Tuesday, January 21, 2014

Bad weather again, snow storm, tiny flakes

Here we are again in this global warming trend with this global cold in the northeast.  Here we are stocking up on take-out with the roads already frozen heading to 12 below despite not yet deeply covered in snow.  Louies's, Gino's, Mykonos, the Chinese no table shop, the deli, Misami, Edison's, New Garden, Chipotle, Gonzo's, Hummus Place, Wild Ginger, Nick and Pedro's and more,  the small flakes indicating a significant snowfall, 12 inches or more and food must come in for a few days.  Take-out means take-in here.

Each order has its ups and downs,  but much of it reliably what we order.  It is not especially cheap, with just a few exceptions, and those exceptions are more force filling than tasty.   Some is exceptional with cost not necessarily being related.

With our new generator we should be immune from a power loss which would have been the norm in the past.  K can't calm down about that and will believe it only when she sees it.  With Alex home we can't be cavalier about this food deal, so need to overdo it.

These storms have become overwhelming.

Sunday, January 19, 2014

Football weekend here

This is the best weekend that will be seen in each NFL season.  New England just beat Denver and in what was a pure football showdown.  Before this is finished Seattle and San Francisco  will take each others pulse, with Seattle so benefiting from its stadium and it designed acoustics.

Not that there is much of professional sports viewing here(that includes many colleges in some major sports), the focus is primarily on finals, or semi-finals, or any major event.  Today was a day to watch a game, and when I turned the television on there was no real favorite.  But then I saw Belichick and remembered him completely  and more importantly what I already knew was that I wanted Peyton Manning to win.  There is a soft place in my heart for his hometown New Orleans personally, and his younger brother's erratic play had somehow won two Super Bowls while the steady brilliance of Peyton only one.  Say it's the teams they played for, but Peyton has one last choice here to win a Super Bowl.

Now back upstairs to the television for the second game.


Friday, January 17, 2014

Yahoo's revival can continue

The Yahoo business news of the day is that CEO Marissa Mayer fired her first major hire that she made when she arrived from Google one and a half years ago.  This is a powerful acknowledgement of a mistake on her part and ending a charade that needed to be ended.  Henrique de Castro was responsible for reviving Yahoo's advertising clout and revenues.  A fellow Google alum who played the role of big picture consultant there, by most accounts he was particularly ill-suited to doing the Madison Ave. shuffle, both in temperament and in availability.  Smart sure, but not a good fit for perhaps Yahoo's most crucial challenge.

From this perspective this is a big positive.  It will cost Yahoo significant bucks to buy out his contract, but he was not getting the job done apparently.  Yahoo, which was the Google of the late 1990's, still has a search following that rivals Google even today.  It's fully global to the extent one would want to be and its Yahoo Japan business is a valuable franchise.  It has a balance sheet with 12.5 billion in shareholder's equity and 121 million of long term debt.  What Yahoo does not have is the innovation that drives Google, the social network that runs Facebook, or any significant mobile reach.  Advertisers want some if not all of these attributes.

Just on price alone Yahoo was bought here in May 2012 at $15.50, a mistakenly large position it turned out, as in a day of trading, the not so small size that was wanted was bought in the morning at one account and then again just before the market closed at another account, a memory lapse that proved to be fortuitous.  The thought at the time was that the name recognition and balance sheet just did not deserve that price, it deserved more.  Something had to happen was the guess here, and in July 2012 Marissa Mayer joined the firm as CEO, no prescience here, just luck.  Now the stock trades at around $40 and still hasn't really solved its major challenges in any signicant way.  It's just beginning.

With its investment in the Chinese internet search engine Alibaba that is expected to go public sometime this year, there is time to work on a fix to the core business.  The news business is going through a revamping with name brand reporters such as Katie Couric and Michael Santoli.  Couric may not sound like such a snag to many but she is very well known and professional.  Santoli was a columnist at Barron's who is now Yahoo's senior financial reporter. How well known he really is cannot be discerned here, but he is certainly known here as he gave out his e-mail on his Barron's comments and actually responded to some of them, at least here.

Mayer knows the challenges that she has, and she is taking them on.  Success is not guaranteed.  There is certainly potential in the platform if it can be done right amidst formidable competition. 


Wednesday, January 15, 2014

NYT finds that big banks are not rushing to make mortgage loans


In a Business Section editorial masquerading on the first page as a news article, the Times points out that banks are not making large amounts of first mortgage loans to consumers.  "The big banks are strong enough to provide credit to borrowers" opines the Times.  This from the newspaper with the cozy relationship with neat Preet Bharara at Justice who always manages to do a media front run on the latest lawsuits and essentially government blackmail of big banks and their mortgage operations that is ongoing.

The Times points out that banks now provide new mortgage loans only to those with "pristine credit".  That generally means at least a 15% down payment, often 20% or even more, and a credit score over the 700 area (sub-prime is below 620 and banks for good reason don't want to be too close to that).  Nit-picks like having a job and verified salary stats and asset values are also in vogue now.  Who can quibble with these requirements after the 2008-2009 mortgage disaster.  Who can question big banks who were begged by the government to take over banks in trouble and are now being sued by neat Preet for mortgage banking actions of those acquired going back to as early as 2000, long before the acquirers had any control whatsoever.  Please note the Times supports Preet in everything that he throws at the banks, as does Obama.

Here are two other factors to consider.  There are considerable efforts underway, led in no small part by Senators Elizabeth Warren and Carl Levin, to significantly raise required capital levels for the big banks.  At the same time the belabored securitization markets are just beginning to breathe slightly with these higher quality mortgage loans being originated and due to back to basics structures.  Banks do not want to build their balance sheets with mortgage loans.  They need a diversified loan book and not one that grows due to mortgage loan growth.  Ask WAMU about that if you want.

Mel Watt, the new head of the Federal Housing Agency that supposedly manages Fannie Mae and Freddie Mac, is now said to be looking at ways for these agencies to "guarantee a wider swath of mortgages".  That should be little consolation to the banks who have been sued by those government agencies controlled by Congress, these supposed mortgage experts filing their suits four years after the crisis claiming they were duped by the banks.  Clinton's White House and HUD as run by Andrew Cuomo, and a Congress influenced by the inimitable Barney Frank, helped bake the cake that led that ultimately led to the disaster with the required weakening of credit standards at the agencies to benefit low income buyers.  Of course Wall Street put the icing on the cake, lots of it, with its complex securities and what was in some firms widespread deception.  Main Street participated too, as corrupt brokers fed crappy loans to overly eager banks.

Why would big banks fall for Watt's proposed trick again?  To reward Obama, for what one might ask?  One could suggest that banks will cooperate with constructive ideas for expansion if they are targeted, limited, and sound. It would be a mistake to fully trust the government on anything again.  The banks will just try to lay low, run good businesses, and make sound loans.

Sounds good here.


Tuesday, January 14, 2014

Up down, move it all around, that's what it's all about

The S and P 500 was down 1.3% yesterday and up 1.1% today.  These are not trivial moves.  They reflect investor uncertainty about the possibility of an overdue correction or, on the other hand,
 an M and A and new product driven surge upward.  Obama's administration and his Justice Department can't seem to find a way to harass companies enough to get them to slow down and the Republicans ongoing rigid approach to blocking fiscal policy actions such as infrastructure spending can't get the job done either.  At the moment business seems to be humming along, Washington politics and bureaucrats be damned.

Consumers broadly are still in a rut but it is not deepening.  Much economic activity is undercover, and speaks to an economy that will do better than expected at times.  The Republican efforts to eliminate benefits on all fronts is not yet having a broad impact in totality, only on morality.

We watch here with interest, stick with long held positions in companies with strong growth prospects or strong balance sheets, or better yet both.  Like all active investors we are on the hunt for those stocks that will show significant short term growth, somewhat risky investing but in recent times more than somewhat beneficial.

No major predictions here.  This new year does feel uncertain for the wary but at the same time is a market full of opportunists, which can be rough game and that's especially a reason for caution for retail investors.

Sunday, January 12, 2014

Money market funds and their proxies --- economic loss for investors

This is not news.

For that portion of the U.S. population that has monetary assets to invest, financial planners and market pundits will often suggest that a cushion of reliably liquid and relatively stable investments be part of the picture.  They will suggest varying amounts of these types of assets to cover anywhere from one to five years of current lifestyle maintenance.  The choices of how to maintain such a portfolio may be varied but they are all uniformly unattractive.

The safest from a numerical value point of view are Treasury bills and relatively short term(3-5 year) Treasury bonds.  From an economic point of view they are all money losers as they will not likely offset the even the expected low level of inflation.  If inflation picks up the bonds will lose principal value as well.  With all of that said, they will be liquid and they will be backed by the Federal government.  Something will be there.

Bank CD's and bank deposits are guaranteed by the Federal government up to $250,000 but compared to two years ago their yield is miniscule.  At Wells Fargo, two years ago the yield on a $60,000 savings account was 50 basis points.  Today it is 5 basis points, enough of a return to maybe buy a medium Slurpee at 7-11 each month.  Raise the savings account up to $100,000 and that monthly treat at 7-11 may be a Big Gulp, an in your face to former Mayor Bloomberg.

Bank CD's are not much better.  Currently the range of yields available in the 3 month to 3 year range are from 20 basis points to 65 basis points, depending on the bank and the maturity.  Again this is more or less a guaranteed economic loss based on the current outlook.  With the slightest hint of a more upward sloping yield curve, however modest, it will be high heaven for banks.  That is now beginning to be reflected in their stock prices.

The other choice for probable reliable liquidity is money market funds from brokerage firms.  They in general pay one basis point and with that they are cross subsidizing their sizable credit platforms to maintain the service while providing for less than their published expense ratios.  They are an inevitable part of having a brokerage account in which one buys and sells investments.  Money market funds at these brokers and investment banks are the needed clearing accounts and something that facilitates trading.  Something more or less must be there.  It is easy to be complacent about the amounts there because of the impotence of the of the options just discussed.

The reminder here is that money market funds run by brokers or by mutual funds are pure credit risk to the firms running the funds.  There is no back up.  They are full of government bonds and bank deposits, as well as triple A corporate bonds. Therefore the risk should be low but there could always be a renegade firm trying to squeeze greater returns out the money market product, or one with a concentration(see Lehman and the Reserve Fund) that has the possibility of becoming illiquid if too many eggs are in one basket.

All of these unattractive investments are the detritus of the 2008-2009 market collapse, that looked containable at first and then consumed all except those few who foresaw this calamity or those few who even knew about credit default swaps and their destructive power.

For that reason, from this perspective the continuing existence of "too big to fail" is a good thing.  No one in government would endorse it or even publicly admit that it exists, but pragmatically it does.
Today the quickly disappearing small time active retail investors(once known as the middle class but now are the in-between class) and those that live on fixed incomes have already been scared enough.  They have been penalized in a huge way by the low yields to benefit the big banks and big investors.  They saved as they were always told and their money has no return.  To suggest that  much of their portfolio could be vulnerable to having no value would be unthinkable.

Well, this has been a relatively boring post, for me and you no doubt, but here it was more of a writing exercise to revive this blog.  Maybe there is something of value to some here.  I hope so. 

Friday, January 10, 2014

"Moyers and Company" begins new "State of Conflict" series

What a sad state of affairs of late for this once great state, the "Great North State".

This apparently new series on "Moyers and Company" focused on North Carolina last night in its first episode  Other states will follow.  As it was stumbled upon on one of the PBS channels available here, no regular timetable can be cited.

What has happened in North Carolina politics over the last four years has overwhelmed a tradition of open-minded governance with a special emphasis on education.  North Carolina is a southern state with a tradition of conservative views for sure, but compared to other southern states over my lifetime it was the most moderate of all and more progressive in many of its policies.  It was never a state of resentment and hate, just one of mostly moderation, accepting the status quo, and generally one of politeness.

In just four years a combination of huge cash inflows into local elections by a wealthy and politically involved businessman named Art Pope, a sort of Koch brother type on a state level who finances multiple political action groups,  cutbacks in spending on heathcare and education have been passed.  The state refused to participate in the Affordable Health Care act Medicaid grants.  That effectively cuts off federal aid that would benefit many low income people.  The state has cut $61 million from public college funds, a huge number relative to a mid-sized state.  The state seems to have gone over the top in regulating voting rights, although some additional oversight may have been necessary, hard to know from here.

Gerrymandering, using state of the art analysis paid for by Pope's PAC's, has now walled off many districts into Republican strongholds.  Pope himself seems low key and has a key administrative job under the Republican governor.  His actions do not seem low key.  The head of Civitas, a major Pope PAC, was interviewed throughout and came off as amazingly disingenuous, sweating like Nixon at the famous Kennedy debate.

There are two sides to every story and while not detailed it was mentioned that several top Democrats had been involved in state government scandals in recent years and at least one got jail time.  So from afar it seems that the Democrats helped set the table for this debacle.  "Two sides to every story" does not mean they are equal in importance.  The PAC assault by the Republicans is clearly the most important and destructive element of what is going on.

I'm sure that in comparison to my relatives and friends who live in North Carolina, this post is superficial.  Having a hometown just three miles from the southern NC border, what has gone on there was not news to me, but the Moyers and Company program added much new information.


Thursday, January 09, 2014

Equity market outook unpredictable

What's new?

The opening of the equity market in 2014 was accompanied by inane commentary on CNBC and other networks about what the opening of the year meant for the entire year.  This line of thought particularly focused on the fact that the market had risen slowly but surely during December and reversed course after the New Year.  What serious market analyst could not have predicted with high probability that this would happen.

Year end numbers are important to fund managers.  This year they seemed to uniformly be looking to have the best results possible for 2013 so all of that money on the sidelines earning less, well far less, than 1% in money market funds and bank deposits would finally be shocked into finally moving more money into equities.  That this has been predicted for the last three years does not deter the optimism of fund managers.  It could eventually happen, most likely at exactly the wrong time for those new entrants.    There was modest liquidity in December and keeping the market moving up was a priority.  This was no conspiracy or anything like that.  It was just obvious like minded thinking.

So the beginning of 2014 was set up for a time of adjustment.  That could continue for some time as Obama has lost significant credibility, and even if the Congress was far sighted enough to pass a bill that included investments in infrastructure spending and research and development there is significant doubt that he would or could manage it properly, or even pay attention to it.  Then there is Janet Yellen, the new Fed Chairman.  She seems fine, but the market will need some time to see and judge her performance.  Part of Bernanke's power was based on the depth of his intellect and his clear distance from the White House, although Obama tried to take credit for the Bush appointed Bernanke's success at every opportunity.  Finally no one yet knows if we will have a more functional Congress, that comment pushes skepticism aside.  If financial markets get edgy, more cooperation might follow.

We need growth and not an oversupply of rules and lawsuits.  Growth will bring jobs.  It is unclear whether Obama has any real understanding of economics and finance at this point(it certainly has not been clear to date), or any desire to do more that talk big and beautifully.

The only real good news of late is that HSBC's market analysts downgraded the U.S. equity market to underweight yesterday.  In my experience the Brits have always got it wrong when it comes to market calls on the U.S.  They are generally eloquently incorrect.

Tuesday, January 07, 2014

"The Unwinding - an inner history of the new America", a view by George Packer

Talk about feeling late to a party.  Like minded thinkers have no doubt already devoured this book.  It was published in the summer of 2013 and was somehow missed here.  When George Packer writes a Talk of the Town piece or article for "The New Yorker" it is generally the first thing that I read in whatever issue, and immediately.  Maybe the "improved" post office system did not deliver certain items which is now a way of life, late or never, maybe there was other reading that distracted, maybe there was a health issue, and certainly our anti-intellectual library would have been unlikely to order it.

Over the last week since the book came to my attention, it has been read.  It is certainly one of the most creative non-fiction books that has ever been read here.  Packer cuts between chapters focused on well known politicians, celebrities, journalists, and business leaders to chapters focused on two radically different areas(Tampa and Silicon Valley) and those focused on "regular" Americans, meaning people who went through the great recession and played roles that most are completely unfamiliar with.

What a surprise it was to see that the unfamiliar character written about most frequently was from Rockingham County, North Carolina and had his largest businesses just north of that county in Martinsville, Virginia but also in hometown Danville, Virginia, in Rockingham County of course, and other towns in a triad with Greensboro at its southernmost point.  Through the creative eternally optimistic but financially unlucky or too much of a risk taker Dean Price, Packer identifies the issues of the area thoroughly and repeatedly uses the word "depression" to describe the overall southside Virginia area as opposed to "great recession".

He details the tough and first election of Tom Perriello as a pragmatic, committed and not right-wing congressman from the 5th district of Virginia(which includes Danville and Martinsville as well as the more liberal Charlottesville) in 2008 and his defeat in 2010 to a member of the old inherited regime.

The book's purpose is to detail the major changes in values that have occurred in management and politics over the last 30 plus years and the loss of some of the characteristic American optimism that once existed.  A major theme is the destruction of communities by the housing crisis, business closures, and the destruction of local businesses by chains that ship almost all profits elsewhere.

While this book could not be recommended more here, even if many of the views expressed were already firmly in place,  there were two short segments of the book that were somewhat flawed from this perspective.  There is a chapter on Jay-Z that comes out of nowhere, and tells his story of coming out of the projects, being a major East Coast drug dealer and then seamlessly becoming a major rap star.  There just seems to be something missing from this chapter, some insight, some missing facts.  Of course the man has a talent that worked, but what this has to do with the overall book is completely unclear.

The second chapter that simply adds no new information or insight is the one on Occupy Wall Street.  Certainly taking over a small park in downtown Manhattan in the midst of the financial district drew lots of attention, and had some well meaning supporters and  almost constructive anarchists who made a huge effort to start something worthwhile.  But all of its cliches could only last so long and it eventually attracted more miscreants and party seekers than dedicated political types who really understood what was going on, at least that seemed clear here from first hand observation.  Packer simply does not analyze this at all and that was disappointing.

Those two exceptions aside, the book is brilliant reading.  Too bad it took six months to make it to my reading chair.  There is much more in this book than can be highlighted here, such as the consistent self-centered behavior of Joe Biden and the way he exploits and then forgets those who work for or help him.