Saturday, February 28, 2009

The Shoe on the Other (Wrong) Foot

Lots of Main Street folks and populist media and government types have had a lot to say about the "bailout" of Wall Street. A new bill, H.R. 1068, was introduced February 13 has put the check for the TARP funds in a glossy leather folder and is about to hand it to Wall Street.

This is one stupid piece of legislation. The intent is to levy a 0.25% transfer tax on all purchases and sales of securities, greatly increasing the cost of trading.

Who is going to bear that cost? For investor in mutual funds and pension plans, the investors themselves. The result will be lower returns, in lots of cases significantly lower for most investors, and many business models will not work. 0.25% per year can be the difference between success and failure in professional investing. In a high-turnover niche of the market, forget it.

The Security Traders Association is lobbying for support against, over here.

I Will Consider Any Reasonable Offer

GE cut the dividend yesterday by 68%. On January 23 I wrote:

"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 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." "

They should hire me. I'm running five weeks ahead of the game.

I am not Happy With the President

The policy initiatives that Obama would and will pursue if elected – health care reform, greener everything, more money for education, negative tax rates for the less-than-middle-class – were clear throughout the campaign. His pursuit of the mandate he has been given shouldn’t surprise anyone. Nor should anyone bitch about how it’s going, or the price tag within reason. If you don't like it, vote for somebody else next time.

The economy is another matter.

Every economy is cyclical and downturns are necessary. Bubbles get deflated, dead wood get cleaned out, expectations get reset. This one looks and feels especially bad so some government intervention is warranted. The policies of Obama and Geithner have been all over the place and mostly off the mark so far.

It’s especially easy to bitch about the government and economic and fiscal policy if one is not forced to offer solutions. I would like to see three things fixed in the short term and have some ideas about how to get it done. The rest of the economy could very follow along a better trajectory.

  1. Get the good banks lending again. This is a tough one. The biggest impediment to better access to credit system-wide would be to move the hard-to-value assets off the good banks’ balance sheets. There has been chatter about Citi selling its Mexican bank or its Brazilian credit card processor - good assets. The Fed created TALF in November to help deal with the bad asset situation but hasn’t done anything with it yet.

    Starting with Citigroup yesterday, the Fed’s policy should have been that if any institution needs incremental TARP help, the first step that the Fed took was to liquidate the hardest-to-sell assets at Citi. The banks are valuing loan portfolios at 20, 30, 60 cents on the dollar and are afraid to sell them lower. The market needs price discovery. Forced sales can get us there. The buyer might even make some money.
  2. Put in a natural bottom in housing.

    Again, let’s not subsidize people who bought houses that they can’t afford. Ugh.
  3. Create jobs
    Some very important changes in tax policy in the budget outline do the opposite. Raising the capital gains tax creates a disincentive to invest. Less investment equals fewer jobs. Increasing the tax rate on carried interest on funds, particularly venture capital funds, is just crazy. Small businesses create essentially all the net new jobs in this country.

    We are going to have a huge deficit. Let’s not offset a tiny part of it with the two above changes. Give the market a hand then get out of the way.

Did You Ever?

No, not eat a cat.

Did you ever have the feeling that you were not going to get anything done today?

That's me, right now.

I feel better getting nothing done on weekdays since I just end up thinking, and thinking is kind of like work. Thinking about working is so close to working that it might as well be. Some times it is. Never mind.

Happy Saturday.

Repost Alert

I wrote the following about a month ago. I might have been dreaming about it last night so I thought I'd repop it. I might start a new blog titled something like "I'm Disappointed in This Administration Even Though I'd Really Like It To Work."

<--Chart from James Quinn's excellent blog. House prices are still way above their long term average.

"...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."

Friday, February 27, 2009


4th quarter GDP was revised down from -3.2% to -6.2% and as someone pointed out on the tube, that is not even close to the biggest news of the day.

If the folks who own the Citi preferred own it because they need yield, they are in a world of hurt.

Stocks are at news lows. I'm going to try to ignore this. If you're sitting on some cash, you should too. If you're fully invested, I don't know what to tell you.

Well, It Is Friday

Hey Detroit

Check out this headline from today's Detroit Free Press:

As GM losses deepen, bankruptcy fears grow
Wagoner pleads case in Washington

Bankruptcy fears. The company needs to borrow $2 billion per month so that it can lose $3 billion per month at the current run rate. Bad.

The Citigroup Experiment and One Other

It looks like the U.S. taxpayer is going to own up to 40% of the common stock of Citigroup - as early as today. We taxpayers didn't sign up for this but we're going to get it.

Reportedly some private money is either coming in to the deal or converting preferred to common along with Uncle Sam. That is wonderful but there's a limit to how many deals the Feds can orchestrate with private investor participation, so let's hope that this is the last one.

Contrast that to the grand plans contained in Obama's budget outline yesterday. U.S. voters did sign up for that, even though the scope of the plan and the exact depth of the deficit required could not have been know at election time. Holy crap. It's going to cost $2 trillion to reduce health care costs.

"In an era where taxpayers and markets are confronting bad numbers in the trillions, the price tags on some of his initiatives do not seem quite so breathtaking, and, in any case, good economic policy demands that the fiscal floodgates remain open for a while."

His timing here is either perfect or perfectly crazy.

Thursday, February 26, 2009

Dell - Grinding Cash Flow

Dell reported after the close and while it was not a pretty quarter, earnings per share were better than expected and I suspect that cash flow was as well.

I covered Dell for over 10 years when I was on the buyside and it was always a cash flow machine, particularly its consumer division. My home office setup is fine, and that computer drives my wireless network, but since I use my laptop most of the time its actual computing power is used primarily by my wife and kids. That being said, it's a couple of years old, and I wanted to replace it due to the buildup of spyware and the like.

I ordered an inexpensive tower from Dell on Tuesday - no monitor, just the box. I ordered the standard config that they were pushing which I am sure they had readily assemblable. I just checked my order status and it hasn't shipped yet. I chose 3 - 5 business day shipping and the projected delivery date is March 18.

They hit my credit card the minute I ordered it and they still own the components, which if they don't actually assemble it until 2 weeks from now will have come down in price, since the inventory that they have on site belongs to their suppliers until they pull it out of the cage. They have my money, they have their componenets. Brilliant.

I'm not complaining but I'd be happier if they ship it tonight. Business is bad, yes, but that is a bona fide cash flow machine.

While I'm not recommending the stock, it is trading up a couple of percent in the aftermarket.

That Kind of Day

<----- That grainy picture is a villainous squirrel comfortably ensconced in my squirrel-proof bird feeder.
All 3 of my kids are sick. Two of them were puking before bed last night. My wife is supposed to be hosting a lunch party which is not happening I'm sure.

Obama's big budget sneak peek or outline or whatever it is is going to divert more attention from the banks and toward health care reform. Not ideal. Futures are up nicely, though.


GM is not doing so hot. Raise your hand if you think that losing $9.6 billion per quarter is sustainable. Those rust belt jobs that we are saving are awfully expensive.

Getting it Right Next Time

From Morgan Stanley Asia research:

"But now the party is over—and painfully so for a world
in recession and for markets in chaos. The task ahead is to
pick up the pieces, learn the lessons of this crisis, and take
actions to insure these types of problems never occur again.
The post-crisis fix can succeed only if it is grounded in the
premise of shared responsibility. A targeted politicized fix
is not a solution to a systemic problem. Fix the system that
gave rise to the crisis—not just the banks that have defined
ground zero of a wrenching credit crunch. The piecemeal
prescription of the blame game virtually guarantees there
will be a next time—an even bigger crisis that deals an even
tougher blow to market-based capitalism."

Stephen Roach, Chairman of Morgan Stanley Asia, great financial thinker and earner of about $500k per year did not proclaim the end of capitalism, but is worried about it.

With any crisis, a government has an obligation to fix the problem to the best of its ability and on opportunity to fix the system so that the same problem, or worse, does not happen again. Thinking about the last decade, poor business practices, poor consumer behavior, poor legislation and poor regulation got us where we are today. Let's fix that. Thinking about the last century, lightly
-regulated capitalism in an environment of the most efficient capital markets in the world made the U.S. the dominant economic force that it is. Let's keep that.

If we can't fix the current problem while at the same time preserving free markets, we're really screwed.

Have a Seat in These Big Leather Chairs Guys

"Feb. 26 (Bloomberg) -- Apple Inc.’s directors, after taking a back-seat role for years to Chief Executive Officer Steve Jobs, were forced to respond to investors yesterday as they pushed for an update on Jobs’s health."

It's not too difficult to see the irony here. Apple's founder and CEO is on sick leave. For months he chose to keep the real extent of his health issues to himself, or at least minimize it. Maybe he didn't know the details. Maybe he determined that it was nobody's business.

Now the SEC is investigating whether investors were misled. Investors are up in arms that the disclosure wasn't better. This is preposterous.

Yahoo's Board allowed management to talk them into turning down a fantastically generous Microsoft offer, to the severe detriment of shareholders. Was the Board castigated? No. Countless bank boards have paid execs tens of millions while said executives were taking risks that nobody understood. Nobody cared. Execs at dozens of companies backdated options in transactions that should have been totally transparent, and every board involved was asleep at the switch.

Countless bad, careless, clueless boards have not had their feet held to the fire - they get a free pass time after time. Apple has been innovating and executing. The SEC should leave them alone and investors should sell the stock if they don't like it.

Bank Stress Test

I think that the guys in Washington are getting this one about right.

The country's 19 largest banks are about to be stress tested in order to determine what will happen to their balance sheets in the event of another leg down in the economy.

"According to the new Treasury Department guidelines, the banks would have to assume that the economy contracts by 3.3 percent this year and remains almost flat in 2010. They would also have to assume that housing prices fall another 22 percent this year and that unemployment would shoot to 8.9 percent this year and hit 10.3 percent in 2010."

If, under the simulation, a bank's capital levels are not adequate, that bank would be given 6 months to raise additional capital. If they can't raise the money, the Fed will invest in additional preferred and undoubtedly increase restrictions on bathroom breaks and pencil purchases.

Some are arguing that the above doom and gloom scenario is not harsh enough, but if the future is worse, we have a lot of ground to cover in between now and then. It is encouraging that there is some semi-transparent analysis behind whether more taxpayer money will go to the banks. Ironically, though, it is the opposite of investment research. The worse a bank's balance sheet is, the more likely the U.S. is going to own a bigger stake.


More scammers doing the perp walk:

Four People Arrested in Three Separate Fraud Cases, FBI Says
By Patricia Hurtado
Feb. 25 (Bloomberg) -- The FBI arrested four people in three separate securities fraud cases. James Nicholson of Westgate Capital Management was taken into custody this morning by FBI agents, said Jim Margolin, a spokesman for the FBI’s New York office.
Paul Greenwood and Stephen Walsh of W.G. Trading were arrested on what authorities believe is a $550 million fraud scheme.
Mark Bloom, who used to work for Greenwood and Walsh and now heads his own firm, was arrested on a separate fraud scheme.

Last Updated: February 25, 2009 10:40 EST

Wednesday, February 25, 2009


Jim Grant of Grant's Interest Rate Observer was on Bloomberg radio this morning. I haven't been a subscriber to his newsletter since the early 90's but I can't remember him ever being bullish. By the sound of what I heard, he is in fact getting more constructive on what he considers to be undervalued assets, but had an interesting quote on when and whether the financial markets will start working again. He focused on how professional market participants lack of confidence in system:

"The best confidence comes from knowing the rules."

That quote is not exactly correct in all likelihood but you get the idea. I couldn't agree more. Who in their right mind would buy a bank stock, common or preferred, if you didn't know until yesterday whether some banks would be nationalized? Who would bid on a portfolio of distressed debt if there was even a possibility that the Fed would be the next bidder? If you're upside down on your mortgage, why make this month's payment if Uncle Obama might come over the top with a cramdown next month?

We need to know the rules.

Not Much

President Obama proved last night that even he can't do everything at the same time. I like the fact that he backed off his gloom and doom scolding stance, but his choice to focus on health care, energy and education left those who are focused on the banking system really wanting more.

The futures are little changed as maybe no news is good news. Oil is up a buck and a half - perhaps the Pres. did inspire confidence in a better economy ahead.
Google technical problems continue...

Tuesday, February 24, 2009

Not Happening

Nationalizing the banks, that is.

As follows is a snapshot of BofA's balance sheet, as pointed out by Jim Cramer today:

- $1.3 trillion in binding unfunded loan commitments
- $80 billion in letters of credit
- $1 trillion "matched" book of credit default swaps
- $1.4 trillion notional swap book
- $60 billion in liquidity commitments to conduits
- $26 billion in residential loan guarantees related to loans sold but still serviced

We can't handle the truth. If the resultant truth is that the Pres wants to nationalize the banks, we don't want or need the truth.

Obama is clearly on the hot seat tonight. It's unfortunate but his speech better be good, and/especially a departure from the doom an gloom or else stuff that he's been dealing of late. The TALF needs to get kicked in ASAP. Confidence needs to be restored. If we're paying attention, we know it's bad out there.


If the treasury and the President are really still considering nationalizing a bank or banks, they should take a closer look at how they're doing unwinding AIG.

AIG needs, reportedly, another $60 billion and the Feds might give it to them, with strings attached of course. Attached to what I'm not sure..


Google has some kind of technical problem. For the last 24 hours I've been only sporadically been able to reach this blog and/or my gmail account. Maybe the antitrust gods are addressing the issue of Google rapid ascent in market share and power. In any case, I probably won't be posting as much this week.


The Japanese market made a 26-year low last night. Just sayin'.


"Fidelity Investments, Charles Schwab Corp. and other 401(k) account managers say most clients rode out the worst months of the stock market slump without changing weekly contributions or moving to more conservative money-market or bond funds."

Bloomberg is pointing out that the average 401(k) investor is not running for the hills. This is obviously good and bad.


  • investors have a shot at making some of it back should the market recover
  • the defined contribution system kind of works


  • that money is not sitting out on the sidelines waiting to come back in
  • those folks lost half of their retirement money

I talk to people every day about their financial situation. Most people these days would rather be talking about something else.

Monday, February 23, 2009


I'm in. <---- That's is not a real chart, but rather a pictorial of how it's going. The U.S. economy, fiscal policy, Obama's Presidency, consumer confidence.

This market stinks. The common equity of hundreds of firms that have a complicated balance sheet is a crap shoot, and few in the mainstream media focus on it. If you read this with any regularity you might have noticed that I don't mind highlighting the positive, what could go right scenario if I can see it as possible. Doesn't even have to be probable.

Nothing I can see leads me to believe that this market is not going lower. I couldn't log into my blog today from the office or I would have written this as soon as the premarket strength showed signs of rolling over.

Things are bad right now. No one is smarter than the market. Certainly not the government.This is going badly, and could get a whole lot worse.

So Bad It's Good

Or something like that. Overseas markets are mostly strong and U.S. futures are perky. The main news is the sticky situation that is the Citigroup balance sheet is so bad that the Feds are going to have to step in and invest more.

The plan involves swapping preferred for common equity among other things, and is being viewed by the market as a much better outcome that what Citi had coming to it otherwise.

Back at the auto ranch
, GM is trading up nearly 20% in the premarket as Treasury reportedly is getting financing together for a $40 billion bankruptcy loan. The early leader for quote of the day:

"Lenders are reluctant to commit funding to GM or Chrysler for several reasons -- mostly concern they won't get all their money back."

Not good. Down is still bad and these $2 stocks are all over the place.

Sunday, February 22, 2009

Recency Bias Busted?

Maybe it's different this time.

Recency bias - the cognitive bias that causes people to more vividly remember the most recent example of something - needs to get to work on the psyche of the American consumer.

Yale Professor Robert Shiller writes in the weekend Times:

"According to the Reuters-University of Michigan Survey of Consumers earlier this month, nearly two-thirds of consumers expected that the present downturn would last for five more years."

Given that fact that most U.S. citizens have not lived through a downturn lasting five or more years, the above is surprising. We should be remembering a recent, brief recession. I wonder how different consumer, employer and banker behaviour would be if people really believed in a quick light at the end of the tunnel this time around.

Google Again

I wrote the following on February 9:

"My suspicion is that Google's power will begin fraying at the edges as customers and advertisers realize that Google has too much power and too much information - but substantive change to its competitive position will not occur until a great alternative comes along."

In today's NY Times, [I think that] Randy Stross is arguing for, or saying that there will be regulatory pressure on Google as it approaches 70% market share. I can't imagine the government or anyone else telling you which search engine to use. They can't separate the ad portion out or else there will be no business there. For the time being the downward pressure applied on Google's market share will come from the fact that the market hates a monopoly. Then something new will come along.

Tomorrow Looks Bad

The rest of the year might too.

<----- That's a 40-year chart of the S&P 500. Very scary.

The sidelines feels like a superterrific place to be.

Pascal's Gambit Overturned

Pascal's Gambit states that, in effect:

"If you don't believe in God, you better be right."

A survey of 1,000 members of the National Academy of Sciences (NAS) revealed that only 7% of members believe in God, down from 15% in 1933 and 27% in 1914. I'm not sure why they waited so long between surveys. I'm also not sure what to make of this all.

Saturday, February 21, 2009

Mr. Market

I don't like this market. It's no fun and people are still losing money. I guess you could say I don't like not liking the market. Yesterday's tragicomedy of bankers and politicians was more of the same. Citi and BofA still don't need more money. Sen. Dodd is still bitching about bonuses. The govs are still not going to nationalize the banks.

<--- That's a 3-year chart on the S&P 500. We are within spitting distance of the November closing low of 752. Most technical analysts will tell you that if we breach that, look out below.

The key in my opinion is the balance sheet of the banks. The financials are acting like they have one big combined balance sheet and it's busto. The only good news is that it may not be, and if Geithner has a plan to really begin to move the toxic assets, there may be hope. Be careful though. Down is still bad and hope is still not a strategy.

February is almost over

Several men are in the locker room of a golf club. A cell phone on a bench rings and a man answers it on speaker. Everyone else in the room stops to listen.

MAN: "Hello."
WOMAN: "Honey, it's me. Are you at the club?"
MAN: "Yes."
WOMAN: "I am at the mall now and found this beautiful leather coat. It's only $1,000. Is it OK if I buy it?"
MAN: "Sure, go ahead if you like it that much."
WOMAN: "I also stopped by the Mercedes dealership and saw a new 2009 models. I saw one I really liked."
MAN: "How much?"
WOMAN: "$140,000."
MAN: "OK, but for that price, I want it with all the options."
WOMAN: "Great! Oh, and one more thing .....the house I wanted last year is back on the market. They're asking $1.5 million"
MAN: "Well, then go ahead and give them an offer of $1.5. They will probably take it. If not, we can go higher. It is really a pretty good price."
WOMAN: "OK. I'll see you later! I love you so much!!"
MAN: "Bye. I love you, too."

The man hangs up. Another man looks at him and asks, “What was that all about?”

The first man smiles and sys, "Nothing. Anyone know who this phone belongs to?"


There's a long windy article in today's WSJ about the proposed Ticketmaster/Live Nation merger titled "Can He Save Rock 'n' Roll?"
The "he" is Ticketmaster CEO Irving Azoff, who has been around the music biz since ships were made of wood and apparently has had mountains of success.

This merger isn't about saving the business. Recorded music sales are not going back to what they were. Per-song downloads, pirating, shorter attention spans and better radio delivery option have changed that forever.
This merger is about consolidating power around the one area of the business that is still strong and growing.

Kudos to him of he can get it done. Hats off to antitrust officials if they block this one, as it truly will be bad for consumers. Good luck to upcoming artists. At least they know whose back they need to scratch.

Friday, February 20, 2009

Friday, Dividends

Do we have to do this every week?

Futures are ugly, overseas markets are ugly.

Some Brit is on the tube talking about the wisdom in tough times of cutting your dividend, which is absolutely contrary to conventional wisdom. Sustainable and growing dividends have long been a sign of a company's stability, especially to superficial investors. I can certainly see that in tough times when earnings are troughy and the real cost of capital is high, many companies could find a better use for cash than giving it back to shareholders a little at a time.

Thursday, February 19, 2009


Reuters is reporting that Tiger is coming back at the match play next week.


Day Off

I took a day away from the (this) computer and the market, since the last post anyway.

I did my taxes by myself for the 1st time since I was in college, took my daughter out to lunch, talked with some friends on the phone, had a beer with another friend. I'm about to order pizza for the kids as my wife is at the gym.

The market is still rudderless but is listing towards the bottom, but maybe not a bottom, which I'm sure is not really possible in market or nautical actuality but at least I didn't mix metaphors.

Meetings in Philly tomorrow morning. I'll be back.

Oh, and Happy Birthday to me.

Bad Idea #197

Since I am of the view that America has lost at least a part of its ability to see and deal with the obvious, I'm going to point some really bad ideas as I come across them.

I'll start at #197 since I'm sure I've seen almost 200 of them over the last year.

<----- Having a pet killer monkey.

Hewlett Packard Ends the Tech Rally

Hewlett Packard is a very unsexy tech company that was doing all the right things. The company reported last night and missed revenue estimates big time, signaling the end of the untouchable phase for the new HP.

Under current CEO Mark Hurd, who took over for underwhelming Carly Fiorina and created the new HP, the company has exceeded expectations, improved margins, made a good acquisition of EDS - done everything it could to be more like cash flow machine IBM.

The big miss doesn't bode well for coming quarters. Methinks if they had some remaining tricks up their sleeve they would have used a couple this quarter.

Tech leaders have hung in well since the November lows. The market needs leadership and the financials are not going to do it. Those techs reporting January quarters, including Cisco and HP, are pointing to the fact that tech is not going to get it done either, at least in the short term.

Make it Stop

The horrendous economic news continues.

  • The U.S. Fed lowers it outlook for U.S. 2009 GDP and year end unemployment

  • Japan sees no near-term bottom to the economic outlook

  • The World Bank is calling on the EU, which has no central bank and therefore no money, to bail out Eastern and Central Europe, or something like that

  • The housing/mortgage component of Obama's economic Rube Goldberg is a complete and utter joke

Seriously, we are going to subsidize people who couldn't afford the house they bought in the first place at the same time that we are not going to get a supply/demand based bottom in house prices.

More populist, porkulist garbage.

Wednesday, February 18, 2009

Apple's Mojo

Apple's Mac mojo is missing. If you find it, please give it back to them.

According to NPD data being quoted in various Wall Street research, Apple Mac units were down down 6% y/y in January vs. a total market that grew units 2% y/y. In August, September and October of last year, Mac units grew 21%, 15% and 28% respectively.

Apple's continued ascension and enduring position in the music market is almost assured for the foreseeable future. The phone franchise continues to thrive. Further gains in PC market share ore the most obvious way that Apple can make another big leap forward.

The lack of big virus attacks of late can't be helping. Rock bottom PC prices are a headwind as well.

Risky Business

"The Securities and Exchange Commission charged Texas financier R. Allen Stanford with an $8 billion fraud, alleging in a civil complaint that he lured investors with promises of high returns on certificates of deposit but poured their money into a "black box" of hard-to-trade assets."

Either Allen Stanford isn't very good at fraud or it's a low-margin business. Think about it. Fortune puts his personal net worth at 2.2 billion, which is probably overstated. If I stole $8 billion I would like to think that I would have something pretty close to $8 billion. These crooks need to get more to the bottom line.


Futures are very quiet today which is a nice change from yesterday. A big swoon this afternoon, if it happens, will almost guarantee that we make new lows on the S&P 500.


The U.S. auto industry is on its last legs. They asked for billions again yesterday and might not make it til the end of the year even if they do get this round. Despite the jobs that will be last, the government needs to force their hand soon. They are cutting jobs as fast as they can anyway. I'm not sure why the arrival of an auto czar or an auto panel will make a difference.


The court of public opinion isn't going to like this one. Goldman Sachs Co-President Jon Winkelried headed for the exits yesterday and the WSJ is focusing on the fact that he made $67 million in 2007. I don't blame him for getting out of their while the getting is good.

Tuesday, February 17, 2009

Crisis Literature


This is good. Read it.

The market had a big down day today, which will most likely be viewed as an appropriate response to the lack of [ ] in Washington D.C. with respect to dealing with the immediate issues in front of us.

What word(s) should appear in the [ ] in the above paragraph? Talent? Transparency? Sincerity? Cohones? We need better regulation, more jobs, better regulators, better banks. Lots of things.

That the stimulus bill subsidizes the digital cable transition is off the wall wacky. Let's hope someone get some things right.

Universal Phone Chargers - About Time

GSM World, the monster cell phone meeting is going on in Barcelona right now.

In a shocking development, the 17 top mobile phone manufacturers (not including Apple) have agreed to have a universal charger for all phones produced after January 1, 2012. The group is citing environmental reasons for the shift but sheer convenience also makes it a big winner for consumers.

Apple better get involved in a hurry, although I'm sure they have their reasons for resisting, one of which is probably the profitability of proprietary accessories.


What's bad for U.S. consumers is good for Walmart, at least relative to other retailers. The company reported earnings this morning that were down less than analysts had forecast, by a little.

I was at Sam's Club yesterday and it was packed with people celebrating Presidents' Day. Either that or they really had to have 10 lbs of navel oranges.


The Washington Post goes into the inventory/capacity problem today in an article that we'll be seeing a lot more of.

"The world is suddenly awash in almost everything: flat-panel televisions, bulldozers, Barbie dolls, strip malls, Burberry stores."

Layoffs, closures and production cuts will help with the capacity side of the equation, but with respect to finished goods, we still need to sell all the extra stuff. With a car, a house or an office building, that's a big deal. Good news for consumers, bad news for everyone else.

Tuesday/Monday Looking Weak

As U.S. investors come back from a long weekend, overseas markets have had an extra day to continue to push to the November lows. The S&P 500 is still about 6% above that level with today's weakness but it's not looking great.


There's a poker term "close to the felt" which means that a player is almost out of chips, or money. Donald Trump's casino operation, Trump Entertainment Resorts, will probably file for bankruptcy today for the 3rd time. It is a great promoter who can go out and raise money over and over again for an enterprise that runs so close to the felt that it goes busto every time the economy goes into recession.


Anybody else think it's strange that people are fighting over Sirius?


Monday, February 16, 2009

I Have Been Waiting

For someone to write this with backup since it was bugging me and I lacked the numbers. From Jeremy Grantham's January 2009 letter to investors, a case against the U.S. market and economy desperately needing better access to credit:

"If in real terms we assume write-downs of 50%
in U.S. equities, 35% in U.S. housing, and 35% to 40%
in commercial real estate, we will have had a total loss
of about $20 trillion of perceived wealth from a peak
total of about $50 trillion. This relates to a GDP of about
$13 trillion, the annual value of all U.S. produced goods
and services. These write-downs not only mean that
we perceive ourselves as shockingly poorer, they also
dramatically increase our real debt ratios. Prudent debt
issuance is based on two factors: income and collateral.
Like a good old-fashioned mortgage issuer, we want the
debt we issue to be no more than 80% of the conservative
asset value, and lower would be better. We also want
the income of the borrower to be sufficient to pay the
interest with a safety margin and, ideally, to be enough to
amortize the principal slowly. On this basis, the National
Private Asset Base (to coin a phrase) of $50 trillion
supported about $25 trillion of private debt, corporate
and individual. Given that almost half of us have small
or no mortgages, this 50% ratio seems dangerously high.
But now the asset values have fallen back to $30 trillion,
whereas the debt remains at $25 trillion, give or take the
miserly $1 trillion we have written down so far. If we
would like the same asset coverage of 50% that we had a
year ago, we could support only $15 trillion or so of total

Without a doubt, there are some very worthy borrowers who are struggling to find a loan. As banks' assets have declined in value, they have been hustling to keep leverage and capital ratios in line. Without a doubt, it is more difficult overall than it was 2 years ago to get a loan. It should be. I don't want to see another bank fail in dramatic fashion, or even quietly, but it may result in the worst case scenario if we incent them to go back to their old lending levels.


On Friday, Merrill Lynch strategist David Rosenberg took his 2009 operating earnings number for the S&P 500 to $46. Consensus currently sits at around $64, putting Rosenberg more than a quarter below the street.

If he's right, the market is not as cheap as I thought it was based on current earnings. It may still be very cheap relative to normal earnings.

Happy President's Day.


Sunday, February 15, 2009

Weekend Update

No posts. No inspiration. Mini staycation as the wifey and kids went to grandma's house for a couple of days.

I got a really bad haircut today.

The Japanese economy is worse than ours maybe.

This populist, protectionist crap dominating the media and U.S. politics is sooooo weak. If the Congress and Senate had spent half the time debating whether we need a stimulus package as they did debating what pork to put in, the world would be a better place.

Friday, February 13, 2009

Microsoft Has Too Much Cash

Microsoft announced overnight that it will get into the retail stores business.

Are there consumers out there who are having problems locating a Microsoft product? Having your own store doesn't make your product sexier. They should go ahead and buy Yahoo so they can concentrate on something that might have some material upside.

That's What She Said

<---That's an unflattering picture of guest options commentator Rebecca Darst, who pops up frequently on Squawk Box, which I'm not supposed to be watching.

She got into a back-and-forth about non-words with Kernen et al and the following rolled off her tongue:

"It really is at the expense of our vocabulary that we welcome such an erudite President to the White House. I think we'll see fewer new words come into the parlance."

Well played.


This is probably months away but Coinstar is setting up to be a wonderful short.

The company, in case you didn't know, is in two businesses. Primary is the coin counting business, where you dump in your coins and get a receipt for dollars, minus a 9% vig. (That is a very good business model). The second business, and the growth driver of late, is its roughly 50% ownership in those red self serve DVD rental machines that you have seen in grocery stores and McDonald's.

Why the short? The coin counting business is begging for competition. It has been free for a while at Commerce Bank (recently acquired by TD), though I'm not sure if those are Coinstar boxes or not. If they are, it's got to be very low margin.

The timing of the short could very well be predicated on the IPO of the DVD business - announced last year then pulled. Between Netflix, torrents and cable on demand, leaving the house to get a movie has been an endangered species for a while. I'm not sure whether they'll ever get that IPO done but the real key to my negativity is that I heard an analyst say yesterday that the DVD franchise accounts for more than the overall company's valuation. If that's true it's bad all around.

Long Weekend

It's President's Day on Monday and in NJ, the kids are off school today as well. The futures are up a bit and oil is quiet. The animal spirits of this market may have been exhausted yesterday afternoon mounting that furious rally into the close.

The cause of the rally, of course, was the news of some details of the bailout plan, specifically a government-orchestrated mortgage modification program. Clearly this market is starved for specifics, as the Dow moved up 200 points in less than an hour.

Thursday, February 12, 2009

My Favorite Sentence of the Day

And maybe the week. From excellent blog Cassandra Does Tokyo:

"Despite the sorry state of markets far and wide, and even sorrier state of the real economy that is lagging the former, a week of traveling, planes, trains, and hotels with attendant over-indulgence in popular newspapers, television and radio has revealed the latest rip-roaring and snorting bull-market: simple-minded interviewers wheeling out pedestrian interviewees from any remotely-related tangential financial discipline - most with paltry knowledge and understanding of the current economic crisis, economic history, and financial markets but all who are recriminating, pontificating, moralizing, wagging fingers, denying and defending in a blind-leading-the-blind retributional media-equivalent of road-rage."

Yowsa. My wife, who has great common sense, wants me to stop watching CNBC.

Mark Cuban Might Fund Your Idea

Mark Cuban has a stimulus plan of his own.

He is offering to review business plans and invest his own money based on very strict criteria. That blog entry has 684 replies since Monday, many of them back-of-the-envelope proposals so don't expect him to get to yours any time soon.

Just Sayin'

"Feb. 11 (Bloomberg) -- Former presidents of Brazil, Mexico and Colombia said the U.S.-led war on drugs has failed and urged President Barack Obama to consider new policies, including decriminalizing marijuana, and to treat drug use as a public health problem.

Latin America is the world’s largest exporter of cocaine and cannabis and a major supplier of opium and heroin. It’s also been the main focus of U.S.-led drug eradication and interdiction efforts ever since U.S. President Richard Nixon declared “war on drugs” in 1971."

Nice try, not happening.

Cell Phones and Investment Banks

A major Wall Street firm just revised its 2009 cellular handset growth estimate to -12% and nobody is batting an eyelash. I'm old enough to remember when cell phones were a growth business.

Down is still bad.


Bloomberg reported this morning that JP Morgan, Goldman Sachs and Morgan Stanley may be working to repay the TARP funds as soon as possible, in order to avoid groundhogging days like yesterday. No kidding. The quality of the questions they were forced to answer was laughable. It's a sad state of affairs that members of Congress can summon important guys (even guys who screwed up big time) to a meeting, force them to be prepared to answer questions in detail and do no more prep themselves than printing a few emails from constituents

What exactly did Goldman Sachs do again? The U.S. government 5-year bond yield is 1.71%. The goverment borrows money at 1.7% forces Goldman to take a loan in for form of preferred shares at 5%. There is virtual certainty that Goldman will pay the money back. Doesn't sound like a lynching is warranted.

Whither the Market?

That is a chart of the probability according to InTrade bettors that the Dow Jones Industrial Average will trade below the November 20 low this year.

It would be interesting to bet that it won't given the evidence stacking up that the economy is still getting worse. Oil is back down to $35, the economy is losing half a million jobs per month, the government stimulus and stability plans are being roundly jeered. Since lots of stocks are cheap and I'm not a fan of putting trough multiples on trough earnings, I'm not making that bet but you certainly can.

It's crazy windy outside like my house is going to blow down. What are the odds of that?

Wednesday, February 11, 2009

U.S. Treasury Bank

Todd Horlbeck over at the's Real Money site laid out the following idea. I can't think of a single reason to disagree with it.

"I think the Treasury should set up the "U.S. Treasury Bank," or USTB, to deal directly with homeowners.

This new USTB will pay off, in full, the homeowner's current mortgage held by any private bank. This will be a huge positive to the banking system. The new USTB will retire the homeowner's old loan, and the principle balance on USTB loan will be reduced to a point that creates a 25% equity cushion on any home refinanced. (Anyone can qualify if you have less than 25% equity and only for existing homes loans.)

This would be a huge positive to the homeowner. In addition, this new loan would have a 4.5% fixed rate for 100 years. This would dramatically reduce payments for the homeowner. These new loans will be guaranteed, securitized and sold by the U.S. Treasury back to the public. This program will be financed by the corresponding sale of 100-year Treasury bonds, hopefully below 4.5%, helping the taxpayer directly, rather than giving money to banks and hoping they lend. The banks would receive huge amounts of capital and bad mortgages would be paid in full.

This would establish a bottom for home prices. The underwriting criteria can be set up quickly, probably in one week, and require every bank in the US to have at least one USTB employee at each branch (i.e. force banks to retrain one of their employees to be a USTB employee). This would expedite the set up."

Sure people who bought over their heads and have negative equity would get a free pass, but all in all it's worth it.

Darwinian Economy


Intel Corporation to Invest $7 Billion in U.S. Manufacturing Facilities
Tuesday, 10 Feb 2009 09:00am EST
Intel Corporation announced that it would spend $7 billion over the next two years to build advanced manufacturing facilities in the United States.

Cisco Systems, Inc. Prices $4 Billion Of Senior Unsecured Notes
Monday, 9 Feb 2009 05:57pm EST
Cisco Systems, Inc. announced the pricing of two series of senior unsecured notes for an aggregate principal amount of $4 billion.

While much of the economy is sputtering to maintain the credit that they have, tech giants Intel and Cisco are charging ahead. The rich get richer.

By the way, Blackberry maker RIMM just took up subscriber estimates.
Edit: They are pricing aggressively to get there. Numbers are coming down.

Something Happened to Jim Cramer Yesterday

At 12:14, just after Geithner finished bombing with the unveiling of his plan, Cramer wrote the following at his site:

"Now, of course, everyone is discovering that it was Geithner all along. Public/private. Are you kidding me? Do you think there is enough money, even with financing, to make a dent on Citigroup's structured investment vehicles, let alone the banking system? Does it matter that he will make "a trillion" dollars available? ..... More facilities. More trusts. More piecemeal. More, well, Geithner, complete with the daily leaks right up into this and the heavy press-courting that has been his style from day one.
I am embarrassed by the "press" that made us believe in this Geithner."

Then, less than 6 hours later, he wrote the following:

"However, as I listened to [Geithner's] testimony later in the day, I thought he made a lot of sense. I didn't like his speech any more than the market did, but if you parse it and expand it, there are elements that I have been calling for in these pages for a year now so I can't dump on the guy when he is in my camp."

I wouldn't be surprised if he got a call from someone very high up asking him nicely to tone it down.

Tuesday, February 10, 2009

Market Votes No

"We need price discovery and time, not borrowing and spending, which brought us to our current state.

We need a continued downsizing of investor expectations and corporations' fixed-cost structure. " Doug Kass, Seabreeze Partners

Geithner is done speaking, the Senate passed the stimulus package and the market is not impresseed, down 3+%. Looks as though there is lots more work to do.

Just Might Work

<--- That is a 2-year chart of disk drive maker Seagate.

An analyst at R.W. Baird just upgraded Seagate and its competitor Western Digital. These are two of the most hated stocks in techland, which makes the call interesting.

PC units shipments are terrible. High end notebooks now have solid state flash drives as a real option. Cyclical and secular headwinds aside, I'd rather own this stock at $5 than $30. Probably too early though.

That's Not Cheaper

The AP is reporting that Goldman Sachs has decided to pay a $600,000 penalty to Mandalay Bay Hotel so that it can move its Technology and Internet conference to San Francisco. Goldman to TARP money so keeping a low profile is now the thing to do.

Las Vegas sounds more boondoggleish but it's cheaper than San Francisco, so I guess they are doing it for the symbolic Brownie points that they may get. The sooner we get out of this phase the better. Banking conferences such as this one bring together institutional investors and companies with Goldman acting as the intermediary, which it is

Let's not totally destroy the capital formation process.

Tough Week

Obama didn't get the job done last night during his first prime time address to the nation as President. Actually, if he was trying to scare people about the gravity of the situation, maybe he did get it done. If he was trying to calm and encourage investors, he didn't at futures are down meaningfully.

Oil is still hanging out at $40, signalling no real changes, despite the fact that the Baltic Dry Index has doubled since Christmas and a handful of other commodities have been acting noticeably better.

and Bernanke both take the stage today, but different stages. I'm not sure what to expect from Geithner, and I'm not sure it matters what Bernanke says.

Monday, February 9, 2009


According to a Bloomberg story, there are five companies taking a shot at an IPO this week. Five new public companies among thousands might not sound like a big deal but keep in mind that the IPO market has been dead since Thanksgiving.

IPOs create supply of stock, which at the margin is a negative, but also breed confidence and give investors something new and glossy to get excited about. The market could use a fresh look at some new. good ideas.

Google Peaking?

There is an interesting article over here at Silicon Alley Insider trying to predict when and why Google will cease to be the game changer in the Internet world. Central to the author's thesis is that once you are the very center of disruptive change, you stop being disruptive and are just doing what you're doing better than anyone else.

My suspicion is that Google's power will begin fraying at the edges as customers and advertisers realize that Google has too much power and too much information - but substantive change to its competitive position will not occur until a great alternative comes along.

Sunday, February 8, 2009

Sunday Night Thoughts

"WASHINGTON -- Senate Democrats are confident they can push for a final vote on a revamped, $827 billion economic-stimulus package early this week..."

Expectations are very high for this week on the federal government policy front.

It's a shame really. The market probably sells off early this week no matter what happens. The market wants good news now. Especially good would be news that promises good future results which are not immediately disprovable.

Allow Me

A brief end zone dance on a Sunday evening.

I posted this 6 months ago. It just happened.

Saturday, August 30, 2008
Early Grammy Nomination
By Braaak, of course, who is not a member of any Academy that nominates anyone for anything. Nor am I the most talented singer/songwriter of my generation. I'm also not a music producer.

Song of the Year:
Viva La Vida by Coldplay.

If you listen to the radio at all you know this is not a controversial choice. Other than it being a good song, my reasons for picking it may not be so obvious. As follows:

1. This is the 1st Coldplay song that I can remember where they don't sound like they're trying to imitate U2.
2. The violin(s) arrangement is awesome, especially for a pop song.

It may be chick music, as I've heard some say, but I think it's a winner.

Commander in Chief

Saturday, February 7, 2009

Parenting 101

I was out for lunch with my boys, 9 and 11, when the A-Rod steroid news hit. ESPN was covering it like a volcano had just erupted in the Meadowlands.

One of my boys said, "Steroids make your muscles bigger, right?"

I said, "Yes and they make your penis smaller."

braaak at yahoo dot com for more handy parenting wisdom.

I See What You Did There

Under other circumstances what the Senate accomplished this week could be embarrassing. Heck, under these circumstances it should be embarrassing.

In just five days of debate, the Senate trimmed $150,000,000,000 of pork from the stimulus bill. That's a lot of money. The numbers have gotten too big for most people to comprehend.

I hope we can get back to simpler times after this economy stabilizes. $150 billion is $500 per person living in the U.S.

Oh Here She Is

SEC Chief Mary Schapiro made her first high profile comments on the new and improved role of her agency Friday.

"Ms. Schapiro said she wants to restore investor confidence in the markets, and she announced the formation of an advisory group of investors. She signaled interest in giving shareholders more say on how much executives are paid and who serves on corporate boards, long a divisive issue among commissioners."

A call to arms for smart watchdoggery as expected. I am a little perplexed about the comment on executive compensation. Disclosure to investors is not a problem. The proxy materials and annual filings provide all the info they need.

Board composition isn't the problem either. The problem is that boards are rarely held accountable for the actions of companies or their top execs. If the boards consistently put the shareholders' interest first, all will be fine.

Friday, February 6, 2009

January Lack of Jobs Report

January job losses were worse than projected. Maybe not worse than expected. November and December were also revise to the Down is Bad side. The U.S. economy lost more than half a million jobs for three consecutive months for the fist time ever. Ever.

The futures and the dollar are in positive territory and not reacting much.

If we don't get a package on Monday which includes $335 million for treatment and prevention of sexually transmitted diseases, we could be in real trouble.

Busy or Hiding?

New SEC head Mary Schapiro was confirmed almost a months ago. Today she will make her first public appearance. I have no doubt that she has used the last three weeks to craft careful language about tougher, smarter regulation. Other than hiding from the Madoff mess, I wonder what the hell else she has been doing.

Despite CNBC's fervent prayers, Reuters is reporting that she isn't in with Geithner discussing the suspension of mark to market.


I don't think the jobs number at 8:30 this morning matters that much. We're going to 8%+ unempoyment. Whether we stopped at 7.5% or 7.6% last week doesn't really make much difference.

Appleton for President

Steve Appleton is commodity semiconductor producer Micron Technology's CEO. MU's stock is up 140% since the November 20 bottom. (I wouldn't buy it here but you certainly can)

If the U.S. economy were a semiconductor company, it would be bottoming now. Semi companies know how to put in a bottom and get moving to the upside. Obama and company are not so sure.

Flash memory spot prices have risen more than 50% since December 20. Flash memory is used in iPods, digital cameras, cell phones and the like. Its claim to fame is that it retains what is stored in its memory even when to power to its device is off, which makes it idea for portable consumer electronics.

Prices for flash got really weak last quarter so the suppliers acted swiftly and decisively, cutting supply. Commodity prices are up over 50% since just before Christmas. Demand should put in a seasonal bottom this month.

Adults acting sensibly.

What's Going on Today?

Futures are flattish as the market awaits Joe Kernen's smiling face or something else. Probably something else.

It has felt like Friday for the last three days so I really have reason to celebrate. Plus, my oldest turns 11 tomorrow.

According the the WSJ, the next round of bank assistance will include capital injections with more restrictions. This phase will reportedly also include homeowners assistance, which is stupid. If this economy is to get healthy and self-sustaining, we need home prices to find a level naturally where people can afford them, and the people who bought houses that they couldn't afford to get unwound.


Fascinating goings on at $130 billion Singapore sovereign wealth fund Temasek:

  1. Singapore'se sovereign wealth fund has $130 billion in it (that's a lot of money)
  2. Temasek's CEO, who is also the wife of the Singapore Prime Minister, has resigned
  3. Singapore's Prime Minister's wife was running $130 billion (a lot of money) of the coutry's money
  4. The reigns of the $130 billion fund (big dollars) will be handed to the former CEO of commodities giant BHP Billiton

It's an interesting strategy to run a really big fund with people who don't have experience, but I'm sure there's more to it than that.

Thursday, February 5, 2009


CNBC and Reuters are reporting that Bank of America CEO Ken Lewis bought 200,000 shares of common stock yesterday. The stock has gone from $3.86 to $4.80 intraday, a 25% swing.

I know it's a show of confidence to buy your own common stock into turmoil, but I wonder if there is a rule against buying the preferred. I wouldn't touch BofA common with oven mitts.