Tuesday, June 29, 2010

Market collapse on no leadership

Let's face it.

We have no leadership from our President and no leadership from Congress. The President knows nothing about finance and markets and the Congress is hopelessly political. The darn Supreme Court, for heaven's sake, is trying to give us a break on economic issues but that's not expected or effective whatever one's view there. The President, politicians, the "Justice" Department, state attorneys' general, the SEC, and the FDIC have done their best to destroy any leadership from the private sector and there is nothing to replace it. Hooray, no one is at the wheel. No one can say "not on my watch". There is a leadership vacuum that is sucking all hope out of the market.

The Russians are coming

Can anyone regulate the out of control justice system, punishment system, in this country. Can anything be done behind the scenes and out of the public arena. This big deal about arresting Russian "agents" is just poison for our State Department and seemingly stupid. The families targeted are not being charged with "espionage". That every headline or header in every newspaper uses that word is apparently incorrect. It is completely unclear whether they sourced any information of any strategic value or whether they were just going through spy like protocols to send Readers Digest type observations back to Moscow. Does Barney Fife run the FBI now. Where's Andy when we need him?

Monday, June 28, 2010

Stimulus spending vs. budget constraint, THE BIG DEBATE

Stimulus or restraint, Krugman vs. Greenspan, everybody against Germany, when the economy, or economies, are at the edge of recovery what is the correct policy. The political pendulum is now in the direction of restraint and avoiding further budget deficits. Will more stimulus lead to a sustained recovery or will more stimulus set the table for dissapation of middle class savings and a big check for the next generation.

The answer is both simple and complicated. Stimulus spending for constructive long term purposes is a big positive. If it's infrastructure spending it's good, and that includes education and health as well as enlightened energy, transportation, bridges, roads, tunnels, and bike lanes. If it's simply funding the states'budget deficits, the debate gets murky. Those budget gaps are in large part due to unsustainable contracts, unfunded contracts, with municipal employees that would ultimately have been an issue in any economy.

Federal and state employees now, on average, make more money than private sector employees. On top of that they have health benefits and pension benefits that are only exceeded by members of Congress. While transparent, the "abuses" are manifest. Here in metro New York, it is accepted and encouraged practice for firemen, police, rail and subway and bus employees, etc., to arrange extreme overtime in their final years of employment such that their pensions are higher than their stated final year's salary. Many can retire after 20 to max 30 years of service. 97% of Long Island Railroad employees retire on disability after 20 years, from a railroad that has one of the best safety records in the country. Teachers have almost immediate tenure and work at their discretion, maybe, big maybe, a majority are great, some are hangers on, some take out their resentments on our children and some do nothing at all. There are no consequences.

The dilemma of Greece, Spain, and Ireland, is soon coming to these shores in a big way. Deficit spending to support state budget gaps, those not related to Medicare and health spending, is a stopgap measure with no long term resolution. The state employee, and federal employee as well, contracts have no basis in economics and are simply a road to ruin unless addressed in a way that unions will fight.

So Krugman or Greenspan, it requires choices and not a one size fits all approach. Is our political system capable enough to deal with this opportunity for discretion?

Friday, June 25, 2010

New consumer credit expansion to be stalled

As part of the new Financial Regulatory bill, investment banks that securitize consumer credit products will be required to hold at least 5% of any underwritten security on their balance sheets. Given the volume of credit card, auto, and mortgage loans that allows liquidity and diversification of this credit, firms that are required to hold 5% of each issue they originate could strain their capital levels in short order. For decades a bank's role has been distribution to allow continued financings to be underwritten and accepted by the broad market. Even with today's still diminished activity relative to the pre-crisis past this is a market of enormous flow and dollars.

On top of that banks that are required to hold these positions will not be allowed to hedge them. Under the new rules that would be viewed as "betting against" a security that a bank has sold to clients. There is no way out really. The choice will be to build a consumer credit balance sheet that requires significant amounts of capital over time or limit the business. That business would then presumably go to UBS, Credit Suisse, Deutsche, Nomura, and other firms that do not fall under the U.S. regulatory umbrella, if the business is done at all.

What should have been regulated is the quality of products that are allowed to be securitized, how the securities are rated, how the prospectuses can be plainly written, and what originators have a track record that qualifies them to have their product packaged and underwritten. Too much work no doubt so why not just hamstring the market as a whole(and scapegoat that banks once again) such that expansion of consumer credit in general becomes more expensive and more restricted.

Certainly we have been through a period in which very poor product, primarily mortgage, has severely damaged the reputation and track record of the consumer asset securitization markets. That does not mean that the concept of securitization and distribution itself is flawed. Done with decent well disclosed product, securitization of these assets is absolutely necessary to restore broader credit availability to small businesses, worthy households, and entry level individuals.

Why is this not obvious.

Agreement in Congress on financial regulatory bill

At least there is some degree of certainty about what the financial "reform" bill will be. Uncertainty in markets leads investor thought to the worst possible outcomes. Even certainty about negatives is better for the market than a lack of information.

The apparent outcomes on both the proprietary trading and derivatives regulation are less onerous than they could have been. It will still damage profitability and related capital formation in areas that had nothing to do with the financial crisis but it could have been worse. While domiciling consumer credit oversight at the Fed will avoid establishing a major new bureaucracy, there remain many aspects of the bill that will restrain consumer credit expansion. Securities underwriters of asset backed securities will be less active while car dealers are breaking out the champagne to toast their new oligopoly in auto lending. Financial companies broadly will be looking at higher overhead costs to comply with all of the new regulation and whether this is a long term embedded cost or just a medium term adjustment is unknown. Capital requirements for financial institutions, a crucial issue, do not appear to be defined clearly other than a phasing out of the use of trust preferred securities as Tier One capital.

This is a massive and complex bill. In the coming weeks it will be analyzed by many constituencies and its probable impact will become more clear. That there is finally something to analyze is, at this early point, the only certain welcome news of this morning's announcement.

Thursday, June 24, 2010

Equities leaking, opportunities ahead?

Equity markets around the world have been slipping since early May. There is a trading momentum downward such that both the European and U.S. markets headed straight down at 2pm in their respective time zones. One would normally think that market news would lead to coincident trading directions across time zones but that was not the case today. What today showed was that the respective markets are trading on technical indicators and trading set-ups within discreet market zones, and not fundamental market information like corporate earnings and recovery indicators. Is this is a temporary phenomenon that will lead to buying opportunities soon or a train of thought that one can't get in front of without getting creamed.

Patterns within the array of stocks followed here suggest the former, but memories of the fall and winter of '08 to '09 create fear of the latter. Tomorrow is unlikely to provide any reassuring answers.

Mayor Bloomberg's "Partnership for a New American Economy"

New York's Mayor Bloomberg has launched a coalition of mayors and business leaders to lead an overhaul of the U.S. approach to immigration policy. So far the mayors of Los Angeles, San Antonio, and Philadelphia have stepped up as have the corporations Hewlett Packard, Boeing, Disney, Morgan Stanley, Marriott, and News Corp. This could be a vital effort to confront the leadership vacuum on this crucial issue.

Immigration reforms appears to be an issue that is too hot to touch for many politicians. With the dysfunction that Congress already represents the Obama administration has the right talk on the issue but none of the walk, as it seems to have back burnered the issue for now as it had spent political capital on the health care bill, the so-called jobs bill, and financial "reform". The dire state of this issue could not be highlighted more than by the fact that even Rupert Murdoch and his News Corp. of Fox News infamy sees the need to take a leadership role with the Mayor.

The group has as a goal finding a path to legal status for longtime residents with undocumented status and determining new legal paths for immigration. A second major goal is to restore the U.S. as a haven for the most creative scientists, engineers, academics, and entrepreneurs in the world such that the country continues to benefit from diverse talents. On this point it can be more bluntly stated as "why do we educate students from around the globe at our best universities and then deny them the opportunity to put their skills to use here".

Leadership on this or other issues is not solely dependent on the Congress or the President and his administration. Some things are too important to be left to their political sensitivities, tedious caution, and subsequent inaction. Immigration reform is begging to be addressed and may this new coalition, the Partnership of a New American Economy, be in the vanguard of constructive change, not as a whiner and a poll taker, but as a real thought leader. Godspeed.

Tuesday, June 22, 2010

Finney whistles while he works

Sidling up beside me on Spring Street today was a whistling man, it was a familiar tune and it turned out to be a familiar face, none other than market maven Kizziah Finney. "Roll out those lazy, hazy, crazy days of summer, those days of soda and pretzels and beer'. That's my market forecast mate. How ya doing." Finney was in stride, in voice, and in character. "The market is lazy, those low volume days, it's hazy, no one can see beyond their nose and you may not be able to see that far, and it's crazy, 1% up, 2% down, 2% up, 1% down, on good days the media lets happy people talk and on the bad days they let the grim people talk. Unfortunately the down days seem to be wearing down the ups little by little."

Finney walked with a bounce in his step and continued without interruption. "Hey I'm the Irish Nat King Cole. 'Just fill your basket full of sandwiches and weenies, and on the beach you'll see the girls in their bikinis' or something like that. We need diversion because this market is giving me a heat rash."

At this point Finney's raucous voice seemed to be attracting some attention from the curious, a little unusual in New York where being anonymous and ignored is generally viewed as one of our civil rights. I suggested that we duck into Spring Lounge for a soda or beer, and a break for our feet. Finney welcomed the idea and continued his monologue as we ordered refreshments.

"You may not know that I'm on my own now. Clients were driving me nuts. The market's up and they buy, the next day they're panicked. What do you say. Now I guess you could say I'm starting a hedge fund, whatever that means. I don't even have a name for it yet. Lots of folks use their street names, or should I say lane names, from up in Greenwich, but me, you know Avenue B Capital doesn't sound so reassuring, better than the old days but still a little edgy for the conservative types. You got any ideas just pass them on."

I asked Finney what he was investing in now and started him off again as he drained his mug and called for another. "Same old, for what it's worth. U.S. small caps which have lost a lot of liquidity for now so they're stalled, whatever the offshore Chinese seem to buying as a long term opportunity, some cloud computing technology stuff, and I'm still hopeful on the U.S. infrastructure plays because it's going to be a necessity someday before everything just falls apart. Emerging market corporate debt is risky but has good yields and perhaps better prospects than any U.S. stuff. Since I now have this hedge fund status I'm shorting any finance company that is regional and doesn't have critical mass because all of these new regulations may just increase their overhead and crimp their products. Shorting some European banks as well, French and German mainly, as European credit issues are not going away anytime soon. That's about it other than a sizeable amount of cash on the sidelines in boring short term Treasuries. It used to be munis but that stuff scares me now. Overall I'm just building and maintaining a portfolio for the long term but that's not completely reassuring as the long term is really just a series of short terms. Lazy, hazy, crazy now, the picture will become clear later in the year I guess."

I had an appointment to keep, so with apologies wished Finney well, finished my soda and headed off into the Soho streets with the tourists and shoppers. Finney hoisted his beer in a goodbye and shouted after me, "Call me with some names, I can't be No Name Partners".

Monday, June 21, 2010

The Financial Reform Bill balancing act --- off the beam?

The Financial Reform Bill is moving to some sort of conclusion. There will definitely be a bill, and it will be too complex by far and full of loopholes and one-off congressional "mandates". We need financial reform but vexing open issues of importance remain unresolved. Big picture issues are:
---Regulation vs. Elimination --- Congress can pass laws to regulate many financial products. Rather than take responsibility for regulation they can just choose to eliminate certain products or established ways of doing business. Derivatives are the primary example of this but there are others in the consumer bill. Derivatives can be required to be listed on open exchanges, limits can be set on certain derivatives solely used for betting and manipulating, not hedging. Changing the entire practice of derivatives, eliminating bank capabilities, would be disruptive and highly capital inefficient. Just regulate, do your job please.
---Credit Expansion vs. Credit Contraction --- At this crucial point in the supposed recovery, actions that unnecessarily raise capital requirements and restrict risk adjusted pricing would end credit expansion to the small business, middle market, and consumer constituencies. Regulate abuses of the system that led to the '08-'09 crisis but please don't try to level the playing field so much that banks can't afford to lend to firms and individuals that could on average responsibly use the money, with somewhat more risk to the banking system.
---Precision vs. Ambiguity --- Vague language creates uncertainty which creates investor paranoia. In matters of significant consequence the language needs to be precise enough to be dependable long term. That is not the case yet with the so-called "Volcker rule" on proprietary trading. What is proprietary trading as opposed to hedging a loan book, hedging a treasury portfolio, and hedging a foreign exchange book. Who decides. Do new leaders or bureaucrats at the SEC come up with different interpretations with each new appointment, each new administration change. This is an important issue that requires more attention than it is receiving in the big "kitchen sink" bill.
---Innovation vs. Inbred Caution --- Will the complexity and breadth of financial regulation make innovation in financial offerings to both business and consumer markets forbidden territory. Why risk change if sitting still involves less risk and less attention from a Congress and Administration on the hunt for more scapegoats. What encourages firms to differentiate their activities and develop new markets?
---Globalization vs. National Priorities --- The focus on compensation, products, pricing thresholds, and banking structure could set in motion more nation based competition for talent and customers. It brings to mind Smoot Hawley or Hawley Smoot, whatever it's called, that tariff bill passed in 1930. It started out as just a bill to put a tariff on agricultural products to give the struggling farmers a break. Some in Congress proposed tariffs on industrial products as well. By the time the bill was passed all proposals were accepted and there were tariffs on everything. At the time, within a year or two of passing the bill it was widely viewed as exacerbating the Great Depression. Today many economists say that it was of little consequence, monetary policy was the issue. Leave it to economists to theorize away the obvious. On the margin Smoot Hawley was horredous policy, and one should not forget that WWII eventually followed a slowdown in international trade. Today we live in an economy dominated by the service industries of finance, communications, and technology, not agriculture and manufacturing. The Financial Reform Bill could be the 21st century Smoot Hawley and we don't even know it.

Soon we will have a bill and today, as much as constructive financial reform is needed, it is difficult to be optimistic about the final product.

Sunday, June 20, 2010

"Treme" season ends --- applause for the show

In a first season that became progressively more addictive and entertaining, unpredictably moving and heartbreaking, HBO's "Treme" ended a 10 part run tonight. There are two parts to "Treme", the story line and the music. The music is worth the time, anytime, with the many New Orleans musicians participating in the series. The story developed the characters steadily and by the second half of the season they were getting close to being as real as any of the personalities on "The Wire". Creighton's suicide in the ending episodes crushed me as the relationship with his early teenage daughter had been so touchingly drawn throughout the season. Antoine and LaDonna cut charismatic profiles, Davis comes off as the annoying likeable loon, and Annie the busker, Janette the chef, and Albert the "Big Chief" all have my undivided attention.

There will be a second season, and that's something to look forward to, a bright spot in the distance on the television horizon. I do like it.

Saturday, June 19, 2010

World Cup protocol

Yesterday's call disallowing a potential winning goal by the U.S. soccer team was appalling. You can watch the replay as many times from as many angles as possible and there is no U.S. foul and two obvious holds by Slovenia. It boggles the mind here that there is no mention anywhere that this could have been an intentional bad call.

There are legal sports books around the world that allow betting on World Cup events, and there are plenty of private ones as well. The call by the referee was made immediately without regard to what happened on the field. Is FIFA so sacrosanct that any intimation of impropriety is simply so politically incorrect that outright corruption cannot be cited as a possible rationale for the clearly incorrect call.

Mali is one of the poorest countries in the world with over half of the population living at the lowest international standards to classify poverty. While it is certain that the referee is among the elites in his impoverished country, how many opportunities would he have to earn a substantial sum for a simple favor.

The call in question was such an egregious violation of referee responsibility that under any normal circumstance one would allow that there is at least a 25% chance that this was an intentional bad call, one that should lead to a search for an offshore bank account or, worse yet, some threat to the referee's family.

This could have been a terrible call by a referee who comes by his incompetence honestly. Maybe that's the real truth but exploring other alternatives would seem to be natural in most situations. Can the possibility at least be mentioned.

Thursday, June 17, 2010

The state's bills go downhill

Various anecdotes and news reports have shown that as states become strapped due to lower tax receipts, unsustainable labor pacts, and the loss of certain federal money, they pass the costs down to cities, counties, and communities creating a downward spiral of budget gaps. Somehow the news to date, seen or heard here, had to do with counties or communities that could least afford it. The news is that it is happening everywhere. Today's local newspaper reported that our metro New York county's "required contribution to the State Pension Fund is expected to skyrocket by about 45%, or 43.6 million more next year". The math is a rise from $97 million in 2010 to $141 million in 2011.

State legislatures across the country must, by law, find ways to balance their budgets, but doing so doesn't solve the problem if the gap just moves to other smaller even less financially flexible jurisdictions. The credit crisis is far from over. Hello Greece, what's it like over there.

Tuesday, June 15, 2010

"The Radetzky March"

"The Radetzky March" by Joseph Roth is a work of historical fiction set in the Austro-Hungarian empire in the decades prior to World War I. The book was published in 1932 yet, like much great literature, it resonates today with current insight.

Until last week this book was unknown to me and checking with well read friends I was not alone. It is the story of an empire in decline as seen, or for the most part not seen, through several generations in the life of one family. It is the story of a father and son relationship and of societal change so certain but so glacial in day to day lives. "He saw the world going under, and it was his world...The old revolver that Herr von Trotta had carried along pressed in his back pocket. What good was a revolver? They saw no bears and no wolves in the borderland. All they saw was the collapse of the world!" This melodramatic quote is not characteristic of the storyline but seemed to work in this short commentary. As does the subtle distinction here, as the resigning officer says, "the end of a career!" and his muse responds, "The career has ended, the career itself has come to an end."

Societal observations, many open to a reader's appreciation or rejection are frequent. As in "Those were principles that would be labeled 'hypocritical today' because we are so much more relentless: relentless, honest, and humorless." or "Lieutenant Trotta wasn't experienced enough to know that uncouth peasant boys with noble hearts exist in real life and that a lot of truths about the living world are recorded in bad books; they are just badly written."

The descriptions of historic sense of place and day to day life are exceptional, rivaled only by Irvin Yalom's "When Neitzsche Wept" in readings here of that general period. Two completely different subjects of course, but both make the environs and psyche of the times tangible.

"The Radetzky March" is easily the best book that I have chanced upon this year.

Postscript: Strangely it is the second book read this year in which the Battle of Solferino plays a central role. The other was "The Surrendered" by Chang Rae Lee.

Sunday, June 13, 2010

What to do with leftover corn on the cob

In the summer I could eat fresh corn on the cob at every evening meal. So, when it's my turn to cook it's usually on the table. Not everyone, however, shares my constant enthusiasm for the yellow stalk which leads to leftovers lonely in plastic wrap in the fridge.

Using this leftover corn in salads or mixed in with other vegetables was not catching up with the supply, so the following has become the new normal of leftover corn usage here.

---Take two to three ears of leftover corn, cut off the kernals, and put in a big bowl.
---Boil one bag of frozen edamame beans for five minutes. Put in colander. Run cold water over the beans in shell. Spend fifteen tedious minutes shelling the edamame beans. Pour into bowl with corn.
---Add one drained can of garbanzo beans from a place like Whole Foods so that there is no sugar in the product, just water and sea salt.
---Finely chop four or five radishes. Add.
---Then comes a cucumber, medium size, cut into chunks big enough so they don't vaporize into fluid.
---If you are at a Whole Foods pick up a small container of their smoked corn with other spicy stuff and blend in. It's next to the guacamole in New York.
---Finely dice a quarter of a red pepper and a quarter of a green pepper.
---Add leftover fresh green peas from last night's dinner or whatever else you think works.
---Carefully add some dabs of harissa to add some spice. More can always go in but you can't get it out.
---Squeeze in the juice of a half lemon.
---Then comes one tablespoon of good olive oil.
---The coup de grace is the same amount or a little more of Paul Newman oil and vinegar dressing.
---Salt to taste and blood pressure level.
(Never put so much oil or juice or dressing in such that the result is the least bit soupy)

Mix well. Put in the refrigerator. That's a healthy bean and corn salad that goes for three or four days, healthy summer fare that can keep the hot fresh corn on the kitchen table guilt-free.

Postscript 6/15 --- Cucumbers should not be soft. They must be firm and the best are those plastic sheathed designer ones otherwise known as hot house or English.

Saturday, June 12, 2010

One more time on credit default swaps, briefly

At some conference yesterday George Soros made a speech in which he expressed his opinion that we were now just entering Act II of the great global credit crisis. As reported by Bloomberg he commented,

"Credit default swaps, which aim to protect bondholders against a risk of default, are dangerous and a license to kill. CDS's should only be allowed if there is an insurable interest."

So simply said, so correct. Rather than banning all CDS's like the Germans or attempting to paint all derivatives as toxic like some members of the U.S. Congress, he focused on the exact problem that will be part of opening the curtain on Act II. Rather than support unlimited uses of CDS's like Geithner, Summers, and capital markets "experts", Soros underscores the need to limit their use to insuring against held credit risk.

Now it's not mortgage backed securities and challenged companies that will feel the effect of this unlimited ability to gamble and manipulate, it's governments, countries, and the people that work and live there.

Saturday, June 05, 2010

Street Fair

The local three short block downtown had its annual Chamber of Commerce sponsored street fair today. What had been a lazy affair at best in previous years was splendid this year, like walking through and being a participant in a Bruegel painting.

The band this year was set up outside the last remaining Irish dive bar in town( there were five or six when we moved here 24 years ago and by dive bar I only mean one that makes maybe 80% of its money on booze and the rest on wings, chicken fingers, and shephards pie) and the music was darn good. Next to the band the man known as the Fifth Beatle around town played air guitar and air vocal. With his hair mop or wig of '65 Beatles look he is part of the landscape, ten years younger or older than me I have no idea. The band played mostly Allmans, other southern rock, some bad Clapton and 70's stuff, nostalgic Joe Cocker. Some worked really well, some not so great, but for a small town street fair it was out of this world. Two drummers, believe it, both good and playing as offsets, so unusual here in the suburbs. Of course I talked to them. The drummers are ten years apart in age and "just click". The lead singer of these guys in their 50's was my surprisingly my electrician, but maybe not so since he's the only house service provider I have that doesn't overcharge me. The name of the band is Chicken Head, I guess a carnival reference, I didn't ask.

So having forgotten that this was an event, three hours later I headed back up the hill with an astonishly good grilled bratwurst in my stomach from the German deli's set up outside of their store, some shish-ka-bobs to grill from Kenny''s butcher shop, and some bbq grill cleaner(probably toxic) so I can get into the season.

What was so compelling about the scene in this little town was people watching, which a good band allowed a well meaning, a little older, person to do. In front of the band most everyone passing by that was over 80 or under 5 covered their ears. Every young Asian family in town may have attended, happily enjoying an outing. Older folks than me strolled, odd couples young and old foreign and local pot belly and skinny, even pursed lipped guys with famous golf courses labeled on their polo shirts with their townie trophy wives, enjoyed the comraderie of a local event. It seemed to be the height of life for 10 year olds or those around that age, free and do I remember that.

Eddie my barber and I stood and talked for a while before he had a head to cut. In Taskent he had never heard of the Allman Brother's Band so Amazon is on the way. Kenny and his father Leo at the butcher cut the green pepper, red pepper, onion, and porterhouse tail shish-k-bob, and at the diner Sylvia from Peru, who helped me rescue my father several years ago, made the vanilla milk shake for my daughter with a sore throat.

I bought a lottery ticket from the Knights of Columbus.


Friday, June 04, 2010

Market says "OOH POO PA DOO"

The music is starting again. Has the gris gris of New Orleans become the prognosticator of our financial markets. Are Faurbourg Marigny, Treme, Algiers, lower Magazine, and the ghost of the 9th Ward in control of the NYSE.

Katrina devastated our national treasure in August 2005. Every vintage of lower quality AAA mortgage backed security from that point onward was trash(not splitting hairs but that's just about right, some early 2005's fell into the mix but not all) and now with the BP, Transocean, Halliburton, and the government regulator's responsibilities for the beyond calculating devastating Gulf oil spill, here we see another sell-off that may be more than significant, once again.

Perhaps I'm not so serious and perhaps I am, and tomorrow I may write thoughts on what's going with this equity retrenchment, the U.S. job market, the collapse of the western European central banking system, the potential for the same in the U.S. federal government versus state government system, and the lack of any new issuance corporate bond market at the moment.

In the meantime, OOH POO PA DOO and the horns check in, and I do not for a second doubt that my first thought is less important than any insight in the Wall Street Journal or the New York Times or Barrons. We need both.

Postscript --- JA reminded me that Jessie Hill was the writer of OOH POO PA DOO. It had become part of the vernacular of New Orleans in my mind but origins are important.

May we do more than remember John Wooden

In a world where lauded young NBA basketball players have 15 cars and say their goal is to be a billionaire and where massively paid winning college coaches thrive on one year players heading to that goal, what can you say about the stature of John Wooden. From here he seemed to be the role model of personal decorum and skilled professionalism in what he chose to devote his life to --- team basketball and young men's lives. He won with talent and integrity. Even though his team broke my heart in 1975 with his last minute victory over Louisville in the NCAA tournament, I say this. John Wooden should be held in the highest esteem and his lifework should be revalued and revitalized.

Wednesday, June 02, 2010

Strong late rally, WHY?

Reading and listening to commentary about this afternoon's broad and robust rally in U.S. equities, there seemed to be universal acceptance of the catalyst, higher than expected used home sales and higher than expected auto sales. Not correct. Used home sales were, it's true, higher but soon to expire tax credits for homebuyers contributed to the higher number and that's not sustainable. Auto sales were higher as well, with percentages calculated on year over year sales, a comparison to a time when car companies were all going bankrupt, or just about.

I'm not saying the numbers weren't welcome but they weren't earthshaking and there were other economic statistics during the day that weren't so stellar. Warren Buffett's testimony to the Financial Crisis Investigation Committee was the deal of the day, hands down.

He was interviewed briefly by Bloomberg television just before going into the hearing. The interviewer, Betty Liu, asked him why he had turned down the invitation and had to be subpoenaed. Buffett just said, "That's their right". She asked what he and the other representatives of Moody's expected. He responded that he was there to discuss the reasons for the crisis, the committee's mandate, and that he had just this morning found out that it was just Moody's representatives and himself. She asked if as the largest shareholder didn't he have regular discussions with Moody's and Buffett responded, "I haven't seen the CEO or spoken to the company in three or four years. I'm not sure that I'll recognize him until I'm shown where I'm sitting."

Buffett was in an uncharacteristically agitated mood. The hearing started off on shaky ground. When asked for an opening statement Buffett responded "No statement". I was concerned for him. After about 15 minutes, however, he relaxed and regained his common sense easy touch. While the questions were direct and challenging, this committee was not personal, unfair, and hostile, like the vile Senator Levin and his goons.

As two plus hours went on, Buffett was asked repeatedly about derivatives and he answered the questions simply, in a friendly and not a patronizing way. By the end of those questions even Blanche Lincoln might have possibly understood something. He did not trash Moody's or anyone else specifically. He did bring up Fannie and Freddie several times and pointed out statements that their Congressional oversight staff had made that were not out of line with what Moody's had thought. Buffett did this in such a low key and polite manner that the committee members didn't seem to know that they were being skewered. Buffett repeatedly stressed leverage and incentives as what should be central regulatory focuses.

It was just an exceptional performance. When asked, actually challenged, with the firmly stated question, "What do you use derivatives for?", Buffett responded, "I use them to make money". You had to see it. Those in the market who did had the courage and desire to bid up equities when he finished talking.

Tuesday, June 01, 2010

Challenging times

At times like these I wish that the subject of this blog was just sports, or crime novels, something containable that could reliably be written on without the alienation that has built up in me like some urban tea party obsesssive. I don't really mean that tea party comment, God I hope not. I do wish that this blog had evolved in a way that didn't primarily cover broadly opinionated commentary on financial markets and politics. So now we have Greece and much of Europe as a whole to worry about, an almost complete shutdown of the corporate bond new issue market everywhere, financial regulation still up in the air on some very crucial issues, trouble in the Koreas and the Middle East now that is not trivial, and oil spewing in the Gulf in a tragic disaster that everyone wishes terribly would stop and the government's most assertive move has been to investigate criminal charges against BP, just what we need to focus on at the moment, blame and prosecution. It seemed to work for awhile on Goldman, why not BP.

It all just calls for escape with some half decent crime novels or espionage novels, Jason Starr's "Panic Attack', "The Way Home" by George Pelecanos, "Agents of Treachery" a compilation of spy genre short stories edited by Otto Penzler, "Thieves' Dozen" from Donald Westlake, and now halfway through Robert Stone's new set of rather gloomy short stories, "Fun with Problems", an ironic title if there ever was one.

When the eyes get tired there's the switch to "Mad Men", a television series that has been around for three or four years but is totally new to me, and through Netflix I'm now approaching the end of the second season, soon on to the third. It's a solid show and, while I never would have had the patience for it if interspersed with advertisements, it's entertaining without interruption.

All of this diversion will not answer the world's problems here or make one any more prescient or at least just somewhat relaxed about financial markets. Maybe tomorrow something constructive will come to mind.