Monday, December 31, 2007

2008 --- Happy New Year

Saturday, December 29, 2007

Why did Huckabee run?

Mike Huckabee's campaign is like some sort of comic satiric novel, alternatively absurd and pathetic slapstick. He did not run to win. He ran for the attention. His grand scheme was to be vaulted out of Arkansas obscurity onto the top of the charts of evangelical superstars. Would it lead to being a Dr. Phil type with a unique evangelical and political twist, nationally syndicated of course. Could he become a great and costly motivational speaker with the same m.o. His Hope nemesis Bill Clinton commands $100K for a single speech. Couldn't he at least 50K with some real national recognition? Pat Robertson's getting really old, Falwell died, who will be the next evangelical hustler to sit at the right arm of Presidents, and move the needle at election time. Or perhaps all of that's an exaggeration and he was just looking for a cushy cabinet job like Health Education and Welfare. He didn't intend to run for president.

"Uh oh. I'm leading. What do I do now? Somebody get me some maps. How the heck am I supposed to read all these newspapers after getting my morning jog in? I thought my comments today about the Bhutto assassination showing why we need to build that border fence to keep Pakis from sneaking in from Mexico were spot on, and then there's all this nitpickin' about my foreign policy expertise. And I still like that Holiday Inn Express line. Everybody laughed, it still works in Iowa."

On 2/10/07 an Eyes Not Sold post pointed out that Huckabee was the first candidate to make an Anna Nicole Smith policy statement, making the world safe for boobocracy. In the intervening 10 months it appears that he has made absolutely no effort to learn much of anything else about the world that the United States lives in. Staying glib, casual, quick-witted, empathetic and evangelical seemed like the winning formula given his real intentions in this race. Almost stranger than fiction, this Ignatius Reilly of Arkansas, the Arkansas ayatollah, is a real candidate, leading in Iowa and South Carolina polls.

Sometimes a joke can go on for too long and with no Republican candidate showing any sign of being appealing enough to take charge anytime soon, this one may.

Friday, December 28, 2007

Clinton nomination now a certainty

From this perspective, yesterday's tragic assassination of Benazir Bhutto and the varied candidate reactions assure that Hillary Clinton will be the Democratic nominee for president. Already the odds on favorite, it's now a certainty, and that's regardless of what happens in Iowa or New Hampshire.

Events in Pakistan underscore the importance of international exposure and foreign policy experience. Her two main rivals are, generally speaking, lightweights on the global stage. While candidates like Biden and Richardson have more first hand experience than Clinton in this regard, they are "also rans" already.

Yesterday's actions by the main candidates were emblematic of the field of play as it now stands. Clinton issued a press statement but somehow managed to stay out of the broadcast news with any public commentary. On a day when nothing can be said to change what had just happened, when a moment of mourning might be considered, and when no one really knows where this is heading, that seems appropriate(and might have only been possible because she does have more experience).

Obama made a widely broadcast statement of reasoned comment, but his delivery seemed practiced and he seemed uncomfortable. Later, his campaign's chief strategist, David Axelrod, made comments to the press saying that the Iraq war led to the rise of terrorist activity and political instability in Pakistan and reminded everyone that Clinton had supported the Iraq war. Rewriting history is an activity of every politician and political observer, but this was a boneheaded comment both in terms of timing and validity. Pakistan has been in a state of political upheaval for decades, and one could just as well argue that the Iraq war diverted Al Qaeda's attention to Iraq, leaving a major effort in Pakistan for another day. Who knows, but it was the wrong day for the Obama campaign to make such comments linking Clinton to what unfolded in Pakistan and saying, to quote Axelrod, "she should be held accountable".

For his part, John Edwards made multiple comments to the media and cameras and in some referred to his close personal relationship with Bhutto. While his comments in general made sense, his touted link to Bhutto came across as bizarre given his unremarkable six years in the Senate with limited foreign policy experience.

To sum up, Clinton handled the day diplomatically, Obama, or his campaign staff, made an almost irredeemable mistake, and Edwards acted with his usual syrupy aplomb. Clinton has it.

Wednesday, December 19, 2007

No market for old men

While not as bleak as the film this title refers to, the outlook between now and year end for financial markets has somewhat of that desolate look. The whipsaw market of recent days will likely continue. Any major breakout will probably be to the upside, and will not be based on fundamentals but instead on a give up by the sellers. Most folks are just trying to get to year end, and then the real pricing resumes.

One wild card is the smaller hedge fund world. There are some funds, how many is unknown, that are dealing with significant losses on the routine research based value investing/shorting with leverage approach. Some are getting clobbered now, and most are below the radar screen of Bloomberg or anyone else besides professional traders. Those traders may be exacerbating the situation as they take advantage of the liquidity situations of these stressed funds. Most investors can stand on the sidelines and watch this play out, and maybe look to pick up some bargains early next year. Some of these smaller hedge funds will fold at year end, and that will not necessarily be negative for the market, may in fact be a catharsis.

No market for anyone right now. Waiting for 2008.

Tuesday, December 18, 2007

Clinton speaking out

Clinton's saying some aggressive stuff these days. Not the candidate, but the former president. Is this wise?

Bill Clinton appeared on Charlie Rose for an interview late last week and was dismissive of Barack Obama in no uncertain terms. At one point he compared him to a talented newscaster with a year of experience in the Senate. At another he called it a roll of the dice to vote for him. At another the multifaceted Clinton also talked about how much he enjoyed watching Obama display his talents. Grumpy at times, condescending at others, he was not at his best. Yesterday in Orangeburg, SC Clinton(Bill) told an audience flat out that Hillary's first act in office would be to send him and George H.W. Bush on an around the world mission to repair the damage to the U.S. image done by the current George Bush. According to Bill Clinton, it would require no approval of anyone but President Hillary and could be done immediately. One problem with that however. Today the first Bush put out a press statement saying that he supported his son's foreign policy(of course he would do that) and that there had been no discussions with either Clinton about this proposed trip.

Bill Clinton is viewed by many Democrats who will vote in the primaries as a charismatic figure. To some that's inexplicable based on the facts, but it is a fact that he is viewed that way. When he takes the headlines from the presidential candidate it seems unlikely that it's positive for her campaign. What might resonate well in a New York studio or in South Carolina might not work so well when the media hands it off to the folks in Iowa and New Hampshire. He simply can't help himself, he never could from this perspective, a happy and irrepresible man, obsessed with himself like many of the most successful people.

Monday, December 17, 2007

New Citi CEO speaks

Vikram Pandit has been taking interviews with financial reporters. Listening to one of those interviews on Bloomberg radio, it's absolutely clear that he should wait. Why would he choose to do interviews after a week on the job. Makes no sense at all.

He is an unlikely choice for CEO by all measures. Often, companies choose individuals from within that have extensive experience in the company. Pandit has eight months. If not from within, the almost certain requirement is that a choice have prior CEO experience, not Pandit. There is another logical possible requirement for an outsider, that being experience in a company's most powerful franchises, whoops not Pandit.

That doesn't mean that he might not turn out to be a good choice. He is by all accounts smart and he knows the securities business which is where Citi has recently screwed up most royally. It does, however, mean that he has a steep learning curve, and that he should give the press and the analysts a break for a while and digest his new huge responsibilities. His willingness to take the time to accommodate the press now almost seems to underscore his lack of experience at this level.

The content of the interview was proof positive that he should not be doing these things. When asked about his lack of experience in consumer businesses and operating businesses(global consumer banking and global operating services are crown jewels where Citi is indisputably a market leader and for the most part has a platform that cannot be replicated anytime soon by anyone), Pandit reeled off the names of the businesses like a sixth grader at the top of his class and made complimentary comments about their culture and leadership, but did not answer the question. When asked about the problems in the securities business, Pandit actually said that Citi has "robust risk management" in place. He didn't say anything about change or enhancement after Citi, like Merrill, chose to hold on its balance sheet and not distribute a massive amount of CDO's and SIV's, around $80 billion for Citi, which is contrary to all principles of capital markets risk management. Did they just forget, did they see it as a way to add a few cents of earnings, or is it just an annoying little flaw in their otherwise robust system.

Citi is a valuable enterprise with many powerful franchises. It has been mismanaged for years: Reed's eccentric and erratic reign; Weill's squeezing of every cent out for today; and Prince's complete lack of strategic purpose. Pandit could be the man, but not yet.

Saturday, December 15, 2007

Jingle Ball with a 14 year old daughter

The 14 year old and I went to Jingle Ball at Madison Square Garden last night. Not quite ready for prime time in Manhattan, she was stuck with me. We do both love music.

With eight acts, pyrotechnics, guest celebrity interludes during set changes and 15,000 fans, the majority girls between the ages of ten and sixteen, it was an event. Jordin Sparks, launched by last year's American Idol, gave a spine tingling performance with her exceptional voice and somehow veteran stage presence. Alicia Keys was an unlikely match for much of this crowd, but it turned out that she was drawn as an anchor performer by the charitable beneficiary of the event, an autism research organization. Seemed to me that she was not quite comfortable with her effort at the first to rock out and give the crowd what it wanted, not quite comfortable literally as her platforms made some moves a little awkward, but when she sat down at the piano and went to a few ballads, the performance was somewhere beyond wonderful. Timbaland postured as an untalented arrogant hoodlum impresario. Back Street Boys, now a "men band", provided comic relief as an unintentional parody of what they were if that's possible. 14 year old laughed but sang along with lyrics that she liked when she was seven, as the act was a sort of an oldies set for this crowd. Avril Lavigne seemed an aging rocker in her mid-20's, but had a big act with dancers, solid band, and pink goth style with pink guitar, pink mike, pink steaks in hair, heavy black eye make-up, black gloves, a skull and crossbones on tartan plaid with a heart in one eye as some kind of symbol hanging overhead, you get the picture? She tried some new songs but "Complicated" got the full attention of the crowd and "Skater Boy" brought down the house. The Jonas Brothers, when introduced, were met with such seemingly never-ending intense young girl screams of delirium that my second molar cracked. They are talented, but to me just today's version of the pretty boy band genre, a better version, but 14 year old totally disagrees with this overall assessment of her favorite group. Fall Out Boy was a tight Boston style metal band, a combination of foul mouthed comments and Darfur video clips running above them if that makes sense. Great guitars, lots of talent, if one's inclined to like their style of music, and a little over or under the heads of much of the audience. And then there was the lighter younger Boston metal Boys Like Girls, got the t-shirt, and they've got potential, and a newcomer teen folkie, Colbie Caillat, who, while charmingly gratified to be there, looked every bit the stunned one hit wonder.

Big event. Great time.

Obama's candor

Dodgy answers are considered an accepted part of a politician's trade, but Barack Obama is a little different from most. In the midst of this Clinton campaign created brouhaha about his adolescent drug experimentation, he was asked, no doubt jokingly, "if he inhaled". His reported answer---"The point was to inhale. That was the point."

Touche to the Clintons.

Friday, December 14, 2007

More on Dem debate comments

As a follow up to yesterday's post, a couple more comments:

---Edward's undifferentiated negative comments on large U.S. companies would not likely work in any national sense, but in Iowa he may be playing the cards that he has well. He did well there in '04, he has campaigned extensively this year, and his poll numbers are not far from Clinton and Obama. In a race in which 28% could possibly be a winner, he is differentiating himself as a choice. Others talk about hope and optimism and focus their negatives on the Bush administration, while Edwards attacks corporate power and wealth, and seems to offer no hope without a fight. This style of resentment based populism combined with his efforts at a Bobby Kennedy style identification with the less fortunate has the chance, possibly, to be a lure to the undecideds at caucus time. If the media's focus on short term economic news continues to be alarmist, Edward's support could grow. That must be the bet.
---Clinton showed some backbone on a couple of issues that deserves mention. In the discussion of trade, she made a clear point that even in Iowa there have been beneficiaries as well as negatively impacted folks. On this charged issue, she did not need to tell the truth so clearly but she did. On Iraq, by omission she did not give a one year timetable for withdrawal, which is also the likely truth for any new President that is left with 100,000 or more troops there in January '09.(Obama did the same in a less direct way by saying that all "combat troops" will be out in one year)

Now I am really tired of writing about politics. Back to the markets or a break to books or music.

Thursday, December 13, 2007

Equal time for the Democrats

It was a "debate" but they all agreed.
Clinton --- assertive and articulate, though couldn't help serving up a few jabs that she must have thought were clever.

Obama --- articulate and confident, attractive above the fray presence, was fortunate to be the first asked the "what would you accomplish in the first year" question and he knocked it out of the ballpark and left the others with a break even shot at best.

Edwards --- is he running for President anymore, or has he decided to give up on that and make sure that he goes out as a hero to some and lives for another day. His anti-corporate message was undifferentiated and extreme, making him the only determined divider on the stage.
Richardson, Dodd, Biden --- all impressive participants today
There were times when the cynicism guard unexpectedly went down and the participants, with the exception of Edwards, all appeared as capable individuals who had dedicated much of their lives to public service with admirable goals. Should I hit the backspace. No, that's what happened.
The few things of concern were these. First, their uniform positions on the Middle East were long on what has gone wrong, and short on an intensity about the challenges, or should it be called unspeakable dangers, that Islamic extremism could represent. Second, what is the purpose of the extent of the China bashing? And third, where was the question about the Clinton campaign's "Obama and drugs" speculations of yesterday? Is it really possible that the intensely political and hands on Hillary was not part of this? Flipping between the evening news channels I must say that once it happened the Clinton campaign should have hidden the two participants. Are Democratic political hacks still required to be overweight and have red faces?

Wednesday, December 12, 2007

Quick impressions of today's Republican debate

Fred Thompson --- clobbered the competition in a surprise performance. Taking advantage of being in the center of the group and just being bigger than anyone else, it seemed like he had decided to enjoy himself and use his big assertive voice to his advantage. He also made sense some of the time, spoke to real issues most of the time and didn't seem like he was trying to pander to the one issue groups.
Rudy Guiliani --- started slow by ignoring the questions he was asked and rambling on in planned comments. Picked it up as the debate progressed and closed confidently, but nothing new here.
Mitt Romney --- the new I-Man. In one answer he began every sentence in a 40 second response with "I" and that was his favorite word throughout. Had the bad luck of standing next to the newly projecting big Thompson, and he was rattled.
Mike Huckabee --- now that he has become a real contender, he decided to act presidential and left his quick wit and interesting unexpected answers at home. Absent that he was a man of platitudes with no specifics.
Ron Paul --- he expressed what he believes coherently and consistently, but seems unconcerned that he is not moving beyond his fervently supported fringe candidacy and, to some extent, ideas . Some comments on economic imbalances displayed intelligence not usually attempted in political debates.
John McCain --- steady and consistent, but somehow had no edge today.
Alan Keyes --- it was hard to listen to his buffoonery without thinking of his famous interview with Ali G.
Hunter and Tancredo --- still standing.

It took a day

Fed now acts and markets are responding.

Tuesday, December 11, 2007

Fed looks timid today

Late yesterday when reading Washington Mutual's significant negative news, I considered following up on that day's post by suggesting that now a 50 basis point cut in the Fed Funds rate was more likely. I didn't as a ninth grader's social studies test(from the dreaded Dr. Dorman) required my attention and my energy.

What almost led me to do a second post in a day when sometimes that's as many as I do in a week was this. The seventh largest banking institution in the country had just more or less announced that it urgently needed lots of liquidity and capital or it needed to be acquired. At the least, digesting that news, the Fed needed to reduce the discount rate, their direct lending rate to financial institutions by 50 basis points, if not the Fed Funds rate, but both seemed highly likely late last night. Today the Fed went with a 25 basis point reduction for both, and it seemed lame. It was clear that the Fed would not choose to make a bold statement and hold the rate firm and, with the WaMu news fresh, it is clear now that the Fed did not make any kind of bold statement on the liquidity front. It was like no news, and the market needed some.

From this perspective, the extent of the stock market downturn today came as a result of the WaMu set-up. It almost seems as if the Fed already had their presentations written and prepared for delivery, and there was no turning back. Bureaucrats and traders were not a good mix today.

Monday, December 10, 2007

No rate cut tomorrow?

It would be interesting to see the reaction if the Fed left interest rates unchanged tomorrow. There would be a sell-off by the short term traders at first, and it might be unsettling. The follow through over the next few days could be surprising, and reassuring. An indication of support for the dollar by the central bank could help the bond market, which at times in recent months has had the upper hand in influencing equity prices. At some point, in these global financial markets, holding firm could stabilize the import/export equation. If continued deterioration of the dollar due to interest rate reductions creates fear overseas that the U.S., their biggest trading partner, is either paying for goods with a less valuable currency or turning to domestic products because the dollar isn't buying as much...It becomes what the old economics textbooks called a "beggar thy neighbor" situation. The U.S. struggles to avoid a downturn and creates ones elsewhere.

Why, one could ask, waste time on such speculation that the Fed will do, or has the leeway to do, what would in the long run be the best course of action. The real issue driving the Fed is market liquidity, and the fact that credit markets are still functioning in second gear. A quarter point, a half point, that's not going to change the plight of U.S. consumers caught up in credit problems any time soon. It will, however, add grease to the mechanics of the credit markets for big financial institutions and corporations, which over time supply money and jobs to the economy.

Here's the deal right now, why 25 basis points will likely happen and why 50 basis points is not ruled out here. Year end, as in December 31, is the end of the fiscal year for most large financial companies and for corporations. In credit market times like these there can be a scramble for access to money at this point, as banks, asset managers, real estate firms and others need adequate capital and liquidity for their balance sheets. That may sound cosmetic, but the market thinking is if a company can't get what it needs there is either a problem with planning, at best, or the business, at worst. Debt ratings, credit lines, the stock outlook can all be affected. The Fed does not want to risk a credit market crisis or seize up at year end. It will put the dollar at further risk now, and firm up in 2008.

Thursday, December 06, 2007

Statistics and stories

Every day the media is filled with moving stories of homeowners in distress, a life crisis for those involved. Statistics on the extent of the subprime mess still do not suggest that the devastation overall is as overwhelming as it is for an individual caught up in this. The stock market has priced in the problem. New statistics today on auto loans are predictable but worth noting. In just one month, delinquencies on auto loans to top rated borrowers in 2006 rose from 2.6% to 4.5%. Looking at market performance, that's priced in as well. The inevitable rise in credit card losses that will follow mortgage and cars is also, to some extent, already in equity prices. Back to a comment several posts ago, the equity market can go up while the disparity in U.S. wealth widens.

Tuesday, December 04, 2007

Credit market dysfunction trumps positive geopolitical news

Seemingly nothing can budge the equity markets off of the singular focus on the challenges of the credit markets. Yesterday's news brought what in another time would have been powerfully significant news on the two geopolitical fronts. The market yawned, and the quaint notion that this market can be shaken outside of its own head was put to rest.

Is this news not worthy of financial markets attention?

First, the U.S. intelligence community in some joint bureaucratic announcement said that Iran halted its nuclear weapons program in 2003. Is that not an incredibly positive turn on this situation. Does it show that Ahmadinejad and his puppet master mullahs are simply unwilling to cede their sovereignty to Western control and are willing to risk confrontation on the point. Is this reminiscent of Saddam Hussein, and his refusal to allow full inspections and show cooperation despite having no traces of chemical or nuclear weapons or production capabilities. Do we now know that the situation with Iran, that has perhaps been building into something serious and real behind the scenes, can be managed through negotiation. This is important news.

Second, Venezuelan voters defeated the Chavez proposals in a referendum that would have more or less given him the opportunity to create a socialist state for life, and one that has already been arming itself to the teeth. The vote was close, Chavez is by no means done, but the fact that this vote actually happened in what must be interpreted as fair elections is an incredible positive, and one that to some extent belies some of the media coverage of that state that we receive here.

The market did not respond. Emerging market equities, naively assumed here to react positively, were down slightly in the aggregate with the only material gain being in Russia where Putin increased his dominance in that country's elections. U.S. equities sold off in the afternoon, a sign that the meaningful money was not swayed in the least. The unfortunate conclusion must be that the current credit market dysfunction is where all attention is being drawn and for good reason.

Monday, December 03, 2007

Investing guidance for restful sleep

Somewhere in the last few days I read some investing advice for those who are making decisions about their own money that went something like this: determining how small the %chance of the most negative scenario happening for your investments is not the most important thing to understand; determining the impact of that most negative scenario on your investments is most important; if your lifestyle and commitments can't accept that impact, then you can't accept the risk in those investments, regardless of how limited the probability of the scenario.

Good advice to some degree, but there is no escaping the risk of any approach as the opportunity cost of stuffing the mattress can be huge. Can't sleep well on that either.

Sunday, December 02, 2007

Fire in the fireplace, chili on the stove

Calendar aside, winter arrived yesterday, cold in the day and in the low 20's last night, daughter went ice skating, an inch of snow and sleet in the morning, icy roads till noon. At this house that led to the ritual first pot of chili and first fire in the den. Nice weekend.

Saturday, December 01, 2007

Questions and possible answers

1. Can the stock market go up while the majority of Americans see their standard of living go down?
2. Can the stock market go down and the majority of Americans see their standard of living go up?
3. If the dollar goes down further, will that help or hurt the standard of living of the majority of Americans?
4. If the dollar strengthens, will that help or hurt the standard of living of the majority of Americans?
5. Does your chewing gum lose its flavor on the bedpost overnight?


1. Yes. Well, that's a qualified yes. If aggregate consumer spending is only modestly impacted by the decline in the standard of living by the majority of Americans because the prosperous minority keeps spending or can spend more, there's no problem for the equity market. If it reaches a point at which overall consumer spending declines materially, then U.S. focused stocks and many foreign stocks that depend on exports to the U.S. will go down.
2. Not likely.
3. In the medium term it will not likely help the standard of living improve significantly but it may maintain the standard of living in the current range as jobs from exports will help support employment. In the long run it will be a great disaster for perhaps 80% or more of Americans as inflation must ultimately crank up in this globally dependent economy.
4. A strengthening dollar, in a modest way, would likely not have a significant negative impact on most Americans and would begin to support the buying power of what money Americans do earn.
5. Yes.

The only certain correct answer is #5.