Thursday, July 01, 2010
Market Teetering
If you think Democrats are teetering, imagine how it feels to be an investor! The wise guy on-line analysts seem to all be predicting depression and the continuation of the long bear market (interpreting our 2009 bull run as a bear market rally, not unreasonable). In fact, I think Bob Prechter would say that according to his reading of the Elliot Waves, the bear started in 2000 and that we are only about half way through. Given the agonizingly inept policies we have been following since 2000 (too much spending, too much debt, bad trade policy, shifting of too much activity to the public sector, entitlements we can't afford, feckless foreign policy, etc., etc.), for which there is plenty of blame to attach to both political parties, there are fundamental reasons to be very concerned as well.
This week's pending home sales number collapsed, as might have been expected following the expiration of the artificial hype provided by the $8,000 tax incentive for home buyers. As with all such promotions, as any competent auto dealer could have told the administration, they only pull sales forward that would have occurred a little later. So numbers are temporarily juiced and then retreat to even more depressed levels.
Similarly, the employment numbers are especially bad now that the artificial stimulus of census jobs is going away. The question is, do these bad numbers indicate a double dip or are they just artificially low for the reasons above, meaning we can continue the tepid recovery that started last year? The next couple of months may give us an indication.
Whether we are in a weak recovery or entering double dip territory, one thing is for sure. Businesses are not optimistic and for good reasons. They fear the unknown, represented by a health insurance plan that is certain to raise costs (but how high?) and financial services reform that adds so much regulatory friction that will likely be passed on to businesses and individuals.
So we should not be surprised that business confidence and hiring is low. Nothing this administration is saying is supportive of business nor cause for optimism. This is the bed they have made, and they are stuck with it. It is now all but certain that the economic condition and outlook going into election day will be poor. I don't think Dems can sell the public that this is all Bush hangover and that they have no culpability. Dems have controlled the Congress since 2006 and the executive branch for 18 months. They will be held accountable in November as they should.
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Kudo's to former AIG Exec Joseph Cassano for standing up to Congress and pointing out that he and AIG leadership would have gotten a much better deal on the derivative contracts that caused the bailout than the Treasury did. Again, both parties are to blame since the horrible Federal deal that rewarded counter parties at 100% was struck by the Bush Treasury and current Treasury Secretary Geithner when he was at the NY Fed.
Of course Cassano has no satisfactory explanation for the wheelbarrows full of compensation he took from AIG amounting to $300 million. He was worth a lot, but no one is worth that much.
Of the $700 billion in TARP money authorized by Congress in 2008, $182 billion was for AIG, $45 billion went to Citi, $60 billion for GM and Chrysler. Much of the rest has either been paid back or was not disbursed in the first place. The Government has been selling Citi stock at a profit and stands to come out whole or nearly whole there. I have my doubts about the auto money, an outright gift to the unions (where the bondholders got stiffed). AIG? We'll see. But I don't think we would have lost anything if the feds hadn't stepped in, and I doubt the company would have gotten into trouble at all if the degenerate AG Elliot Spitzer had not forced Hank Greenberg out of the CEO position.
So the public is right to be upset with the Federal Government, but their anger is misplaced in terms of the banks and the TARP rescue. In fact, the banks are all paying TARP money back. The real crime is that we are about to get a "reform" of financial services that institutionalizes "Too Big to Fail," provides a roadmap for future bailouts, and leaves in place Fannie and Freddie for which the taxpayer bailouts will dwarf TARP.
If you want a good explanation of what is wrong with the reform bill and why it fails to address needed changes for the most part, read the op ed "The Dodd-Frank Financial Fiasco" in today's WSJ, written by Stanford Professor of Economics John B. Taylor.
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One of the few things Ms. Kagan said that I agree with is that the confirmation hearings are a useless waste of time and serve little or no purpose. Who wants to hear Senators pontificate for five minutes on the way to asking a nonsensical question that the nominee either avoids answering or provides some one sentence reply that reveals nothing?
Certainly, Republicans did not cover themselves with glory by spending most of their time questioning Kagan about why as Dean, she made it a little more difficult for military recruiters at Harvard Law School so that she could make a statement about gays in the military. How many gay Harvard lawyers want to be in the military anyway? Does anyone really care about this issue?
The questions regarding the Commerce clause were more on point and reveal enough about Kagan's expansive constitutional philosophy to justify Republicans who wish to vote No. But she will be confirmed regardless. These days, nominees are well-coached concerning the confirmation process, and nothing less than the production of a witness claiming to have overheard the nominee complaining about pubic hair in his/her coke is going to change anything.
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This being July 4 weekend coming up, and having passed D-Day without sufficient notice, I thought I would simply post a short WSJ op ed from last year by Herbert London, emeritus professor at NYU and President of the Hudson Institute called The Meaning of Bloody Omaha:
The skies over Normandy are invariably filled with dark rain clouds. But on one day in late April the sky was cloudless and the English Channel tranquil. Youngsters built sand castles on Omaha Beach and dogs romped in the surf. It was a vastly different scene from the bloodshed and violence that occurred on this same beach 65 years ago.
In an effort to understand what the GI's experienced on that fateful day of June 6, 1944, I climbed up a steep hill to the plain above the beach. Unlike the soldiers, I didn't carry an 80-pound pack on my back. And even though I observed German fortifications on my way, no one was firing at me.
These fortifications are a reminder that despite feints to Calais and bombing along the coast prior to the invasion, Nazi forces were well ensconced when the U.S. and its allies landed. Most of the bombs aimed at these German installations landed several kilometers inland-a condition that distinguished Omaha Beach from Utah Beach. Omaha Beach was Bloody Omaha, a scene of so much death that it was unprecedented in American history. One soldier noted "there were body parts everywhere and the sea turned red with blood."
Many never made it to the shore from their landing crafts. Some were shot and some drowned, not realizing that if you wear a flotation device around your waist instead of under your arms it may not be possible to stand in the turbulent surf with a heavy pack. There was panic, confusion, camaraderie and bravery on the beach that day that changed the world.
The cemetery for the fallen overlooks Omaha Beach. It was noon when I stood at the edge of the cemetery, looking out at row after row of the graves. The bells played "God Bless America." There was a burly fellow wearing steel-frame glasses standing in front of me, most likely an octogenarian. As the bells sounded our eyes met. I wanted to say something to him, but he removed the glasses and wiped the tears from his eyes. Words were unnecessary; he and I shared a silent understanding.
There is simply no way to describe the sacrifice Americans made on the D-Day invasion to reclaim Europe from the grip of totalitarianism. Even the notoriously dispassionate Europeans realize this is consecrated ground, a place where angels spread their wings to honor the deeds of youthful warriors. No St. Crispin speeches were necessary here, for this Band of Brothers knew what need not be stated: They were saving Europe from enslavement.
As a local Normandy resident wrote during the occupation, "A German lieutenant said 'we are your masters' Well they were until the Americans arrived." Gen. Dwight D. Eisenhower was a 20th century Moses. Gen. George Patton's Third Army fanned out across the northern tier of France. Though he had his detractors, Gen. Patton knew how to fight and win.
We have grown complacent as a people in the last six and a half decades since the war in Europe reached the beginning of the end. But it is hard to remain unemotional at the hilltop cemetery that honors those who made the ultimate sacrifice so that we may live in freedom.
Though we owe these men a debt we can never repay, what we can do is honor them. Their bravery can still inspire if the story of D-Day is told with passion and honesty.
The world offers challenges each year since freedom is tested in each generation by new pharaohs. We need the guardians of liberty to remind us how precarious that freedom is. We need to rise to the occasion the way young soldiers did on June 6, 1944. They are a constant reminder that liberty requires vigilance and courage if it is to survive.
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On Tuesday, we bought 300 shares of Pulte Homes (PHM) at 8.70, a zero buy if ever there was one. Pulte got on our buy list by taking over Centex. Today, we bought 100 shares of MetLife Preferred (MET.PR.B) at 23.34 for the IRA. This market really bites the big one. It got so oversold this morning, it had to be a short term bottom, and it was. Investors need to be extra careful. If you feel bullish, you might want to buy some index puts for a little protection in case we lurch to the downside.
This week's pending home sales number collapsed, as might have been expected following the expiration of the artificial hype provided by the $8,000 tax incentive for home buyers. As with all such promotions, as any competent auto dealer could have told the administration, they only pull sales forward that would have occurred a little later. So numbers are temporarily juiced and then retreat to even more depressed levels.
Similarly, the employment numbers are especially bad now that the artificial stimulus of census jobs is going away. The question is, do these bad numbers indicate a double dip or are they just artificially low for the reasons above, meaning we can continue the tepid recovery that started last year? The next couple of months may give us an indication.
Whether we are in a weak recovery or entering double dip territory, one thing is for sure. Businesses are not optimistic and for good reasons. They fear the unknown, represented by a health insurance plan that is certain to raise costs (but how high?) and financial services reform that adds so much regulatory friction that will likely be passed on to businesses and individuals.
So we should not be surprised that business confidence and hiring is low. Nothing this administration is saying is supportive of business nor cause for optimism. This is the bed they have made, and they are stuck with it. It is now all but certain that the economic condition and outlook going into election day will be poor. I don't think Dems can sell the public that this is all Bush hangover and that they have no culpability. Dems have controlled the Congress since 2006 and the executive branch for 18 months. They will be held accountable in November as they should.
-------------------------------------------------------------------------------
Kudo's to former AIG Exec Joseph Cassano for standing up to Congress and pointing out that he and AIG leadership would have gotten a much better deal on the derivative contracts that caused the bailout than the Treasury did. Again, both parties are to blame since the horrible Federal deal that rewarded counter parties at 100% was struck by the Bush Treasury and current Treasury Secretary Geithner when he was at the NY Fed.
Of course Cassano has no satisfactory explanation for the wheelbarrows full of compensation he took from AIG amounting to $300 million. He was worth a lot, but no one is worth that much.
Of the $700 billion in TARP money authorized by Congress in 2008, $182 billion was for AIG, $45 billion went to Citi, $60 billion for GM and Chrysler. Much of the rest has either been paid back or was not disbursed in the first place. The Government has been selling Citi stock at a profit and stands to come out whole or nearly whole there. I have my doubts about the auto money, an outright gift to the unions (where the bondholders got stiffed). AIG? We'll see. But I don't think we would have lost anything if the feds hadn't stepped in, and I doubt the company would have gotten into trouble at all if the degenerate AG Elliot Spitzer had not forced Hank Greenberg out of the CEO position.
So the public is right to be upset with the Federal Government, but their anger is misplaced in terms of the banks and the TARP rescue. In fact, the banks are all paying TARP money back. The real crime is that we are about to get a "reform" of financial services that institutionalizes "Too Big to Fail," provides a roadmap for future bailouts, and leaves in place Fannie and Freddie for which the taxpayer bailouts will dwarf TARP.
If you want a good explanation of what is wrong with the reform bill and why it fails to address needed changes for the most part, read the op ed "The Dodd-Frank Financial Fiasco" in today's WSJ, written by Stanford Professor of Economics John B. Taylor.
------------------------------------------------------------------------------
One of the few things Ms. Kagan said that I agree with is that the confirmation hearings are a useless waste of time and serve little or no purpose. Who wants to hear Senators pontificate for five minutes on the way to asking a nonsensical question that the nominee either avoids answering or provides some one sentence reply that reveals nothing?
Certainly, Republicans did not cover themselves with glory by spending most of their time questioning Kagan about why as Dean, she made it a little more difficult for military recruiters at Harvard Law School so that she could make a statement about gays in the military. How many gay Harvard lawyers want to be in the military anyway? Does anyone really care about this issue?
The questions regarding the Commerce clause were more on point and reveal enough about Kagan's expansive constitutional philosophy to justify Republicans who wish to vote No. But she will be confirmed regardless. These days, nominees are well-coached concerning the confirmation process, and nothing less than the production of a witness claiming to have overheard the nominee complaining about pubic hair in his/her coke is going to change anything.
-------------------------------------------------------------------------------
This being July 4 weekend coming up, and having passed D-Day without sufficient notice, I thought I would simply post a short WSJ op ed from last year by Herbert London, emeritus professor at NYU and President of the Hudson Institute called The Meaning of Bloody Omaha:
The skies over Normandy are invariably filled with dark rain clouds. But on one day in late April the sky was cloudless and the English Channel tranquil. Youngsters built sand castles on Omaha Beach and dogs romped in the surf. It was a vastly different scene from the bloodshed and violence that occurred on this same beach 65 years ago.
In an effort to understand what the GI's experienced on that fateful day of June 6, 1944, I climbed up a steep hill to the plain above the beach. Unlike the soldiers, I didn't carry an 80-pound pack on my back. And even though I observed German fortifications on my way, no one was firing at me.
These fortifications are a reminder that despite feints to Calais and bombing along the coast prior to the invasion, Nazi forces were well ensconced when the U.S. and its allies landed. Most of the bombs aimed at these German installations landed several kilometers inland-a condition that distinguished Omaha Beach from Utah Beach. Omaha Beach was Bloody Omaha, a scene of so much death that it was unprecedented in American history. One soldier noted "there were body parts everywhere and the sea turned red with blood."
Many never made it to the shore from their landing crafts. Some were shot and some drowned, not realizing that if you wear a flotation device around your waist instead of under your arms it may not be possible to stand in the turbulent surf with a heavy pack. There was panic, confusion, camaraderie and bravery on the beach that day that changed the world.
The cemetery for the fallen overlooks Omaha Beach. It was noon when I stood at the edge of the cemetery, looking out at row after row of the graves. The bells played "God Bless America." There was a burly fellow wearing steel-frame glasses standing in front of me, most likely an octogenarian. As the bells sounded our eyes met. I wanted to say something to him, but he removed the glasses and wiped the tears from his eyes. Words were unnecessary; he and I shared a silent understanding.
There is simply no way to describe the sacrifice Americans made on the D-Day invasion to reclaim Europe from the grip of totalitarianism. Even the notoriously dispassionate Europeans realize this is consecrated ground, a place where angels spread their wings to honor the deeds of youthful warriors. No St. Crispin speeches were necessary here, for this Band of Brothers knew what need not be stated: They were saving Europe from enslavement.
As a local Normandy resident wrote during the occupation, "A German lieutenant said 'we are your masters' Well they were until the Americans arrived." Gen. Dwight D. Eisenhower was a 20th century Moses. Gen. George Patton's Third Army fanned out across the northern tier of France. Though he had his detractors, Gen. Patton knew how to fight and win.
We have grown complacent as a people in the last six and a half decades since the war in Europe reached the beginning of the end. But it is hard to remain unemotional at the hilltop cemetery that honors those who made the ultimate sacrifice so that we may live in freedom.
Though we owe these men a debt we can never repay, what we can do is honor them. Their bravery can still inspire if the story of D-Day is told with passion and honesty.
The world offers challenges each year since freedom is tested in each generation by new pharaohs. We need the guardians of liberty to remind us how precarious that freedom is. We need to rise to the occasion the way young soldiers did on June 6, 1944. They are a constant reminder that liberty requires vigilance and courage if it is to survive.
------------------------------------------------------------------------------
On Tuesday, we bought 300 shares of Pulte Homes (PHM) at 8.70, a zero buy if ever there was one. Pulte got on our buy list by taking over Centex. Today, we bought 100 shares of MetLife Preferred (MET.PR.B) at 23.34 for the IRA. This market really bites the big one. It got so oversold this morning, it had to be a short term bottom, and it was. Investors need to be extra careful. If you feel bullish, you might want to buy some index puts for a little protection in case we lurch to the downside.
Labels: Herbert London, Kagan
