One Down, Eleven to Go

After a marvelous head fake rally start to the year, the S&P 500 ended the month down 8.5%. Yesterday's headline GDP number was not as bad as feared or consensus but there was a shocking inventory build which bodes ill for pricing in the months to come.

This feels very much like a year that should be over asap but won't be.

Go Steelers.

Interesting Quote

The video game maker Activision's CEO was on CNBC this morning and commented, "The cost per hour of playing video games is cheaper than any other form of entertainment."

I guess this is true if reading books and watching TV are not entertainment. Hours spent on gaming are clearly up, and would be asymptotic to 24/day minus sleep if my kids had their way.

In Case You Missed It

I have little to add, and couldn't have said it better, but the most-emailed article from wsj.com this week is a brilliant editorial right here.

The lead-in quote from Rahm Emanuel is interesting in that it highlights the fact that a crisis is an opportunity to do good or bad on a very grand scale:

"Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before."

4Q GDP

U.S. 4th quarter GDP numbers come out this morning at 8:30. Consensus has the number marking the worst economic contraction since the early 80s.

It's strange how big 5% can be. That the U.S. economy contracted 5+% last quarter is laying a gut-wrenching beating on the economy. If a car that caught your eye cost $28.5k rather than $30k, I don't think it would make that much of a difference.

Friday Stuff

It's the last trading day of the month. The S&P 500 is down 6% YTD, which is about right in my humble opinion. More on that later.

It might be me, or it might be the pine trees in the background, but all of these white guys being interviewed in Davos seem even more self-satisfied than ever. I guess I should exclude the PM of Turkey, who blew a gasket at a Gaza debate yesterday.

Amazon reported last night and continued its shocking run of good execution. If I had told you in 2000 that AMZN would be better positioned than Yahoo and execute better over the next 10 years you probably would have laughed at me. I wouldn't have said that, though, since I didn't see this coming.

Chevron and Exxon report today. Should be wacky. Volatile oil prices and currencies, hedging by customers, still too many speculators. I still think oil will spend more time below $40 than above over the next six months, but I wouldn't touch an oil-related security with a 10 foot pole today.



Maybe when you die, you come before a big, bearded man on a big throne, and you say, “Is this heaven?” And he says, “Heaven? You just came from there.”

Kirk Douglas

2 Headlines on Bonuses

UBS Slashes Its Bonus Pool for 2008 by More Than 80%
By Elena Logutenkova Jan. 28 (Bloomberg)


Obama slams Wall Street over bonuses
By Andrew Ward in Washington and Francesco Guerrera in New York
FT January 29 2009 20:22 Last updated: January 29 2009 23:22

Since I wrote about bonuses earlier this week, let me pick it up again here. A V.P. at Time Warner could very well have a base salary that is 2x that of a V.P. at Morgan Stanley. Wall Street firms keep base salaries low, at least in part, so that in years like this they can "pay down" employees and keep them.

If a top exec at an investment bank was responsible for billions in losses, zero bonus is entirely appropriate. Obama slamming any bonuses as inappropriate last year, especially for the rank and file, is off the mark.

No Way in Hell

This gets through. From the Washington Post.

A Senate version [of the stimulus package], yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

How could they think that this is a good long-term plan? When you add this to Geithner's jawboning about Chinese currency manipulation last week, it's a dangerous Jingoist road they are looking to go down.

Now the Hard Part

The market has been up for the last five trading days in a row. Today the futures are down meaningfully, which poses an interesting challenge for the bulls. A modest pullback is fine, a bigger decline would be troubling.

I was talking to a Superbear friend of mine last night who said something like, "I'm worried that Obama is going to do such a good job fixing it that I'm going to have to pull back from my bearish stance."

****

There's a interesting new Madoff-related story over at NY Times. Apparently JP Morgan strucured some derivatives to give clients 3x leveraged exposure to some funds including Madoff. In order to structure and/or hedge the products, JP Morgan for a time also invested its own money in Madoff funds.

JP Morgan was lucky or smart enough to sell its position months before Madoff blew up. The problem is that they didn't tell their clients, who still had exposure.

You might want to get some popcorn for this one.

The More Things Change

The House and Senate are busy passing versions of the stimulus package and playing hide the pork at the same time. From the WSJ:

Also tucked inside is $335 million for programs that help prevent sexually transmitted diseases, and $50 million for the National Endowment for the Arts. The Senate version includes $70 million for a supercomputer at the National Oceanic and Atmospheric Administration and $75 million for smoking-cessation programs.

Maybe nobody cares that one administration, congress and senate after another pull this crap. If it's truly an emergency then fix it. If the emergency is that the National Oceanographic folks need a new computer then we are in reaaaaaly good shape and pass the champagne.

I'm going to bed.

It Shouldn't Be That Hard

State Farm announced yesterday that they are exiting the Florida homeowners' insurance market. The firm last year requested a 47% rate increase in rates in the aftermath of this decade's hurricanes and was rejected by the state.

My conclusion, arrived at as I wrote the above paragraph, is that State Farm sucks. If they just figured out last year that insuring a Florida home is 47% riskier than their previous, PHD-crafted models told them, they suck. If they lost a bunch of money in the last few years and want current and future homeowner customers to pay for it, they suck. If they have a crystal ball that tells them that there is crushingly bad weather coming and haven't shared it with the rest of the world, they suck.

I hope someone from the company contacts me.

Bad Bank

The futures are up big as the market seems to like the growing momentum of the bad bank scenario, in which the FDIC or someone sets up an entity to buy the toxic assets from the good banks. This won't be easy to pull off and since nobody knows for sure which pound or two of flesh that Obama will extract in return, buying the banks in here should be done gingerly.

The news probably won't be official until next week, as Obama and crew are very busy cancelling Citigroup jet orders at the moment.

Maybe a Little Hope

<---- That's Texas Instruments and that's a good looking chart.

Business is bad at Texas Instruments but everyone knows it. The quarter just reported was not worse than expected.

Tech in general is acting pretty good this week. The overall economy is swooning in a big down cycle not unlike what tech went through earlier this decade. Maybe tech stocks will lead the market out. They could easily bottom well before fundamentals do, and it's possible that they already have. Even if this is a bear market head fake, in names like TI there's lots of technical upside to the 200 day.

Don't Fix Housing

The financial press and market experts mostly claim that one of the most important elements of U.S. economic recovery, if not the most important, is to fix the housing market. I don't think I've written this before but I believe that the whole idea of the government being involved in the fixing is wrong.

Of course declining home values have a devastating effect on the economy. The only long term solution is for home prices to get to a level where people can afford them. The government propping up prices at an unsustainable level using tax credits or forced mortgage modifications will prolong the problem, not fix it.

If you bought a house you can't afford, you have to sell it. Period. If Obama offers you a juicy tax credit to perpetuate the myth that everyone should own a home, he is borrowing money from future generations to do it.

Those that argue that the government is helping the banks so should help the people too are wrong. The government intervened with the financials to avert a global meltdown. If you have to sell your house and rent an apartment, your husband or wife may have a meltdown but the problem pretty much ends there.

Grandma

Being 43, I guess I'm about average in that I only have one grandparent left, my grandmother on my dad's side. She's around ninety and still very sharp. She would hate to hear me say that since anything else would be unthinkable for the tough old gal.

She called yesterday to say hi and tell us that she finally got our Christmas card. It took 6 weeks to go 790 miles.

I was asking about her health and she went into the subject of death and how she's ready. She has been fighting macular degeneration and can't read any more, one of her great loves. Her town is buried in about 4 feet of snow. She lives in an old age home and both of her kids go south for the winter, so it gets quite boring at times. On living in an old age home, she summed it up by saying, "The food is good but there's nothing to do."

In Praise of Bonuses

From Bloomberg.com today

Wall Street Workers Still Get Bonuses, Many Unhappy, Poll Finds

By Christine Harper
Jan. 27 (Bloomberg) -- About 79 percent of Wall Street employees responding to an online poll this month said they received a bonus for 2008, more than the 66 percent who expected to get a reward in October, according to eFinancialCareers.Com.
Of the people who said they received a bonus, 46 percent said it was higher than last year, eFinancialCareers, a unit of Dice Holdings Inc., said in an e-mailed statement. About 900 U.S. users of the financial jobs Web site responded to the survey conducted Jan. 7-12. In October, 1,300 people responded, and 36 percent said than that they anticipated a higher bonus.
Wall Street’s system of paying year-end bonuses to reward workers is under criticism after the worst financial crisis since the Great Depression led to record losses and forced the government to pump taxpayer money into banks. Still, 46 percent of people responding to the poll said they were dissatisfied with their bonus.

Of course they were. Bonus has become a 4 letter word in the financial sector, as the public increasingly envisions Wall Street employees as rich folks taking taxpayer handouts. The fact is that Wall Street bonuses aren't a year end prize for low to mid-level employees, but rather an important part of the comp structure and a tool for making a large part of their cost structure variable rather than fixed. Compensation costs typical run at 50% or so of revenues at these firms. An employee making on average $400,000 might have a base salary as low as $100,000. If the job is worth more than $100k, which it most certainly is in the eyes of the employer, paying zero bonus in a bad year makes no sense if the firm wants to keep that employee.

Going to a system of higher bases and lower bonuses would surely increase the already high volatility of employment numbers at these firms, which nobody wants to see.

Pain is Everywhere

American Express customer spending in the last quarter was down 10%, as reported in the earnings release last night. Everybody is feeling it, including the high end. As a wise friend once said, "It sucks having customers."

The stock is looking higher as the company remained profitable and the resiliency of the business model was affirmed.

Front and Center

The layoffs are, that is.

Home Depot, Sprint Nextel, Pfizer and Caterpillar all announce layoffs. Hope is still not a strategy and this economy better bottom soon because the unemployment rate lags.

****

Apparently John Thain is (a) going to pay BofA back for his $1.2 million office, and (b) go on CNBC after the close to defend himself or promote his sure-to-be-coming book or something. Shame on BofA for trying to throw him under the bus. If they didn't know what they were buying then they got what they deserved.

eBay

Is eBay close to unloading Skype? The London Times thinks so.

For the reasons stated when the acquisition was made, it was a bad one. Skype did very little or nothing to improve the auction process as far as I can tell. Is Skype viable? I'm not sure. I don't see any revenue which would be a good first step.

Monday Thoughts

Initially I wasn't sure whether I was annoyed that I slept later than usual or happy that I got 8 full hours. I settled on the later.

Despite the Pfizer/Wyeth deal being confirmed at a nice premium, the futures aren't doing much yet.

Biden, Pelosi and others were running around "Meet the Press" and a the Sunday news circuit yesterday warning that these are serious financial times indeed. Indeed. The relative recent silence on new economic policy, even though it has only been a week in Obama's Presidency, has more folks convinced that commodities are going higher. My hunch is that the opposite is going to happen.

If You Are a Snob

There's a good long article over here that you might have missed if you don't read the NY Times.

It details the broader and smarter regulation of financial products and firms that Obama's administration is apparently targeting. If you were thinking of applying for a job at an investment bank, you might have better luck at the SEC or whichever government body is going to be doing the oversight. This is going to take a lot of well-compensated manpower.

Don't Be a Snob

Think you know finance? Too sophisticated an investor to get your money news from the New York Post? Their "what's Obama gonna do about the banks?" story is elegant in its simplicity.

The options:

• Nationalizing the banks
• Creating a government-owned "bad bank" to take the toxic assets off of the bank's balance sheet
• Continuing the Bush Administration rescue plan of pumping in taxpayer money on an as-needed basis

I'm leaning toward the middle one as likely to happen and the best option.

You Want a Divorce? When? As Of When?

This article over at Bloomberg.com has all sorts of levels. According to the article, NY divorces are down 9+% y/y through the 1st 10 months of 2008, presumably because jointly held assets are way down in value and therefore one or both parties are going to get less that they expected, or assets or businesses are difficult to value.

In some instances, timing is a very important factor. Some partners who control family assets want the divorce to go down now, when values are at a cyclical (we hope) low. Others aren't getting the exact result they desire:

"... [consider] the case of Rick Morton, a principal of closely held Ashley Capital LLC, a New York-based real estate company. He and his wife, Marsha, decided to divorce in 2007 after 23 years. A judge in Westchester County, New York, ruled in October that Morton’s business should be appraised at its March 2007 value instead of what it was worth last year. Morton estimates some of Ashley’s properties, including those in Detroit whose tenants include Ford Motor Co. and General Motors Corp., have fallen at least 30 percent since March 2007.
“She’s gotten a potential windfall,” Morton said of his wife, who he said used hindsight to push for “the sweetest date” for the valuation. "

Well played.

The Dow Jones Industrial Average

I have a couple of problems with the Dow Jones Industrial Average. The first is that it is not really passive index. It is run more like a fund managed by a lazy Portfolio manager. Component stocks are added and deleted from time to time so that the basket is more "representative" of what is going on in the economy. Deletions are usually based on low share price, for whatever reason, or a merger or acquisition.

My other issue is that it is price weighted. This is wacky and has produced as pointed out by John Maudlin, some peculiar truths at the current moment:

• If all four (Citi, GM, Alcoa, BofA) of these stocks went to zero on today's open, the DJIA would lose only 157.3 points.
• If Microsoft with a market cap of $153 billion went to a price of zero, all the Dow would lose would be 136 points, or less than 2%
• IBM has more influence on the index than all the financials, autos, GE, and Alcoa combined

It should go without saying that stocks with higher share prices are just that.

Hmmm

Creepy.

What's In Store For Next Week?

The market is hanging in very well as we approach lunch considering the bloodbath in the premarket futures before the open.

I am expecting some very big news on economic policy Monday. I haven't seen a day in the life story on Obama for today so hopefully he's at a conference table with some guys and gals who know what credit default swaps are. Geithner and Obama have both indicated plans to reveal specific policies imminently. Since there is no quick fix, especially to unemployment and morbidly illiquid "assets", the potential upside is confidence-related.

Reply To All

Cut it out. This is the worst and most over-used email function ever. Right up there with exclamation points.

GE's Dividend

High dividends on common stocks are often a sign that business is bad and the dividend is about to be cut. GE reports this morning and the dividend on its common is over 9%. If the stock reports a weak quarter, it will be double digits.

A lot of commentators are wondering whether GE results will be strong enough to protect the dividend. I'm beginning to question the wisdom of that.

GE's return on equity over the last two years has been around 19%. To oversimplify, if you, Mr. Investor, give GE a dollar of equity, they will earn almost 20% on that dollar year in and year out. If you want the dividend protected, you would rather get 9% back on your money than have GE reinvest it in the business at a higher return.

I understand that it doesn't exactly work that way. There are dividend-driven investors and stability of dividends is viewed by may as a "quality" measure.

I'm just not so sure that GE paying out double digits makes sense. I wonder what would happen if Immelt says on the call, "There are so many fantastic investment opportunities across all of our core markets that we are cutting the dividend to ensure utter global industrial/financial domination."

Friday Morning

Samsung Electronics reported and lost money for the first time in the December quarter. Meanwhile Qimonda, Infineon's former DRAM division, filed the German equivalent of Chapter 11. It continues to be tough out there.

Samsung is prioritizing higher share in high end phones, which can't be good for profitability at the other handset makers.

****

Pfizer will be confronting a big hole in its portfolio when Lipitor comes off patent in 2011. Reports are around that the company will merge with Wyeth. Large M&A deals are always positive for the market, but it might not matter today as futures are down huge.

****

Google reported last night and the quarter was fine - good house, bad neighborhood. Google announced on the call that they will be repricing some employee options in an effort to better retain employees. This comes at a time when nobody is likely to be going anywhere. Oh well.

Semiconductor Paradox

In most semiconductor markets, the market share leader makes most of the money. AMD reported tonight and the beating that it is taking from Intel continues.

It is also very difficult to kill a semiconductor company. They just keep ticking and the world hates monopolies. The PC market needs AMD to be around to keep the big guy in check.

AMD is not ticking very loud though.

Eek

Microsoft just reported numbers early and boy are they bad. This is a company in dire need of a product cycle.

Operating expenses (R&D plus SG&A) were $5.8 billion in the quarter. OpEx at Apple by way of comparison was $1.4 billion and that little company had $10 billion in revenue for the 1st time and new products out the wazoo. Layoffs are coming at Microsoft as the value of all that spending is rightly being questioned. My guess is that all this puts a Yahoo transaction back on the table. Plus some more M&A down the road.

Some Apple Research

From a major Wall St. guy:

"Net, remarkable resilience in the business model, $31/share in cash, and an undemanding valuation (12x most models) makes for a compelling hiding place near term."

Nokia, on the other hand, is not so great (weaker margins, weak guidance, dividend cut).
Neither is Sony.

Geithner in Washington yesterday sounded like the real deal. He better be.

The futures are inconclusive as yet but we are expecting warmer weather on the East Coast so maybe Apple and a lack of new bad news from the financials (none yet) will let us drift higher.

A Tale of Two Tech Stocks

Apple reported better than expected for the quarter after the close and the guidance isn't all that bad. There is potentially lots more momentum in the franchise. The stock is trading up nicely in the aftermarket. Up - good.

Ebay's core markets look like they are maxed out. Gross merchandise value was down in the Q and missed estimates. Down is bad.

The conference calls might offer some different insight but I doubt it. Maybe by degree but not directionally.

Bad Joke

This week Chrysler announced that it was exchanging 35% of its equity and three seats on its board with European car maker Fiat in exchange for no cash but instead access to some of Fiat's platforms and technology. No cash.

Today it is coming out that the deal is contingent on us taxpayers giving Chrysler $3 billion more in loans. I don't know about you but I wasn't planning on giving them anything more.

****

It's unfortunate but Apple is likely going to have to pay some price for its inconsistent disclosure over Steve Jobs' health, Bloomberg reports.

Meanwhile, Apple co-founder Steve Wozniak puts forth very weak argumen in PC World mag that Apple may end up stronger after Jobs' timeout.

****

The futures are up nicely which means next to nothing after yesterday's rout.

For the second month in a row, oil prices have been very volatile around the monthly switch of the front-month contract, which means there are still probably way too many speculators in the market. The good news is that at $35 or $40, oil is among the least of our problems.

IBM Doesn't Need Any TARP Money

Great quarter from IBM today. I could add "despite the environment" but everybody knows that it's tough out there.

It's fascinating how well IBM has transitioned from being a growth company to a dependable, defensible cash flow story. It's no wonder that HP under Hurd is trying to be exactly what Big Blue is.

The stock traded up nicely in the aftermarket. Well deserved.

On 3rd Thought

Goldman Sachs was down 19% today and that was a very good performance for a large cap financial. If you own financial shares, maybe today Obama was the sideshow.

There is some talk today about the feds eliminating or putting on hold mark to market rules, or FAS 157. How the regulators could get this done in an orderly fashion even if they're willing is beyond me. If they do do it, though, the banks whose common stocks aren't worthless are going to see those stocks go a lot higher.

Obama Day #2

The market isn't impressed by what it heard from Obama, or maybe it is overwhelmed by the weakness in the financials. Probably the latter.

The following half sentence from today's speech did a little of the work in getting Obama elected:

"a nation cannot prosper long when it favors only the prosperous"

Populism at its best and it was well-played during the election, especially as a follow up to Bush the 2nd. It's probably not the best time to be taking from the rich and giving to the poor in this country.

"Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends -- hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism -- these things are old."

That's more like it.

Obama Day

We get a new President today and that new President gets a horrid economy. Oil is trading down 8% today indicating that more weakness globally is likely.

Stock futures are down a little but once the events in DC get going, the tape should be sentiment-driven for today.

****

Mexican billionaire Carlos Slim did some shopping, or loan sharking, last night, taking a $250 million notes + warrants stake in the NY Times company at roughly a 14% interest rate. The Times needs the money. Slim made an initial investment last fall and is down big so he needs a pond of flesh, or at least a shot at getting one.

Just Wow

Chance
by titounetsan

Listen Up Crooks

No sign of Florida financier or his clients' millions

TALLAHASSEE (Reuters) — A Florida investment manager who disappeared with what could be hundreds of millions of dollars of other people's money remained missing on Sunday, as the investigation into his dealings widened.

The FBI and the U.S. Securities and Exchange Commission have joined the search and investigation for Arthur Nadel, president of Scoop Management, whose reported disappearance Wednesday was followed two days later by complaints from investors who said that funds invested by and through Nadel had disappeared along with him.

That's how to do it. Don't jump out of a plane or confess to your sons - just disappear. If you're smart enough to steal millions, you should be smart enough to scare up a fake passport and a clean getaway car.

RBS Yowsa

The UK government announced further measures to shore up the financial system today including increasing its equity stake in Royal Bank of Scotland to 70%, as RBS announced that it will lose around $40 billion this year. That's a lot of money.

It's MLK day so it's quiet on this side of the pond. Futures are up a little and oil is not doing much, but that is tomorrow's business.

****

Bloomberg is reporting that Morgan Stanley is putting the same stupid oil trade on as Citi and others. It's complicated so try to stay with me but it goes like this:

1. Buy oil
2. Rent supertanker
3. Park supertanker
4. Sell oil later
5. Make money

Voila. The following quote is priceless:

“It’s a window of opportunity that won’t last long,” Gareth Lewis-Davies, a London-based energy analyst at Dresdner Kleinwort Group, said by phone. There may only be four or five banks with the expertise to make the trade, he said.

I'd like to see a bank that doesn't have the expertise to put that trade on.

1.7 Billion

Monthly page views at CNN.com. Holy crap.

This NY Times story discusses how parent Time Warner can monetize cnn.com's traffic. It should probably have focused on why it hasn't. I'm assuming that it isn't wildly profitable since nobody else has mentioned that it is, and my experience on there hasn't lead me to believe that there is much revenue there at all.

Sunday

There is a difference between writer's block and temporarily having nothing to say. I have nothing to say.

Go Steelers.

<-- Steelers colors obv.

That is all.

Worst Bank

The idea of the new Fed under Obama, and early in his Presidency, taking in bad assets from banks is back on the table.

"Outgoing Treasury secretary Hank Paulson offered support for such a move, telling reporters “a lot of work has been done on an aggregator bank” and other ways of “dealing with illiquid assets”."

It took a while to get here but this was the original purpose for TARP and it might work. Bad assets are obviously bad. Bad, totally illiquid assets are crippling. Just don't expect to hear the words "banker" and "bonus" in the same sentence any time soon. These guys were so wrong, and are getting so much help that their comp structure is going to be under heavy scrutiny for years. And for good reason.

Up Big, Down Big

The intraday market is acting like the U.S. banking system is falling apart before our eyes, probably because it is. We can expect some regulation aimed at the question "What are the banks supposed to be doing?"

Blodget's Take on BofA CEO's Future

Highlights:

• If it didn't occur to Ken Lewis that Merrill might be forced to take additional "monstrous" writedowns (as he now reportedly describes them), he should be fired.
• If it did occur to him and he didn't check this out during the due diligence process, he should be fired.
• If he didn't think the global debt markets could continue to deteriorate to a level that required such writedowns, he should be fired.
• If he fully expected the writedowns and just didn't realize what they would do to Bank of America's own stock price, he should be fired.

Brilliant

B of A Train Wreck

BofA needs lots more money from TARP, and gets it. Around $138 billion.

The guys and girls who have spent time in the BofA Board room over the past couple years must be pretty embarrassed, unless there's more to the story. The Countrywide purchase was risky business indeed. I'm not sure how you explain the Merrill Lynch buy given the new numbers.

Citi continues its downward spiral as well.

The common stock of both have become a side show, and probably worthless.

The stimulus package is going to be $825 billion. $825 billion. Obama better have a long term plan because this short term plan is hella expensive.

Yesterday's intraday recovery from the lows was pleasant. The futures are up today so maybe we get some Happy Friday relief. If oil was a stock I would say that it's acting very bad. Bad like it's going to $25. It continues to be true that nobody knows.

long BofA (it's a long story)

Synergy

I get email alerts from the online properties of the NY Times, Wall Street Journal and some other papers when breaking news hits. Since news is news and it is what it is, it's a brilliant move that both papers are using the same evening headline writer.

NY Times gets the sloppy seconds, though.

NYTimes. com ‎DealBook Alert: Bank of America Reported Near Deal on U.S. Aid - DealBook News Alert The New York Times Thursday, January 15, 2009 -- 7:30 PM ET

WSJ.com Editors ‎WSJ NEWS ALERT: BofA Near Deal With U.S. to Get Fresh Capital - NEWS ALERT from The Wall Street Journal Jan. 15, 2009...
7:07 pm

Banking Problem Explained

I've seen this before but maybe you haven't...

Young Chuck moved to Texas and bought a donkey from a farmer for $100.00. The farmer agreed to deliver the donkey the next day. The next day he drove up and said, 'Sorry son, but I have some bad news, the donkey died.'

Chuck replied, 'Well, then just give me my money back.'

The farmer said, 'Can't do that. I went and spent it already.'

Chuck said, 'OK, then, just bring me the dead donkey.'

The farmer asked, 'What ya gonna do with him?'

Chuck said, 'I'm going to raffle him off.'

The farmer said 'You can't raffle off a dead donkey!'

Chuck said, 'Sure I can. Watch me. I just won't tell anybody he's dead.'

A month later, the farmer met up with Chuck and asked, 'What happened with that dead donkey?'

Chuck said, 'I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $898.00.'

The farmer said, 'Didn't anyone complain?'

Chuck said, 'Just the guy who won. So I gave him his two dollars back.'

Chuck now works for Goldman Sachs.

Jobs and Apple

Steve Jobs' health continues to be a big issue for investors and it's a good assumption based on the communication from the company over the last few months that investor information will be incomplete going forward. My gut is that while Jobs made Apple what it is today, Apple is not Steve Jobs. There is a lot of Apple there. Interesting that the stock is only down 5% today.

As follows is a excerpt from Jobs' 2005 commencement speech at Stanford:

"for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart."

Good advice.

JP Morgan

Aside from Steve Jobs at Apple, the biggest new so far today as that JP Morgan, arguable the best bank in the U.S. and one that the Fed is heavily backing, didn't lose money in the quarter reported this morning.

Weee. 7 cents/share.

Oil is up a little but still below $40. Equity futures, other than the Apple influence on the Nasdaq, are not down much. Asian shares are lower.

Baby it's cold outside.

Madoff and CNBC

CNBC should mention this significant wrinkle rather than being riveted to the Madoff cam outside his apartment.

"Jan. 15 (Bloomberg) -- HSBC Holdings Plc and UBS AG may be liable for as much as $3.2 billion of losses linked to Bernard Madoff in a dispute over the duties of financial custodians at funds in Luxembourg and Ireland.

Custodians are charged with oversight of funds and they manage cash inflows and payments to investors. Those looking to recoup money would have to prove the banks failed to fulfill their duties, according to nine lawyers surveyed by Bloomberg News. HSBC has said it isn’t liable and UBS declined to comment on the issue."

This is a crock of shit. A fund custodian is responsible for oversight in the same way that my bank is responsible for oversight of my checking account. They are responsible for keeping The Riddler and The Joker from taking money from my account. They are not responsible for keeping me from taking money from my account.

This is going to be a case of everybody suing everybody but this part of it better not get off the ground.

Apple

Steve Jobs is out til June. I have no more current details than that.

Equity investing involves risk. I think that the chance that Apple's product and market share momentum will fall apart based on this or anything else currently known is an acceptable risk.

That is all.

AlcatelLucentNortel?

Nortel is trading at 7 cents in the premarket as it filed bankruptcy today, citing a dismal voice-only equipment market. The land line business is vanishing.

I wonder if the strange bedfellows Alcatel and Lucent have room under the covers for one more.

I'm Going to Try This

I probably won't be offered any help at all, though. After all, I do live in NJ.

Police say thieves made off with pilfered TV on roof of vehicle

Authorities are looking for two men they say walked out of a local electronics store with a $2,300 television. Employees at Circuit City, 345 Faith Road, told police two men walked into the store around 3 p.m. Sunday and walked out with a 67-inch Samsung TV. The TV was sitting in a box on display.

According to a Salisbury Police Department report, each man picked up a side of the box and they walked out. An employee who saw the men leaving asked them if they needed extra string to tie down the television. One of the suspects answered yes and the employee went inside. When he came back out, the men — and the TV — were gone.

It's that easy.

Yes, There's a Credit Crisis

Here is a headline that makes you think:

Cash-Strapped Technology Small-Caps Hold Patent Sales

Large companies are not going to be hiring any time soon. In my opinion, the lynch pin of when the economy improves is no longer house prices, but rather jobs. Since the unemployment rate is a lagging indicator, we are bound to have more job losses for the next 6 - 12 months. The only way to stem the unemployment rate therefore is to crate new jobs. Firms most likely to need new bodies are startups, or small and growing businesses. If they can't get credit, they cant grow. Payrolls, revenues or anything else.

Hump Day

Lots going on and not much that I can see in the better-than-expected category.

The S%P is now down 3.5% ytd, which is more like it. I can barely remember the New Year's rally.

It's funny that Bernanke's superficial speech yesterday may have been a catalyst for others to reopen talks on getting bad loans off the balance sheets of banks, which was the original purpose of TARP.

CNBC's "Madoff watch" is retarded and makes me embarrassed to have this channel on.

Vik Pandit, Citi CEO is featured in a lot of headlines this week. The one yesterday claiming that his job is safe was dubious. The ones today insisting that he needs to dismantle the bank pronto seem more likely.

Yahoo has a new CEO. Carol Bartz, the former CEO if Autodesk. I wasn't a huge fan in her last role and she doesn't have much to work with here.

A good message spoiled

The letter below was ostensibly written by the boss of a civil engineering firm to his employees. It's a wonderful, heartfelt libertarian message but was incorrectly attributed to said boss, as indicated by his own company's website. The disclaimer is prominently displayed in the "contact us" section of the website.

That being said, and no attribution being available, as follows is the letter. It may have been written by a pro, pundit or right-leaning shill, but in any case...

To All My Valued Employees,

There have been some rumblings around the office about the future of this company, and more specifically, your job. As you know, the economy has changed for the worse and presents many challenges. However, the good news is this: The economy doesn't pose a threat to your job.

What does threaten your job however, is the changing political landscape in this country. Of course, as your employer, I am forbidden to tell you whom to vote for -- it is against the law to discriminate based on political affiliation, Race, creed, religion, etc.

Please vote who you think will serve your Interests the best. However, let me tell you some little tidbits of fact which might help you decide what is in your best interest. First, while it is easy to spew rhetoric that casts employers against employees, you have to understand that for every business owner there is a back story.

This back story is often neglected and overshadowed by what you see and hear. Sure, you see me park my Mercedes outside. You've seen my big home at last years Christmas party. I'm sure all these flashy icons of luxury conjure up some idealized thoughts about my life. However, what you don't see is the back story.

I started this company 12 years ago. At that time, I lived in a 300 square foot studio apartment for 3 years. My entire living space was converted into an office so I could put forth 100% effort into building a company, which by the way, would eventually employ you.

My diet consisted of Ramen Pride noodles because every dollar I spent went back into this company. I drove a rusty Toyota Corolla with a defective transmission. I didn't have time to date. Often times, I stayed home on weekends, while my friends went out drinking and partying. In fact, I was married to my business -- hard work, discipline, and sacrifice.

Meanwhile, my friends got jobs. They worked 40 hours a week and made a modest $50K a year and spent every dime they earned. They drove flashy cars and lived in expensive homes and wore fancy designer clothes. Instead of hitting the Nordstrom's for the latest hot fashion item, I was trolling through the Goodwill store extracting any clothing item that didn't look like it was birthed in the 70's.

My friends refinanced their mortgages and lived a life of luxury. I, however, did not. I put my time, my money, and my life into a business with a vision that eventually, some day, I too, will be able to afford these luxuries my friends supposedly had.

So, while you physically arrive at the office at 9am, mentally check in at about noon, and then leave at 5pm, I don't. There is no "off" button For me. When you leave the office, you are done and you have a weekend all to yourself. I unfortunately do not have the freedom. I eat, ****, and breathe this company every minute of the day. There is no rest. There is no weekend. There is no happy hour. Every day this business is attached to me like a 1 day old baby.

You, of course, only see the fruits of that garden -- the nice house, the Mercedes, the vacations... You never realize the back story and the sacrifices I've made. Now, the economy is falling apart and I, the guy that made all the right decisions and saved his money, have to bail-out all the people who didn't.

The people that overspent their paychecks suddenly feel entitled to the same luxuries that I earned and sacrificed a decade of my life for. Yes, business ownership has is benefits but the price I've paid is steep and not without wounds. Unfortunately, the cost of running this business, and employing you, is starting to eclipse the threshold of marginal benefit and let me tell you why:

I am being taxed to death and the government thinks I don't pay enough. I have state taxes. Federal taxes. Property taxes. Sales and use taxes. Payroll taxes. Workers compensation taxes. Unemployment taxes. Taxes on taxes. I have to hire a tax man to manage all these taxes and then guess what? I have to pay taxes for employing him. Government mandates and regulations and all the accounting that goes with it, now occupy most of my time. On Oct 15th, I wrote a check to the US Treasury for $288,000 for quarterly taxes. You know what my "stimulus" check was? Zero. Nada. Zilch.

The question I have is this: Who is stimulating the economy? Me, the guy who has provided 14 people good paying jobs and serves over 2,200,000 people per year with a flourishing business? Or, the single mother sitting at home pregnant with her fourth child waiting for her next welfare check?

Obviously, government feels the latter is the economic stimulus of this country. The fact is, if I deducted (Read: Stole) 50% of your paycheck you'd quit and you wouldn't work here. I mean, why should you? That's nuts. Who wants to get rewarded only 50% of their hard work? Well, I agree which is why your job is in jeopardy. Here is what many of you don't understand; to stimulate the economy you need to stimulate what runs the economy. Had suddenly government mandated to me that I didn't need to pay taxes, guess what? Instead of depositing that $288,000 into the Washington black-hole, I would have spent it, hired more employees, and generated substantial economic growth. My employees would have enjoyed the wealth of that tax cut in the form of promotions and better salaries. But you can forget it now.

When you have a comatose man on the verge of death, you don't defibrillate and shock his thumb thinking that will bring him back to life, do you? Or, do you defibrillate his heart? Business is at the heart of America and always has been. To restart it, you must stimulate it, not kill it. Suddenly, the power brokers in Washington believe the mud of America are the essential drivers of the American economic engine.

Nothing could be further from the truth and this is the type of change you can keep. So where am I going with all this? It's quite simple. If any new taxes are levied on me, or my company, my reaction will be swift and simple. I fire you. I fire your co-workers. You can then plead with the government to pay for your mortgage, your SUV, and your child's future. Frankly, it isn't my problem any more. Then, I will close this company down, move to another country, and retire.

You see, I'm done. I'm done with a country that penalizes the productive and gives to the unproductive. My motivation to work and to provide jobs will be destroyed, and with it, will be my citizenship.

While tax cuts to 95% of America sounds great on paper, don't forget the backstory: If there is no job, there is no income to tax. A tax cut on zero dollars is zero. So, when you make decision to vote, ask yourself, who understands the economics of business ownership and who doesn't? Whose policies will endanger your job? Answer those questions and you should know who might be the one capable of saving your job. While the media wants to tell you "It's the economy Stupid" I'm telling you it isn't.

If you lose your job, it won't be at the hands of the economy; it will be at the hands of a political hurricane that swept through this country, steamrolled the Constitution, and will have changed its landscape forever. If that happens, you can find me in South Caribbean sitting on a beach, retired, and with no employees to worry about.

Signed, Your boss,

Corning = The Market

From a major Wall Street research firm this morning:

"We are reducing our rating on the shares of Corning from Neutral to Underperform following the recent 24% rally in the shares. There is no change to our $9 price objective and below consensus 2009 EPS estimates ($0.75 vs. $0.94), which we now think on the heels of our visit last week to CES could even prove aggressive largely due to the lack of major demand impetus."

Corning is the market share leader in making glass for flat panel displays and TV's. The shares rallied from $7.88 November 20 to $11.55 January 6, a gain of 46%. Demand is soft, not likely to recover soon and 09 estimates are probably too high. The TV cycle, a large driver for tech in 07/08 is over. A prefect recipe for lower stock prices.

It still may be that the November lows were too low, but only time will tell.

Bernanke at LSE

Bernanke's speech at the London School of Economics today coincided with my drive to the office so I listened to almost all of it.

Either Bernanke thinks the folks at LSE haven't really been paying attention and needed a recent history lesson, or thought this would be a good soapbox to defend his and Paulson's body of work from 2008.

TARP actions to date, while they have not served to materially increase lending, have helped stabilize the large financial firms and hopefully will prevent another Bear/Lehman situation. The following quote, "In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking" captures the new paradigm that the large banks must operate under, and does not argue for new large private sector lending increases in the short term. It may be time for TARP funds to flow to smaller banks without reserve issues, who would be happy to lend incremental capital if they had it.

Auto Show Week

This week is a very boring time in terms of financial news from my perspective. I'm not into cars, or car news, and with the industry in such a slump, it seems like all it's bad or at least sobering.

AutoNation's CEO was just on CNBC talking about the industry, and he made an interesting observation. Something like,

"As U.S. labor costs come in line with the U.S. plants of foreign auto makers, the industry and the UAW have to realize that in a cyclical industry, labor costs can not be fixed."

Given that there are huge pension and health care costs that are owed to retirees, there are always going to be fixed labor-related costs. Minimizing the fixed costs through the rest of the income statement needs to be job one.

The Finger

The usually-seriuos Funancial Times highlights a study that starts out like it could be a joke but isn't.

"Researchers at Cambridge university have found a strong statistical link between the profitability of male traders at a London bank and the ratio of index to ring fingers on their right hand. The longer the fourth digit in relation to the second, the more money the traders are likely to make.

This ratio, known as “2D:4D”, is affected by the amount of male hormone to which people are exposed while growing in their mother’s womb.

Traders with the lowest 2D:4D ratios had an average annual income of £680,000 – 11 times higher than those with the highest ratios. The ratios, measured from photocopies of volunteers’ hands, ranged from 0.90 to 1.02."

Stop looking at your hand.

Nothing to See Here, Part XXXII

Interesting stat in the USA Today:

"In the year since the recession began in December 2007, the jobless rate for men rose from 4.4% to 7.2%. At the same time, the jobless rate for women rose from 4.3% to 5.9%."

The disparity seems news-worthy but it isn't really. Two data points tell the tale:

• Three-quarters of the workers in the health care and education sectors are women
• men represent 93% of workers in construction and 72% in manufacturing

Men just happen to dominate the jobs in more cyclical businesses.

It's a slow news day when I'm reading the USA Today at 6:00 am.

Citi 2

Over the weekend I wondered why Citigroup would sell its retail brokerae biz now. Here is another piece of the puzzle from the WSJ today:

"Citigroup is expected to post an operating loss of at least $10 billion when it announces fourth-quarter results on Jan. 22, say people familiar with the matter.Such a loss would be far worse than the $4.1 billion that Wall Street analysts are projecting."


Despite a lot of talk about China's growth stabilizing, oil is back below $40. Very nice.

Braaak Shrugged

Friday's WSJ carried the 3rd reference to Ayn Rand's "Atlas Shrugged" that I've seen this week. In fact, it's the most-read article in the online Journal this weekend. I'm not sure that it could be coincidence. I do believe that the government is getting dangerously large but how does an old literary work suddenly jump to the forefront of political commentary?

The WSJ editorial's point is summed up in the sentence, "If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster."

Big govenrnment and wealth redistribution have been with us for decades. Apparently it has passed some point of acceptability.

God-Like

I just looked at the odds for this year's Masters tourney.

Mickelson is 10-1 to win. Harrington who had a great majors year last year looks like a good bet at 15-1.

Tiger, who hasn't played a tourney sine the U.S. Open and is coming off major knee surgery, is 9-4.

The faith that the public has that he will come back better than ever is incredible.

Why This? Why Now?

According to every financial journalist who is awake, Citigroup is in advanced talks to sell its wealth management (retail brokerage) business to Morgan Stanley for a few billion.

Wealth management is not that difficult once you have scale and not too cyclical so it's going to beg the question why Citi needs to do this now. The market doesn't need another round of "Citi in trouble...balance sheet worse than expected" chatter but it looks like it's going to get it.

Fewer Jobs Again

The jobless claims number came in almost exactly at consensus, -524,000. The unemployment rate is now 7.2%.

The futures are lifting a little, maybe because the whisper numbers were as high as 700,000. There are plenty of market participants whose view is that the worse it is now, the sooner the recovery can start. You can take heart in the fact that this is the ultimate lagging indicator. Or you can be bummed out. Either way is OK.

Unprepared as Usual

Via: AP:
"Electronic unemployment filing systems have crashed in at least three states in recent days amid an unprecedented crush of thousands of newly jobless Americans seeking benefits, and other states were adjusting their systems to avoid being next.
About 4.5 million Americans are collecting jobless benefits, a 26-year high, so the Web sites and phone systems now commonly used to file for benefits are being tested like never before."

Silly, scary stuff.

Mortgages Are on Sale

The 30-year fixed rate declined to 5.01% for the week ended yesterday, the lowest level ever. I'm sure there's plenty of demand at 5%, not so sure about the supply.

It would be nice to see a large percentage of the remaining ARM's get refinanced in the next few months. a 5% fixed mortgage has got to be one of the prettiest numbers you'll see in this economic malaise.

Oil

Reuters is reporting that Russia and the Ukraine may have settled their tariff dispute and that the oil will start flowing to Europe again. The sooner the better. I'd love to see oil below $40 again.

PALM

You're not alone if you didn't notice that smart phone maker PALM's shares have tripled since December 5.

Well-know tech investor and hippie Roger McNamee was just on CNBC on Maria's show bulling the hell out of it. He might be right that as consumers expect more computing from their communications device, we're ripe for a new mobile operating system, which apparently they have.

The stock's run should continue tomorrow.

The SEC Should Hire This Gal

The Wall Street Journal and others are reporting on the SEC re-opening its case against hedge fund Pequot Capital over some Microsoft trades in 2001.

Here is my version of what is going down based on what I've read today. I'm not sure how much of it is 100% legit.

• Pequot makes about $2 million trading MSFT around earnings in 2001
• Around the same time Pequot hires David Zikha from MSFT
• Pequot fires Zikha
• The SEC unsuccessfully probes Pequot over the trades
• Zikha sues Pequot
• Pequot pays Zikha $2.1 million
• SEC closes case
• Zikha's wife files for divorce
• Zikha's wife produces a copy of the hard drive from the home computer which included sketchy emails between Zikha and his old boss at MSFT

Bam. They should put her on the Madoff case.

Another Day in Paradise

The market is proving that it can still go down although it's trying to bounce now. Yesterday's ugly action is being mostly attributed to the worse than expected ADP employment report, although Time Warner, Alcoa and Intel kicked in with bad news of their own. Today, Walmart is getting involved and tomorrow's job number should be horrific.

The PGA tour season starts today which is a welcome diversion.

If you're not the trader type, stay defensive. As a wise man who I don't know wrote today, "The sell buttons are usually right next to the buy buttons."

BofE Didn't Get the Memo

The Bank of England cut rates to 1.5% this morning and might as well have admitted that they didn't go far enough.

"“Business surveys suggest that the pace of contraction in activity increased during the fourth quarter of 2008 and that output is likely to continue to fall sharply during the first part of this year,” the Bank said in a statement accompanying the historic decision."

Why they didn't go lower is a fantastic question but in any case increases the relative attractiveness of U.S. equities, on the assumption this this economy will be able to grind out of recession faster than the boys and girls on the other side of the pond.

If you're inclined to be optimistic about government-led economic recovery, then you'll agree that Obama did a fantastic job in his CNBC interview last night. It's still a little or a lot too Robin Hood for me but this economy need a hero.

Well It's Official

Walmart lowers its earnings estimate for the January quarter despite being the clear winner in the just ended holiday season.

If Walmart missed, everybody missed. Below here I described this as the least important earnings season in recent memory. It may become less so if the market goes into "free pass" mode. Money will rotate out of low-yielding treasuries at some point, probably soon. Let's see where it goes.

Intel Inside

Intel just preannouced negative. They're going to miss Q4 revs by a mile but I don't think it will matter much. It will be interesting to see what they say about the outlook for 09 but I don't think that will matter much either, as they are so big that there's no escaping economic sensitivity.

It won't help Apple at the margin if Intel chooses to price much more aggressively, which they probably will.

All in all other than layoff announcements and inventory levels, this is setting up to be one of the least important earnings seasons that I can remember.

Down is still bad.

Risky Business

Today is Obama Day on CNBC. As far as I can tell he is doing at least two exclusive interviews. I'm not sure what to make of it.

Obama has no particular expertise or history in finance or investments, and he is not even President yet. That said, optimism around what he will be able to accomplish is fundamental to many people's more constructive view on the market. He probably won't be required to field any really tough questions, and it's too early to promise specifics, so my guess is that it's going to be a home run.

Hump day.

Satyam Scandal and Non-U.S. Valuations

A company lots of people never heard of was a darling in some investor circles for large chunks of the last decade.

India's Satyam Computer Services is an Indian IT outsourcer which was right in the middle of some powerful themes. Outsourcing. Check. Low-cost Indian labor. Check. In the Septmeber quarter the company had more than 50,000 employees, $650 million in revenue, net profit of 20% and return on equity of 28%. They admitted last night that they have been cooking the books for years and even the cash on the balance sheeet had been inflated.

The company's ADR trades on the NYSE (SAY) and should open around $3 today. Part of the attraction of the stock over the years in addition to its robust growth rate was that it was never all that expensive. I guess there's a reason why many non-U.S. names trade at a discount. Even if it is not true, investors would love to believe that U.S. auditors would have caught this one.

Jailbreak in Central NJ

The closest buildings to my 9-year old's school are part of a farm run by the NJ Department of Corrections, and staffed by inmates. It's also about a mile from my house. What could possibly go wrong?

State prisoner escapes from Somerset work farm
by Jennifer Golson/The Star-Ledger
Tuesday January 06, 2009, 2:50 PM

A manhunt is underway today in Somerset County for an inmate who walked away from the Skillman Farm in Montgomery Township where minimum custody inmates work tending dairy cows, authorities said. Marc Harris, 22, who could have been eligible for parole in May, was last seen at about 9:40 a.m., said Matthew Schuman, a spokesman for the state Department of Corrections.


Schools in the area, including nearby Montgomery High School, were secured this morning during the search, but were dismissed normally this afternoon, said Gail Palumbo, the district's crisis management coordinator. "We have over 50 police officers from various (agencies) that have been combing the township, as well as serving pickup and drop off of students," Palumbo said, adding that police officials made the decision to dismiss schools.

He is described as a black male, about 5-feet, 6 inches tall and 200 pounds. Harris was sentenced in August to three years in prison on a drug distribution charge in Atlantic County, according to state Department of Corrections records. He was required to serve a minimum of six months and would have been eligible for parole in May. Harris also goes by the name Sencere Hand, according to DOC records.

Probably nothing to worry about if he's also known as "Sencere Hand". My tax dollars are certainly at work today.