Monday, May 25, 2009


Down in southside Virginia today, my father's attendants prepared a Memorial Day fishfry lunch for his friends, neighbors, and other helpers. Fish caught yesterday and in the deep fry today, cornbread, cole slaw, potato salad, baked beans, corn on the cob, seven layer salad, strawberry cake, sweet tea of course ... and more. It almost had me shouting FISHFRY which brings to mind...

In the distant past there was an acquaintance one summer who whenever excited, generally drinking and having a big time, would randomly start shouting out the word "Fishfry...Fishfry", sort of a Tourettes like reaction it seemed at the time. This past is so distant that I have no memory of face or name, presumably being in the same state, but I do remember that his geographical state was in the South, east Tennesee or the Florida panhandle come to mind. "Fishfry...Fishfry", when it happened, could get a party crowd revved up but I have no idea if he got such a reaction in private. In possible fact, or history, this may have originated on the gulf coast where a certain type of storm's waves would throw thousands of fish up on the beach flapping and vulnerable and everyone in the vicinity would start yelling fishfry...fishfry, people would rush down and the fires would be set. No time to make cole slaw. I don't know if this is true.

With that partial memory out of the way, this event deserved such a shout---bass, catfish, bream, and porgy, whole or fillet, eat till you drop. It was hot out there today and I was afraid some folks would. Everyone held on, and as the lunch moved to a finish that fishfry spirit led to laughter, handshakes, pats on the back, and a quick search for air conditioning.

Yonder 40 clobbers Dow and S&P in 2009

The Yonder 40, a stock index that reflects the economy of rural America, is significantly outpacing its big city brethren this year. To date in 2009, the Y40 is up 5.3% while the Dow and S&P are down 8.4% and 4.8% respectively. If anyone's thinking that's just playing catch up, think again. In 2008 the Y40 fell 31%, no treat of course, but that's compared to 34% down on the Dow and minus 38% for the S&P.

What does this mean. As with any stock index, there can be as many stories as there are stocks and that has especially been the case over the last 18 months as the extremes among the stocks in the indexes have been greatly accentuated, highs and lows. The Y40 comparative outperformance story is, roughly speaking, related to guns, agriculture, and coal, plus the retailers that cater to the necessarily more thrifty consumer. There also seems to be an element of what goes up less comes down less. Could that speak to the steadiness of a lifestyle and work ethic that characterizes rural America, or at least once did and now the vestiges of that culture still hang on. Sociologists please take over from here.

For more on the Yonder 40 see

Hey North Korea --- at your peril

North Korea's test yesterday of a huge nuclear bomb and the testing as well of three short range missiles is alarming. Sanity does not seem to be at play here. Just as we know that some morning it is, while not likely, still possible that we could wake up and see that Israel has made a massive attack on Iranian nuclear development and missile launch sites, North Korea has now made itself officially the same type of target. With China going through the world economic crisis with some degree of stress, they will think through whether North Korea's actions could lead to a destabilization of Asia, especially related to its huge trading partners South Korea and Japan, past enmity put aside for mammon. Why would it surprise anyone, however unlikely, to wake up and learn that China has had enough and that North Korea's entire nuclear power generating and weapons processing sites, along with its missle sites no longer exist and that a part of China's massive army is staging along the North Korean border. Old Communist ties will not bind if China sees a threat to its prosperity.

If that happened, what countries in the world have leaders that would truly be upset? Iran, Cuba, Venezuela?

Saturday, May 23, 2009

Another walk through downtown Danville

First, early this morning it was to the Saturday Community Market, at the end of the warehouse district and just across from the train station. Word is that the best fresh vegetables sell out soon after it opens so there I was really early at the 8am opening. Believe in the word, or Word as might be said here, as there was a scrum in front of the more attractive and well stocked stands. Being tall and having a touch of New York in me I was able to get a few ripe tomatoes, some great looking thin asperagus, and some perfect tiny new potatoes but missed out on the still in the shell field peas that had me drooling. I made it to second in line and heard the farmer say, as he looked at the about five pounds left in box, "this is all there is", so the woman in front of me said "I'll take them all".

Danville folks are on the whole very nice and polite, in fact unusually so, but there are a few areas where this does not apply. Merging into a lane of traffic is seen as an affront which causes some segment of Danvillians to speed up and trap the culprit at the top of the ramp. Maybe it's the Nascar influence. Walking across the almost empty streets when there is a green or yellow facing the distant approaching driver also gets the same treatment. You better move fast. Being a pedestrian here in any form may well be against the law if what the eyes see is any judge. Now we can add another quirk. Cornering the market on fresh vegetables to punish those who dare get in line behind you appears to be another space-centric behavior akin to the local concept of car correctness.

Adding some fresh baked dinner rolls and cheese biscuits topped with a pecan, my walk continued through the still mostly empty warehouse district full of solid brick buildings 100 years old to much older that will stand until the brick becomes too valuable to let stand unless some revival comes. Up to the bottom of Main Street there is life and a good bagel at Bronx Boy Bagel. Then the remaining downtown walk up the formerly commercial area of Main Street remains unchanged, maybe 2/3 of the storefronts empty, with banks and law offices being the dominant presence with the exception of the estimable Rippe's women's clothing and shoe stores.

On to "Millionaires Row", the blocks of old churches and of the Victorian houses still remaining, there is no change but at least on this walk there was no accosting crack head joining in a threatening way. The former Main Street Methodist Church is still there, built "circa 1865" a fortress of brick and massive doors, on the National Registry of Historic Places, but empty as its congregation dwindled to the extent that it closed. It seems that the johnny come lately Mount Vernon Methodist Church, built in 1884, benefitted from its iconic structure at the intersection of three Main Streets, literally, to win. The nearby Episcopal Church of slightly later vintage is active and intact. A few doors up there's its large parking lot, on the former site of the most beautiful and unique Victorian house in Danville - long gone, and the sign says "Episcopal Church -- Parking by Permission Only". There is one car in the lot. Don't worry your hearts Episcopalians, no one wants to share your parking spaces.

Then to Midtown Market, the last remaining old style personal vendor of quality meats and vegetables, with notably the best chicken salad in the world. That, fresh white corn and a ripe cantelope finish the walking and the shopping.

Lebron James

In southside Virginia for a week with both lots and little to do, watching the NBA tournament games has been a godsend of sorts. As a fair weather friend of viewing sports, I show up for tournaments at the end of season only and only at the end of those, so this comment is not especially informed. That said, what does one really need to know to watch Lebron James, Kobe Bryant, and Carmelo Anthony play basketball.

Lebron James is a special case because, it seems from here, that he is the real coach of the team. Last night he called timeouts, not looking at or being near the bench. Part of the game jabber was that he had decided that a reserve with little playing time would get a much bigger role in the game. The reserve did and when asked James directly explained how he talked to the player, Sasha somebody, and prepared him for his role. Sasha played well. The final shot of the game was a stunner, what the jabberers called "a part of the highlight films for the ages". To be fair the announcers were decent for the game, not too intrusive at all.

Three nights in a row, NBA games that I watched by life's default and allowed time to pass and my attention to be distracted. Now I am actually looking forward to the weekend games, into it.

Thursday, May 21, 2009

Equity markets up tomorrow

...or if not that would not be a good sign at all. It's a long weekend, short sellers should be covering, Campbell's and Sears beat analysts' earnings expectation after the bell, and finding buyers like Blackstone, W.L. Ross, and Carlyle for Bank United happened quickly, no drawn out pain. There is now more focus on buying the best stocks rather than indiscrimately buying anything that had been severely beaten down. That's good for market health, or shouldn't it be.

"Nobody Move", Denis Johnson

Taking this new novel out of the library early in the week, it was viewed as likely to be a diverting airplane ride read. It barely survived the trip. While of course Johnson can write, the story could at best be called a playful imitation of those noir crime novels filled with villians, lowlifes, and bullets. Really, the story is pretty much terrible. Having profusely, and honestly, praised "Tree of Smoke" over a year ago before it won the National Book Award, this comment reflects disappointment. Ok, some of the writing is good, but the story itself is not unlike many of those "True Crime" paperbacks with the exception of the fact that some of those are filled with humor until the latter parts of the books, the climax and denouement always requiring too much killing to put a light end to the party.

"Nobody Move" certainly has the killing. Most of the characters die. The ones that don't are doomed eventually, or as one is described, "just your typical solitary human wreck". Since reading the occasional offering of the noir crime genre is entertaining primarily because the genre itself has elements of self-parody, reading a parody of parody seems rather pointless.

Tuesday, May 19, 2009

Lower housing starts is a good thing

Lower housing starts reduces inventory and will eventually get us back on track. Of course it impacts the sales of building materials and the employment of construction workers, but that is just part of a necessary process. The sooner the better.

In my neighborhood there are five houses within a couple hundred yards of my house for sale. Three are new, tear downs turned into minis, and they have been on the market for six months, seemingly fine buildings now marked down.

Buyers are beginning to come out, but we don't need more supply.

Sunday, May 17, 2009

Nick Paumgarten's dour outlook

Catching up on reading, Nick Paumgarten's article or essay, "The Death of Kings", in this week's New Yorker, soon to be last week's, is wonderfully written but intensely pessimistic. That the talented and networked Paumgarten would write this way is indicative of market gloom despite recent glimmers of hope.

Business as usual does not figure in this analysis. Catharsis has not arrived. More to come is accepted. That we stand in a moment of history in which we have no perspective of the whole is more or less the thesis here, and it's rather frightening. Could what we have experienced in financial markets over the last year and a half simply be a beginning, the start of a long term slog of diminished prospects.

Paumgarten hedges his bet in the final paragraphs, allowing that it is possible that we could tenuosly paper over this crisis and move on. Life goes on, and the optics on the street suggest normalcy, not a Depression. The alpha is horrible but the beta is not that bad, I mean almost everyone took a substantial hit so the playing field is still for the most part level. Other countries have it worse and the U.S. aura of safety is still intact. That the inherent American optimism is still at work is not trivial.

Responsibility for this debacle is really not the issue. The delusion was widespread. The enlightenment comes with getting back to the basics, a struggle that is not so easy for those hit with job loss or foreclosure. It is possible, however, that a resiliance not seen by Paumgarten may be at hand. Just as "inside the beltway" is the catch phrase for insular D.C. thinking, "inside Manhattan" could be a characterization of his well styled perspective.

That's not to say that there is some easy way out of our financial dilemma. It will take time and it's almost certain that job losses and consumer credit stress have some way to go. Those not caught up in these troubles, the majority of Americans, are saving more and adjusting to a more modest lifestyle and while that hits the consumer spending numbers, it's not all bad. Back to the basics could in fact good.

Near term whether on the cusp of the next step down or up is a coin toss. This is not a short term event. An adjustment up, but not dramatic, in equity markets over time remains likely.

Saturday, May 16, 2009

Michelle Shocked

Saw MS the other night at City Winery, an odd place for her to perform. She was fine but the venue was a disaster.

The performance set-up never worked, with feedback that the audience could not hear frustrating the musicians. The audience itself was mixed between blue suits drinking primo wine and folks who wanted to hear the music. On my own I sat at a table with Todd and Diane, Todd being a downtown flamer who had to sing along just behind every lyric and shout whenever a prompt required. I sunk into my chair.

How a teenager in East Texas came up with her exceptional body of original work in the late 1980's is unclear from her current performance. It was fine for sure, but full of opinions and thoughts that are not so unique. The album to be released next week is so overproduced that it is almost impossible to listen to. She just needs a mandolin and a fiddle and herself to create another set that would rock us.

Talking to her afterwords, she is just who she is, a person wrangling with reality, kind and open, sensitive and astute. Next time.

Wednesday, May 13, 2009

Equity market weak on news...but which news

The equity markets are giving up some of the gains of the last few weeks. Volumes are not high but there seems to be no life out there. News of weakening retail sales and profit taking drive explanations in the media, but there is something else going on that is taking the wind out of the sails --- that's government announcements.

The cumulative impact of what has become almost daily announcements in the last week of new taxation and regulation is wearing folks down. This is less of a yea or nay comment on the rules themselves than one on the extended reach of government that is coming so quickly. The proposal today to regulate the compensation systems of all financial companies through the "safety and soundness" principle is a big government move. The increase in taxes on options traders, commodities traders, hedge fund managers, and insurance companies was announced yesterday. Last week was the proposal to tax all multinational foreign source income at U.S. rates. We have previous proposals to increase capital gains and dividend tax rates, to raise estate taxes, and to raise the maximum tax rate(which would lead to a whopping marginal tax rate increase for the upper middle class). Hanging over all of this is the cap and trade system proposal, a huge boon for government coffers that will come from the private economy's pocket.

Some of this could be constructive and some may be misguided. What the Obama administration seems like at present is that talented guitar player that plays as fast and intensely as possible, plays behind his back, with his teeth, does a split and holds a note for an eternity before a rapid fire crescendo. Alright already you can play, you have immense talent, but do you make music, something that works for the listener. The Obama team is showing us that they know the nooks and crannys of the system, they have big goals, and they are really smart. They are not showing us how many of these proposals will actually be effective for the economy other than to say they are a matter of fairness and they are incenting good behavior.

A post here on May 5, "'s rhetoric...", addressed this issue tangentially, and specifically related to the corporate foreign source income issue. There are positive aspects and some potentially negative aspects to proposals wrapped in the same package, and the question that seems to be overlooked at times is "what will this do to our overall economy, our competitive standing in world markets, and the motivation for private wealth globally to invest in our markets?". That an end goal like reducing greenhouse gas emissions or creating more jobs in America is a laudable one does not mean that the tax scheme to achieve that goal is good for the economy. They are two completely different issues, or tests, for validation of an idea.

More later on all of this, but for now this stream of annoucements is sapping the energy out of the markets and the near term confidence out of the system --- the administration mandating compensation rules for all banks and financial lending companies? --- congressmen asserting the right to extend management oversight to all private firms that agree to participate in TALF? --- this is too much.

The warranty on your car is about to expire. This is your last chance...

These calls are incessant. They not only have our home phone number. They also somehow have my cell phone. The calls are for the most part from a Florida number (386-761-4356) and they come almost daily, the same robo recording, despite the fact that our cars warranties are long gone. Hanging up on a recording provides no satisfaction. Being on a no call list is no protection. While knowing that I was not alone, the choice to call the state attorney general's office had not been a threshold that had been crossed, especially given my attitude that getting any government associated entity involved in any aspect of one's life is always a step that eventually causes regret.

Hallelujah. Bloomberg radio reported this morning that the Senate, the U.S. Senate, is taking up a measure to shut down this operation. It's apparently pervasive nationally. I want to think that it will be like one of those cop shows where they take the battering ram to some obscure strip mall office suite and literally smash this operation to pieces.

Now if they could just take on those credit card refinancing calls that come from both Canada and some offshore Caribbean location. They are almost as frequent but at least they don't have our cells yet. With the locale being offshore, they are definitely up to something shady. They may just be social security number fishing expeditions taking advantage of financially stressed folks who naively give whatever information is requested to take advantage of false promises.

Get them too.

Tuesday, May 12, 2009

Congressional panel on financial crisis --- leadership?

Congress will soon announce a panel to investigate the causes of the financial crisis. This will be designed to be an attention getter as well as a serious probe of the events. Names being discussed in the media as the possible chair of this panel are Sandra Day O'Connor, Paul Volcker, and Arthur Levitt. All three have stints of distinguished public service, but are they really the ones to dig into what happened. The rationale for these possible choices is that they will underscore the gravity of the effort with their impeccable credentials. A better focus might be whether they would undertake a thorough and tough analysis that would dare look beyond the cliches that we currently live with.

Volcker, among the three, is the best choice for pure knowledge of financial markets. He is compromised to some extent, at least superficially, because he already plays an economic policy role in the Obama administration. As an investigator he is a questionable choice because, just my guess, his attitude would by why waste all of this time and expense on an investigation, "I'll tell you what happened." What he would say might just as good as what months later would be concluded by whatever committee, but that's not the spirit of an investigation.

Levitt is perhaps the most likely of the three to take a real hands on roll up the sleeves approach to the work rather than delegating it all out. He is, however, the least qualified by his nature because he is so absolutist in his views and comes across as a remarkably stubborn accountant. His media interviews and newspaper op-ed pieces over the past year on mark to market accounting show a man who will not acknowledge any aspect of an opposing view as having the least bit of merit.

O'Connor is an odd name to put forward. She does, as a jurist, have experience balancing opposing views and formulating cohesive responses. Her background is not focused on financial matters and there could be both pluses and minuses to that. Her family does have financial connections with her brother Robert Day being a founder and CEO of Trust Company of the West. He's been immensely successful with the family money and is one of those arch-conservative wealth rules types that you find in the southwest. In the last year he has been tainted by a scandal involving share trading in a major French bank and whatever the truth or resolution of the matter is it's not a plus since the panel results will be for global markets consumption, not just the U.S. Judging people by family members' actions is for the most part completely unfair, but for a role like this it's not completely irrelevant given the business he's in.

We wait and we will soon see the choices for this committee. Upon announcement it may be immediately clear whether this will be a serious effort or just a waste of taxpayer money to solidify the positions of special interests, including those of the government itself.

Monday, May 11, 2009

The market's one eye overseas

One can debate reasons for the equity market's two month run. Here there's a vote for regulatory changes made in early March. Another vote here as well for the fact that the market was just so radically oversold that trying out a rally, and seeing if it fit, was inevitable. Some think that the whole "stress test" business was important, from planning the discipline of the review to publishing the relatively reassuring results, but from this perspective that was mostly irrelevant as long as they didn't conclude that wholesale nationalization was required. There are many that point to the slowing pace of negative news, as an example 500,000 or so job losses in a month versus 600,000 plus the month before or the beginnings of life in parts of the residential housing market. Maybe, but job losses are still huge and foreclosures represent half, that's half, of all sold houses in the last reported month.

So we can debate all of this within the U.S. market, but bigger and more powerful events are taking place beyond our borders. The market is surely watching and reacting.

On the positive side China is, so far, managing its way through this downturn better than anyone. They have the reserves to do it and they are using stimulative spending to build, build, build more needed infrastructure, from roads to new and cleaner power plants to water treatment facilities. They don't have our Congress. The stability of China in this challenged environment benefits all of southeast Asia. While political problems had been feared by some as job losses from marginal exporters have been meaningful, that's not been an issue to date. Brazil is another bright spot, a huge emerging market country that has been functioning relatively well due to its significant indigenous consumer products infrastructure and its commodity exports. Both countries are bellweathers for the global economy and both are holding up reasonably well, and have strangely, a few would suggest, been a component of the market's willingness to revive. If either falter, it would be trouble.

On the current negative side, it's obviously Pakistan that's the issue. This is serious. There is a decidedly mixed record of corrupt, unpopular and inefficient governments standing up to insurgencies, no matter how big and powerful the government appears to be. It is an astounding fact, if it is a fact, that this valley that they are fighting over was held by 4000 Taliban fighters, and the government gave in to them. 4000! There was obviously no resistance at all by police or the government, just appeasement and don't miss dinner. Now there is evidence apparently that Al Qaeda as a network is focusing all efforts on Pakistan and its spoiled rich leaders guarded by an army that only is trained to fight India, and only wants to fight India. The odds of near term Taliban success may be minimal as the world will not stand by while these 12th century zealots get control of a nuclear arsenal. That said, Pakistan as the world's sixth most populous country is no Iraq and chaos there would present myriad problems, and that would spill over into the financial markets.

We will watch our markets in New York, London, Euroland, and Tokyo and debate the monetary and economic policies needed with great seriousness. Other areas have the potential to overwhelm this civil discussion.

Friday, May 08, 2009

Equity market off life support, but what's next

The last month has been a reminder of what once had been, a time when it was a normal reflex to look forward to checking the equity markets during the day. It wasn't that long ago, but it seems like forever. What's next is unclear, but this has been a relief.

So far the revival of the equity markets simply may be the result of a hugely oversold market that is no longer being punished by irrational seeming but forced panic selling. Finally reinstating the uptick rule and making an adjustment to mark to market accounting roughly coincide with the beginning of the rally from near death in early March. It is likely that now we are just reaching or moving toward some rational equilibrium, at levels that are still extremely low, such that the real work of determining what equity values are can begin.

The rally does not seem to be the result of any discounting of future cash flows or economic value added. It's just buy because everything is dirt cheap. There are these things around Manhattan every week referred to as "sample sales". Maybe it's the same everywhere. I have no idea. What they are is closeouts of merchandise by well known brands and designers at huge discounts. My family is really into this, and I too go from time to time. There are so many values that these things can be dangerous. Want a beautiful cashmere Euro cut sports jacket made in Italy that still has the retail tag of $1,395 on it for $119. What about a plush velour blue blazer that looks like something Brian Jones might have worn, retail price $599 but a steal at $25. Then there's an insulated suede zip up hunter's vest, padded to protect against recoil, retail $699, can't pass it up at $79. Look no further than my closet to find them. They may or may not be things that I wear. That said almost all of my shirts come from these sales now, casual sports jackets and sweaters as well, the basic stuff that I wear every day.

Is there a parallel here to this market. Almost everything is too cheap to pass up. The value will sort itself out later.

We wait as well to see if there will be any final markdowns before this inventory is cleared.

Thursday, May 07, 2009

France shares reflect observation

While in Paris a few weeks ago a post here on April 14 was titled "Economic troubles less apparent". Returning to New York on April 17 when I could have easily decided to believe my not sold eyes and buy the EWQ, the ETF based on the French equity market, I did not. Since that day the French market is up almost 17% and has outperformed Germany, Italy, the U.K, and the European ETF. We even had dinner on the 15th at a brasserie, Le Vaudeville, directly across the street from The Bourse and it was packed at 8:30 in the evening. Why not more conviction, a little faith in one of Peter Lynch's adages that what you observe is an important factor in an investment decision, often one that can be ahead of any analyst's number crunching or networking. Next time the opportunity to travel comes...

That gives me an idea. I could turn myself into an LLC and expense travel. I love travel. Here's how it could work. Say a nice trip to some interesting place for a week or two would cost $5000. That would be a business expense for the LLC. So while enjoying the trip my intuitive observations would be at work. If over the calendar year the observations from the trip would lead to a $5000 gain on investment ideas that would be a gain for the LLC, leading to net income of zero for the LLC. That means that the travel would be paid for by tax free income. If it led higher gains that would be gravy so paying taxes on that would be no real pain. This could be done repeatedly. Tahiti here I come. Of course to make the LLC look like it has a purpose it would be necessary to get a few close friends to invest modest amounts in the LLC but that's no problem. I could just promise them, say, a 10% guaranteed annual return on their money. This could be great... but... Wait a minute... Aw Shucks! Bernie Madoff beat me to this idea by 30 years.

Wednesday, May 06, 2009

"Trouble the Water"

As is sometimes the case I can be behind the curve on films, and tonight that never felt more the case while watching this amazing documentary from last year. This story of a young New Orleans couple, Kim and Scott, whose home was in the Ninth Ward during the Katrina disaster had one stunning scene after another, stunning in some disturbing, could at times say evil, ways and in some inspiring good ways. It was emotionally exhausting to watch. The footage filmed and narrated by Kim with a camcorder of the arrival of the storm and the efforts to survive it in the opening third of the film was almost hard to believe, both dispassionate and passionate reporting of what she knew needed to be documented. Their story after surviving documented by the professional filmakers never let down.

Tuesday, May 05, 2009

News keeps scrolling --- Stress tests, Chrysler dissidents

The government's bank Stress Test results are to be released on Thursday, so what is this flow of news from "sources familiar with" that keeps coming out. Tonight it's focused on Bank of America as the bank most in need of capital, Citibank needing it but not as much as BofA due a planned conversion of government preferred to common, and JPM being in the best shape of those three giants, in fact needing no new capital over the next two years. We have also learned the no banks can repay TARP money if they can't raise funds in the market without an FDIC guarantee. There is not much news here, except for the apparently definitive statement on BofA. The biggest news is this Stress Test info is leaking like the gutter over my patio. And I really need to get that fixed.

Other news, not leaked or anything but extremely interesting, is that the dissident unsecured investors in Chrysler that are trying to block the deal will be required by the Court to make their identities public by 10am tomorrow. Whether they have credit default swaps and are trying to force the company into liquidation or whether they are more vintage vulture debt investors that thought they would be able to wrangle some equity stake, who knows, but there will likely be some usual suspects.

Obama and his economic team's rhetoric is not helping with Congress

President Obama's mortgage "cramdown" proposal, always a flawed idea, will not be approved as 39 Republican senators were joined by 12 Democrats to turn down the idea. While superficially it was attractive to many as a way to put pressure on banks to aggressively restructure loans, the plan had the potential to be an operational catastrophe and in all probability would have damaged any revival in good straight up securitization markets that we need to get back on track. Just an opinion, but it's likely that more than those 51 senators were relieved to see the bill defeated and happy not to stick their necks out to get it done.

Today there is word that Obama may face the same type of bipartisan opposition to his plan to tax U.S. corporations in all foreign jurisdications. There are constructive aspects to this plan but it is too broadly focused, and his delivery of the message all wrong, saying major U.S. corporations have been engaging in a "tax scam". A few always may be, but most of these major companies have just been playing by the rules that were in place. What a poor choice of words in trying to corral the votes of Senators in whose states some of these powerful multinationals are headquartered. Also, the suggestion that multinational corporations' incentive to produce goods in other countries is primarily tax driven, as opposed to being closer to their customers and, for non-G7 countries, cheaper labor is off the mark as well.

A plan that would regulate the passage of corporate money into or through tax havens like the Cayman Islands, the Channel Islands and others makes sense. That is to store and protect it, not to use it productively. Here's the other side of the coin. When Coke cans and distributes Coke products in Europe with European employees and for European customers, or Proctor and Gamble makes toothpaste in Asia for those markets, or GM builds Buicks in China for the Chinese, or Citibank provides full branch systems and consumer banking services in southeast Asia, do they get no relief from U.S.taxes.

There may be ways that the tax system has been exploited by U.S. multinationals, but there was a defensible reason for the existing rules to be in place.

Friday, May 01, 2009

Stress test delay OK

Bank stress test results will now come next week, on the surface a delay that is worrisome. This administration's economic team has at least put into place a pattern of not rushing, of waiting until ready to release results. That's reassuring, we hope.

The entire bank stress test result plan is in one sense, domestic, stupid. What are we supposed to do when the results are announced, say oh my god my bank is eight games out of first place. In another sense, global, it's brilliant, allowing the U.S., still the world's leading capital market and a large debtor, to say that the books are open on our banks and the situation is under control. That's the Larry Summer's play, one could guess.

Goodbye Chrysler and and remembering the Barracuda

Chrysler's move into bankruptcy is simply the removal of an irrational and hemi-powered anti-green competitor so that the other two major U.S. companies, GM and Ford, have a better chance to survive and rebuild. The positive rhetoric is fine but it is unlikely to mean anything more than a government effort to have a controlled winddown of operations over several years. Dealers will be able to sell inventory with government guarantees and financing, but an outbreak of Fiat buying in the U.S. is not probable anytime soon. Jeep will stay in business in some form and the minivan lines will be combined and continued as well, but it's history for all else.

History brings to mind my first car, a used Plymouth Barracuda puchased with money saved from my seven years of newspaper routes, from elementary to high school. It was the base model, not the muscle car, but obviously with the same design. Powered by the storied slant six and with three on the column manual transmission, it still had plenty of pep and was a joy to drive. The fold down back seats under that iconic back window were unique. I sold it after two years to finance a post college extended trip to Europe, and regretted that immediately upon return. Those slant six's ran almost forever, until rust broke the struts that held the thing in place.

Goodbye Chrysler and thanks for that Barracuda.