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RECENT ENTRIES The SEC Bash NYSE Cuts Trade Times to 5 Milliseconds The Savings Glut If You Were Concerned About Death Threats Against You, Would You Go on TV and Talk About the Death Threats Against You? The June Jobs Report Majorly Sucked Time Looks at BBBY Kudos to Cramer Albert Pujols and the Triple Crown The S&P 500 and Dividends ZeroHedge Vs. Dennis Kneale SYNDICATE THIS SITE

The SEC Historical Society -- not the SEC, mind you -- just threw a big bash celebrating the commission's 75 years of sucking ass. My invitation must have gotten lost in the mail.

A giant screen projected images of SEC luminaries over the diners, who savored main course selections that included port wine and orange-glazed rock Cornish game hen. Each attendee was given a hardcover, elaborately produced book commemorating the occasion with photos from the commission’s history, including Joseph P. Kennedy giving a press conference in 1934 and the all-female 1939 SEC bowling league.

The dinner was financed by donors to the Historical Society who purchased tables ranging in price from $3,500 to $7,500 and placed notices in the bound book congratulating the commission on its achievements. (“Each new day presents an opportunity to celebrate,” read the ad from Fidelity Investments. “A blue ribbon achievement? It certainly is!” gushed a full-page ad by the accounting firm Ernst & Young.)

Tickets cost $250 per person but $50 for SEC staffers or government employees.

Yes, these are same folks guy missed Bernie Madoff even when they were told exactly what was going on. Here are some more details of the SEC's incompetence:

The internal watchdog at the Securities and Exchange Commission revealed Monday his office is investigating several employees, including one top SEC official, after receiving complaints alleging they improperly disclosed non-public information.

One pending investigation by SEC Inspector General H. David Kotz comes in response to an allegation that a top SEC official improperly disclosed non-public information to a large investment bank.

In another case, Kotz reported that his office is investigating two enforcement attorneys for possibly disclosing non-public information from an internal SEC database to a corrupt FBI agent and short seller who was later convicted of fraud, racketeering and conspiracy.

Then, in yet a third case, the inspector general said he's looking into whether a former SEC attorney may have revealed confidential investigative information in a book he wrote. Kotz said the attorney may have provided the privileged information to a company where he worked as a lobbyist after leaving the SEC.

Separately, his office is also trying to determine if non-public information may have been disclosed to a national news outlet.

Kotz, who is leading the internal investigation into the agency's failure to detect Bernard Madoff's Ponzi scheme, disclosed some details about his pending investigations in his newly published semi-annual report to Congress on Monday.

In it, he said he has 19 pending investigations, one of which is tied to the Madoff failings.

Poltico notes that the dessert options included rum baba with tropical fruits and berry coulis.

Posted by Eddy at 5:14 PM | Permalink

Back in my day, we didn’t have any of this new-fangled quick stuff. If we got executed in 300 milliseconds, we were thankful -- dagnabit!!

NYSE Cuts Trade Times to 5 Milliseconds

NYSE Euronext cut order-execution times 20-fold at the New York Stock Exchange, part of an effort to catch up to faster competitors that have taken market share.

With the implementation of a new system for processing orders on the NYSE, customers will see trades executed within five milliseconds, compared with 105 milliseconds previously. As recently as 2007, the time was 350 milliseconds.

That change is huge in the realm of high-frequency trading firms, which now measure time by the microsecond, or one-millionth of one second.

Posted by Eddy at 5:10 PM | Permalink

Brad Setser looks at the role of the savings glut. I think this topic has been beaten up unfairly:

In a global economy, a rise in savings relative to investment in one part of the world necessarily implies a fall in savings relative to investment in the rest of the world; sorting out why key macroeconomic variables change is always difficult.

Maybe this equilibrium was a function of excessive demand stimulus by the advanced economies in the aftermath of the last recession – and lax financial regulation that allowed households to over-borrow. High US and European demand allowed the emerging world to save more. Maybe it was a function of policies in the emerging economies, policies sometimes put in place to support undervalued exchange rates. That would explain why the growing US savings deficit didn’t put upward pressure on global interest rates and why the rise in the US external deficit didn’t lead to a rise in US real interest rates — something would have short-circuited the housing boom. Probably it was a mix of both. Emerging market savers (really their governments, as private savers weren’t exactly seeking out depreciating dollars) helped to provide Wall Street and the City the rope they (almost) used to hang themselves.

If you ever want to punish another country, don't send in tanks -- just lend them too much money.

Posted by Eddy at 1:27 PM | Permalink

Me neither.

Posted by Eddy at 11:17 AM | Permalink

The Labor Department released its jobs report this morning and the results were pretty lousy. Employers slashed 467,000 which was far more than forecasts. The unemployment rate is now up to 9.5%.

Since the recession started, we've lost 6.5 million jobs.

Posted by Eddy at 10:41 AM | Permalink

Time's Sean Gregory looks at Bed Bath & Beyond (BBBY):

Call it the Bed Bath & Beyond barometer. Some recent data indicate that as consumers prepare to open up their wallets, they'll be very likely to spruce up their homes. According to a survey from WSL Strategic Retail, of shoppers who say they want to splurge, 44% want to do so on their digs. NPD Group, a market-research firm, also found that when shoppers are asked where they are most likely to spend money, a majority point to their homes. "The nest is where we'll likely see the early signs of a recovery," says Marshal Cohen, a retail analyst at NPD Group.

On a June evening at a sprawling Bed Bath & Beyond store in New York City, a checkout line snaked around the corner as consumers hoarded pots, soaps and Cuisinarts. "Your home is your place of comfort, the only thing you can count on," says Tina Genitti, 21, while carrying a featherbed, a pillow and body creams to the checkout line. "A few months ago, I would have gone for the cheap featherbed. But I spent the extra $5 here because it's time for a treat."

Posted by Eddy at 10:24 AM | Permalink

I can believe I'm saying this but Jim Cramer's show last night was...pretty good.

As someone who hasn’t exactly been shy about criticizing CNBC or Jim Cramer, I feel an obligation to praise them when they do a job, and I think Cramer did a good job last night. Perhaps he’s taking Jon Stewart’s criticisms to heart.

In any event, it’s not perfect but it’s a lot better than the “buy, buy, buy” antics of two or three years ago. Instead, he does a good job of explaining what makes a stock a buy or a sell. There's needs to be more of this on TV (and in the blogosphere).

Some clips of the show are after the jump. (See, we're not all cranks all the time on the Internet.)

Continue reading "Kudos to Cramer"

Posted by Eddy at 7:16 AM | Permalink

Now that it’s July I think we can say that the Triple Crown is now in play for Albert Pujols. It’s a long short, but it can happen.

No one has won the Triple Crown in 42 year, but Pujols currently leads the NL in home runs and rbi’s, plus he’s sixth in batting. He’s just .013 behind David Wright.

Pujols also leads the league in runs and he’s tied for second in walks. Unfortunately, the Cardinal’s line-up is pretty thin outside of Phat Albert.

Posted by Eddy at 11:14 PM | Permalink

Here’s a look at the growth of the S&P 500 along with its dividends over the past 20 years. The S&P 500 is the black line and it follows the left scale, the dividends are the blue line and follow the right scale. The two scales are matched up at a ratio of 50-to-1, meaning the dividend yield is exactly 2% when the lines cross.

That’s actually a very lenient standard. To be a better reflection of valuation, I should have set the scales at a ratio of 30-to-1, but I’m not presenting this as an outlook on stock valuations. The point I want to get across is how stable dividends are over time compared with stock prices. The average swing in stock prices is almost exactly five times the average swing in dividends.

It's interesting to see that dividends never bought into the late 90's rally although they were more impressed by the tepid recovery of the middle of this decade (the dividend tax cut surely helped).

As an investor, sometimes it’s to your benefit to ignore stock prices and focus solely on your dividends. That’s money they can’t take back from you. The other nice thing about dividends is that you pretty much know what you’re going to get. The line doesn’t jump around too much.

Stock investing in the 19th century was really about the dividend. Sometimes I think they were a lot smarter than us. The idea of continuously rising capital gains really dates from the 1920s.

One other point about the table: It goes up to the first quarter of 2009. We’ve seen a lot of dividend cuts this year. I’ll update the chart once the latest numbers are in.

Posted by Eddy at 9:45 AM | Permalink

Sheesh, I take a week off, come back and everyone in blogland is fighting—even more than usual! First, we have Barry Ritholtz and John Carney debating and possibly betting on the role that the Community Reinvestment Act played in the housing blow-up. Steve Sailer has also joined the fray.

Now a fight has broken out between ZeroHedge and CNBC’s Dennis Kneale. Actually, as fights go, this one is a pretty pathetic. It’s transparently obvious that Kneale is trying force a confrontation where it’s completely unnecessary.

That’s what galls me about CNBC. They can’t just tell us they news. No, that would be too easy. Instead, they have to trick us into watching fights thinking that’s the only way we’d pay attention.

I’m not being paranoid here. A few weeks ago, we found a video where Dennis Kneale freely admitted that stories need “conflict, drama and struggle” to fool people into learning good information (the video has since been removed, so you’ll have to trust me that’s what he said). Do they really need to insult us this way?

Perhaps he’s right.

Unfortunately, ZeroHedge fell for Kneale’s bait and their readers are in a tizzy. Trust me, I see their point and from the emails Tyler posted, it’s clear that Dennis isn’t being truthful about Tyler’s “dodge.” Well, what did you expect from someone who’s trying to force “conflict, drama and struggle”?

In my opinion, Tyler’s response is all wrong. The problem is he’s missing Dennis’ agenda. Tyler wants to have a high-minded discussion of the issues and not on Dennis’ home turf. Well, that’s a noble idea but it won’t get you anywhere with Dennis Kneale.

As usual, Monty Python is way ahead of us. This is from the Argument Sketch where a man pays to have an argument and is disappointed by what he gets:

M: Oh look, this isn't an argument.
A: Yes it is.
M: No it isn't. It's just contradiction.
A: No it isn't.
M: It is!
A: It is not.
M: Look, you just contradicted me.
A: I did not.
M: Oh you did!!
A: No, no, no.
M: You did just then.
A: Nonsense!
M: Oh, this is futile!
A: No it isn't.
M: I came here for a good argument.
A: No you didn't; no, you came here for an argument.
M: An argument isn't just contradiction.
A: It can be.
M: No it can't. An argument is a connected series of statements intended to establish a proposition.
A: No it isn't.
M: Yes it is! It's not just contradiction.
A: Look, if I argue with you, I must take up a contrary position.
M: Yes, but that's not just saying 'No it isn't.
A: Yes it is!
M: No it isn't!
A: Yes it is!
M: Argument is an intellectual process. Contradiction is just the automatic gainsaying of any statement the other person makes.
(short pause)
A: No it isn't.
M: It is.
A: Not at all.

I’m all for a good fight. They can illuminate and be great TV. But cramming histrionics down our throats ain’t the right way. It’s bad TV and not very enlightening. Dennis Kneale has dumbed down his own standards and still failed to meet them.

Yes, Beaker deserves to be mocked, but not for the reasons he wants us to use.

Posted by Eddy at 8:46 AM | Permalink

The first half of 2009 is now behind us and the Buy List is having a pretty good year. To review the rules, the 20 stocks I select at the beginning of the year are locked in place and I’m not allowed to make any changes during the year.

I assume the portfolio is equally weighted at the beginning of the year. The average of the 20 stocks is currently up 14.53% for the year. Including dividends, we’re up 15.22%. By contrast, the S&P 500 is up 1.78%, and 3.16% with dividends.

The average daily volatility of the Buy List is 3.18% greater than the market.

Fourteen of our 20 stocks are up for the year, six are down. The best performer is Nicholas Financial (NICK) with a 123% gain. The second-best is Cognizant Technology Solutions (CTSH), one of our five new stocks this year, which is up 47.8%.

The worst performer has been Aflac (AFL), which is down 32.2%. That’s bad but it was a lot worse. In fact, Aflac has nearly tripled off its March low. If I didn’t have my frozen-in-place rule, I could have easily sold out at the worst time. The second-worst performer has been Moog (MOG-A) which is now down 29.4% for the year.

Since the March 9th low, the Buy List is up by over 51%. Let’s hope for a great second-half to 2009!

Posted by Eddy at 10:19 PM | Permalink

I'll give you a hint: It's McDonald's (MCD).

Mike Steinberger looks at How McDonald's Conquered France:

In the battle for France, Jose Bové, the protester who vandalized a McDonald's in 1999 and was then running for president, proved to be no match for Le Big Mac. The first round of the presidential election was held on April 22, and Bové finished an embarrassing tenth, garnering barely 1 percent of the total vote. By then, McDonald's had eleven hundred restaurants in France, three hundred more than it had had when Bové gave new meaning to the term "drive-through." The company was pulling in over a million people per day in France, and annual turnover was growing at twice the rate it was in the United States. Arresting as those numbers were, there was an even more astonishing data point: By 2007, France had become the second-most profitable market in the world for McDonald's, surpassed only by the land that gave the world fast food. Against McDonald's, Bové had lost in a landslide.

Posted by Eddy at 8:05 PM | Permalink

HSBC's Chairman Stephen Green has some interesting thoughts on the futility of trying contain financial crises:

The global financial industry should not be revamped to try to ensure no bank was too big to fail, HSBC (HSBA.L) Chairman Stephen Green said on Tuesday.

"It is unrealistic to believe that the industry can be reconstructed such that individual institutions are not too big to fail. Quite small and simple banks are too big to fail in a strict sense," said Green, chairman of Europe's biggest bank, in a speech at the British Bankers' Association annual conference.

"The notion that the failure of a bank can be contained by the conventional legal and administrative processes for handling business failures is nonsense."

Green said "narrow banking" was not the answer to ensure stability. "When you look at the different things that commercial banks do you can't segregate those out meaningfully in this day of integrated capital markets," he told Reuters in an interview after.

Peter Sands, chief executive of Standard Chartered (STAN.L), agreed that breaking up the big banks was not the answer.

"There is a case for restricting proprietary risk-taking, but (a new Glass-Steagall Act) is not the way to do it," Sands said. "It gives an illusion of comfort, it won't work, and it will be great for regulatory arbitrage."

Posted by Eddy at 1:12 PM | Permalink

The Federal Reserve is one of those topics where otherwise normal people start getting a little weird. I think it knocks about 10 points off people’s IQ. Israel is another topic like that. In fact, to some people, it’s not a separate topic.

I mention this because there’s been a movement to support Congressman’s Ron Paul’s bill (HR 1207) which will require audits of the Federal Reserve. The bill already has enough cosponsors to pass the House easily. The Senate, however, could be a different matter.

So what could anyone have against auditing the Fed? The problem I have isn’t the audit, but it’s the bizarre paranoia of more than a few of the bill’s supporters. What exactly do they expect to find out?

There is a serious question as to what role the Federal Reserve ought to have. The issue before us is that the Fed has been taking on more and more job titles over the last year, not be design but by default. Congress’ prefer method seems to be outsourcing fiscal policy to the Fed and then blaming it for the consequences.

Letting Lehman Brothers may have been a mistake, though I’m not convinced it brought on the collapse. Nationalizing AIG was a bad move and the Fed wasn’t pleased with it. Unlike a lot of folks, I’m not so judgmental about Greenspan’s low-rate policies earlier this decade. Not that I think they were right but I’m not convinced how obvious the wrongness was at the time. Monetary policy in hindsight is an easy thing to do.

I consider these open questions but the fact is that these are decisions that the Federal Reserve has made and will have to make in the future. That’s a lot on their plate, plus they have their regulatory duties. Consider that over the past several months, the Fed’s balance sheet has more than doubled to over $2 trillion. One idea is to let the Fed issue its own bonds. The Fed wants to do that but Congress would never go for it. This brings me to my general rule about central banking, it should be as dull as possible.

Technically, the Fed is audited but HR 1207 will require a full audit which will include their open market operations. Edward Flaherty writes that there’s a good reason why the Fed’s open market operations haven’t been audited:

In 1978, the Federal Reserve's Office of Inspector General was given authority to conduct audits, operations reviews, and investigations of Board of Governors' programs and operations. In addition, GAO was given authority to audit the Board of Governors and the regional Federal Reserve Banks, branches, and facilities, subject to the limitation that it could not examine the Fed's foreign exchange and open market monetary policy actions.

One of the difficulties in understanding the audit issue is in the different types of audits. Most people think of audits as financial audits. These are principally concerned with whether an institution has spent the money and maintains the funds as it has claimed in its financial statements, and whether it is complying with procedures designed to safeguard it from misappropriation of funds. This is no doubt the kind of audit most people have in mind when expressing their concern over whether the Fed gets audited.

But audits are also designed to review management efficiency and to evaluate the policy of an institution. It is the latter kind of audits that are the reason for the restrictions on GAO's audit authority over the Fed. The concern is that more extensive audits will become policy evaluations second-guessing the Fed's monetary policy, and not examinations of Federal Reserve financial safeguards and procedures. Under current law, policy is reviewed twice annually by the Congress.

And here.

In 1993 Wayne D. Angell, then a member of the Board of Governors, submitted testimony before a House subcommittee on the reasons for the restrictions on GAO access. He commented, By excluding these areas, the Act attempts to balance the need for public accountability of the Federal Reserve through GAO audits against the need to insulate the central bank's monetary policy functions from short-term political pressures and to ensure that foreign central banks and governmental entities can transact business in the U.S. financial markets through the Federal Reserve on a confidential basis.

In reference to a bill that would lift the constraints placed on the GAO's audit authority over the Federal Reserve, Angell stated, The benefits, if any, of broadening the GAO's authority into the areas of monetary policy and transactions with foreign official entities would be small. With regard to purely financial audits, the Federal Reserve Act already requires that the Board conduct an annual financial examination of each Reserve Bank...The process of conducting financial audits is reviewed by a public accounting firm to confirm that the methods and techniques being employed are effective and that the program follows generally accepted auditing standards...Further, a private accounting firm audits the Board's balance sheet...Finally, and more broadly, the Congress has, in effect, mandated its own review of monetary policy by requiring semiannual reports to Congress on monetary policy under the Full Employment and Balanced Growth Act of 1978...In addition, there is a vast and continuously updated body of literature and expert evaluation of U.S. monetary policy. In this environment, the contribution that a GAO audit would make to the active public discussion of the conduct of monetary policy is not likely to outweigh the disadvantages of expanding GAO audit authority in this area.

Ultimately, I’m puzzled by the anger directed at the Fed. Go ahead and audit them, but you should really be angry at Congress.

Posted by Eddy at 11:43 AM | Permalink

Fortune has a roundup of the Dumbest Business Moments of 2009.

My favorite is when the SEC banned Bernie Madoff from the securities industry. Exactly two weeks ago, nine years after they were first warned of him.

Posted by Eddy at 10:21 AM | Permalink

(HT: Timmay)

Posted by Eddy at 10:16 AM | Permalink

Joe Weisenthal notes that Jim Cramer said that today is the exact bottom of the housing market. He said that last September.

Check out Joe's collection of Cramer's greatest hits.

Posted by Eddy at 10:12 AM | Permalink

First Place goes to CNN:

Home prices drop, but at a slower rate

My comment: I stopped reading after the comma.

Second Place goes to the LA Times:

Rising oil prices lift stocks higher

My comment: ???????

Posted by Eddy at 10:01 AM | Permalink

Bloomberg reports:

The U.K. economy shrank more than previously estimated in the first quarter in the biggest contraction since 1958 as the recession choked industries from construction to services.

Gross domestic product fell 2.4 percent from the final three months of 2008, compared with the prior measurement of a 1.9 percent drop, the Office for National Statistics said today in London. The median prediction in a Bloomberg survey of 28 economists was for a 2.1 percent decline. Construction activity plunged almost three times as much as originally estimated.

Bank of England Governor Mervyn King said last week that Britain’s recovery from recession may turn out to be “a long, hard slog.” While business surveys have indicated the economic slump is easing, unemployment may continue to increase and net mortgage lending is the weakest since records began in 1993.

“In big picture terms, it doesn’t really change the outlook,” said Nick Kounis, an economist at Fortis Bank Nederland Holding NV in Amsterdam and a former U.K. Treasury official. “The recovery is unlikely to be very strong any time soon. There’s more bad news for consumers ahead.”

The lousy economy is apparently affecting everyone: Queen to run out of funds by 2012.

Posted by Eddy at 9:43 AM | Permalink

Here’s blogger and Carney-foil, Barry Ritholtz discussing Bailout Nation on C-Span’s BookTV.

Here’s my review of Bailout Nation.

Posted by Eddy at 8:54 PM | Permalink