Wednesday, April 30, 2008

New York Times today, the business section and Thomas Friedman

The business section of the NY Times is so poor sometimes. Their gotcha journalism written by people with no business experience can be exasperating. Two big examples today:
---There is a front business section story on short sellers that goes on for well over a 1000 words, with quotes from perceived victims of short seller tactics to short sellers and market theorists who see the practice as just a manifestation of a free market. In all of that there is no mention of the biggest change in this trading in years. That was when in July of '07 the SEC somehow eliminated the uptick rule, which required that shorting only be done on an uptick in a stock. Dropping this long standing rule allowed short selling institutional day traders like the mammoth SAC to be relentless when they had found or created a wounded stock. It was a huge change, and it's never mentioned in the article. How and why this rule was changed and whether the SAC's of the world with their billions had any influence on this would have been an even more interesting aside.
---The lead article in today's business section discusses the mortgage market and how rules changes that were meant to loosen up the market are "so much of a failure that it's really unbelievable". I challenge anyone to read this article and find any commentary on why the rule changes are not working. Everyone quoted just observes that the rule changes on jumbo loans have not led to greater lending and lower rates yet, or they give self serving rants about the ineffectiveness of this unusual bi-partisan legislation. There is no insight anywhere in these 1,500 words. The fact is that until the securitization markets regain confidence, until investors globally investigate and understand the damage that has been done, and until it's clear what the new rules of the game are and whether Congress will legislate retroactive changes in asset backed securities as a matter of course, until all that happens, change will be slow. With the OCC and other regulators on the prowl and securitization markets slow, banks and thrifts are looking to protect their capital and get a return to compensate them for their risks. The legislation is fine but, to quote the President, "there is no magic wand" and this situation will not improve overnight because the Congress tells it to.
---The only insightful business article today is not to be found in the business section. It's Thomas Friedman's commentary on the Op-Ed page, "Dumb as We Wanna Be" about John McCain's summer gas tax elimination proposal and Hillary Clinton's pandering endorsement of the idea that throws in a windfall profits tax on the oil industry for good resentment building populist measure. The title reflects Friedman's responsible analysis of this proposal and the opinion piece then goes on to discuss the poor state of overall energy policy in this Republican administration and divided Congress. It's worth reading. But Clinton's windfall profits proposal is just another one of her attention getting ideas that is just so convenient but doesn't really stand up under analysis as sound policy. Are Monsanto, Caterpillar, Cargill, and ADM also up for windfall profits tax. Food prices are definitely higher and these firms are having great years. And look at Apple for God's sake, so many people being challenged by college costs and this firm is making a 30% ROE and has a 35% earnings growth rate as our kids buy their Ipods and Macs. Windfall'em dammit.

Loose Marbles

To clarify the prior blog, Loose Marbles is the New Orleans street musicians group's main name. Having settled back in here in New York, googling around led me to the best article on the group, or consortium of street musicians, which was "New Orleans Journal, May 8, '07" in the New Yorker, or at least on the New Yorker website. YouTube also gives some good looks at how good these folks are. Embarrassed to say that I've learned that they settle into Washington Square for parts of the summer but that's good news, especially if Meschiya, their vocalist is with them. But as to the names, one night when Meschiya was leading a small group in a club she did call them Loose Morals, the CD she was hawking called them Loose Marbles, and without her they called themselves late at night Royal Bandits. The Royal Bandits CD is the same group without a vocalist.

Saturday, April 26, 2008

Loose Morals

Last night a band of musicians that referred to themselves as the Loose Morals, Loose Marbles or the Royal Bandits, depending on who you talked to, played in a doorway on Frenchmen Street until daybreak. It was wonderful music you---at least ten musicians and, with all but one Hawaiian shirted clarinet player, they looked and postured like they were ready to ride the Depression rails. The sound was traditional New Orleans jazz but with an edge of Django Reinhardt sound. This was good, and free.

Friday, April 25, 2008


Hot day at Jazzfest. Robert Plant, Alison Kraus, and T-Bone Burnett were the highlight. Off to Frenchmen Street.

Thursday, April 24, 2008

Frenchmen street

Best music street in the world, no doubt.

Wednesday, April 23, 2008

In New Orleans

Last night's dinner was at Cochon, no reservation but no problem at this warehouse district restaurant that had recently been recognized by the NYT as one of the ten best new eateries in the whole U.S.A. The difference with the other nine was that Cochon is no more expensive than my local New York diner excluding the drinks and wine while the others are in the $100 - $200 range for a meal. I had "wood fired oysters" as a fiery appetizer, passing on the fried rabbit livers with pepper jelly toast. Their signature dish was amazing, Louisiana couchon with cabbage, turnips and pickles. Couchon was a "small", 5oz they said, amount of spiced pulled pork deep fried like a burger on top of the melange of other stuff. With smothered greens and creamy grits it was amazing, except that about three quarters of the way through the meal there was some sort of time released explosion that was overwhelming. This is seriously heavy food as evidenced by the girth of most of the other folks there. I took a slice of lemon cream pie back to the hotel.

Then heard some music at House of Blues on Decatur and did more walking. Those "local dives" mentioned in yesterday's post mostly opened at night despite being a wreck and most of the patrons, all locals, looked the same. They can still talk and joke and laugh New Orleans style.

Having had almost a 24 hour day on Tuesday it was late when the strolling began today. Walked up Decatur to Frenchman St. where we had stayed in 1989 with a 2 year old for Jazzfest and now it's the best scene in town. Will go back tonight. Had an espresso and conversation near the French market as most people here are just so casual with their talk if reciprocated, and that's just so comfortable. As an immediate creature of habit went back to my "Open" grocery at 1000 Royal, run by Vietnamese, and got some perfect greasy shrimp lo mein with a few big fried shrimp on top for lunch at "my" Time Picayune box table across the street, five bucks today.

Then walked down to Jackson Square, went into the cathedral and cooled off, sitting and trying to get into the spirit, or just relaxing. Came out and there was an informal band gathering, two trombones, one tuba, one string bass held together by newspaper and duct tape, and a snare drum, five project type guys half drunk and half drugged. They were amazingly good and it was at least a half hour before I wandered on, having talked about things of no consequence with the lead trombone guy between every song.

Back to the 200 block of Decatur to spend time in a wonderful old expansive individually owned bookstore and a record store with the same pedigree. Comfortable places, and I contributed to the local economy.

Tuesday, April 22, 2008

In New Orleans

In New Orleans now, first time since '99, so obviously first time after Katrina. In town for a few days of Jazzfest, that family and friend's rite of the 80's and 90's, as well as just a break. Arrived at the hotel late morning and immediately set out to see how things had changed, if they had changed, and wary already as the few staff that I'd met at my edge of the quarter hotel did not, absolutely did not, have that New Orleans talk.

Half a block of walking and I was reassured. A hole in the wall Pakistani run take out shop not only offered gulf shrimp curry but also a daily special of goat brain with a choice of rice, fries, or onion rings. I was not yet hungry. Then the concern began again as a series of local dive bars still had their signs intact but all were closed and looked at closely were a shambles inside. The strolling was pleasant, however, as I walked to find personal landmarks, restaurants, hotels, corner groceries and an attic that had once meant enough to remain favorite memories. Walking over from Bourbon to Royal on St. Peter I heard some great blues, guitar, piano, harp, but saw no club. I followed the sound and walked into a small shop of artwork in the middle of which was a big piano with a young man on the keyboard and a rail thin older guy with ZZ Top style white beard sitting on a chair playing an electric guitar. I leaned against a wall to watch. They stopped and I was immediately just part of the conversation. Amzie was the guitar player and it was his store and artwork. In telling some New Orleans story I mentioned the NOLA Express and Amzie was shocked that anyone remembered that alternative newspaper from the late 60's early 70's, saying he was the art director. After half an hour or so I walked on, knowing that I would see Amzie again.

Hungry now, I went further up Royal and went into a corner grocery across from the elementary school. Unless it's name was OPEN, the store had no name. It did have a poster with a magic marker listing the lunch counter specials of the day. I got a big cup of gumbo packed with fresh shrimp, fish, chicken and hot sausage, four bucks. Walked across the street and used a Times Picayune box as my table and had a wonderful standing lunch.

The border area between the heavily commercial part of the quarter and the primarily residential part seems to be prime busker space. Highlight of the early afternoon was two young tatooed women on guitars playing songs that were part bluegrass, part folk. They had a small crowd which gave the opportunity for a few chats. There are still a lot of real characters rambling around the quarter. Few, however, were as unusual as a tour group that I ran into next when I went into a cooking school shop somewhere between Royal and Decatur. They had just had a class and I waited in line for a purchase surrounded by them, all women of different nationalities with nametags identifying their country---Thailand, Zambia, Gabon, U.S., Denmark, China, and U.K. were around me. I asked the U.S. woman behind me what conference or event they were part of. She lowered her voice and said that they were sponsored by the U.S. Army and their spouses were "military attaches" in their home countries. One can speculate.

Oh, and Bush was having his NAFTA summit in town. Police, military, heavy duty vehicles everywhere. The rooftop lounge area of the hotel was closed the desk clerk explained because "the CIA had stationed snipers there". Traffic is a mess, vehicular and foot, and streets seem to be arbitrarily blockaded. It's ok, as I'm glad to be back.

Sunday, April 20, 2008

"Unaccustomed Earth", Jhumpa Lahiri

What a stunner it was today when Jhumpa Lahiri's new collection of short stories showed up as No. 1 on the New York Times fiction best seller list. One only need look at the descriptions of the books that follow("wizard detective", "L.A. women murdered", "a woman becomes enmeshed in complications and secrets", "prisoner on death row begins performing miracles", "a London woman loses her memory" etc.) to be reminded how unlikely this is. The NYT itself in a sidebar notes "It's hard to remember the last serious well-written work of fiction, especially a book of stories, that leapt straight to number 1".

"Unaccustomed Earth" is welcome reading to fans of her previous two books. The writing is elegant and the nuanced detail of her characters is engaging. The words culture and fate, followed by acceptance, acquiescence, defiance, and nobility all come to mind in considering the various ways these characters react and how they confront situations that range from tragic to the tedium of the everyday. It's wonderful reading but I wonder how Lahiri's writing will progress. "Unaccustomed Earth" works the same loop of experience as her previous writing but uses a few more references to recent events as facilitators to the stories, at times in a convenient way.

Has she created her own literate genre that will continue to replenish itself. Will her future work follow the generational path of her subjects in a way that will continue to build her following. I ask these questions because as much as these observant stories held my attention, they also were familiar and comfortable. Her prior work had raised my expectations higher.

Lingering thoughts on Obama and that "debate"

Enough has surely been said about Wednesday's debate, and the minimalist comment here was expected to be the only contribution to the fray. There are lingering doubts, however, about Obama's performance. It is without question difficult to have a meaningful discussion with nitwits who with every question seem to want to win, meaning to claim some sort of child-like sound bite victory. The grins of authority that these questioners have with every parry are irritating and almost unintelligible to an earnest victim. Obama got the worst of it but consistently made an effort to rise above it. On some substantive issues, however, he was unprepared, clueless, or disingenuous, it's not clear which. That was surprising. Maybe he was too rattled by the path the "moderators" took to have his act together but he was really unimpressive as in:
---Questioned on the higher capital gains tax rate that he would favor, it was if he had no good reason, no economic justification, for his position. He stuttered, seemed confused, and finally just said that his proposal was fair. That's not close to being a good answer.
---When pressed by Clinton on his proposal that the social security payroll tax have no cap, a position that he had previously been crystal clear on, he wobbled as Clinton unilaterally defined middle class as families with up to incomes of $250,000 and seemed to be rethinking the entire issue right there on stage. He finally and somewhat begrudgingly said that there could be a window above the current $96,000 before the tax would again be applied.

There were other incidences of his being flummoxed and awkward but they were mostly on the stupid stuff. The stumbles on issues related to the economy, however, were disturbing.

Wednesday, April 16, 2008

Question of the evening

Question --- what is more unpleasant and aggravating, watching tonight's ABC moderated Democratic presidential debate or going through the prep process for an early morning colonoscopy?

Answer --- I'm not sure, but both at the same time is not recommended.

Tuesday, April 15, 2008

The dollar and equities

As a follow up to last night's post, even a market view that the dollar has stabilized would be a positive for the U.S. equity market. Expectations of an actual dollar rally could make the NYSE look like Value City from a global perspective. Money needs a home and visas aren't required.

Monday, April 14, 2008

Dollar rally soon

The guess here is that we'll soon learn that the big currency players in the hedge fund world have turned their books around and loaded into bullish bets on the dollar. Yes, that's the beleaguered U.S. dollar, down 40% in the last six years and almost half of that in the last two, is ready for a material comeback. Some life in the currency last week could be more than just a tease. Why?
---Nothing drops straight down forever. That's an encouraging start, right.
---The G-7 central bankers are now all worried about the pace of change, down, down, down, of the dollar and the disequilibrium that could cause in trade and financial flows. They may now be serious enough to exert some pressure.
---With the U.S. Fed now accepting substitutes for government securities as collateral in reaction to the liquidity crisis in the financial markets, the overwhelming demand for treasuries in the past few months is waning, meaning that U.S. treasury yields should begin to rise, supporting the dollar.
---It now appears that the U.S. has been on the cutting edge of a housing market downturn that is just beginning to show its ugly face in countries such as Spain, Ireland, Italy and the U.K. As banks in the U.S. have already taken significant writedowns to address this issue and the economy has been in the process of digesting the impact on the consumer of this loss of wealth, other economies are just entering the tunnel.
---All of a sudden it is big news that food prices are rising globally, news now as a result of actions by some producing countries to curtail exports and keep supplies for domestic consumption. The U.S., relative to many countries a model of efficient distribution and adequate resources, may begin to be appreciated again for its safe haven reputation.
---With the example of GE's recognition of losses, the continued writedowns at financial institutions, and the almost stealth daily write down of the values of many fixed income securities in brokerage accounts, the medicine is being taken and one could surmise, hope, that liquidity will soon be more visible broadly.
---Many Asian countries must continue to support the dollar or risk political issues in economies that depend on exports.
---European economies could be hit by a powerful double whammy if their economies begin to falter and their exports continue to be hit by a falling dollar. Support for the dollar is in Europe's interests as well.

Is this a sound economic argument. Of course not. It's just a short term forecast, or guess, that just might be right. If we wake up one morning and it all of a sudden seems to be common knowledge that the big currency bettors have made a switch, the dollar's turnaround could be sharp. Sustainable? That depends on relative economic performance over time doesn't it, and everything feels like it's up in the air now. Broad global uncertainty usually underpins the greenback. Uncertainty focused primarily on the U.S. does not. Stay tuned.

Please refer to the Eyes Not Sold disclaimer in the header for any reassurance about this post.

Too slow for GE earnings miss

Events of late have moved faster than ideas.

One example---On Monday the 7th the GE annual report arrived in the mail, always worth a look through. The CEO letter was long, really long for a CEO letter, eight small type text and graph pages and one page with a fine shot of four smiling execs. This letter was longer than any Jack Welch letter that I remember and had that here's how we manage style of presentation with charts that Welch made mandatory for any GE successor, which Immelt still is even after six years in charge. The "Operational Excellence" chart is the best example of this year's version of GE's self-congratulatory intellectual approach to their management style(having once been at a firm that imposed Welch's six sigma approach and required everyone to pretend that it was meaningful---I must admit to referring to it as six sigmoid---there is a bone to pick here). Anyway, the overall effect of this year's annual report was overkill, but the thought was there that "why would they go to all the trouble to write all of this peachy stuff if they weren't pretty confident". There was one problem, however, that I began to dwell on. Immelt began the letter with four paragraphs of high-falutin' talk about the difficult current economic environment, writing as if he were the head of the IMF, Bill Gross or Warren Buffett. It seemed out of place, as in more than a little bit of hubris, and his advice in the fifth paragraph was to deal with this environment by investing in GE, which he basically said was above it all.

This was something to write about in Eyes Not Sold, no doubt about it. Things were busy but there was no rush, so thinking this possible post through seemed to be in order and in fact necessary given events here. Then BOOM, Thursday afternoon April 10th GE reports a big negative earnings surprise. Deadline missed, but good idea. Last year's Wachovia annual report led to a perspective posted here nine months ago that has been proved absolutely right and is still going strong. There was time to write and wait. This year that's not so. See or intuit a weakness, it may come out in the wash in a few days. No waiting time in this environment.

GE's announcement was a true investor relations disaster. With over 40% of GE shares in individual investor's hands, it is also a public relations disaster. It's really not as bad as it looks but the credibility issue will stick with Immelt, and he may not recover.

The results were emblematic of what is going on in corporate America now. Many financial companies are going through a severe crisis period while many commericial and industrial companies are cash rich, well funded, and have strong capital bases. GE is a hybrid and that is not a reference to their intense focus on environmentally efficient technology. They have a large finance sector and it took significant write downs. This almost had to happen, and it is part of the painful but cathartic cleansing that is going on now in financial companies. It will pass, and apart from an appliance division that is being hurt more than expected by consumer pressures, GE's businesses are fine.

Friday, April 04, 2008

Who is Timothy Geithner?

The New York Federal Reserve Bank President Timothy Geithner emerged from the shadows of a career in government jobs with his cogent comments before the Senate Banking Committee knocking the socks off some observers. Where has this man been? His explanation of recent Fed actions with the Bear/JPM shotgun marriage and the related market crisis was just brilliant in its simplicity and, from this perspective, accuracy. (to be continued)

Tuesday, April 01, 2008

From the Marquis de Cutines

Commenting on the citizens of St. Petersburg in 1839, the Marquis de Cutines wrote:
"The taste for the superfluous holds sway over a people who are still unacquainted with the necessary."
(Adapted from Donna Leon, "Suffer the Little Children", 2007)