Saturday, February 28, 2009

About Dick Bove

Dick Bove is a securities analyst whose focus is on banks. As a result of Spitzer's ego led attack on the research community, only analysts at small firms dare talk to the media. Dick Bove has become, more or less, the media's default guy to go to.

Dick's analysis begins and ends with his opinion. There is little discovery through analysis of the numbers, although he of course looks at them. He does actually intuitively know the financial services industry based on his many years of experience. His background is not fully available, but the first I knew of him was from C.J. Lawrence, an old time rough brokerage that would make SAC look timid. He then moved through a series of just below major brokerage firms and finally ginned up to this game of moving from one tiny firm to another, firms eager to take a marketing advantage of Dick's appearances on CNBC or Bloomberg.

My first contact with Dick was through rumors that he would start about a troubled Manufacturers Hanover. Out of nowhere he would create "market rumors suggest" comments that ManHan would be acquired over the weekend by a German bank, etc. He just wanted attention, which often seems to be the m.o. for Dick. Over the years, I worked with him and to some extent admired his ability to butter up the most needy members of management and take advantage of them, and inevitably me. That doesn't mean that I didn't cringe every time he called with his leading and rhetorical questions, called and seemed to want to make me stay on the phone for as long as possible just to be annoying. Dick the joker. Dick made a market call in May 2008 that stated flatly that the crisis was over and it was the time to buy banks. Dick the joker.

The fact that Dick survives as a primary source for CNBC and Bloomberg is amazing. Despite the fact that he is often wrong, Dick looks and speaks like an elder statesman. They treat him with kid gloves. It's the Spitzer legacy. Few institutional investors pay any attention to Dick Bove. But, kudos to Dick, he has his seven or eight kids down there in Florida, maybe still has a Harley, and puts his mug out there with authoritative comments. At this point, his opinions are, bizarrely, better than most.

Friday, February 27, 2009

GE and Citi --- watershed events

News today about GE and Citicorp either represents a capitulation or a collapse.

That's not a comment about these two companies, it's a comment about the entire economic scenario. GE is approximately 50% owned by individual investors, a huge percentage relative to most companies of its size and stature. GE has said, and it's been heard one-on-one here from the top a decade or so ago, "we love our retail shareholders". Few companies focus their investor relations program on retail as much as GE. Cutting the dividend is a break from a tradition that is not trivial. Citicorp's agreement with the Treasury is too new to be analyzed here, but if the whole damn thing is worth anything and it's not going to be confiscated by the government, then it's a bargain today.

Problem is, every effort to promote "accountability" can have the unfortunate effect of undermining the financial system. I put "accountability" in quotes because the word should probably be "punishment", as in by regulators and politicians who disregarded their responsibilities and now want to pass the blame. They pass it on, destroy the deserving scapegoats, and the same lame crowd gets reelected. Today's American way.

Soapboxing here --- that does no good. This new Democratic administration has just begun. If they can be non-partisan, #*#* the leading Republicans in Congress, relate to the smart ones, and just take it step by step we can get through this and eventually thrive. Patience is hard to relate to when it's measured in years, not days or months.

Wednesday, February 25, 2009

No easy answers --- the mortgage market "solution"

The government's plans to provide relief to home mortgage holders who need it has the right intentions and may be the best choice among a set of alternatives that all carry negatives. Apart from the "moral hazard" issue that Rick Santelli had his 15 minutes with, there is another issue that will have a more tangible negative impact on the economy.

Allowing individual courts to reset principle and terms of mortgages will further depress the value of already stressed mortgage securities in the market. Requiring Fannie and Freddie to refinance mortgages without the mortgage insurance required under their rules will also negatively impact these securities. No investor wants to buy securities that have no certainty, no rules. There is already almost no secondary market now for these securities and there will likely be none soon. Their only value is that most continue to be pools of assets that are continuing to pay the contracted rate of interest on the security. As the judges start ruling and then some percentage of the mortgages refinanced by Fannie and Freddie default, mortgage securities will over time default as well.

One might ask, why does anyone care. The buyers of mortgage securities were big boys, they are paid to understand risk, and they should lose money. If these actions help stabilize the mortgage market and the economy, that's nothing but a good thing.

There is, however, one problem. Retail investment banks and asset managers chopped these insitutional mortgage securities up into bite sized pieces to sell to individual investors, just regular middle class investors up to the high net worth bracket. Much of the selling was done to retirees on a fixed income due to the relatively high yields. Who cared if the individual didn't know the difference between a CMO and an HMO. The yield was good and, same old story, when real estate prices kept going up the yields were solid and the prepayments were quick, underscoring to some that these were actually short term assets.

The result now --- when these securities begin defaulting there will be a different set of the population that becomes increasingly stressed. Help one group, hurt another, there are no painless answers.

The Republican response

Bobby Jindal's story is an interesting one. He is smart and hard working, and has some accomplishments in Louisiana that are unusual, as accomplishments in that state that don't involve LSU football or basketball are hard to come by. Unfortunately, last night he came across as a corner watch salesman at 9th Ave. and 44th rolling up his sleeve to show the merchandise. His script was some sort of reverse Steve Colbert style parody of Obama, no doubt viewed as clever by his RNC handlers but in fact it was just very odd. Even more unusual, based on some of his self congratulatory comments, it seemed as if he had not been outside of the tourist areas of New Orleans in the last two years.

His only coherent thrust focused on the limits of government management effectiveness. That resonates here in New York where the government controlled legal system, tax systems, and social systems are designed to be as time consuming and tedious as possible, with the apparent goal of making everything litigious. It resonates as well with a friend of mine who did a stint at the U.S. Labor Department in D.C. two years ago and found most of the employees were at best 9 to 5'ers who spent part of their mornings planning their lunch break and errands, the rest of the time in meetings, with the exception of their desk work that focused on attending national conferences of various sorts where they would go on expense account and enjoy nice hotels and restaurants. Few people actually worked. I think, however, that most astute Democrats would agree with most Republicans that there's an issue here, and one should note that the Labor Department at that time was run by Elaine Chao, Mitch McConnell's wife, and George Bush's most loyal cabinet member.

For the sake of his career and credibility, it would be wise for Jindal to avoid such controlled exposure in the future.

President Obama's speech

President Obama's speech last night was a fascinating event. Regardless of one's political position, it is impossible to deny that there has not been such a charged Congressional gathering in many years. Except for the lemon sucking scowls always on the faces of Senators McConnell and Shelby, all participants seemed engaged in their own way. Obama's delivery did not disappoint and his aspirational plans were challenging if not daunting. Many members of Congress must have been dazed by his litany of goals for the year. Even the laziest and most self satisfied members will find it almost impossible to avoid doing some work this year and at least trying to grasp a vague understanding of the issues. Handicaps will go up and boondoggles will go down.

The President's outline of goals was comprehensive and he has the right ones. The likelihood of dealing with them all in short order is not realistic of course, but getting them on the table is a refreshing start. The main sour note from this perspective was his explanation of the reduction in credit availability. It was just wrong. He must know that making banks the only culprit fails to recognize the role of government requirements, policy and regulation over the last 20 years, and even today. His suggestion that credit can return to any level of "normalcy" is naive, especially given the fact that current government initiatives on many fronts make the return of vibrant securitization markets any time soon impossible. He must be aware of that as well, but I guess an explanation that gives near term hope is the order of the day.

Tuesday, February 24, 2009

CREDIT CARDS --- the next jackboot to drop

The credit card business has been relatively resilient during the financial crisis that has evolved over the last year, but that is changing. Significantly higher delinquencies and then charge-offs are coming. They will likely be massive.

The evidence is not just intuitive or based on consumer credit trends to date. The actions of the major players tell the story. JP Morgan and Citibank are the two largest bank card issues. JPM's huge dividend cut is anticipatory, given their desire to conserve capital in the event of future deterioration in the economy. What they may see is the potential of this credit card overhang which they can't size in any precise way yet. Citi's continued crisis suggests concerns beyond their cache of toxic institutional assets as those have been throughly exposed. Is credit card that next source of illiquidity that scares the institutional funders away. Adding to these perhaps clear signs was yesterday's confirmed reports that American Express is offering a portion of its card base a $300 payoff to close their account. This is unprecedented.

An August 24, 2007 post here laid out the possible path to a credit card crisis. We're far down that trail. A less diversified credit card issuer like Capital One that uses its industry leading mathematical models to lend across a wide spectrum of credit scores may find that the old assumptions are completely useless, and it would not be a surprise to see this financially resourceful company with a stock price that barely keeps it listed by the end of the year.

It may not be as dire as that, but it is a certainty that something bad is in the cards.

Monday, February 23, 2009

JP Morgan dividend drops my jaw

When JP Morgan's 87% dividend cut popped up on the screen just after the market close it was a stunner. Bad news? Regulatory attack? One of the last good ones drops a bomb? NO! A quick read through their press release, while not completely reassuring, put those dire first fears to rest. This appears to be a cautionary measure given this unprecedented and almost completely unpredictable environment. In a follow up conference call the company endorsed the general range of current analyst expectations for the quarter based on current visibility and said that trading and investment banking activities were performing well but would be somewhat offset by further reserves for consumer credit losses, especially in the credit card area. These business comments are consistent with market observations.

CEO Dimon is an astute observer of the capital markets and he is, observed from afar, both demanding and decisive. Many CEO's would be afraid that such a move would be a market disaster, signaling a crisis. In a company with JPM's recent track record it is not. It is a sign of having the confidence to make a bold move that is also the correct move.

If God gives us a stable market day tomorrow, the stock price will GO UP. If not, JPM will not be as ugly as others.

Why not write about the Oscars

That's the question I asked myself after a few minutes of catching up on activity in the financial markets and the comments of politicians today. Take a break. After all, for probably the first time in my life I watched the entire event, from red carpet to the end. This year's Oscar presentations were billed by the media as less than exciting as no "blockbusters" were centerstage. Precisely for that reason, I guess, my knowledge of the films was far beyond normal. Many of those involved in the nominations had been shown at the small theater less than a mile down the hill from our house, a venue that is preferable to training into Manhattan or driving to a mall multiplex.

With that explanation, what follows are the highlights from this purely personal perspective:

---Seeing most of the Slumdog cast gathered outside in a group during the red carpet segment was special. Even the adorable young children were there. They seemed like an unusually happy family.
---Hugh Jackman's opening was better than anticipated, the Frost Nixon bit with Anne Hathaway was a thumbs up.
---The format for presenting the lead and best supporting actors and actresses was a gem, with five former winners for each commenting on and complimenting each of the five nominees.
---Phillipe Petit's jaunt to the stage joining the producers of "Man on Wire" was unexpected. Much older of course, but still a spark plug of throwback showmanship, with a little magic trick and balancing the Oscar on his forehead.
---Ben Stiller as Joaquin Phoenix; sunk into the sofa I was a little slow on the uptake but the gag was all the more entertaining because of it.
---Penelope Cruz's acceptance speech was an emotional tribute to the international communities of film and art.
---The awards to A.R. Rahman as composer of the best sound track and best song were my preferred picks, but what astonished me was that this composer was the lead singer on the performances of his two nominated songs. That seemed unusual.
---When Heath Ledger's family accepted his best supporting actor award, the camera panned the audience and the number of recognizable performers with choking back tears grimaces on their faces told a story.
---The distinct charm of Kate Winslet showed up in her acceptance speech when she thanked her "mum and dad, where are you out there, dad give a whistle" and the whistle came, she animatedly reacted, the camera found a big faced man almost buried in his seat, face almost covered by a broad brimmed station hat.
---Mickey Rourke was my out and out favorite for the best actor award as his was a once in a lifetime performance. "Wrestler" will be a cult film forever. Sean Penn, however, is a winner that's almost impossible to argue with. The only real disappointment of the evening came when Penn caught his breath and did some political soapboxing. In these difficult and fractious times, we almost made it through the entire program without an actor lecturing the world. I have no problem with his content, but it would have been refreshing for him to have toned down his intensity and let the event speak for itself.
---"Slumdog Millionaire" won, and the entire entourage ascended.

Saturday, February 21, 2009

Dodd for Health and Human Services, a missed opportunity

There's a quote attributed to Oscar Wilde that goes something like this --- "Enemies stab you in the back but friends stab you in the front". Something like that could possibly be said about U.S. politicians given the lack of cohesion and coherence among some Democrats.

Among President Obama's choices for his team, two stood out as meaningful beyond just their resumes and intelligence and they were Joe Biden and Hillary Clinton. The Biden choice makes complete sense on the surface. He's experienced in foreign affairs and Obama is not and he has working class Pennsylvania roots where Obama had just been thrashed. The Clinton choice makes even more sense as she is a diligent and tireless worker, she had traveled the world and met foreign leaders throughout the Clinton adminstration and, for Secretary of State, she is a tough pragmatist. The added element here is that Obama effectively gained control of two of the biggest loose cannons in D.C., Biden and Bill Clinton. He did not need any possible sniping, second guessing, and wild mistatements during the first years of his presidency. So from this perspective his choices served more than one purpose.

At this point the President probably wishes that he could have come up with the same type of solution for Nancy Pelosi and Chris Dodd.

Pelosi has an amazing job that she would never be budged from so there was no possibility of doing anything about a House Speaker who is universally detested by the Republican representatives. Maybe she had to be the tough politico that she is to establish herself as Speaker. That said, she has not been any significant support to Obama and makes any bipartisan progress in the House more impossible than it already is.

With Dodd, and he's the catalyst for this entire comment, he should have been approached for Health and Human Services, which it's not entirely certain that he would have turned down. He could have pushed his buddy Ted Kennedy's long time dream of universal health care and wound down a long senatorial career with a new role, after representing a state that is unlikely to elect him again. Unfortunately he's Chairman of the Senate Banking Committee in the midst of this financial crisis. Yesterday's thoughtless and self aggrandizing comments on a Bloomberg Radio interview were indicative of how little he understands about the financial markets. The "we may have to national some banks for a short time" comment and the "no new money, just old TARP money" opinion voiced on the car companies were both so unwise. He's the senior Senator on banking. Either he was not thinking, not at his sharpest, or purposefully upstaging the White House. Barney Frank had to come to the rescue, quickly stating clearly what should be well known to Dodd, both the White House's position and the only way to act sanely at this point in time.

Daschle didn't make it, and if the first choice would have been Dodd he now could have been using his big picture bluster on health care proposals and out of harm's way for this crisis.

Friday, February 20, 2009

Equity markets

At this point it seems that all old adages about the equity markets are not working.

There is no investment now in a traditional sense. The belief that equity markets had "priced in" bad news is not working. When a company reports a bad quarter that is universally expected, the stock gets whalloped. What that seems to say is that the only investing going on is on the short side, which from this perspective is not investing. It is betting, and the reverse side of the momentum investing mantra that ruled, with respites, for the last fifteen years.

There are still indications that real investors are seeking bargains. The best companies with growth prospects and dividends in healthcare, energy, and basic consumer needs are still seeing buyers. The broad market, however, is a wasteland. Financials, in particular, have no ballast whatsoever. Every attempt at stabilization is met with another confidence smasher. Stanford, UBS, complete unknowability about the government's mortgage plan and how devastating it will be to the securitization markets, all of this continues to play into the hands of those betting on negative outcomes.

In late September I was in the northeast corner of Washington Square Park watching Loose Marbles. A family member's digital camera was befuddling me and I asked a young soul patched man with his daughter how to work it. We chatted and exchanged backgrounds, and he commented on the bargains in the equity markets at that time. My non-advice was existentialist. "Today's price represents the only value that you can rely on." I hope that he listened, and while I sold some and added to some of the best around the edges, I wish that I had done more to heed my own advice. These are startling times.

Good companies are still good companies, doing things that the world needs. The issue now is quickly becoming whether the strife that we are experiencing evolves into political and social events that are beyond stock market gyrations.

Still sticking it out here, but concerned about the big issues......what can be said.....the idea of bargains is non-existent at the moment.

Wednesday, February 18, 2009

Talking Danville

Often here there have been comments about Danville, Virginia. This is not meant as a replay of past comments about both the town's attractiveness and its economic and societal challenges. What's new is how fast this national and global economic downturn, or catastrophe, is impacting Danville. It was just eight months ago that the unemployment rate in the Danville area was reported at 8.5%. Two weeks ago in the RegisterBee(local newspaper) it was reported at 13.9%. Today Goodyear, the one real wage manufacturing employer left in the town, suggested that it was laying off 400 workers, and those are $25 to $30 an hour folks, a really good wage in Danville. Another firm that's unfamiliar, Engineering Design and Sales which is a small manufacturer, announced that it was shutting down its Danville operations. That Danville has somehow received international attention on BBC for its 150 jobs at a new highly automated IKEA plant, jobs that pay $13 an hour, is almost an ironic joke. Not that those jobs aren't welcome, but the town seems exploitable now, no local industry with the demise of textiles and tobacco, declining national industry in the layoffs at Goodyear and the loss of Dan River, Disston and others, and despite all of the laudable civic efforts there could be a 20% unemployment rate by the end of 2009.

It would be nice to feel any confidence that this is an exaggeration. I'm not sure it is, and it of course means a probable escalation of social problems that could further stigmatize the community.

From what I hear and read this is not isolated. Former rural industrial towns across the country could be in the same rapid retraction. Danville and communities like it may not have the underpinnings to recover, regardless of any rescue package and some projected recovery a few years out. Or maybe these towns will be the beneficiaries of a forced reverse migration of former sons and daughters, reinvigorating the towns with money that no longer works in urban communities. All of this is happening at a pace that is jaw dropping.

Bankruptcy coming at the automakers

It really seems inevitable at this point. GM and Chrysler will be forced to declare bankruptcy and Ford can hardly handle the competitive pressure and stay afloat. They will all reorganize, as the major airlines have done several times. This evening's news that GM has requested $16 billion from the Treasury Department to remain solvent for a few more months is just not a realistic request. What about the second half of 2009. They need to reorganize, and this will not be a good thing for the U.S. economy in the short term. Longer term, it must happen.

Saturday, February 14, 2009

From "Shadows and Fog"

Bumped into this early '90's film from Woody Allen late last night and have some quotes.

For Congress --- "I don't know enough to be incompetent."

For the Bush administration, and especially Dick Cheney and Elaine Chao --- "I'm anxious to find out where insanity ends and evil begins".

For all of us this exchange between characters ---

"What better way to spend the rest of my life trying to help you with those wonderful illusions of yours."
"It's true, everybody loves their illusions"
"LOVE them, they need them like they need air."

Thursday, February 12, 2009

Steven Chu, a hopeful focus on future energy

An interview with Dr. Steven Chu, the new Secretary of Energy, is covered in today's New York Times. His focus on the potential for scientific and technological progress that can address environmental challenges is so hopeful and refreshing, especially given the backdrop of politicians, pundits, and economists giving daily prognoses of inevitable economic decline. Dr. Chu speaks with an absolute belief that "science and technology can generate much better choices. It has, consistently, over hundreds and hundreds of years."

Unlike Energy Secretaries of the past, as a working scientist, scientific administrator, and Nobel prize winner, Dr. Chu has the knowledge, experience, and credibility to cut through the usual agendas. Prior Secretaries have been politicians, corporate guys from the utility or oil industry, lawyers, or military men. None have had Chu's background.

With the performance of members of Congress in their panels on the financial crisis frustrating me to the point of insanity, it's a nice break to find something almost unequivocally positive to mention here.

Wednesday, February 11, 2009

The Madoff mystery

The Madoff mystery today is not where the money is or what happened. It's gone and he's a major league criminal. The mystery is his current status. Today there are differing credible reports that his wife withdrew $10 million or $15 million from an account at one of the Madoff feeders funds days before his admission. Madoff was a co-founder of this fund.

The mystery has been and remains why he lives in his penthouse with complete freedom to eat, drink, meet, and work in any way he wants within his, by most standards, grandiose setting. He has an ankle bracelet and has given up his passport but WE THE TAXPAYERS ARE PAYING FOR 24 HOUR SURVEILLANCE BY THE FBI TO MAKE SURE THAT HE DOESN'T ESCAPE AND PREVENT ANY OF HIS INVESTORS FROM TAKING HIM OUT(killing him). That's 24 hour security at experienced professional prices, plus, the governments incomparable benefit package.

His indictment has just been postponed. Are there intricacies of his first admission that his attorneys are exploiting to gain advantage. Are the prosecutors still trying to plea him into revealing and explaining co-conspirators. I just finished "The White Tiger", the Man Booker prize winner, and it reminded me of Madoff. While corruption is pervasive at every level in India according to this novel, did Madoff through his guile and his money create a level of influence such that he is above the law, like the freedom seeking protagonist in the book. At the wealthiest levels, are we like the India described in "The White Tiger".

It's just impossible, at this point, to figure out how this con man could not be in prison. As with Balram Halwai, Bernie Madoff must have the intelligence to learn how the worst part of the system worked and exploited it, and taken a sociopath's contented approach to life. Madoff is still winning big time; what a mystery.

Maybe the FBI director and some Federal judges should be pulled before congressional panels to explain why taxpayers are paying for this guy's premium security arrangement. What Madoff has accomplished with New York judges(immune I know) and the FBI seems like fair game given the time spent today attempting to humiliate bankers who, despite the effects of the economic collapse, have spent their entire very public careers in compliance with all regulatory and legal mandates.

Tuesday, February 10, 2009

Geithner's proposal

Today's negative reaction to Treasury Secretary Geithner's introduction of the financial rescue plan was overwhelming, or one could say overblown. Geithner was certainly set up for this, as President Obama at his press conference last night deferred on questions three times by giving half answers and then saying that he didn't want to say more and upstage his Treasury Secretary's coming remarks.

The "plan" was a big picture overview with good intentions but little detail, and the "we haven't figured out how we'll do this yet" approach was too laid back for almost everyone. THIS IS IT! Expectations were for more. It may be a smart move as this stuff is not simple, but it did not work today.

The broad and general program has three main thrusts: 1. buying up distressed securities to unclog the markets; 2. facilitating a program of relief and access for consumer and business borrowers; and 3. shoring up capital positions at distressed but viable banks. These appear to be the most important things to do, so getting this right is a good start, and gives a clearer goal than we have had recently. That's good, but how does it get done.

Details on #1 suggest only that the goal will be to have a combination of public and private funds. The challenge will be to make sure that there is risk sharing between the public and private funds and it's not just a big freebie for private equity and hedge funds who for the most part have escaped the public's wrath for the mess we are in but are as complicit as the banks. Get this risk balance right and the idea is sound. #2 has no detail behind it so there is nothing at all to comment on yet. #3 has more detail than the first two because a process for vetting the banks was discussed as well as all of the conditions to be placed on firms that receive a preferred stock capital infusion. The glaring inconsistency here is the stress on seeking private funds in goal #1 while at the same time making any new private money for banks run for the hills in goal #3. Why would any private investor of any type invest in a bank now with the promised handcuffs, or worse, to be put on firms that need help or are forced to take it. That's a problem.

One backdrop on all this that is troubling is the use of phrases that are incendiary. Obama's "facing catastrophe" and Geithner's "dangerous dynamic" are, I know, meant to be a call to action that helps get things done. Anyone, however, who should know this already does and those who are focusing on day to day living with their jobs and families could likely benefit from some reassurance that we'll get through this. Maybe that's patronizing, but from here it seems that leaders should point out some possible hope on the horizon rather than taking a share my pain approach.

Monday, February 09, 2009

The anchors compete

Further to the post before last here, NBC's Brian Williams self righteously led off an NBC nightly news story a few minutes ago about junkets in Las Vegas by TARP receipients. It was a high toned indictment by Williams and his correspondant. How repulsive is this, they intoned with their words, body language and inflections, as they attacked Wells Fargo and Morgan Stanley.

The story told on itself. Their proof was that Wells Fargo and Morgan Stanley paid $35,000 for a sponsorship at this securitization industry panel event. They pointed out that Freddie Mac paid $17,500 for their sponsorship. These amounts are just advertising at an event like this. They pay for next to nothing and were likely subscribed to a year ago. They neither run nor plan the event. Freddie apparently negotiated down from the standard "your logo is in the brochure fee" to get their lower amount after world finance cratered.

This kind of television media is inexcusable, driven apparently by the need of some like Williams to be as hateful and self righteous as Lou Boggs of CNN and Bill O'Reilly of Fox and the increasingly dim Charles Gibson of ABC. With all of this, it's odd that Katie Couric may be a survivor, becoming an anchor with stature.

The stimulus package --- necessary chaos?

From this perspective today, there are only two things that can be said for sure about the pending stimulus plan --- a plan is essential soon and it will not be close to perfect. It is essential. Details are bouncing all over the place and impossible to follow from here. $40 billion deleted that would help states and municipalities meet budget shortfalls because the Senate Republicans(should a small r be initiated) don't think that it will create jobs. Hey, what about saving jobs and what about paying state and municipal workers who have mortgages and their childrens' sneaker bills for a full weeks work. Stimulus is preventive as well as stimulative in a literal sense. These "republicans" see political gain and tax cuts at a time when tax cuts are the stimulus with by far largest lag, isn't that intuitive at this point in this downturn(if by chance the supply side economists are right and I don't think so, it is certain that almost no republican member of Congress could intelligently explain the issue). COBRA support for health insurance may still be there, who knows at this point, but why is supporting health care for the people most hurt by this economic catastrophe and supporting the hospitals that provide the care for the most needy in rural and inner city areas not stimulative. It keeps hospitals and people alive and vital. What is the definition of "stimulus" Mitch?

Tonight's press conference will be interesting. It seems like we have moved to one of those parlimentary systems where governments can collapse and a vote be called at unanticipated times given the perpetual campaigning needed to get anything done. That's a change in our lifetime. In the meantime, maybe we'll learn something tonight, those of us on the outside hoping to understand what this "democracy" in Congress is doing.

Sunday, February 08, 2009

Standing up, Wells Fargo joins JPM

Thank goodness another bank CEO is standing up, on solid ground(excuse me Ken Lewis), against the tirade the media leads against banks in general. Wells Fargo's full page advertisement in the New York Times today reacted to the media hysteria over its employee rewards events. As you know, these annual events for rank and file employees were canceled due to the faux populist criticism that's poisoning any realistic dialogue about this financial crisis. John Stumpf, CEO of Wells, made it clear that these events have a history of motivating good performance and recognition of employees from tellers to mid-managers who give great customer service. I guess the "Las Vegas" tag line for one of the events was the media hook, and then things took off. The self righteous media had a field day, and a solid institution lost one of its traditions.

It should be remembered that Wells Fargo and JPM were the two major financial institutions who were prevailed upon to take TARP money so other huge institutions would not be singled out for being in trouble. That was to forestall a liquidity crisis at others, but it was so transparent that it was a joke. For this joke Wells and JPM get the same regulation and harassment as institutions that were massively mismanaged. At a minimum, it seems that the media's job is to get to the bottom of these obvious situations and report it fairly rather than to jump on to any possible negative that could increase the indignation of viewers, readers, and googlers, and one would presume their audience in these times. Is that kind of hypocrisy possible. Well look at Congress for that answer.

Hats off to Wells Fargo for taking a stand that they will probably just take heat for, just because it was the right thing for them to say and for their employees to hear.

Exurban disasters

The blight of almost new residential areas located outside of the immediate Tampa/St. Petersburg area, notably somewhere around Fort Myers, was detailed earlier last week in the latest New Yorker by the insightful George Packer(Ponzi State) and today a piggyback front page story in the New York Times. Packer's article details the unavoidable as these exurban communities were laid down in vast tracts, just residential areas without supporting services of any magnitude. Built in the first half of the 21st century the houses were priced for perfection. It's unclear what percent of these homes were unavoidable financial disasters at the outset due to overinflated prices, poor mortgage practices, and misplaced optimism about the future. It's likely a large number. Now with the radical negative shift in the economy and financial markets, these communities are failing.

The Times today does say that foreclosure priced sales are now being bought, clearing the market at around 25% of their initial value when built. If that's a reason for hope let's grab on to it. The individual stories in both articles make clear that hope is in short supply, and the effort to avoid despair is tough to internalize from afar.

What's more troubling about these scenarios of wrecked futures is that in situations this dire, this ubiquitous across a community, there has to be the thought of pervasive collusion or fraud at work. Maybe I've been in New York too long and my perspective is warped, but could human nature really run amok so completely, without regard to consequences. Some houses in these communities were described as flipping as many as four times in four years at ever increasing prices. That's four mortgages before the music stopped. The developers may still be on the hook, or they could well be long gone. The mortgage brokers certainly made out. The probable phantom buyers, speculators, and flippers could have cashed out before the fall or some could still be around, having shifted most of the risk to the buyers of mortgage backed securities. We don't read about the speculators and fraudsters very often, as it's the displaced families and devastated retired that get the media attention. And of course so do the beleagured banks, as this crisis has trickled down from the worst underwriters like Washington Mutual, Countrywide, and Wachovia to even conservative regional and community banks. When entire communities collapse even prime mortgages with a 25% downpayment are vulnerable, as are the banks that made them.

Saturday, February 07, 2009

"The Wrestler"

The trailers and promotion for this film just did not seem attractive. Never having been a Mickey Rourke fan his revival stirred no interest. Nevertheless since Wrestler was at my neighborhood theater and is in the hunt for an Oscar, why not take a chance. Surprise, I liked it, a lot. How could I possibly get caught up in and identify with a washed up professional wrestler trying to go a few more rounds in the ring and in his life, etching out some grace in the process. I did. This is a fine little film.

Tuesday, February 03, 2009

Beautiful snow

It's a strikingly beautiful snowy evening here on the north shore of Long Island. I almost feel guilty saying that when I look at the pictures of the mid-south and mid-west that I see on,, and Those photographs show paralyzing conditions. Here tonight we will have four inches of soft snow that will not imperil power or mobility. The driveway has been shoveled and it is just a photo-op world.

What's missing is the type of community gathering that accompanied snow during my youth in southern Virginia. We had snow there in the 50's, and it was meaningful snow several times a year. Hills would be blocked off by the city with wood barricades, and those old black lit oil pots would be set at the corners. The entire neighborhood would come out for the sledding. Snow then was a glorious time. For the kids all barriers were broken and flying down the hills was incomparable.

Tonight is a tease from those times. Just in from a walk, the beauty is manifest, the community is not in this suburbia. Central Park, however, must be a gas right now.

Monday, February 02, 2009

Playing with fire

This comment is not about Lil Wayne, not about the Rolling Stones, not even about Hilary Duff. It's about our politicians, Obama, his administration, the Republicans, the whole group, all seeking to pin the blame for this economic catastrophe on easy villians. This could backfire, as in playing with fire.

There is the nexus of the Citi French jet, the bonuses given out at financial firms, the buy only USA consideration in the stimulus plan, John Thain's office, the hire only USA proposed in the stimulus plan, the banks' heavily criticized inability to lend at pre-disaster levels, the auto execs being required to drive to D.C. and the government's aggressive use of the financial industry as a punching bag. Pass on responsibility say the politicians, resent an established system, and accept no complicity in all that has happened --- no responsibility for regulators, certainly not for legislators, no responsibility for individual Americans who speculated, no responsibility for those who simply splurged, and no recognition of so many macro reasons like the unsustainable cyclical imbalances in trade and investment and the long term encouragement and even mandate to mortgage companies starting with the Clinton administration to lend to poor and minorities who "otherwise would not qualify"(1999) for home loans. That's a long sentence. The effort to unleash resentment and pinpoint blame is not productive, not correct, and could make a Sarah Palin ride the resentment ticket viable in 2012. That's a stretch but it is meant to be.

To defend the financial services industry more than is already done above is a Sisyphean task but:
--- Citi is the largest retail financial services company in the world, with offices in over 100 countries, its executives and managers need contact with headquarters, many of their locations have less than ideal air connections, this French jet has parts made all over the world, even in the U.S., this was not a bad business decision but even smart people seem to see it as indicative of some arrogance and excess, it is not and was not, in fact it may well have been a sound business decision.
--- the bonus protocols of investment banking have been long established; that they had become excessive is completely accurate but the protocols often require some level of bonus; the IB's are paid low salaries, often no more than a cop or teacher on Long Island and the great majority of their compensation is expected to come from an end of year award based on performance; for traders these awards are often set in contracts at percentages of profit generated on pre-agreed formulas, for rainmakers they work like atheletes salaries, pay me or I'll play for another team, for mid-level folks they are an essential part of compensation; while there are always slackers who manage to hang on to a good thing that they don't deserve, most IB'ers work hours that match anyone anywhere, 12 hours a day plus parts of weekends except at busy times when it's non-stop. AIG, the greatest insurance company the world has ever seen, was brought down by 20 traders selling credit default swaps in London and a default CEO, due to an attention driven Spitzer execution of Greenberg , a default CEO Sullivan who was clueless about almost everything. Does no one in this firm get a bonus, an incentive for retention, an award for good performance. This is an example of the issue. The level of bonuses will go through a period of decline and readjustment but paying some reduced levels now is not "shameless". It's based on performance, formulas, and an effort to hold together firms that are spinning out of control.
---John Thain's office, that's a pathetic waste of shareholder money under any scenario, even in the good times; when at Goldman he was apparently known as someone who was so smart that any type of excess was excused, but no more.

There is so much blame to go around, complicity in every direction, so much naivety to be shared, and so many reasonably intelligent people from Wall Street to Main Street to Capital Hill who went beyond common sense in an effort to make, encourage, and spend easy money. That's a message that seems to be too complex for the stump speech.

Sunday, February 01, 2009

Leadership lacking at Davos

News from the Davos "world economic forum" has been less than encouraging. The focus has been on sorting through the blame for our current global economic crisis and on explaining why various proposed initiatives to address the situation will not work. Those news reports could be one-sided. The business news media seems to have a thought process that is parallel to the now discredited momentum investing, up or down. The story line now is down, so that's what we hear, that's what is in the headlines. The negative tone accelerates. Then again, maybe what we're reading and hearing is all there is to Davos this year. The uncertainty continues and this gathering is no longer a self-congratulatory deal making confab. It's likely a soul searching exercise for many, and that's not all bad.