Sunday, July 15, 2012


This "outsourcing" focus of the candidates for president is ludicrous and backward looking.  That's this campaign.  Who would have thought four years ago that Obama would lead such a recidivistic Chicago style of attack, looking only at tenuous arguments to attack and not at leadership.  Who knows what to expect from Romney, throw a leaf in the air before you hit your three iron, that's about it.

On outsourcing - may everyone be reminded that we sent an astronaut to the space station today on a Russian rocket from Kazakhstan.  A private company, SpaceX, will soon be vying for contracts as will be the Chinese in no short time.  The point is that over two administrations the U.S. has planned to OUTSOURCE NASA, our space program.  If this is not the most massive outsourcing program ever, what is.  Certainly not the phone banks in India, the sneaker manufacturers in southeast Asia, or even the IPad manufacturers in China. 

The U.S. government is the premier outsourcer.

"The Flowers of War"

"The Flowers of War" is an interesting and engaging Chinese film.  It's interesting here because the Chinese censors passed on this film after a six month process of review and engaging simply because the film, while fictional, was based on some explicit factual accounts of events similar to what was depicted.

The film was the highest grossing film in China in 2011.  It was directed by Zhang Yimou of "Raise the Red Lantern" fame and one of China's most prominent directors.  This historical war drama is set in 1937, and it stars Christian Bale as an American rough guy who makes his living as a mortician.  As the "Rape on Nanjing" by the Japanese is in progress he helps rescue a group of young girls who are trying to return to their convent, and then protects a group of prostitutes who are seeking refuge at the convent's cathedral.  All other actors are Asian, presumably Chinese.

While the director Zhang states that he intended to give a multi-faceted face to the Japanese to show that all were not alike,  that is far from clear to the casual film watcher.  As the events unfold the Japanese as shown in the film are merciless, killing and raping with abandon, even with joy.  The few Chinese fighters and resisters are heroic and self-sacrificing, literally.  In 2011 what does this mean as the popularity of this film shows that the atrocities of WWII and the enmity between Japan and China are hardly beneath the surface.  Japan has yet to acknowledge the atrocities in Nanjing.  As China militarizes in a major way, what does this mean for the relationship looking out ten years?

The other completely weird aspect of this film is that while making sure to villify the Japanese in the most graphic manner, it romanticizes the life of Chinese prostitutes.  The good hearted group in this film ultimately makes a difficult decision to protect the young convent girls.  While not government sponsored today, the well-to-do in China can be as active sexually and at time degenerate as they choose to be and it is not a secret.  The film suggests that there are fine people whose destiny was changed by events beyond their control, and they retain their integrity.

Those censors have disciplined agendas.  This is a pretty good historical film that is worth a look, but the messages about China today stood out.   

Saturday, July 14, 2012

Romney sees Bolton as Secretary of State?

John Bolton is always around the edges of right wing Republican circles.  Sometime he has not been around the edges, as in State Department roles in both Bush administrations and UN ambassador for a short period to time.  Romney apparently now sees him as a potential Secretary of State.  During the Republican nominating campaign, Newt Gingrich vowed to nominate Bolton for the job. 

Simply put, many view John Bolton as someone to the right of Genghis Khan.  He is uniformly abrasive as he voices strong opinions.  He was fundamental to Bush 2's decision to call out Iraq in 1993 for "weapons of mass destruction".  That was his job as 3rd Secretary of State at the time, to root out WMD's wherever they might exist and negotiate weapons drawbacks and security broadly.

Go to Wiki and look at his information.  What is there seems to be too balanced.  Bolton has a manifest destiny type of mentality for the U.S., a mentality that is dismissive of the potential of other countries and is non-compromising in the most aggressive manner.

Admittedly there were times in his short tenure at the U.N. when he objected in his style to clearly troubling issues that a meeker U.N. ambassador may have quietly overlooked.  Those were things like human rights panels where almost half of the countries appointed were serial violators in the worst way of human rights in Africa, Latin America, and the Middle East.  Bolton has had some positive moments. 

Overall, however, it is hard to imagine someone in temperament and in global acceptance who is less qualified to be Secretary of State.  Romney has no idea but of course he is never wrong. 

Friday, July 13, 2012

Betty Liu interviews Warren Buffett

This morning on Bloomberg television, Betty Liu interviewed Warren Buffett for much of the time between 8am and 9:30am.  This was at the Allen & Co. Sun Valley outing, and the setting was casual.  So was the interview.

The magic of the interview was that it was mostly Warren Buffett talking in a relaxed an open manner about his portfolio holdings, his views of the banking industry in light of this being JPM's reporting and conference time, and many other topics about Berkshire Hathaway.  What was refreshing about the interview was the contrast to the CNBC style.  The interview was focused on the person being interviewed, with intelligent questions asked and plenty of time for full answers.

The CNBC style seems to require that the interviewer be a personality.  That means interrupting the person being interviewed from time to time, challenging the person being interviewed, and of course sharing a few yuck yucks as well.  It's a sort of macho aggressive style of interview that often short circuits the answers and at times highlights the ignorance and attention seeking behavior of the interviewer.

That this interview was so relaxed and informative may well have something to do with the stature of Buffett.  I think that it was more than that.  The interviewer was on point with all questions and had a logical sequence to a live interview.

Of the many topics covered a few stood out.  One was Buffett's unwavering support of Jamie Dimon.  Another was when he was asked about the size of the big U.S. banks and what dangers they pose.  Buffett responded that as a percent of GDP the U.S. big banks were smaller than those of many countries, such as Canada, Switzerland, France, Germany, Italy, and England.  He recognized the need for the size to be truly global in order to compete with the banks of other countries.  Buffett is a big fan of Lloyd Blankfein as a risk manager.  His favorite banking firm by far is Wells Fargo.  He likes Brian Moynihan and see BofA's deposit franchise as ultimately being a major strength as they work through their challenges.  He said that Moynihan has been doing what he would do if in the same situation.

There was much more to this interview.  It was really well done.

JPM relief rally pervades markets; China stabilization underpins opportunity

With China's growth rate seemingly stabilizing in the mid-7% area,  that reassuring news laid the groundwork for the market to react positively to JPM's news that their huge failed macro trade will soon be behind them.  While JPM "core earnings" were below securities analyst's estimates, that was immaterial compared to the certainty that has been introduced into the markets.  Like rating agency analysts, sell-side equity analysts are relatively impotent.  The market makes its own decisions and gave a big thumbs up to the JPM disclosure and actions.

The New York Times and various media pundits didn't get it and focused on all of the negatives of the JPM disclosure at the outset.  Even Bloomberg television reporters repeatedly acted as if the JPM disclosure was some manipulated effort to hide information from investors.  How stupid would that be.  It is in JPM's interest to be as transparent as possible as long as it does not compromise proprietary trading information for the benefit of competitors.  They want this episode behind them.

The biggest news from this perspective was that it was implied that actions were taken by the London trading group responsible for executing the hedge to, at a minimum, not disclose the full exposure of their trades to internal management.  If actions there led to management reporting that did not reflect the full exposure, that certainly comes close to the definition of a rogue trader.  This makes sense, because it seems apparent that Ina Drew and Jamie Dimon definitively did not have all of the information when he made that "tempest in a teapot" comment.

It's an old story in trading.  Get underwater on a trade but, convinced that the underlying reason for the trade is correct, double up and them some to get out whole.  The so-called London Whale and his two bosses did that so many times that they owned the market in this particular derivative and by the time the most senior management had enough information, it was too late to exit.

The conference call to discuss the bad trade and earnings in general was well handled, serious and informative.  The market listened, even if some in the media did not.

Thursday, July 12, 2012

Summer financial markets sag

Summer sale mark-downs are underway.  At the same time that there is confidence fatigue in the U.S., due to what seems like a flatlining of growth in recent weeks and the general opinion that corporate earnings season will be lackluster, the dollar is strengthening and gold is declining day in, day out.  The U.S. sheen as a global safe haven is coming back even as U.S. investors are growing more cautious.  Does that make sense?

Maybe the heat has just gotten to us.  Investors and consumers have perhaps become tired of trying to be optimistic.  The political scene does not help at all, as petty fights break out in the election campaign and in Congress, all immaterial as far as laying the groundwork for growth.  In fact, the politics on both sides is just depressing, wasting time and leading us nowhere.

The big events of tomorrow are new growth numbers for China's economy and the 2Q earnings report and lengthy conference call by JPM, all before the market opens.  China's numbers are critical for commodity market forecasts, and that of all tangential industries.  JPM's trading loss and outlook have been weighing on the market, in this opinion, more than has been realized and clarity there will be a relief.  That assumes no more surprises and a way out of the bad trade.

Warren Buffett was surprisingly out of optimism this morning on CNBC.  He wasn't exactly negative but he noted that there has been significant decline in growth dynamics, as in none, over the last six weeks.  He has no explanation as to why that is the case, just that the slowdown is an observed fact.

As noted at the outset of this post, summer mark-downs are underway.  Barring significant bad news of some sort, this sale will at some point draw in more shoppers to the equity markets.  When is the question, but erring on the side of caution until it's clear is worth giving up a few potential bucks of gain.

Wednesday, July 11, 2012

Unintended navigation serendipity

Last night younger daughter, at home for the summer after her freshman year, decided that she wanted to go shopping at Trader Joe's, but was uncomfortable with driving on the expressways at night.  She's right to be uncomfortable with her limited experience at high speed ramp merging here in NY and I offered to take her.  She said the navigation in the new car would get us there.

Off we went, navigation set.  She did not have the exact address so just entered Trader Joe's and chose the one with the shortest distance, which supposedly was 9.2 miles and the one that she was familiar with.  We followed the voice slavishly.  It did not seem quite right from the outset but with my luddite tendencies and previous irritation at the voice, I decided to just be cool and follow the system that had worked well for her in this new car that had become hers for the summer.

Follow the voice until, ugh, we're on the ramp to the Throgs Neck Bridge?  I pulled off onto the shoulder, horns blaring behind me.  What to do...we're on our way to Westchester or Fairfield for a quick shop at Trader Joe's?  There was no choice, no turning back on a fast moving expressway.  I gunned the engine back into traffic and we crossed the bridge and paid the $6.50 toll.    Younger daughter kept apologizing but we had time and I could just laugh it off, or maybe that was a defensive laugh.  At this point the navigation system indicated that we had 12 more miles to go.  What happened to the 9.2 miles indicated?  This would be a 22 mile one way trip.

The voice directed us.  We followed.  I was vaguely familiar with the territory from calling on businesses in the area in the early 1980's.  Would a Trader Joe's actually be at the end of this rainbow.  Would it have the same hours as the one we intended to visit on Long Island and still be open.  Another toll on I-95 North and then a left turn into a commerical and residential area.  Right, left, right, left on the familiar Boston Post Road, and finally on the left, Trader Joe's, still open.

We shopped.  She completed her list successfully and I added a few items, cheese sticks,  no-guilt potato chips, corn and pepper salsa, tartar sauce, why not.  The shopping experience took no more than 15 minutes and we were back in the car. 

One thing these navigation systems reliably know how to do is go home.  The guidance was clear and since we knew where we were going it seemed like we were home in a flash after the lengthy drive up.  Time is relative. 

This serendipitous drive was such a good thing.  An adventure of sorts with my always on the go daughter and on the way back a chance to talk about her college courses, the details of her sophomore living arrangements, and some of her other activities.  Why the navigation system sent us on this unplanned journey is still unknown.  No harm, no foul.


Monday, July 09, 2012

Tax fight has interesting twist - some Dems against Obama

President Obama is proposing extending the Bush era tax cuts for one year, but only for those couples making less than $250,000 and singles less than $200,000.  It's all a matter of "fairness" in his political mind.

What may seem strange to some is that he is opposed by two of the more liberal Democrats, Nancy Pelosi and Chuck Schumer, who support extending the cuts for everyone who earns up to $1 million.  To understand that one must look at the areas of the country that they represent.

One of the least fair and mind-numbingly frustating aspects of the tax code is that there is little in the laws that is inflation-adjusted(see AMT) and nothing in the laws that allows for cost of living differences in various areas of the country.  This is a big deal in areas of states like New York and California.

While $1 million may or may not be the right number in the eyes of many, $250,000 does not qualify anyone in metropolitan New York as anything other than solid middle class.  First, this is a state with a 9% top state income tax, an 8 3/4 % sales tax, and high state and local property taxes(that are nixed by AMT for many as a deduction).  For a family of four to live an area with a least an average and relatively safe school district, the cost of buying or renting a home would be mind boggling to people in many parts of our country.  While a car is generally necessary to take care of basic chores, mass transit is also necessary to get to many places in an efficent manner.  It is not cheap.

The point is that Pelosi and Schumer represent areas in which $250,000 may seem like a nice income, and it certainly is, but is not the cut-off to being viewed as rich or even close to being seen in that way.  That's why these generally viewed as liberal members of Congress are standing up to the Chicago pols view of "fairness". 

Saturday, July 07, 2012

Siesta days

Or should I say daze.  A few days of really hot weather is one thing but after seven or eight days in a range from the low 90's to 100 today, life begins to feel a little exhausting.  Living in an area surrounded on one side by a sound and on the other by an ocean does not make for low humidity. It must be noted that having once lived in Washington D.C this is not real humidity and having once spent a summer in Phoenix AZ this is not real heat.  I was so much younger then.

After a morning spent going out on a few errands, jotting a few notes here, cleaning up a little around the house, and then going outside to check on a balky sprinker system that had just been "fixed", even a light lunch did me in.  Nap time.  The same thing happened yesterday. 

Generally naps are something that I try to avoid because the first few minutes after waking up are often unpleasant.  In this weather it's as if there is no choice.  Maybe the mythical tsetse fly of grammar school days is about but, no, I think it's the heat.

When George W. Bush was President,  I often wondered about his nap schedule.  The most powerful leader in world takes the middle of the day off.  If there were a statistic on unassisted naps for all Presidents(unassisted meaning not induced by alcohol or pills), this would be one category where George W. would surely be at or near the top.

Now maybe I understand.  He grew up in Texas and spent all of his working career in Texas.  Maybe the mid-day nap was just an ingrained habit, one that was part of his health and metabolism that could not be denied.  He did get up really early, apparently, as he really enjoyed playing those war games with his staff and military advisors, maps, strategy, stuff like that.

Naps were his thing.  He rarely looked tired or agitated.

Here naps will never become a habit but in this weather even a half hour completely off is a relief.

JPM's upcoming Friday the 13th report

One could think that someone at JPMorgan Chase had a dark sense of humor when they scheduled this quarter's earnings release on the unluckiest of days.  In fact this is, even apart from the 13th, the first Friday release by JPM and its historic legal predecessors in at least 24 years.  It's not without reason.

Obviously JPM has some big issues to deal with.  Notably of course is the huge failed macro hedge put on by the "London Whale" with losses initially put at $2 billion.  Unwinding the hedge could send losses as high as $10 billion over time is a guess.  While small in comparison, there are a host of other issues related to both the industry and JPM in particular that will be on the table.  One that that will be raised by the media and is not so small is the future of the talented CEO Jamie Dimon.  One would hope this is not real.

Historically, reporting on Friday was generally seen as a harbinger of bad news.  Believe if or not, in the days before the 24 hour news cycle and instant communication everywhere, it was thought that reporting on Friday meant that many people would not notice the bad news, especially retail shareholders and customers, as well as sleepy underpaid pension fund managers.  Some firms may still believe that today, but certainly not JPM.  One could suggest that possible scathing media coverage on Friday and in the print media on Saturday could be moderated over a couple of weekend days.

What they must be doing is building in time for a thorough reassessment of how bad the news is, depending on the extent to which they could get slaughtered on Friday.  Looking at their website, they have an earnings conference call scheduled for 7:30am, so they must be planning to release earnings as early as 6:00am.  That gives time for a possible two hour conference call before the market opens.

A few firms like Alcoa, first Monday of the reporting season, stick to the same date quarter in quarter out.  Most, however, retain discretion over the exact date of the earnings release although of course they announce the date well in advance.  JPM's bias in recent years has been to be among the first to report among the large banks.  That bias is maintained,  and we will wait until this coming Friday the 13th to see what this choice really means.

One caveat to all of this speculation.  There is plenty of bad news already built into JPM's stock price considering the strength of their franchise.  The market overall will be the judge of whatever they report, not the short term traders or the media in general.  Getting bad news out of the way can sometimes be a relief.

Thursday, July 05, 2012

"An American Spy", Olen Steinhauer

Ah, summertime and spy novels, certainly this habit is accelerated by the season.  "An American Spy" is the third book in a series revolving around a clandestine spin-off form the CIA referred to as the Tourists and the protagonist is a multi-faceted member of this group, Milo Weaver.

These books are engaging to the extent that this one was read in two days, 380 pages in a rather small font.  The tale here is intricate, well woven together, and it seems especially informed about the business of international espionage.   We know that this is a long term "business" that has never gone away, but how would I know the extent to which this is an accurate picture.  I don't.

The NYT book review of two months ago suggests that it is representative of what we don't know.  It mentions that LeCarre, Greene, Fleming, McCarry and others of the best of this genre were all formerly part of the intelligence community, and it wondered whether Steinhauer has some experience as well.  His bio is limited and he is 42.  Oh well, it's not important.  The book is an entertaining page turner that is closer to literature than it is to the popular fiction that litters our local library's shelves.

A unique aspect of Steinhauer's books is that they are set in present, at least as close as they can be given the time it takes to write do the writing, editing and publishing.  "An American Spy" focuses heavily on the Chinese clandestine services and the governing system in China.  Whether accidental or in some way presciently seen, a high official "disappeared" from the system has the first name Bo(or last name from the perspective of Chinese).

Now on to my first Jo Nesbo book.  It's too hot to go outside and television is unwatchable much of the time.

Wednesday, July 04, 2012

Piling on JPMorganChase

Jamie Dimon and his many admiring shareholders may well be wishing that he had kept his head down as regulation and heavy handed government intervention did not seem to be well done in 2009 and 2010.  Lloyd Blankfein turned himself into Big Bird after one big run-in with the government.  Dimon continued to speak his mind, and now he and the firm are a target in vitually every government investigation.

Many people who read his lengthy self-penned annual report shareholder's letters and who listen to his comments would agree that he is talented, articulate and has well thought out points, even if they do not agree with all of them.  That said, by being the most outspoken big banker he would not win any points with all of the rigid regulators and many politicians, and they would get him back.

The first try failed.  Irving Picard sued JPM for $20 billion to repay Madoff investors.  It was a ludicrous case based on JPM having what were essentially Madoff's checking accounts, and the most highly respected jurist in New York Federal Court, Jed Rakoff, threw the case out saying it was without any legal merit.

In the second major event that no doubt has the trial bar licking its chops, JPM took a howitzer and blew off their own foot.  That's the recent huge failed hedging trade, and others in that particular derivatives trading market are extracting a huge price to provide the liquidity for JPM to unwind.  As they say, hedging markets are a  good thing but NEVER become the market.  Traders are feasting on JPM's mistake, making money and having fun.

Now it is said that U.S. is investigating JPM, Citi, and BofA for the same type of Libor market manipulation that Barclays bank has been charged with.  Could it be true.  In a bank as large as JPM, where there is a will there is a way from the present administrations point of view, and it is highly possible that a trader or two in these huge banks acted inappropriately but it is  also highly unlikely that it would have been the trading divisions strategy.

In the last day FERC, the government energy regulator, announced that it was investigating the company for manipulating energy markets in California and the Midwest.  It was unclear whether there is any basis for this claim, but when this government takes up an investigation the attitude toward corporates is now definitely guilty until proven innocent.

To Jamie and JPM shareholders, it seems that it's payback time.  JPM has been so well run overall that it is a wonderful target for the regulators and the trial bar.  They have the capital(money) to pay big fines or settle, as in pay a bribe,  to get through all of this.  It's getting ugly and here it is the sincere hope that the Obama admistration's real goal is not really to drive Dimon out of the business.