


I'm not sure why the market rallied yesterday but the positives and negatives are clear.

Negative: Madoff fraud and the fact that one or more auto makers might fail.
Positive: Bush and Paulson make noises that they are not willing to let the auto makers go busto yet.

I was out for happy hour yesterday and more than one farther-right-than-me person opined that the reason the market rallied was relief over the Senate rejecting the auto bailout. While that may have been a good decision, that reasoning is a stretch.

The oversold bear market rally continues.

Friday, December 12, 2008

Bad Day

This is a bad day.

I slept in. There is an inch of water in my basement. I had a doctor's appointment. This Madoff thing is hugely bad.

The market is acting better than it should but it's early.

Happy Friday.

Thursday, December 11, 2008


Human Slinky Halftime Basketball Creighton University Omaha NE - Watch more Sports Videos

Fundamental Research

Think the market has sold off enough? Encouraged by the rally off the recent lows? Stocks at record low valuations? Think hedge fund/mutual fund redemptions are more or less done for the year? Willing to bet that the market couldn't possibly be down 40%+ two years in a row?

Here's a question. What stocks work when the economy is losing 500,000 jobs per month?

My research on the topic consisted of getting another cup of coffee. The most likely answer is none, unless the employment situation is likely to turn within the marginal equity buyer's investment horizon. Alas, it's too early to tell.
I'm not sure why there's a pic of a monkey in here either.

The Worst Interview Question Ever

I was reading some random blog that I clicked through to via Reddit when I had a minor epiphany about interviews.

The blog entry is about interview questions that tell you that you are not getting the job, or that the interview is heading in a bad direction, or that the interviewer is wasting your time.

One such question is, "What are your biggest flaws?"

I haven't been on an interview in a long time but I clearly remember hating that question and never felt like I had a good answer.

"Ideally, your answer to this question reveals valued traits of self-awareness, maturity, honesty and humility, right? In my estimation, there’s no real reason for anyone to ask you this question. The more time you spend answering it is basically giving the interviewer more reasons not to hire you. Also, consider that some of the biggest jackasses in history spend their lives gainfully employed despite their glaring flaws, the same shortcomings you are being asked to lay out for your prospective employer before you have spent one day working for them."

Maybe there is no good answer.

Is That Online Video Ad Bothering You?

It's bothering me, but we may be at a critical juncture.

The NY Times is reporting that it is finally possible for an amateur YouTube video producer to earn a decent living from advertising-generated revenue. That would be a good thing since most video ads are intrusive or slow down the process enough to make clicking on something else a real option.

If there is enough money in it then we should be close to the point where Google spends enough money to make it tolerable. Better monetization opportunities should lead to better content as well.

Wednesday, December 10, 2008


It seems a very long time since I wrote about LinkedIn, the social networking site for professionals. It makes perfect sense to me that if you're going to network on line, you might as well network with people who you do business with as well.

Looks like Google vet Deep Nichar thinks it's a good idea as well, as he leaves one of the best start ups ever to join another one.

As VP Products at LinkedIn he will face a classic truth - there is a different between a good product and a good company. LinkedIn in my opinion is a good site and a good product. It will have to broaden its offering greatly to become a good company.

They have a shot a greatness.

Allow Me To Be

The 1,432nd blog to post this pic.

Ford Can Math Too

There has been a seemingly endless debate on whether and how much higher labor costs are for U.S. auto makers vis a vis non-U.S. manufacturers.
The NY Times reports Ford's version of some new math that attempts to get to the heart of the cost debate. The author does a good job debunking the myth that average labor costs for the big 3 are $71/hr. That number includes costs to fund retiree benefits and has no relationship to current production. That is part of the problem, though.
Since the auto makers have no way of severing their core operation from the onerous retiree costs that they spent decades saddling themselves with, no amount of bridge debt can change the current and future reality.

The New WSJ

If you read the Wall Street Journal online you may have seen a sidebar titled "Most Popular", which contains handy links to the 5 most popular stories in the online paper at the moment. If you clicked #3 you might have thought you got redirected to USA Today.

The 3rd most popular story in there at the moment is a gritty expose on why the police are getting called to break up fights so often at Chucky Cheese's.

If you've ever been to a Chucky Cheese, you're probably happy to be done with it. It's noisy, the food is terrible and at peak times it is way too crowded. That alone could lead to fights. Heck, the WSJ article could lead to fights. They go into a lot of analysis of the why of the parents fighting.

Parents are silly, over-protective folk. The atmosphere at these restaurants is designed to whip kids into a frenzy. Some times, hilarity does not ensue.

Tuesday, December 9, 2008

This Just In

Yes folks, in case you missed it the Supreme Court is going to allow Obama to be President.

Some guy just up the road from me in East Brunswick, NJ is among folks who are rattling Obama's cage by claiming that he is not actually American or not American enough or something.

"The Supreme Court declined Monday to hear an emergency appeal from a man who said that President-elect Barack Obama is not qualified for the presidency because he is not a "natural-born" citizen... Leo Donofrio of East Brunswick, N.J., had said that Obama had dual nationality at birth, because of his Kansas-born mother and his Kenyan-born father, who was a British subject at the time."

We can all go back to work now.

What's Your Cause?

Check out this risky gambit:

"SAN FRANCISCO — Some same-sex marriage supporters are urging people to "call in gay" Wednesday to show how much the country relies on gays and lesbians, but others question whether it's wise to encourage skipping work given the nation's economic distress.

Organizers of "Day Without a Gay" — scheduled to coincide with International Human Rights Day and modeled after similar work stoppages by Latino immigrants — also are encouraging people to perform volunteer work and refrain from spending money."

Layoff announcements are everywhere. Because of that, it's probably a good time to keep your head down and do your job. I think same sex rights are a fine cause and what went down in California this election was unjust but if I had a 9-to-5 job right now and the boss parked a steamroller on top of me, I probably wouldn't stage a protest.


Fedex, Sony, Texas Instruments, Samsung, Tribune Companies and others bring in the new week by issuing worse-than-expected news on earnings and forward-looking guidance for such.

The "worse-than-expected" tag is can be a bit of a misnomer at junctures like this. Companies that miss analyst estimates for November/December quarters are not necessarily seeing their stocks fall, as investor expectations have gotten lower than estimates for the current period in many cases. Nor is anyone shocked if companies lower their outlook for 2009.

The challenge if the market is going to avoid making new lows is to get investor expectations, company expectations and 2009 estimates to a level where we don't need another round of big negative shocks. It may be impossible to get there without more information and time.

It's So Over

Legendary Bear Stearns CEO Ace Greenberg becomes the latest to declare the end of Wall Street and the investment banking business model.

“There’s no more Wall Street,” Greenberg, 81, said last night in an interview on Bloomberg’s “Money & Politics” television program. “That model just doesn’t work because it’s at the mercy of rumors.”

Blaming the rumor mill is a unique and interesting take. Investment banking deals require a great deal of secrecy from a large number of people, so there's not much room for rumor. Rumors were the friend, however, of short sellers in Lehman and Bear Stearns stocks, who were happy for the spreading "news" that those balance sheets might be in worse shape than people generally thought.

My take is that while rumors might have hastened the demise of Bear, they are an inconvenience to bankers, not a death sentence. It depends on your perspective.

Monday, December 8, 2008

Here We Go Again

Happy Monday.

The market gave back a little last week amid more bad news, but the S&P 500 is still 16% above the November low. If we are going to get some sort of year end rally, we are probably still in it. Obama's plans for economic stimulus may justify some level of optimism.

Merrill CEO John Thain goes before the Merrill board today to suggest that he get a $10 million bonus, probably the least popular thing that he could do. He might have saved shareholders a few billion as the WSJ estimates, but who cares at this point?

Equity futures are up nicely. Oil is at $42 and nobody outside of CNBC is talking about it any more. CNBC is going to need a new bubble as much as anybody.

Sunday, December 7, 2008


It's December in Central New Jersey and there is snow on the ground. That can only mean two things:

  1. I haven't put up the outside Christmas lights yet.
  2. I haven't put the deck furniture in the basement yet.



This is a weirdly un-American story with a uniquely American twist. Something for everyone.

MAP is "minimum advertised price". "Manufacturers have been racing to enforce minimum-pricing policies since last year, when the Supreme Court ruled them to be legal, and not a violation of antitrust law. EBay and a group of other retailers and antitrust advocates are meeting Thursday in Washington to craft a strategy to overturn that ruling."

Manufacturers can set price minimums and retailers, especially online, need to respect them or risk sanctions, including loss of marketing dollars and referrals. My gut tells me that is wrong in an un-American, anti capitalist way.

The uniquely capitalist angle? A new industry has popped up to profit from the situation.

"MAP's proliferation has boosted business for NetEnforcers, a unit of Intersections Inc., of Chantilly, Va., and similar companies. Stuart Bennett, NetEnforcers' head of sales, says the Supreme Court ruling helped him land 40 new clients the past year, bringing the total to about 140. Rival firms include MAPtrackers Inc., Cyveillance Inc. and Brand Protection Agency."

Tough Way to Make a Living

Don't shed any tears for Ken Heebner, though.

In a totally messed up article yesterday, the Wall Street Journal reports that Heebner, manager of among other things the CGM Focus Fund, has called the bottom in financials.

Even though it was Saturday, I'm not sure where the editor was on this one. Heebner's Fund, "which for years has posted a string of market-beating returns, this year is lagging behind the Standard & Poor's 500-stock index by 11 percentage points. For only the second time in his 11-year tenure, he is in the red, off 52%." He is getting pounded this year. The Fund was up 80% in 2007 and has one of the best 10-year records in the business so some form of leniency may be warranted, but not to this extent.

"This fall, Mr. Heebner built a more than $1 billion combined position in Citigroup Inc. and Bank of America Corp. He has put $780 million in two Brazilian banks, Banco Bradesco SA and Banco Itau Holding Financiera SA, counting on U.S. actions to help lending abroad. CGM Focus's biggest holding through September was $552 million in Wells Fargo & Co.

About 40% of his $4.3 billion CGM Focus was in financial stocks as of Sept. 30, according to its portfolio report."

Huh? Sometime between July 1 and September 30 Heebner loaded up on financials.
  1. That is ancient history for a PM with high turnover.
  2. That could be the reason he is underperforming this year but it isn't mentioned. The financials are down huge since the summer.

Instead of calling him early and wrong, the WSJ lauds his moves as potentially super terrific.

Saturday, December 6, 2008

Online Poker Trying Too Hard

If you watched the 60 Minutes expose last week on online poker and the cheating scandal at Ultimate Bet and Absolute Poker, you might
  • believe that it is rigged
  • wonder why anyone would play for real money

I don't believe that it is rigged, although I know that it is possible to cheat. The two most prevalent forms of cheating are (a) groups of people in the same room entering the same game and colluding, and (b) mediocre players "allowing" top players to take over their account late in a tournament in order to increase chances of winning.

The fact that an insider at one of these firms orchestrated the incident that 60 Minutes covered is very troubling, but it's over. The fate of these entire companies rests on that not happening again, so I'll take my chances.

I was reading a poker site today and came across a tongue in cheek email that one poster had sent to Pokerstars, one of the sites that I play on, complaining about the bad beats that he had been taking of late. I'm not sure he was even expecting a response but the over-the-top explanation from Pokerstars proving the randomness of their virtual card dealing program is wacky.

"Our shuffle is completely random - far more random than you could ever hope to get in a "brick and mortar" casino. We use a thermal entropy chip designed specifically by Intel for generating truly random (as opposed to "crackable" pseudorandom) numbers. It is based on movement of atomic particles in constant motion (defined in physics as heat) and is theoretically impossible to predict (see Schroedinger's principles for more information). As if this wasn't random enough, we have added all of our users input into the equation. So when you move your mouse, you are providing truly random input to the random number generator used to shuffle the deck prior to each game."


For a Minute, I Thought This Was About Me

I'm sure there's a name for this phenomenon. Most people have probably come across a situation when, despite the fact that they are well-versed in something, someone else is so much more an expert that they feel stupid by comparison.

Consider this article on how to figure out whether you're a lousy writer.

"Don’t take a perfectly good word and give it a new backside so it functions as something else. The New York Times does this all the time. Instead of saying, “as a director, she is meticulous,” the reviewer will write, “as a director, she is known for her meticulousness.” Until she is known for her obtuseness.

The “ness” words cause the eye to stumble, come back, reread: Mindlessness, characterlessness, courageousness, statuesqueness, preciousness - you get the idea. You might as well pour marbles into your readers’ mouths. Not all “ness” words are bad - goodness, no - but they are all suspect."

I am interested in the English language. I studied it in school, did well. The writer of that article knows so much more about writing than I do that I might as well have just learned it in night school.

Continued thanks to the Grammar Police for staying away from this blog.

Hey Now

Nothing to See Here

We are going to be hearing an awful lot about health care reform in the coming four years.

My wife likes to remind me that when I moved to the U.S. from Canada in 1991, I was very much in favor of universal health care, was perfectly content with what was available in Canada and thought it draconian that Americans didn't have access to it.

Health care reform was one of the lynch pins of Obama's winning campaign. He issued a statement yesterday demanding that American voters get involved in the reform process from day one.

"Obama is encouraging average Americans to host informal gatherings to brainstorm about how to improve the U.S. system.

"In order for us to reform our health care system, we must first begin reforming how government communicates with the American people," Obama said in a statement yesterday. "These Health Care Community Discussions are a great way for the American people to have a direct say in our health reform efforts."

Former senator Thomas A. Daschle, Obama's point person on health, will attend at least one and prepare a detailed report"

What a brilliant play. I don't think America has the appetite to pay for universal health care right now. What is more, the economy, an orderly retreat from Iraq and what is going on in the rest of the Middle East will be more than enough to fill up Obama's first term. By shifting the part of the responsibility for planning health care reform to voters before he even takes office, Obama hugely increases his chances of getting a free pass if he gets nothing done on health care.

The line about Daschle attending at least one meeting is priceless.

You'll Get Half and Like It

Reuters is reporting that the U.S. auto makers are indeed getting at least a portion of the short-term financing that that have been seeking from Washington.

"WASHINGTON, December 5 – Congressional Democrats and the White House have reached agreement on emergency aid for US carmakers of between $15bn and $17bn, two senior congressional aides said on Friday.

The amount is far less than the $34bn requested this week by General Motors, Ford Motor, and Chrysler, but it would keep them going into next year."

The half-assed compromise isn't being confirmed by any other news outlet as far as I can see (EDIT: looks like WSJ is on board) , so might not be correct.

In the end, I would have been shocked if these guys had walked away with nothing, but even as the auto execs showed up better-prepared in D.C. this week, the questions in asked were much tougher.

Friday, December 5, 2008

Big Afternoon For Stocks


Lots of bad news is priced in, at least in the short term.

Enjoy the weekend.

Harvard vs. Corning

Harvard wins this round and it's not even a fair fight.

The first week of December 2008 brings us a perfect example of "raise money when you can, not when you have to."

Harvard University filed a prospectus this week to sell $600 billion in bonds. The proceeds will be used to pay down other (likely more expensive) debt and unwind some swaps. Bravo, well-played etc. Rates are low, Harvard's credit ratings are still high. Use that balance sheet.

Contrast that to Corning, who filed a mixed securities offering this week with the stock in the single digits for the first time since 2004. For Corning, equity is expensive down here. I'm not sure about this but I don't recall them raising money when the stock was above $25.

She's Joking, Right?

I'm not a fan.

Friday - Once a Week

It's still true that there is only one Friday per week. Enjoy it.

There is nothing really new today with respect to earnings, credit or the macro. With the market down big yesterday, it feels like we're setting up for a rally off a really bad jobs number. The estimate for the November unemployment rate is 6.8%, up from 6.5% last month. It could be that the sooner we get to 8% or some horrific level, the sooner that we can recover or at least bottom.

Edit: Wow, was I wrong

More Fallout

First Tiger Woods loses his GM sponsorship.

Now Honda announces that it is exiting the Formula One business. Nothing is sacred. Let's keep getting on with it.

In the words of Winston Churchill, "If you are going through hell, keep going."

Election Reflection

Bush Advisor Karl Rove took a much-deserved shot at the campaign finance system this week in the WSJ.

"Mr. Obama's victory marks the death of the campaign finance system. When it was created after Watergate in 1974, the campaign finance system had two goals: reduce the influence of money in politics and level the playing field for candidates.
This year it failed at both. tells us a record $2.4 billion was spent on this presidential election. And with Mr. Obama's wide financial advantage, it's clear that money is playing a bigger role than ever and candidates are not competing on equal footing."

Aprroximately 130 million Americans voted in the Presidential election last month. Next time around why don't we have voters give each other $18 each and call it a stimulus package as well? It is ridiculous that anywhere near $2.4 billion could be spent on an election. This country really needs to get that number as close to zero as possible. Anything that leads to reform of the system would be a great thing.

On another note, the idea that McCain had a shot had he raised more money seems a stretch, though. While I wasn't an Obama fan, his message hit home.

Good Morning

Thursday, December 4, 2008

Go to a Movie

It's another weak opening but I wouldn't worry about it too much.

Has anybody noticed that the daily U.S. equity market this year is a lot like a regular season NBA game? Nothing really matters until the last 10 minutes. Then a big-time player steps up and closes the deal one way or another.

I'm recommending brunch and a movie. See you back here at 3:00.

Why Stop There?

According to Bloomberg, Merrill is out with research today saying that oil could go to $25/barrel next year depending on the severity of the global recession that we're in.

If the analyst is correct, he'll be a hero. If he's wrong, we'll have or be pricing in a better economy so nobody will care. It's sad but true that those conditions make it a good call.

Euro Working

The Bank of England cut the bank rate by a full point to 1% as conditions continue to deteriorate. England and the U.S. are both reportedly discussing plans to take direct action in the mortgage market. The U.S. may be making plans to jam some rates down to 4.5%. The U.K. is looking at ways to defer some mortgage payments for troubled borrowers.

Homeowners aside, what is going on with the financial engineering at the Federal government level highlights the fact that the countries of the Euro zone could be screwed.

The Euro can cut rates, and have been, but they have no central bank and so can't get involved in shoring up the credit markets with any mechanism other than money supply and short term rates.

Economics and Finance textbooks everywhere are being rewritten as I write this. It's probably too soon, though.

Wednesday, December 3, 2008

Adobe + Banana Peel

= ouch

Acyclical growth stocks are very very hard to find. Especially large ones.

Looks like Adobe isn't one either as they take down numbers big. The toll-taking continues.

A Tale of Two Suspensions

The New York Giants announced that they are suspending Plaxico Burress indefinitely - at a minimum for the rest of the season and the playoffs - for taking a concealed weapon into a NYC nightclubs and shooting himself in the leg with it. So far there's no word from the NFL brass on any similar punishment.

The NHL yesterday suspended Dallas Stars player Sean Avery indefinitely for making the following comments to reporters:

"I'm just going to say one thing. I'm really happy to be back in Calgary; I love Canada," the Ontario native said. "I just want to comment on how it's become like a common thing in the NHL for guys to fall in love with my sloppy seconds. I don't know what that's about, but enjoy the game tonight."

Crude, sure, but an indefinite suspension?

One Good Reason to Collect Quotes

Here's a great one.

Howard Lindzon has a witty and insightful blog, and he's Canadian. In questioning the wisdom of betting on Microsoft if you are in fact betting on CEO Ballmer, he writes:

$500 fully subsidized with a plan! I said that is the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard, which makes it not a very good email machine…. Right now we’re selling millions and millions and millions of phones a year, Apple is selling zero phones a year. In six months, they’ll have the most expensive phone by far ever in the marketplace and let’s see…what’s the expression? Let’s see how the competition goes.”
–Microsoft CEO Steve Ballmer on the iPhone, January 2007

Live and learn.

[G]RIMM Reality

Tired of the beating that it has been getting from Apple, RIMM invented an iPhone and the love fest has been fully on for the last week or so. The amps go to 11 and all that.
Last night RIMM took down numbers for the November quarter, blaming everything in sight.
I like Blackberries, and the stock has already backed off from $147 to $37, and probably goes lower today. This economy is awful and nobody is immune.

Hurry Up Congress

The Story So Far

Two weeks ago, the Chiefs of the big three auto makers went to D.C. and asked the Congressional Committee on Grandstanding and Giving Out Money for $25 billion. While the car companies employ lots of voters and retiree voters, they went to Washington with no plan. They got no money.

They went back yesterday with plans for cuts, and asked for $28 - 38 billion.

If the government doesn't hurry up and give them some dough, the price tag could get up to $100 billion by Obama's inauguration.

How's That House Working Out For You?

U.S. housing prices are down over 20% from the 2007 peak. All of the 20 markets tracked by the Case Shiller index are down, so while there are regional differences, this is not a regional problem. It is everywhere. You probably already knew that.

Superanalyst Meredith Whitney of Oppenheimer and Merrill Strategist David Rosenberg have both come out in the last week and said that there is anther 15 - 20% downside in prices.

These calls caught my attention because, it feels to me, that an awful lot of people were hoping we are at the bottom, while not explicitly calling one. I read both Whitney's and Rosenberg's notes. Both have one of the qualities that I like least about financial research:

In the short term it is more important that something sound like a good idea than whether it is one.

Add to that the fact that a negative argument almost always sounds more intelligent than a bullish one, and you have a big call. I don't believe that housing prices have bottomed, but making a call as precise as calling for 15 - 20% more downside from here is quite a high wire act.

Getting to Main Street

Would you bank online at Goldman Sachs? From today's WSJ:

"In the latest evidence of how Wall Street is seeking to broaden its sources of funds, Goldman Sachs Group Inc. is weighing whether to launch an Internet banking operation, according to people familiar with the situation."

Goldman, like every other highly leveraged financial institution, needs stable deposits to help shore up the balance sheet. Its competitors have been more focused on strategies to buy existing bricks and mortar banks. The $5k in your savings account earning 2% is now very important business.

If you bank online now, switching costs are already pretty high. Since there is rarely a reason to go to the bank itself, your laptop has become the bank. All your payees are already loaded. As long as the software and platform your bank uses is good enough, it is quite a hassle to switch.

Can Goldman attract Main Street deposits without making an acquisition? I wouldn't mind a Goldman Sachs check book but I can't imagine getting one.

Tuesday, December 2, 2008

Palm - That's a Doozy

Handheld has been Palm was among the companies pulling the chute for the November quarter last night. Revenue, most recently estimated to be about $330 million, came in below $200 million. That's one of the biggest misses I can remember.

Palm is in the middle of the perfect storm. Apple is killing it and RIMM is resurgent, even as every non-smart phone is catching up in terms of functionality. They're in a huge air pocket in their new product line up and the consumer is obviously suffering. It's tough to have much hope.

Futures are up big and oil is down again. Auto makers report monthly sales today which shouldn't be pretty but shouldn't be a catalyst either.

Clearly yesterday was a miserable day for stocks. Particularly scary was the action in the large financials. Down is bad.

Monday, December 1, 2008

Sorry Folks

When I wrote yesterday that the next 10% for this tape was more likely to be down than up, I didn't mean for it to happen all today.

My bad.

Is Google Having a Tough Quarter?

In addition to using Google as the home of this blog, I use Google calendar, finance (sometimes), maps and gmail. One of the things that I like is the lack of clutter.

I didn't comment on the following when I first noticed it, but I will now. Some time last month Google began running low-rent Google text ads on Google finance. You've seen the ads on lots of low-traffic sites and they aren't pretty. They are, to me at least, a sign that the site running them is unable to attract high-quality advertisers. Nor do the ads appear to be for content or services that anyone would be likely to click through to.

I could be wrong but to me it's a pretty clear sign that Google is stretching for revenue. The stock has certainly been telling you that all is not rosy.

Try Try Again

The arrogant, business-as-usual Captains of Industry from Detroit are preparing to board their private jets and mount another assault on Washington, D.C, according to the New York Times.

This time, they will have a plan. Each of the three will almost certainly have a different plan, which will make a decision very difficult for Congress, but at least they will have a plan. Two weeks ago, the spoiled kids went to Washington and said, "The economy is bad. You need to increase our allowance."
That didn't work.

It's Almost Over

For Yahoo. The recent single digit midget is popping this morning as there are reports around that Microsoft will buy the search business for something around $20 billion. Yes, that is more than Yahoo's total market value, even after this morning's pop.

It might be true. Microsoft can do whatever they want at this point, and Yahoo needs to hurry up and get off the stage before the board and top management get sued into oblivion.

Oil is trying to get down into the $40s with no fundamental end in sight. OPEC is powerless given the sharp decrease in demand and no light at the end of that tunnel. The U.S. 10 year is down to 2.88%. The Fed should use this window to sell some 30-year (or 50-year) bonds. Why not? They're going to need the money.

Futures are down sharply. No surprise after the move we've had.

Retail Sales Shocker

The Wall Street Journal is reporting what may be the most surprising data of the week (it's early). Everybody was prepared for Friday to be the kickoff of a really rotten holiday shopping season. Consider the following:

"The holiday shopping season got off to a better-than-expected start, as retailers reeled in cautious shoppers with massive discounts like "buy one get one free" sweaters at Gap Inc. stores, $200 iPod Touch music players from Inc., and 26-inch LCD TVs at Target Corp. sites for $299.

In a survey of 3,370 shoppers, the National Retail Federation estimated shoppers spent an average of $372.57 over the weekend, up 7.2% over last year's $347.55."

3,3370 is not a large sample size, and the article goes on to say that many shoppers had plans to finish more of their shopping earlier, potentially front-loading the season. In any case, chalk one up for the world not ending in November.