Tuesday, May 30, 2006

Various thoughts and comments---Paulson, NYT's sports columns , options sleaze and more

---What a relief to see Henry Paulson nominated for Treasury Secretary. On Saturday the NYT had Donald Evans as the likely candidate with the lead sentence of the article being "President Bush is leaning toward having one of his oldest friends take over the Treasury Department after a fruitless effort thus far to woo a star from Wall Street". How depressing that thought was---another Texas buddy with an oil and gas background to deal with this challenging time. But now it's Paulson, an experienced global finance leader who understands the most complex financial markets and their interrelated risks. John Snow did not seem to have any real power or the assertiveness to gain it, and his heart did not seem to be in his White House mandated arguments that everything was better for everybody. Paulson, from the Goldman environment, is no shrinking violet. He would not have taken the job if policy was going to be the sole responsibility of the Cheneyvellian White House. This is good news.

---Can Harvey Araton, Selena Roberts, Murray Chass and other NYT sports columnists please stop writing about Barry Bonds and the Duke lacrosse team. Column after column after column, week after week, even day after day. They can't let these two issues go. Does one of them think that their incessant moralizing will win them a Pulitizer Prize for insights that their normal sports beat doesn't offer. Araton actually referred to other sports writers as "sanctimonious" in his latest column today. How could he be so pompously blind. The entire group is no longer writing about the purported subjects of their columns. They are writing about themselves for themselves. I should note that it certainly is possible for any NYT columnist to aspire to a Pulitzer Prize after Gretchen Morgenson won in 2002 for her consistently lightweight and often misguided business columns. She was owned by a few fringe analysts with limited integrity but they made her look provocative. But heck, who cares, NYT connections and you got a Pulitzer. So go Roberts, Araton, Chass and the rest. Who knows, maybe you'll get a group prize for your self abuse.

---See www.bankstocks.com for a partial transcript of the Berkshire Hathaway annual meeting Q&A. It's written by Matt Stichnoth and, while there's nothing earthshaking there, it's good down to earth commentary on current economic issues. The title of the article is "The Warren and Charley Show-2006".

---United Health Care's post dated option grant practice has now led to other companies with the same reprehensible behavior. This is straightforward theft from the shareholders(owners) of the companies that the involved executives were already paid, in some cases extravagantly, to protect, nourish, and lead. This almost childlike manipulation of the option grants by the executives involved, their legal advisors, and the compensation committees of their boards is appalling.

Monday, May 29, 2006

Memorial Day notes

The local Memorial Day parade is a small town treasure. Perfect weather today for the high school band, the girl scouts, the boy scouts, the children's lacrosse and softball leagues, two volunteer fire departments, North Shore Nursery School, the local parish priest(a first I think, behind his banners), three bagpipe bands, a large group of veterans, a group of soldiers just returned from a tour in Iraq, widows of veterans, and the Poppy Queen.

This weekend I read "Saturday" by Ian McEwan. It got me. Two days and it was done. Unlike "Atonement", his last novel, this novel is current, not historical, and written in a style that flows easily. It fits the today that I live in. It closes with a poem by Matthew Arnold, the last verse quoted as follows:
"Ah, love, let us be true
To one another! for the world, which seems
To lie before us like a land of dreams
So various, so beautiful, so new,
Hath really neither joy, nor love, nor light,
Nor certitude, nor peace, nor help for pain;
And we are on a darkling plain
Swept with confused alarms of struggle and flight,
Where ignorant armies clash by night."

Wednesday, May 24, 2006

A few media observations

After having made a few "buys" in the equity market this morning at 9:31, I am somewhat shaky. I've been on the sidelines watching the damage accumulate. I certainly don't want to now feel foolish. What to do now? The following media observations will distract me.

--- I have not read the Da Vinci Code or seen the Da Vinci Code, and for some reason have no interest in doing either. I have, however, enjoyed reading the reviews of the movie in the last week. My favorite is Anthony Lane's review in the current "New Yorker". The review begins as follows, "The story of the Da Vinci Code goes like this. A dead Frenchman is found laid out on the floor of the Louvre. His final act was to carve a number of bloody markings into his own flesh, indicating, to the expert eye, that he was preparing to roll in fresh herbs and sear himself in olive oil for three minutes on each side. This, however, is not the conclusion reached by Robert Langdon(Tom Hanks)..."

--- Thomas Friedman's column today in "The New York Times" discusses American competitiveness in the 21st century when faced with the rise of China, India and others. I liked the following paragraph, quoted as follows, "Now it's true that America's two major political parties are lost, and Washington is brain-dead. But precisely because we have this incredibly flexible, open, unrestricted, competitive economy-where we don't censor anything-what you find when visting U.S. innovation hubs is that no one is waiting for Washington to declare the next big Manhattan Project for, say, energy independence. American innovators are growing on their own."

--- Referencing my post of May 21 and its comments on Fed Chairman's Bernanke's loose lips, I point out that the NYTimes business section today has an article entitled "Fed Chief Swears Off Improvising". Yesterday Mr. Bernanke admitted to a "lapse of judgement". The writer of the article, Edmund Andrews, notes that "Mr. Bernanke might want to take lessons from his cryptic predecessor...". I've wanted to say this---you heard it here first.

---Did anyone see "Baghdad ER" Sunday night on HBO? I was scrolling through the program selections to see what was on before my usual 9pm Sopranos fix and saw this listed at 8pm. ER on HBO? I thought that was network. But this was not close to a television drama. Baghdad ER, a documentary filmed primarily in an ER in the Green Zone in Baghdad,was startling television. I don't think that I have ever averted my eyes from the screen while watching television but now I have. The horror of a war zone ER is right there on the tube. Perhaps some of the emotion shown is related to the cameras being present, but the amputations, the wounds, and the immediate choices demanded by the situations presented are real. The horribly wounded American soldiers are flown to Germany and, if they live, back to the U.S. But we also see Iraqi policeman with devastating wounds, and I wonder what happens to those that survive. This documentary will be shown again later this week.

--- Finally, I recently reread a piece from the March 27 New Yorker by Calvin Trillin. It's entitled "Alice, Off the Page" and is a memoir about his wife who died in 2001. I've made a copy for my files.

Sunday, May 21, 2006

News Flash---the market is down and everybody knows why?

After eight painful market days, on Friday everything flattened out. Friday's performance was not particularly reassuring, but perhaps it contributed to this weekend's sunny and pleasant weather. But as hurricane season approaches few pundits dare to be optimistic. That may be good news.

Everyone seems to know why the market is down. The reasons are: U.S. inflation fears; the trade deficit; the current account deficit; more interest rate hikes ahead; a possible housing market bust; the precipitous decline of the dollar in the last two weeks; the persistence of high energy costs; economic slowdown ahead; an expected correction of a bull market run; hedge funds reverse course; more sellers than buyers.

Simple, right. I feel like Dr. House trying to come to a diagnosis. Every reason is based on observable facts or historical trends. It's all interrelated. And to complicate matters, much of the information has been observable for months while the market continued to perform well. What is the real precipitating reason that Dr. House always finds with 5 minutes left in the program. I know the answer.

Several weeks ago our Federal Reserve Chairman, Ben Bernanke, gave material market information to CNBC's Maria Bartiromo at a social function. Yes he did. As the market at that time widely interpreted his and the entire Fed's recent comments as signaling at least a temporary pause in interest rate hikes, he told her that the market view was not so accurate(I don't know the exact words of course but she reported it the next day and there was no follow up from the Fed). The markets reacted in a significantly negative way.

So our Fed Chairman is not alert enough or savvy enough to know the basic rules of market communication. If any corporate executive in the U.S. gives one-off material information to anyone that then moves the market in their stock, Regulation FD dooms them to weeks or months of less than pleasant interaction with the SEC, new job insecurity, possible fines, in the worst case jail, and their company will be assaulted by litigation immediately. The Fed strictly guards their interest rate and formal announcements and disseminates them broadly. Informal remarks, however, also need care. But the point here is that with all of the possibly serious reasons for the recent decline, how can the market be confident that Bernanke can deal with any potential crisis. He can't even deal with a social event. Impersonating Dr. House, that was the spark that lit the fire.

Is this a tongue in cheek analysis? Not completely. Among all of the observable issues, the one that is most troubling as a negative catalyst is the almost radical decline of the dollar in the last week and a half. A dollar rebalance affects everyone and everything, which helps account for the decline in virtually all equity markets, not just U.S. As the market regroups, everything with gains, for example commodities, temporarily comes under pressure.

Heading into this coming week, it is not possible to know where we are until the fire is out. Then the damage can be assessed. I remind myself that U.S. corporate earnings growth remains strong. The S&P 500 p/e ratio is today at its lowest level since 1997 so by standards of the last decade it is certainly not overvalued. If this fact is not validated in the market's action next week that would be worrisome.

And be careful Mr. Chairman. If you do need to say something to be pleasant and responsive, then smile, make eye contact, and make your comment so obtuse that no one can figure out what you said. That is what your predecessor did.