Tuesday, August 28, 2012

Calm but successful Republican convention opening, from their point of view

Political junkie that I am, I watched.  The most impressive person by far was Ted Cruz from Texas who marched around the stage and was the only person who did not rely on or use as a crutch a teleprompter.  A young women in a congressional race in New Mexico was also incredibly impressive right at the start of the progamming, so she probably was just speaking her own mind.  She was terrific, a Latino Republican,  who knows what that means.

Otherwise, Ann Romney played her role well and as expected, Chris Christie's butt overwhelmed the stage, lots of large people, and hat sellers probably had a good night.  Diabetes rates were probably up at local hospitals.   Overall, the Repubs, from a PR point of view had a good night.

Equity markets stay too calm

Low volumes, low sense of reliability, and a general feeling of being out of the game are affecting not just individuals but institutions.  Just another reason for the revival of index funds, a way to stay in the market and not be overly exposed.

Problem is that big gains are made in individual stocks.  Big losses can be as well but usually they can be staunched by the SELL button. 

Now the work is focused on the fact that the real estate markets are finally starting to improve.   That is questionable.  In certain desirable markets that may be the case, maybe even our own.  But overall, the overhang from the real estate depression remains immense.  There are simply not enough jobs around for the inventory of cheap houses and associated low interest loans to deal with the inventory of homes short of just knocking them down, as they do in Cleveland and smaller towns.

The equity market hangs in because most corporations, even relatively small ones, have global practices.  The equity market hangs in because despite of occasional well publicized problems it is the most transparent in the world.  The equity market hangs in because people who have the liberty to live here like it,  not that it is all perfect.

We live in a time of uncertainty.  Why is my newspaper not in my driveway at 6:30?  What lightbulps do  need to replace? When can I find time to replace the broken windshield wiper on my old Mercedes?  This is uncertainty???  Look at the people in Syria.  Look at the women in Afganistan.  Look at the many opened minded people in Iran.  Look at the majority of people in North Korea that are starving. 

We live in a time of relative certainty, in some cases with the psychologic inability to realize it.

We are so lucky.  I love driving my few cars.  I am completely able to support my daughters, one in college$$$$ and one in a new but interesting job$$.  While getting older leads to some getting older issues,  I've got some improvement underway.  We have a major real estate deal in our sights, a burden relieved from the entire Liu family, and me as someone who may have needed to backstop any problem.

Enough of this.  Just a pep talk to myself,  and a warning to myself to not come up with too many "good" investment ideas.     

Spelling apology

These posts that are written here are done instantly and without any regularity.  As I looked over some today I noticed some embarassing spelling errors that I will not go back and correct.  Sorry, and I hope the message is not blurred.  I do know how to spell, but write these posts with hurried enthusiasm, not with the best spelling and grammar in mind. 

Now for a late night burrito from Gonzo's, my apology hopefully accepted.    

Monday, August 27, 2012

Big banks, community banks

There is so much talk today about the "too big to fail" banks.  That problem has certainly not gone away but much has been underway to plan for a disassembling of a large bank into small smaller viable units if it implodes. 

The Dodd/Frank bill has placed an amazing number of requirements on all banks, 2100 plus pages of such requirements, that only the larger banks can truly administer.  I have been told that one large bank has 200 attorneys dedicated solely with the task of understanding and  complying with Dodd/Frank. 

Recently I met with a senior exec of the American Bankers Association and asked how small banks, especially so-called community banks, are coping with the costs of this.  Her response was simply that they were looking to sell, merge, or liquidiate into positive or modestly negative disolutions.  The leaders are all wealthly as measured in their communities so why not just back out now. Their only real other option to cope with the complexity of so many rules, starting with Sarbanes/Oxley and now massively made more complex by Dodd/Frank, is to hire consultants, lawyers, accountants, and public relations types who have gained fluency in all of these requirements.  They also add staff, but then they need the consultants with specialized knowledge.  That is costly, costly I say again.

So while so many politicians and individuals, not only those one dimensional tea party types in the House but also regular community based people who like to know their bankers personally, praise community banks, Dodd/Frank is inadvertantly conspiring to drive many community banks out of business.  They have no idea, and smart community bankers will not alert them to their desire to sell or diassemble their businesses in advance because everyone knows that playing cards close to the vest is the best policy, especially local business folks.  They are smart, they are loyal, but they will not play a losing hand.   

Sunday, August 26, 2012

William B. Harrison Jr. op-ed in NYTimes

The first question that came to mind when I read this was who wrote it.  Harrison rarely wrote anything himself.  He could come up with some thoughtful edits but at times he let speeches go, CEO letters, and articles with most of the ideas and almost all of the writing under his name.  Perhaps that's not really important as the op-ed content certainly reflects his views.

A question remains however.  Why would one want to choose this banker whose incredibly dilutive acqusitions of the distinctly over the hill Flemings, the little scam Beacon, and one who gave 55% of his well performing company to the perversely underperforming, overspending, and elitist JMorgan, to be the spokesman for an industry in need of some support.  After the JPM  acquisition he lost credibility in much of the investment community forever, and that is a fact.

When he agreed for Chase to buy JPMorgan, Chase was trading $55.00.  He predicted that the renamed institution would rise to $100 in just a few years.  For completely obvious corporate finance reasons, Chase was trading at $45 within three days of the merger annoucement, and has never traded above $47 since the acquisition, even during the heady days of 2005 and 2006.

In the Google photos he looks fit and happy which deserves a "good for him".  Too bad he put personal intuition above corporate finance .  How he was chosen for a rebuttal of the ever unscrupulous Sandy Weill is unknown.  This underscores the loss of Jamie Dimon as the industry leader, at least for the moment, and the tendency of Goldman Sachs to now be in hiding.

Don't get me completely wrong.  Harrison grew immensely as a personal leader at  JPMorganChase, but he never sincerely grasped the biggest of  investor needs.  He was  from an entitled North Carolina family and had an ease with many people if you weren't working directly for him, rarely a treat.  He enjoyed tennis, golf, and any competitive sport.  He was generally upbeat, and with the worst possible heat on the line at a pre-scheduled event right at the crux of the LTCM crisis's near global market credit freeze up in early October 1998 I went with him,  he as a Vice Chairman at the time, and he did a very credible job in an incredibly difficult situation.

He could play under pressure, but with an open court he could throw the ball away.

With all of that said,  some personal I guess, I agree with almost everything that was written for Mr. Harrison.  Just read Warren Buffett's recent comments about how small U.S. large banking is in relation to GDP in most other industrialilzed countries.  Outright speculation with customer money as was done with MFGlobal(how is Corzine not in jail) is of course over the chalk lines, but hedging trades to provide liquid markets is essential and should have nothing to do with the so-called Volcher rule, and some large global banks are essential to serve large global institutions - that's not intuition, it's common sense.

Kizziah Finney vibrates

Here at 10:45 Sunday night, a quiet time, my cellphone vibrated with a call from old friend and securties analyst Kizziah Finney.  What a surprise.  We have not talked in at least two years because all of our contacts seemed to be coincidental, somewhere in Soho, Tribeca, or on internet exchanges.  We have never before talked on the phone, so odd it seemed at first.

He seemed eager to talk.  He has left his lower East Side business address and lives out of a possibly, who knows, reasonably sized studio in Red Hook, Brooklyn.  Says he has everything he needs, Bloomberg, Iphone, Ipad, CNBC and Bloomberg television, plus plenty of analyst reports that he recieves through the dealers that he works with.  He claims to still have his major clients despite his indpendence and departure several years ago from Evermay Securities.

I listened and he talked.  While off the sauce in a major way now, he still lives next door to an Irish pub that pumps his beloved Guiness, but the meth and other drugs that may have fueled his enthusiasm seem to be part of the past - good thing.  But he still just talked, and I just listened.

His first major fascination was that with so much negative sentiment in the market, the impending "financial cliff', so little retail interest, such low volumes, and more breakdowns than breakouts of major stocks, an investor who held steady through the Great Recession and the many market financial and technology breakdowns is now up from March 2009.  That means all losses have been erased, and some gains have been achieved.  Those that were fearful essentially gave their money to those that had some long term confidence.

That's now, and Kizziah worries that the template of 2008 to 2012 will not last, and losers will be pervasive in every category.  That said, the U.S. as a reliably, to some extent, regulated financial capital market and as the largest world economy that buys consumer goods across a broad spectrum has once again made the dollar a haven for financial security.  How long that last is not known and the coming election is crucial to this, but for now Kizziah sees the U.S. in relatively good shape, especially in the large corporate dividend sector.  How crowded is this thought getting articulated is my question?

It was wonderful to hear from Kizziah again, and now that he has a phone, not sure he surrenders his, I may hear from him from more often.  He is definitely still on his game, looking for significantly oversold stocks with strong balance sheets and leadership positions in their industries.  That sounds too sane.  He also still hunts for outside of the box small stocks that could make or loose one a fortune.  I have no idea what has really happened to him, but he is certainly a joy to talk with.


Since Facebook required that my password be changed and then automatically made me part of their timeline experience without my request, I have had trouble with posts or edits being processed.  Additionally what had been a, relatively speaking,  minor problem has become massive - that is spam and advertising that is coming in from all quarters, 95% I have never had contact with.  This is just a test to see if it really works anymore, as last night I wasted at least a half hour on a post that never appeared.

This also a check in to see of others have had significant increases in unwanted advertising and outright spam that I just don't even dare open.  If this is the new publicly traded Facebook, I will be off soon.

Friday, August 24, 2012

The FedEx annual report - a winner

Corporate annual reports can often be highly effective sleep aids.  Many are predictable and almost seem to be designed to be mind numbing.  Some do stand out.

The ones that are most interesting here are those that overly highlight the brilliance of management, overstate the competitive positioning of the company, gloss over or have excuses for any mistakes made, or are turned into pure marketing material that is of little interest to an investor, or even most customers.  When an annual report that fits that profile shows up, it just screams SELL, and most of the time that's the right thing to do, not always, but almost.

My antenna for really well done annual reports is much less dialed in.  The general attitude here is that a report that is not poorly done simply meets expectations.  The exception is generally when it is obvious that a CEO has actually written his own shareholder letter, voices opinions, and states clear goals while admitting any mistakes and acknowledging possible pitfalls if  exogenous events take a wrong turn.  Those real letters, and they are not customary, are encouraging.

The FedEx report received today has no stunning CEO letter or brilliant language.  What it does do exceptionally well is highlight the strengths of the company and how it is adapting to the many changes in the global economy.  There is only a small photo of the CEO at the beginning of his blunt and determined two page letter to shareholders, while there are a series of photos of important middle managers on a couple of pages, middle managers who are responsible for vital parts of their organization but are not Vice Chairman or employees with other fancified titles.

No forensic reader of the detail of annual reports here, but this one seems to be exceptionally well organized, clearly written, and informative.  Seems like a keeper.

Niall Ferguson's "Newsweek" Cover

Much comment has already been distributed by the media about Niall Ferguson's cover article in this week's "Newsweek" entitled "Hit the Road Barack", subtitled "Why we need a new President".

The attention is deserved.  Ferguson is an Oxford educated Brit who is a notable History Professor at Harvard.  He is a prolific and informative writer of various historical periods, and his writing manages to be both provocative and accessibly literate.  If there is a celebrity in  historical writing these days he is the one, and it's not because he's a ego poseur.  He is really knowledgeable and smart, at least from this perspective.

The focus of the article is primarily on Obama's failure to live up to virtually any promise that he made in 2008, but more precisely Obama's hands-off management style in which he promotes big ideas and himself and then delegates important legislation to political hacks  - as in the pork filled and overly regulated health care bill to Nancy Pelosi and the financial reform bill to Dodd and Frank, a deeply flawed impossibly complex bill that is packed with anti-business rule proposals that are only tangentially related to banking and finance.  Both bills have some redeeming charactistics for sure, but their complexity and costs for businesses to execute are excessive and at times punitive.  As a rule, any time bureaucracy is increased - more rules, more reports, more regulators, more studies - costs tend to go up, not down.

The article is relatively short but still manages to have some fascinating comments - here's one - "The total number of private sector jobs is still 4.3 million below its 2008 peak.  Meanwhile, since 2008, a staggering 3.6 million Americans have been added to Social Security's disability insurance program.  This is one of many ways that unemployment is being concealed."  There are many more quotes from the article of equal import.

As to Romney, Ferguson seems accepting but somewhat lukewarm and spends little time on him.  His critique of Paul Ryan, however, is exceptionally positive.  He doesn't agree with all that Ryan proposes but he does see him as someone who realizes and takes seriously the situation that we are in and who does have some viable thoughts and suggestions, some of which would not help their team at this point in the election cycle and therefore stay in the background.  His critique of Ryan is so antithetical to almost all mainstream media observations that it will no doubt be castigated widely.  I have initially seen Ryan as a heartless techno twit and this makes makes me think.  Living in this New York area one gets to see countless abuses of the well meaning unemployment and healthcare programs, both by scheming individuals but much more by businesses that exploit these generally undefended and destitute individuals.  Is Ryan the one to take the heat for taking this on?  Maybe he is a hoax, but given the amount that he works and studies our situations, sleeps in his office, just maybe he may at least move us into a real dialogue that is not focused on Barack and Michelle Obama.

Ferguson does not hide the fact that he was an advisor to John McCain on foreign policy in 2008, but he also acknowledges that he had great hopes for Obama at first, saying it was a "time for great rejoicing".  He now sees Obama as a distant and completely failed President. 

Here, I am conflicted about our November election choice.  Obama seems to have no understanding about economics, business, or how this economy really works in a practical sense.  Business involves by its nature risk taking, and Obama uses any mistake as an opportunity for populist rhetoric.  Obama also seems to lack any intuitive insight into foreign policy, making one wish for even Richard Nixon, George H. W. Bush or almost Ronald Reagan in this major Presidential responsibility.  Obama's domestic intentions are in many cases laudable, but too often delegated while he raises funds, speaks smoothly, receives applause and shows off an occasional three pointer.

Romney remains remote and robotic, with an amazing ability to make awkward, some might say stupid, off the cuff comments.  One would probably need to go back to Kennedy to find anyone with less knowledge about foreign policy  His track record of success in many areas is far better in practice than it is in his ability to tell the truth about what he believes, if anything really.  Ryan has suddenly become as much of a key player in this election as any V.P. candidate in memory.

Too much has been written here.  Find that Newsweek in the library or on a newstand and give it a quick read.  Who knows who will agree with what Ferguson writes, but it's worth the time.

Postscript -10.50 pm, same day - a look at Google Blog Search shows that Ferguson's article has led to a hissy fit by the liberal media that is unrelenting.  This reaction is so overwhelming in its attack on him that it in fact justifies the publication of the article.  He hit a nerve.  Ferguson is no right wing tea party radical holed up in an Idaho cabin, but from the comments written one might get that opinion.  The dialogue created may be one sided at this point, but what's wrong with some disagreement.