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Who Was Responsible for the Great Moderation

In The Atlantic, Virginia Postrel looks at what made the Great Moderation possible. The Federal Reserve thought it was them, and that was a big mistake:

In 2001, the Fed aggressively cut interest rates, driving them down much lower than its policies since the mid-1980s would have predicted. The goal was to stave off recession and avoid the kind of deflation that Japan had experienced in the 1990s. But the cuts backfired. Those excessively low rates set off a housing bubble and all the consequences that flowed from it. The peak of the boom, Stanford economist John B. Taylor estimates, saw about 250,000 more new housing starts a year than there would have been if the Fed had followed its old practices. (Similar patterns of low interest rates and housing bubbles also occurred in many European countries.)

To make matters worse, Taylor argues, once the financial crisis began in August 2007, policy makers and many Wall Street traders misdiagnosed the problem as a shortage of liquidity—something the Fed could address by making it easier for banks to borrow from the government. But the problem was really so-called counterparty risk: financial institutions couldn’t trust the securities they were buying from and selling to each other. To compensate for this risk, banks charged each other much higher interest rates.

“This was not a situation like the Great Depression where just printing money or providing liquidity was the solution; rather it was due to fundamental problems in the financial sector,” Taylor writes in a survey of his published research on the crisis. The only way to fix the problem is to clean up the banks’ balance sheets, bringing in more capital to make them stronger and marking down bad loans (reducing their principal amounts) to make them more trustworthy.

Posted by edelfenbein at 1:08 PM

Buy List YTD

Since the first quarter ends tomorrow, I thought I'd give an update on the Crossing Wall Street Buy List. It's not been a good year, but we're still doing better than the market.

We're on pace to beat the S&P 500 for the third straight year. Through Monday, the Buy List is down 8.82% while the S&P 500 is off by 12.81% (neither figure includes dividends).

Six of our stocks are in the black for the year while 14 are in the red. The top performer is Nicholas Financial (NICK) which is up 18.7% followed by Amphenol (APH) which is up by 17.8%. Interestingly, NICK was our biggest loser in 2008.

The huge outlier is Aflac (AFL) which down over 60% for the year. Nothing else comes close. In fact, the stock was down a lot lower. Aflac has nearly doubled from its March low to its March high.

The Buy List rules dictate that I'm not allowed to make any changes throughout the year. I think that helps me in the case of a stock like Aflac.

Last month, Aflac said to expect operating earnings-per-share to grow by 13% to 15% this year. Remember that with insurance stocks we want to look at the operating figures. That translates to $4.51 to $4.59 per share, and it doesn't include the impact of the yen, which is stronger against the dollar this year, so Aflac's estimate is probably on the low side.

Bottom line, we're talking about a stock going for around four times earnings that yields 6.4%. Stay tuned for Q1 earnings which will come out at the end of April.

Posted by edelfenbein at 5:54 PM

Morgan Says Sell Into Bear Market Rally

I'm not selling, but I think Morgan may be right. Stocks have climbed so much so quickly.

Investors should sell into the recent stock market rally, Morgan Stanley's strategist said Monday, arguing that it can't last as corporate earnings deteriorate further.

"We simply do not believe that the market has completely priced in the prospect of further earnings weakness or that it will, without interruption, look through this weakness to recovery," Morgan Stanley strategist Jason Todd wrote.

On March 18 the S&P 500 rallied 25% to above 800 points since its low of 666 on March 6 - a technical bull market - spurred by positive comments by bank chief executives about improving business conditions as well as a favorable market reaction to the government's efforts to support the financial system.

That's right. The S&P 500 bottomed at 666.

Posted by edelfenbein at 11:49 AM

The Golden State Fizzles

California is not in good shape:

California's unemployment rate will soar to between 12 percent and 15 percent by next spring and remain in the double digits until at least the beginning of 2012, according to forecasts released by two teams of University of California economists.

The state's unemployment rate has not reached those heights since the Great Depression.

The projections – one released today by UCLA's Anderson Forecast, the other last week by UC Santa Barbara's Economic Forecast – paint a grim picture of declining economic growth, lower retail sales, a troubled housing market and falling office prices lasting through much of 2010.

“It looks like it will be a nasty recession, but not a depression, although the possibility that we could get to a depression has increased,” said Dan Hamilton, director of the UCSB forecast. “Every month and every quarter that goes by is noticeably worse than the month or quarter that went before.”

Posted by edelfenbein at 7:18 PM

Weekend Reading

There are many good articles this weekend. Here are a few:

"The Quiet Coup" by Simon Johnson

"Now the Long Run Looks Riskier, Too" by Mark Hulbert

"It Pays to Understand the Mind-Set" by Robert Shiller

"America’s liberals lay into Obama" by Edward Luce

"Stocks Through a Wide-Angle Lens" by Lawrence C. Strauss

Money quote from the last article:

Now, while corporate-credit markets remain firmer than they were at their 2008 worst levels, debt values have backed up a bit without the close attention of equity markets. Bank-issued debt, in particular, has eroded in value without gaining much attention.

As a result, once again (nominally) high-grade corporate bonds are looking rather attractive by several measures.

J.P. Morgan Chase credit analyst Eric Beinstein last week noted that the high-grade bond benchmark is pricing in "a default rate of about 45%" over the next 10 years -- and 10 years is the average life of the bonds in the index. He says this means a hypothetical investor could buy the components of the index, funding the purchase at the London Interbank Offered Rate, watch 45% of the bonds go bust, then recover only 20% of face value, and still break even for the decade.

The worst 10-year default rate for high-grade debt since 1980, he says, was 5%, implying the market is building in truly cataclysmic credit losses, in part because liquidity in this market remains so scarce.

This is an extended way of illustrating that -- outside the ultra-high-quality slice of the market -- corporate debt now should reward prudent risk-taking.

Posted by edelfenbein at 3:12 PM

WaMu: Not Stodgy Old Banking

I bashed this WaMu commercial a few years ago. Who really thinks a banker looks like Mr. Monopoly?

In retrospect, perhaps WaMu should have paid attention to those stodgy guys.

Posted by edelfenbein at 2:59 PM

Laid Off Wall Streeters Turning to Stripping

From The New York Post (of course):

Randi Newton, 28, who lives in Midtown, was a financial analyst at Morgan Stanley before the crash but was fired.

"A few nights after I got laid off, I went with friends to a strip club to get drunk and forget my unemployment troubles," Newton said. "The manager offered me a job as a dancer. I thought it was different. And fun."

Today, Newton, who calls herself an "independent contractor," pole dances at Rick's Cabaret in Murray Hill three or four nights a week and says she makes "$160,000 a year on tips alone."

You can read more about Ms. Newman as her blog, Wall Street Stripper.

(HT: WSF).

Posted by edelfenbein at 2:53 PM

Weekend Poll

Posted by edelfenbein at 6:33 PM

Freeman Dyson: A Civil Heretic

The New York Times profiles Freeman Dyson:

Dyson is well aware that “most consider me wrong about global warming.” That educated Americans tend to agree with the conclusion about global warming reached earlier this month at the International Scientific Conference on Climate Change in Copenhagen (“inaction is inexcusable”) only increases Dyson’s resistance. Dyson may be an Obama-loving, Bush-loathing liberal who has spent his life opposing American wars and fighting for the protection of natural resources, but he brooks no ideology and has a withering aversion to scientific consensus. The Nobel physics laureate Steven Weinberg admires Dyson’s physics — he says he thinks the Nobel committee fleeced him by not awarding his work on quantum electrodynamics with the prize — but Weinberg parts ways with his sensibility: “I have the sense that when consensus is forming like ice hardening on a lake, Dyson will do his best to chip at the ice.”

Posted by edelfenbein at 4:48 PM

Corporate Bonds Don’t Believe the Rally

David Merkel makes a good point: The spread between corporate bond and stocks is getting pretty big. In fact, way too big. Corporates seem to be sitting out this rally. Bottomline: Anything that’s not a Treasury is looking pretty good here.

Posted by edelfenbein at 1:34 PM

Banks and Toasters

Paul Krugman has a good op-ed today on the problems facing the financial industry. This one paragraph caught my attention:

The market mystique didn’t always rule financial policy. America emerged from the Great Depression with a tightly regulated banking system, which made finance a staid, even boring business. Banks attracted depositors by providing convenient branch locations and maybe a free toaster or two; they used the money thus attracted to make loans, and that was that.

He’s right. Banking has changed dramatically over the last 30 years. But that Golden Age wasn’t so golden. The reason banks offered toasters to new accounts wasn’t due to bad marketing, but due to outdated regulations. That’s the only way they could pass cost savings on to depositors.

Free toasters from banks weren’t some happy relic of a bygone era, they were the one of reasons why the modern financial world came about. Interest rates were regulated and you couldn’t even pay interest on a checking account. Also, bank locations were far less convenient to today’s world with ubiquitous ATMs.

Let’s not fool ourselves into thinking the past was better than it was. I think it’s much better for banks to be in the banking industry rather than the household appliance industry.

Posted by edelfenbein at 9:18 AM

Did New Homes Sales Improve?

Barry Ritholtz has a great post on the supposed improvement in new homes sales.

The media reported that sales grew up 4.7% in February, but that's not what the government report said. The report said that sales grew by 4.7% plus or minus 18.3%. Um...that's a pretty big plus or minus you got there.

Barry quotes the Commerce Department, “the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”

Kind of a different story now.

Posted by edelfenbein at 9:02 AM

Q4 GDP -6.3%

The final revision to fourth-quarter GDP came in at -6.3%. I wouldn't be surprised to see a similar number for the first quarter. The economy may show some improvement, though still not positive, in the second quarter.

The U.S. economy shrank in the fourth quarter more than previously estimated, leading to the biggest plunge in corporate earnings in a half century and underscoring why companies are slashing payrolls this year.

Gross domestic product contracted at a 6.3 percent annual rate from October to December, the weakest since 1982, the Commerce Department said today in Washington. Profits dropped 16.5 percent from the prior quarter, the most since 1953.

Another report showed the number of people collecting jobless benefits this month reached a record 5.56 million as firings mounted. Still, recent reports showing a rebound in sales indicate last quarter’s slump may give way to smaller declines in growth. A let-up in the recession would set the stage for President Barack Obama’s stimulus plan and Federal Reserve measures to take hold in the second half.

“It’s a pretty dismal result,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “Given the slight improvement we’re seeing in some of the recent indicators, I suspect the first quarter will be a little better than the fourth.”

Posted by edelfenbein at 8:55 AM

I Guess Jon Stewart Was Right

Posted by edelfenbein at 7:51 AM

The Death of Equities:
Part of a Never-Ending Series

John Authers has an interesting article in today’s Financial Times. In it, he questions the received wisdom of investing in stocks for long-term financial planning.

This is a serious question because even if stocks are the best long-term investment, and I believe they are, the fact is that it takes longer than people realize to see the benefits. The cream rises to the top but it can take an awfully long time. Stocks had a miserable period from the mid-60s to the early-80s, and the last nine years haven’t been much fun either.

It seems pretty unreasonable to tell folks to have patience when the time frame needed can be half a person’s pre-retirement planning. Arthurs writes:

Further, recent experience challenges that basis of modern finance, the 'efficient markets hypothesis', which in its strongest form holds that prices of securities always reflect all known information. This implies that stocks will react to each new piece of information, yet without following any set trend – a description that cannot be applied to the events of the past 18 months. On these foundations, theorists worked out ways to measure risk, to put a price on options and other derivatives and to maximise returns for a given level of risk.

This theory also showed that stocks would outperform in the long run. Stocks are riskier than asset classes such as government bonds (which have a state guarantee), corporate bonds (which have a superior claim on a company’s resources) or cash. So the argument was that those who invested in them would in the long run be paid for taking this risk by receiving a higher return. That is now in question.

Unfortunately, Arthurs errs here by confusing EMH for CAPM which was developed by William Sharp (and others) in the 1960s.

Stocks should outperform bond over the long haul simply because of the nature of the two asset classes. A bond is a loan and therefore implies that lender and borrower both believe that the borrower can get a better ROE than the interest rate charged on the loan. Not surprisingly, this is why stocks have beaten corporate bonds.

While government bonds have won the race over the past decades, Felix Salmon rightly points out that we’re currently looking at a T-bond bubble and a trough for stocks.

Jonathan Clements reiterates the long-term case for stocks:

Over the past 60 years, gross domestic product has climbed 6.8% a year—and shares prices have climbed 7%, as measured by the Standard & Poor’s 500-stock index. On top of that 7% a year, investors also collected dividends.

True, share prices didn’t climb in lockstep with the economy and, indeed, investors had to suffer through some horrendous bear markets. Still, as long as the economy continues to grow over the long haul, the stock market should remain a decent long-run investment.

Felix adds: “I suspect the pendulum is going to swing back on that front, which means that stock-price growth could lag GDP growth indefinitely.” That could certainly happen for a little while, but I have to object to the word indefinitely. If the stock market were to trail GDP indefinitely well...there wouldn’t be anymore stock market. Why bother using the public markets to raise funds? There would be no point.

The premium of stocks over long-term corporate is real albeit small and highly volatile. The lesson is that investors should always have a sizable portion of their assets in fixed income.

Posted by edelfenbein at 9:48 PM

Will a Secondary Market Develop?

One question I have about the Geithner Plan—or more specifically, an outgrowth of the plan—is will a secondary market for these toxic assets develop?

There’s been lots of talk of how individual investors can jump on board, and that’s fine. But what happens once Pimco suddenly wants to start ditching these assets? There’s a saying that in a bear market, if you can’t sell what you want, sell what you can. Could we suddenly see these assets flood the Street?

Hey, what if banks start buying them back? Stranger things have happened. AT&T was broken up only to see the Baby Bells buy each other.

As an investor, I would strongly be disinclined to take part in an auction. But I would like to see how some assets start trading. I just don’t know what will happen.

Posted by edelfenbein at 11:07 AM

Obama's Presser

At the 42:25 mark of this video, President Obama takes a question from a reporter with Ebony. Naturally, Richard Pryor and Tim Reid were three decades ahead of themselves (3:38 mark).

Posted by edelfenbein at 9:12 AM

Dear Mr. Liddy, I Quit

The New York Times reprints a resignation letter sent from a Veep at AIG's Financial Products division. All I can say is read the whole thing.

Posted by edelfenbein at 9:09 AM

Pounding the Tables for Sysco

Barron's has nice things to say about Sysco (SYY), one of our Buy List stocks:

There's no doubt that Sysco, the nation's largest foodservice distributor, is facing tough times as cash-strapped consumers cut back on visits to restaurants, the company's biggest customer.

However, management has been able to pare expenses successfully -- Sysco actually beat analysts' estimates last month on cost-cutting measures -- leaving it with a growing dividend, currently yielding 4.2%, and plenty of free cash. Also, as smaller rivals struggle, Sysco, with its heft, can more easily steal market share and buy troubled competitors.

"It's happened before; they come out stronger after a recession and pick up new customers," says BB&T analyst Andrew Wolf. "Though this environment is really unprecedented, they have very strong free cash flow and operating culture to manage through this."

Indeed, the company has outperformed its peers in the last year. The stock lost 23% in the past 12 months, about half the 41.8% loss seen by the broader market, and ahead of its rivals tracked by the Dow Jones Food Retailer & Wholesalers Index, down 28.5%.

With a forward price-to-earnings multiple of 12.5, near its historic lows, this is an excellent time for investors to get into this industry-leading "best of class" company, as Wolf calls it.

Posted by edelfenbein at 8:41 AM

Bond Auction FAIL

The British government tried to auction off 1.75 billion pounds worth of 4.25% 40-year bonds. The total bids they got were only worth 1.63 billion pounds.

That's not a good sign. I don't think Gordo will be around much longer.

Posted by edelfenbein at 8:37 AM

Top Hedge Fund Earnings Last Year

Alpha Magazine looks at what the top hedgies pulled down last year:

1. James Simons (Renaissance Technologies Corp.) $2.5 billion

2. John Paulson (Paulson & Co.) $2 billion

3. John Arnold (Centaurus Energy) $1.5 billion

4. George Soros (Soros Fund Management) $1.1 billion

5. Raymond Dalio (Bridgewater Associates) $780 million

Posted by edelfenbein at 8:18 AM

Yesterday's Rally

The S&P 500 had its fourth-best day yesterday since the 1930s. The top two days came last October. Number three came after the market crash in 1987. Bloomberg notes that the last two weeks have seen the best 10-day run since 1938.

Posted by edelfenbein at 10:15 AM

Paging Sherman McCoy

From Bloomberg:

Eat-What-You-Kill Bond Traders Rise From Wall Street Wreckage

Wall Street bond trading is heading back to the 1980s, when private partnerships and independent firms dominated the market.

Jon Bass, who traded debt five seats from Salomon Brothers Inc. Chairman John Gutfreund and later helped run fixed income at UBS AG, joined equity broker BTIG LLC to help start its credit operation last month. BTIG, with a pool table and gym adjoining its seventh-floor midtown Manhattan trading room, is one of more than 50 credit dealers seeking to take advantage of the widening gap at which securities are bought and sold.

Smaller firms are emerging from the wreckage of the world’s largest financial companies, which are conserving capital following more than $1.2 trillion of writedowns and credit losses since the start of 2007. They’re luring traders with a shot at $500,000 commissions for two days’ work as banks that accepted federal bailouts retrench and slash bonuses.

“I don’t mean to dance on anybody’s graves here, but it’s just this incredible opportunity to reassemble a securities firm that does business the right way,” said Lee Fensterstock, chief executive officer of one of the firms, Broadpoint Securities Group Inc. in New York. “That business is going to lead with brain as opposed to capital. We’re not planning to run big balance sheets or big leveraged positions.”

Posted by edelfenbein at 9:58 AM

Hey Can I Play?

Timmy's plan is a pretty good deal for institutional investors. You basically have the government as your silent partner and your downside is limited. James Kwak at Baseline Scenario thinks the public should be allowed in on the action as well.

Thanks to BlackRock, individuals may have a way to invest:

BlackRock will raise money from investors such as pension funds and endowments for the new Treasury programs, Fink said. The company might consider creating mutual funds so that individual investors can also participate.

Posted by edelfenbein at 1:56 PM

Hedge-Fund Investors Hire Private Investigators

Bloomberg finds an interesting story; investors in hedge funds are hiring private investigators to look into the funds:

Background checks can take from two to six weeks, and may cost about $1,000 for each individual or company investigated, according to the firms.

“Basically you don’t want managers to have distractions that will impact their decision making,” said Michael Dubin, president of New York-based The LongChamp Group Inc., which allocates client money to hedge funds.

Background searches helped Cole Partners Asset Management LLC stay away from managers that were later found to have had run-ins with regulators, said Rian Akey, chief operating officer of the Chicago-based firm, which channels money into hedge funds.

Akey said a check done three years ago on a New York-based hedge fund found that in 1999 the managers had paid fines amounting to $500,000 for violating trading rules. “That was enough to put us off,” he said, declining to name the fund.

Posted by edelfenbein at 12:36 PM

AIG Renames Itself

AIU.

At least the good parts will be called that. It really doesn't seem like much of a change.

Posted by edelfenbein at 11:41 AM

Application to Be in the Treasury's Bank Plan

Curious about how to be a private investor in Timmy's bank plan? Well, let's just say you are.

Here's the application. The requirements are:

Fund Managers will be pre-qualified based upon criteria that are anticipated to include:
• Demonstrated capacity to raise at least $500 million of private capital.
• Demonstrated experience investing in Eligible Assets, including through performance track records.
• A minimum of $10 billion (market value) of Eligible Assets currently under management.
• Demonstrated operational capacity to manage the Funds in a manner consistent with Treasury’s stated Investment Objective while also protecting taxpayers.
• Headquarters in the United States.
All Applications must be submitted no later than 5:00 p.m. ET on April 10, 2009.

Posted by edelfenbein at 8:43 AM

The Swedish Model

I've reluctantly come to the conclusion that we ought to nationalize our failing banks. Interestingly, my support for this position comes from looking at Sweden's experience during its banking crisis in 1992.

The Swedish government wound up spending about 4% of its GDP on their banks. But here's the secret. The government owned the banks and made a killing. In fact, the nationalization may really have been self-financing.

I mention Sweden because the country isn't socialist by reflex. It looks like the government is perfectly willing to let Saab go down the drain.

Posted by edelfenbein at 8:06 AM

The Timmy Plan

The Treasury Department has announced its bank plan:

The federal government will use up to $100 billion in funds from the Troubled Asset Relief Program, or TARP, and capital from private investors in order to generate $500 billion in purchasing power to buy legacy assets, Treasury said in documents provided early Monday. The department noted that the program could potentially expand to $1 trillion over time.

The program has two parts. It will address both the legacy loans and the legacy securities clogging the balance sheets of financial firms.

Under the legacy loan program, banks will identify the assets they wish to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio. Eligible assets will be determined by banks, regulators, the FDIC and the Treasury Department.

Here's the statement from Treasury.

Paul Krugman has described this as basically a rehash of the Paulson plan: "if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets."

The only thing I would add is that TARP has been such a failure that it may force banks to play ball since it will get Treasury off their back.

Posted by edelfenbein at 7:53 AM

The Sweet Sixteen

The selection committee did a pretty good job this year. The sweet sixteen consists of four #1s, four #2s, four #3s, two #4s, a #5 and a #12. The first weekend was almost not needed.

Posted by edelfenbein at 6:38 PM

Lehman Stress Balls, Paperweights, Bags Coughed Up by Barclays

Not sure what to make of this:

Lehman Brothers Holdings Inc. has negotiated the return of thousands of Lehman-logoed knickknacks that were mistakenly transferred to Barclays Plc through the sale of the bankrupt securities firm’s brokerage unit.

Tote bags, umbrellas, stress balls, Tiffany paperweights and other items now stored in closets and warehouses from New York to Chicago will be returned to Lehman and sold to pay creditors, according to a court filing on March 19. Lehman filed the largest bankruptcy in U.S. history in September and has about $200 billion in unsecured liabilities left to pay, Chief Executive Officer Bryan Marsal said Jan. 28.

Posted by edelfenbein at 10:07 AM

Weekend Poll

Posted by edelfenbein at 5:09 PM

Gold Against Stocks

Gold has had a pretty good run over the past few years. But over the past few decades, gold has badly trailed stocks. Here’s a look at gold divided by the Wilshire 5000 Total Return Index.

Posted by edelfenbein at 2:27 PM

Prices Are Still Down

I thought this was in interesting chart.

Prices are still down, though energy prices have made a large impact.

Posted by edelfenbein at 1:49 PM

AIG Outrage

Michael Lewis on AIG hysteria:

Every recriminatory bone in the political body is aroused; the one thing you can do right now in Washington without getting an argument is to rail against the ethics of AIG’s bonus payment.

Apart from Andrew Ross Sorkin at the New York Times, it occurs to no one to say that a) the vast majority of the employees at AIG had as little as you or I to do with its quasi- criminal risk taking and catastrophic losses; b) that the most- valuable of those employees can easily find work at AIG’s competitors; and c) that if the government insists on punishing those valuable employees they will understandably leave, and leave behind a company even less viable than it is, and less likely to give the taxpayer back his money.

And also -- oh, yes -- that if the government can arbitrarily break contracts made by firms in which it has taken a stake no one in his right mind will ever again make a contract with one of those firms. And so all of the banks in which the government has investment will be damaged.

Daniel Gross wonders why more people aren't angry with Goldman Sachs:

People sometimes refer to the firm as Government Sachs because so many of its former employees wind up in high positions in Washington (Robert Rubin, Henry Paulson, etc.). But the sobriquet sticks today because the company is heavily reliant on the government for support. Tally up the various forms of direct and indirect taxpayer assistance Goldman has received in the last several months, and it turns out that you and I are providing billions of dollars to bail out the proud firm. The former undisputed heavyweight champion of the financial services sector has become one of New York's biggest welfare queens.

Posted by edelfenbein at 9:59 AM

NCAA Tournament First Two Rounds

Here's a look at how seeds have performed during the first two rounds of the NCAA Basketball Tournament.

Seed.......Round One......Round Two
#1...............96-0...............84-12
#2...............92-4...............60-32
#3...............81-15.............48-33
#4...............76-20.............41-35
#5...............65-31.............35-30
#6...............66-30.............35-31
#7...............60-36.............18-42
#8...............44-52...............9-35
#9...............52-44...............3-49
#10.............36-60.............18-18
#11.............30-66.............11-19
#12.............31-65.............16-15
#13.............20-76...............4-16
#14.............15-81...............2-13
#15...............4-92................0-4
#16...............0-96

Here are a few thoughts.

I’m guessing the distribution of teams is a high peek with a long downward slope. In other words, the difference between a #1 and a #3 is probably about the same as between a #5 and a #12. Since many brackets use points by seed—geometric scoring for a non-geometric—this makes some lower seeds much better bets.

I hate to admit this but for a very high likelihood, it’s really a 12 team tournament. I know we all like the Cinderella aspect of the tournament, but the odds are very much against the underdogs.

In the 24 years since the field was expanded, 21 of the finals winners and 20 of the losers were ranked #1, #2 or #3. I’m not advocating a change. I’m just pointing out that the dividing line seems to begin at #3.

You’ll also notice that some seeds are pretty choice locations. For example, #12 has a decent record against #5—even better than #11 against #5, and close to #10 against #7. Whenever a #12 wins, it’s often reported as a big upset, but it’s really not. On average, more than one #12 wins each year.

After that, #12 plays the winner of #4 versus #13. They actually have a winning record in the second round. A total of 16 #12 seeds have made it to the Sweet Sixteen.

Compare that with #8 or #9 who have always had to play #1 in the second round. The lesson is that the longer you avoid a top three team, the better. Of course in the tournament, you’ll eventually meet one.

Finally, #1 seeds have a very good chance to make it a perfect 100-0 this year.

Posted by edelfenbein at 11:26 PM

Citigroup Back Over $3

Shares of Citigroup (C) closed at $3.08 today. Don't get me wrong. I'm not saying the company is in good health, or that a rally from $1 to $3 is impressive when it follows a fall from $50 to $1.

Still, it's up. Might things not be as bad as it looked? Is anyone out there dipping their toes in?

Posted by edelfenbein at 11:11 PM

1,000-Point Rally

My apologies Mr. President. You're a better market-timer than I thought:

Posted by edelfenbein at 8:53 PM

Guess Who's on Twitter?

Bernie Madoff! Well, not really but it is funny.

(Via: Barry.)

Posted by edelfenbein at 1:59 PM

FOMC Announcement

What do you do at the top of a Treasury bubble? Buy!

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Posted by edelfenbein at 1:58 PM

The Prime of Mr. Nouriel Roubini

Portfolio profiles Nouriel Roubini:

Not only has Roubini been a professional downer for years, his reasoning has frequently been off. He first predicted, incorrectly, that there would be a bust as a result of Hurricane Katrina, and later, again incorrectly, that the economy would tank as a result of trade imbalances. The collapse was initially triggered by subprime-credit problems, and he initially underestimated how devastating they would be. More than a few economists are convinced that Roubini’s call was less a matter of his genius and more about the simple fact that if you forecast a recession often enough, sooner or later you’ll be vindicated. “Nouriel Roubini has been singing the doom-and-gloom story for 10 years,” says Nariman Behravesh, chief economist for IHS Global Insight. “Eventually something was going to be right.”

To pick up on my earlier criticism of fixcnbc.com, the manifesto that wants CNBC to hire “people who have a track record of being right about the economic crisis.”

Not only is that wrong, it’s the opposite of what CNBC ought to do. Their assumption is that economic forecasting is similar to shooting foul shots—just get someone who’s good and don’t use someone who’s bad. Easy.

Forecasting, if it has any merits, doesn’t work that way. The type of person who’s more likely to be correct on something like the current economic mess will probably have been totally off on their previous 20 predictions. That’s both a reflection on their nature and the nature of the credit mess.

Mainstream economists are very good at relaying the conventional wisdom. But when a crisis occurs, those well-known patterns and trends often break down, and those marginal voices are more open to seeing different outcomes. Their benefit is that they’re misaligned with the rest of the crowd.

What CNBC ought to do is have a variety of commentators reflecting a broad spectrum of views. If you’re looking to purge those who were incorrect, you’ll soon run out of economists.

Posted by edelfenbein at 11:48 AM

FactSet Research Systems Reports 20% EPS Growth

Yesterday, FactSet Research Systems (FDS) delivered solid earnings for its fiscal second-quarter. EPS came in at 71 cents, two cents more than estimates. That’s a 20% jump over the 59 cents in made in last year’s Q2. Revenue rose 11.6% to $156.5 million.

For the current quarter, FDS sees EPS coming in between 72 and 74 cents which is higher than the Street’s current consensus of 70 cents.

For the last three months, FactSet saw a net decline of just 12 clients to give them a total of 2,067 clients. The company has 38,700 users after a quarterly decline of 1,500 users.

Posted by edelfenbein at 10:06 AM

The Onion: U.S. Economy Gunned Down In Gas Station Robbery

Posted by edelfenbein at 11:48 PM

Why Do People Make Market Forecasts?

Yesterday, Joe Wiesenthal criticized the idea of Nouriel Roubini making stock market forecasts. Felix Salmon jumped to his old boss’ defense by saying that forecasts are indeed worthless, but the reasoning behind the forecasts can be very interesting.

Then why did Roubini make a forecast in the first place? His audience just expected it? Hmmm. I think I have an answer and it’s not a complicated one.

The dirty secret is that stock market forecasts are fun.

It’s odd that people ignore this basic insight. Markets are a lot of fun. Sure, every serious person is seriously concerned over market forecasts because they’re not serious. Still, people do it anyway. Why? It’s damn fun.

The worst moment of Stewart V Cramer was Stewart saying that finance isn’t a “game.” Oh please! Cramer may deliver his advice in a clownish way, but the advice is serious (in his mind). The thing I hate about Jon Stewart is that he combines too much self-righteousness while being too little informed. The two reinforce each other. Stewartism is really an invitation to ignorance. As long as you have that smug, knowing attitude, who needs to actually understand the issues?

Finance is and has always been a game. I’ve noticed that over the past few years the look of ESPN and CNBC has become steadily similar. That’s not an accident. They’re both graphics heavy, fast-moving, male-oriented and a datanaut’s dream. Heck, the indexes are nothing but a scoreboard. All that’s missing is Gary Glitter blasting away.

Picking stocks and seeing which way the markets go every day is one of the best things about investing. You get to pick a thesis and see if you’re right in real time, and you can make money while doing so. Look, we’re not allowed to do anything anymore. The country has been reduced to be a bunch trans-fat-less, non-smoking, Happy Holidays ninnies walking through airports in our socks. Don’t take this one simple pleasure from us.

I always enjoyed telling a client that the stock they bought last week at $20 is now at $28. That’s an amazing feeling. You made money with your money. I often hear people, professors especially, say that indexing is the only way to invest. Dear lord, these people can take the sex out of anything. They tell us that it’s impossible to beat the market consistently (curiously, they leave out the other side of the argument which is it should be impossible to lose to the market as well).

Put aside the arguments for or against EMT, people will still try to beat the market because it’s a frickin' blast. I would even argue that the amount that would be lost versus the market is more than made up for by the participant’s enjoyment factor. There’s also no reason to buy a luxury car. That’s a complete waste of money yet people do it. I won’t judge them. If they enjoy it, good for them. The amount of money wasted on a luxury car probably exceeds what many folks would suffer by not indexing, assuming it would cost them anything.

Have you ever shorted some worthless stock and had it pay off? Man, that’s a great feeling. Who needs heroin when you have Advanced Micro?

In his book, An American Hedge Fund, Tim Sykes talks about how exciting he found the stock market while he was in college. Soon, his investing activities overwhelmed his college activities. Of course it’s addictive because it’s fun. Trading or forecasts aren’t harming people. Investing and risk-taking is good for a society. Obviously people should know what they’re getting into, but that’s why I started this blog.

I’ll leave it to the professional worriers to grand-stand over the rollicking style of finance. But I’m having a blast.

Posted by edelfenbein at 11:58 AM

Happy St. Patrick's Day

Posted by edelfenbein at 6:42 AM

Just Say No to College

This past weekend’s episode of This American Life had an interesting vignette (Act One). One of the NPR guys was upset that his cousin DJ had dropped out of college. He was trying to change DJ’s mind so he called one of his friends, a labor economist at Georgetown, to speak with DJ.

After talking with him, the professor did something very refreshing. She took DJ’s side.

For many Americans, college is a raw deal. I find it amazing that so many young people are forced to take on huge amounts of debt and get so little in return.

Posted by edelfenbein at 5:07 PM

FixCNBC.com

The liberal group Media Matters for America has a new website up, fixcnbc.com, which is demanding changes at CNBC.

You screwed up badly. Don’t apologize – fix it!

CNBC should publicly declare that its new overriding mission will be responsible journalism that holds Wall Street accountable. As a down payment, we ask you to hire some new economic voices – people who have a track record of being right about the economic crisis and holding Wall Street executives’ feet to the fire.

Oh boy. Neither CNBC nor Jim Cramer are responsible for the credit crisis. If you think they are, then you don’t understand the crisis.

The idea that they need to hire “people who have a track record of being right about the economic crisis” is laughable. No economist predicted what happened because no economist could have predicted it. Some people got parts of it right, but were way off on many, many other aspects. And being right on one prediction doesn’t mean much about your next prediction.

One more thing. You can only ask for a down payment if you own something and someone else wants to buy it. Ironically, it was people who didn’t understand the concept of a down payment that Media Matters should be upset with. They can blame themselves.

Posted by edelfenbein at 4:52 PM

Guess How Many Building Permits Massachusetts Issued in January?

One.

The sharp downturn has ended a prolonged building boom that was fueled by easy credit and a strong housing market. Now, constraints on lending are preventing developers from getting money to start work. In January, one building permit was issued in Massachusetts for a residential complex with five or more units, according government housing data. Homeowners are also feeling the pinch, delaying renovations and other odd jobs that have helped sustain construction workers during previous downturns.

Something tells me that despite less work, the government agency wasn't downsized.

(Via: Blodget).

Posted by edelfenbein at 4:28 PM

Wells Fargo Chairman Calls Stress Test "Asinine"

Richard Kovacevich, the Chairman of Wells Fargo has unkind words for the stress test:

“We do stress tests all the time on all of our portfolios,” Kovacevich said. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.”

Posted by edelfenbein at 12:12 PM

Ben Bernanke on 60 Minutes

Posted by edelfenbein at 10:34 AM

Sesame Street on Ponzi Schemes

(H/T: Barry.)

Posted by edelfenbein at 6:19 PM

The Roubini Portfolio

The FT uncovers Roubini's investment strategy:

Just ask Nouriel Roubini of New York University, who has a reputation as the most pessimistic economist in academe. He deserves it. His most recent paper, published last week, is entitled: “Can the Fed and Policy Makers Avoid a Systemic Financial Meltdown? Most Likely Not.”

Nobody is more aware of the gravity of the financial situation, and nobody has done more to point out the risks of a systemic crisis.

So how are Roubini’s own funds invested? They are 100 per cent in equities. In the long run stocks do best and he is not yet close to retirement, so he keeps putting more money into index funds each month.

Fully aware of the gravity of the financial situation, he is also aware of the futility of trying to take action or to time the market. Those tempted to make the investing equivalent of a goalkeeper’s depairing dive should take note.

Update: Felix went to the source and finds that Roubini's 401k is in equities but he has substantial holdings of cash, plus his interest in his own firm.

Posted by edelfenbein at 11:38 PM

Blaming the Victim

Joe Nocera has a good article in the New York Times where he points out an unpleasant truth—many of Madoff’s victims should have known better.

“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.

Also, don't forget to blame Jim Cramer and CNBC.

Posted by edelfenbein at 9:45 PM

A Short-Selling Conspiracy

A totally unhinged article from the Daily Kos:

This rabbit hole involves the thugs surrounding Jim Cramer and some of the top financial "journalists" from the New York Times, WSJ, Fortune magazine and BusinessWeek, top hedge funds, the Mafia, and the DTCC. It also includes "blackmail, smear campaigns, espionage, fraud, harassment, extortion, bribery, rumor-mongering, sabotage, off-shore money laundering, political cronyism, frivolous lawsuits, witness tampering, biased financial research, false identities, bogus credit ratings, bribery, libelous blogs, bad science, forgery, wiretapping, counterfeiting, collusion, lying, cheating, threats and theft."

And if that wasn't fun enough, it may be the underlying story of what collapsed the entire, global banking system or at least served as the catalyst for the collapse.

What, no JFK assassination?

Unfortunately, this story is so rich and multi-dimensional that I cannot possibly hope to do it justice here.

Well, he's right about that.

Posted by edelfenbein at 11:42 AM

Mississippi Fred McDowell

Posted by edelfenbein at 6:48 PM

My Last Post on Cramer Versus Stewart

Jim Cramer went on Jon Stewart’s show last night. Frankly, I have no interest in watching it. I’ve grown sick and tired of Jon Stewart and his act. His reputation is a bubble and I hope someone takes it down. As usual, Megan sums up the issue nicely.

I’ll add in a few points. Jim Cramer isn’t a reporter, he’s a stock-picker and he has an after-hours show on stock-picking. The beginning of the show clearly states what it is. I do the same thing, just for a much, much smaller audience.

I don’t think there are many people who have criticized Cramer as long as I have, but he’s not responsible for predicting the house of cards that we built up. I don’t see why how Jon Stewart blames Cramer for this.

The news isn’t the agency that’s supposed to prevent crime. Sometimes they do, but that’s not their role. In the Madoff case, the SEC failed us, not CNBC. It’s the job of CNBC to ask the SEC what went wrong and hold their bosses accountable. I don’t blame local muggings on the local news either.

Finally, and most importantly, the credit crisis was by its nature extremely difficult to predict by anyone person, let alone a news organization. Let me state this carefully because this is a nice little lie that needs to end. Some people got parts of it right, like Roubini and housing. But no one could have gotten the whole thing right. If you think they could have, then you don’t understand what happened. For example, you would have had to have known that the government would come to the aid of Bear Stearns, but not to Lehman Brothers.

CNBC does have very good reporters (Faber, Griffith, Herera, and many others). I didn’t even see what was wrong with some of the clips Stewart played in his original piece. Faber merely had an executive go on record. That’s exactly what he should have done. Of all the people to make fun of at CNBC, Stewart went after David Faber?

Later on that same show, Stewart interviewed Joe Nocera, a very good report at the NYT. Ironically, Stewart could have used his exact same tactics against the Times to make it appear that they caused the mess we’re in. Andrew Ross Sorkin (a great reporter) said that the Feds wouldn’t let Lehman fail. Ben Stein says something absurd nearly every week. And Gretchen Morgenson…well, I’ll stop here.

If you want a cheap laugh, fine, watch Jon Stewart. But don’t think he’s offering a serious critique of financial journalism.

Posted by edelfenbein at 3:18 PM

Madoff: A Real Criminal

I want to amplify Larry Ribstein's point that Bernie Madoff is a real criminal.

Over the last few years, we're seen trumped-up criminals, like people who didn't properly account for their pay, get treated as if they were crooks. Well, Bernie's the real deal. He knew that what he was doing was wrong, and he lied about it for years. He's a thief pure and simple. I hope our government learns to understand the difference.

Posted by edelfenbein at 9:25 AM

Bloomberg Gets the A for the Day

Glad to see that someone in the media still knows how to moralize:

Madoff, in a dark blue suit and minus the baseball cap he’d favored when roaming the streets of his Upper East Side neighborhood, began speaking about his guilt. He started bilking his clients during the recession of the early 1990s, he said. Once he had a taste of it -- by neglecting to buy securities his clients paid him for, for example -- he just couldn’t stop himself.

“I cannot adequately express how sorry I am for what I have done,” he said. “I am deeply sorry and ashamed.”

His voice uninflected, his tone flat, he sounded about as ashamed and sorry as Hannibal Lecter.

The person who wrote that works for Mike Bloomberg. Irony!!

Posted by edelfenbein at 10:43 PM

It Could Be Worse

November 24, 2008

Russian analyst predicts decline and breakup of U.S.

March 12, 2009

Chuck Norris: "I May Run For President of Texas"

Posted by edelfenbein at 10:39 PM

Bernie Goes Down, Market Goes Up

So we're rallying on Bernie's plea? Or maybe it's one of those correlation/causation things I've read about.

I guess Bernie should have pleaded guilty several thousand points ago. If only someone had informed the Feds.

Esquire gives us a preview of Bernie's new digs.

Posted by edelfenbein at 11:47 AM

So Long Risk Premium

Bloomberg reports that long-term government bonds have outperformed the stock market over the last 30 years. The article quotes Douglas Cliggott, "Over the last 30 years there’s been no risk premium."

Technically, the most common reference to the risk premium is stocks versus short-term T-bills. The problem is that the market isn't that cheap when looking at long-term corporate yields (it's not expensive either). What's happened is that the spread between government and corporate debt has widened pretty dramatically.

The graph above shows the 10-year yield versus BAA debt. Clearly, folks have moved strongly away from risky assets. It's not so much that the risk premium is gone, it's that we're in a T-bond bubble.

Posted by edelfenbein at 11:33 AM

Good Retail News

There was actually good news in retail sales. Good, not great. Retail sales for February dropped by 0.1% last month which was slightly better than what analysts were expecting. The best news came from the revisions for January. That number was revised higher to 1.8% from the original 1.0%. It’s not great but let’s hope this trend lasts.

Interestingly, if you exclude car sales from the February numbers, then retail sales rose by 0.7%

Posted by edelfenbein at 10:58 AM

Bernie Goes Down

Madoff pleas guilty:

Disgraced financier Bernard Madoff entered federal court in lower Manhattan this morning and pleaded guilty to all 11 felony charges lodged against him in involving one of the largest Wall Street Ponzi schemes ever.

He will now face the wrath of many of the investors who say he ripped them off to the tune of $50 billion dollars, as they will speak in court. The 70-year-old Madoff now faces a maximum prison term of 150 years.

Victims of the one-time Nasdaq chairman and one of Wall Street's elite had been gathering at the courthouse as early as 8 a.m. Those alleged to be cheated by Madoff lost their life's fortunes, charities lost their investments, school trusts were blown and at least two investors took their own lives.

The question now is whether Madoff will go right to jail or will he remain out on bail under house arrest in his $7 million Manhattan penthouse to await sentencing. Most victims, as expected, prefer the former.

See ya in 2159, Bernie.

Posted by edelfenbein at 9:49 AM

Past Marchs and the Market

It was six years ago tomorrow that the S&P 500 closed at its then low point of 800.73. Five months earlier there was an even lower low on October 9. The market's high in 2007 also came on October 9.

It was on March 10, 2000 that the NASDAQ reached its highest close of 5,048.62.

Posted by edelfenbein at 12:44 PM

Picking a Bottom

S&P recently said that the S&P 500 will have a slight earnings loss for the fourth quarter of 2008. This is the first loss ever for the index. However, AIG's gigantic $62 billion loss knocks out $5.13 on operating earnings, so the other 499 made a small gain.

I've seen a lot of folks throw out numbers for a bottom in the S&P. Nouriel Roubini, for example, sees earnings for the index coming in at $50 for 2009. Using a multiple of 12, he places a target of 600 for the S&P. I agree on the $50 a share for earnings, but I'm inclined to see a higher multiple simply because that level of earnings would (hopefully) mark a trough.

Posted by edelfenbein at 11:25 AM

Gasparino Interviews Cayne

The G-Man lands an interview with Jimmy Cayne. If there's a line on swear words, I'm taking the over:

I have to admit I’ve always liked Jimmy Cayne. I’ve always found him informed, charming, and really funny—he reminded me recently of the time he and I were in the Four Seasons restaurant at a party for the GOP convention and he spotted Al Franken and told him that Bill O'Reilly crushed him when the two debated face-to-face. "Remember me saying to Franken, 'Hey you laid down. He made you look like an asshole.'”

It's a good interview. I'm looking forward to Charlie's book, The Sellout.

Posted by edelfenbein at 2:12 PM

A Rise In Used Car Prices

John Hempton eyes one tiny spec of good news in the Fed's Beige Book:

...the used car business is holding up surprisingly well. This was mentioned in the Federal Reserve’s Beige Book – but also in the Manheim index of used car prices at auction. This index spiked up last month!

The biggest single determinant of losses in a subprime auto finance book is not loss rate – it is severity – the loss after the car is auctioned. I am not about to buy non distressed auto securitisations or anything – but if you want to play in the distressed stuff this is clearly good news.

Hopefully, this is good news for companies like Nicholas Financial (NICK). That stock got knocked around hard last week. On successive days, the shares ranged from $1.80 to $2.71.

Posted by edelfenbein at 10:42 PM

Satuday Night Live Takes a Look at the Banking Crisis

Posted by edelfenbein at 10:37 PM

43 Years Of No Real Gains

Adjusting for inflation, the Dow is basically where it was in 1966.

This doesn't include dividends.

From February 9, 1966 to yesterday’s close, the Dow gained 562.7%. The CPI from February 1966 to January 2009 (we'll get February's report on March 18) rose 559.8%.

That works out to a real gain of 43 basis points stretched out over 43 years.

Oh...and we're down today.

Posted by edelfenbein at 12:57 PM

Ouch!

This really says it all. The economy has lost about 2.5 million jobs over the last four months. The jobless rate is now 8.1% which is the highest in 25 years.

Posted by edelfenbein at 9:18 AM

New 12-1/2 Year Low

The S&P 500 reached 677.93 today which is the lowest intra-day level since September 13, 1996. For some perspective, that was the day that Tupac Shakur died.

Posted by edelfenbein at 4:04 PM

Who Will Replace Citi in the Dow?

I'm assuming Citigroup (C) won't be in the Dow much longer. Here are 19 possible replacements:

Abbott Laboratories (ABT)
Altria (MO)
Amgen (AMGN)
Apple (AAPL)
Bristol Myers Squibb (BMY)
Cisco Systems (CSCO)
Comcast (CMCSA)
CVS Caremark (CVS)
Genentech (DNA)
Gilead Sciences (GILD)
Goldman Sachs (GS)
Google (GOOG)
Monsanto (MON)
Oracle (ORCL)
PepsiCo (PEP)
Qualcomm (QCOM)
United Parcel Service (UPS)
Wells Fargo (WFC)
Wyeth (WYE)

If they decide to go with another financial, I would think that Goldman would be the favorite.

Posted by edelfenbein at 3:36 PM

Jon Stewart Vs. CNBC

Everybody seems to be posting this video today. I'm sorry but this clip just doesn't work for me. Jon Stewart is certainly funny, but I'm not a fan of taking soundbites out of context just to make your guests look foolish. Santelli is one of the best guys on CNBC and he's been one of the most consistent people in cutting through the noise.

Stewart, on the other hand, is the King of SWPL America. He takes quotes and events out of context, flips them around and presents them in such a way as to flatter his fans' very large sense of self-superiority. In other words, Frank Rich loves him. But honestly, that gag is getting old. It's also easy to do when you have a large crowd on your side. Let's see Stewart go to pits in Chicago and try to embarrass them.

I've seen lots of comments saying that Stewart destroyed or humiliated CNBC, or that this was the funniest, most brilliant thing they've ever seen. Hmm...that's not what I see. Stewart has become exactly what he accused Crossfire of when he had his hissy fit there a few years ago.

Posted by edelfenbein at 12:22 PM

Citigroup Is About to Break the Buck

The stock got down to as low as $1.02 today. Not too long ago, the company used to earn about that amount each quarter.

Posted by edelfenbein at 10:27 AM

Cowboys Cut Terrell Owens

The Dallas Cowboys have cut wide receiver Terrell Owens. I mention this because I believe I'm the first person to document TO-related events to the stock market:

December 7, 1973: Owens born in Alabama. Dow rises 3% to 838.05.

October 14, 2002: Sharpie Incident. Dow rises 27 points to 7,877.40.

November 15, 2004: Desperate Housewives Incident. Dow rises 11 to 10,550.24.

September 27, 2006: Owens denies suicide attempt. Dow rises 20 points to 34 points shy of an all-time high.

I'm guessing being cut is a bullish event but I'm honestly not sure.

Posted by edelfenbein at 7:57 AM

The True Measure of Inflation

Mark J. Perry, a professor at Michigan, has a fascinating chart I’ve added below. It shows the truest measure of inflation—how much time it takes to buy certain items. By this measurement, most consumer goods are dramatically cheaper than they were 60 years ago.

I would add that this as dramatic as this chart is, it probably understates the case of deflation because it doesn’t adjust for the dramatic rise in quality.

Posted by edelfenbein at 11:37 PM

Jimmy Cayne on Geithner

The former CEO of Bear Stearns opines on Tim Geithner:

The audacity of that p—k in front of the American people announcing he was deciding whether or not a firm of this stature and this whatever was good enough to get a loan,” he said. “Like he was the determining factor, and it’s like a flea on his back, floating down underneath the Golden Gate Bridge, getting a h–d-on, saying, ‘Raise the bridge.’ This guy thinks he’s got a big d–k. He’s got nothing, except maybe a boyfriend. I’m not a good enemy. I’m a very bad enemy. But certain things really—that bothered me plenty. It’s just that for some clerk to make a decision based on what, your own personal feeling about whether or not they’re a good credit? Who the f–k asked you? You’re not an elected officer. You’re a clerk. Believe me, you’re a clerk. I want to open up on this f—-r, that’s all I can tell you.

This vaguely reminds me something but I can't quite place it.

Willard: They told me that you had gone totally insane, and that your methods were unsound.
Kurtz: Are my methods unsound?
Willard: I don't see any method at all, sir.
Kurtz: I expected someone like you. What did you expect? Are you an assassin? Willard: I'm a soldier.
Kurtz: You're neither. You're an errand boy, sent by grocery clerks, to collect a bill.

Posted by edelfenbein at 11:16 PM

Dennis Kneale as Dexter?

The Reformed Broker gives us CNBC Separated at Birth?

BTW, Ron Insana is the best.

Posted by edelfenbein at 7:34 PM

Obama Says Buy!

Sorta:

"What you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it."

The president later failed to mention what business school he didn't attend.

Posted by edelfenbein at 7:47 PM

Investor Quiz: Guess What's Down for 11 of the Past 12 Sessions?

I'll give you a hint: It begins with S&P and ends with 500.

Give up?

The last time this happened was May 8 to 24, 1984.

The mega-bear market that ended in 1982 finished with 14 down days in 15 sessions.

Posted by edelfenbein at 7:00 PM

The P/E Sits Just Above November's Low

Despite yesterday's unpleasantness, the market's P/E Ratio remains a hair above the low from November. What this means is that stock prices have fallen a tiny bit less than earnings. Of course, there won't be much of any earnings soon.

Posted by edelfenbein at 2:58 PM

Ugh!

Today was a wipeout. The S&P 500 dropped below 700 for the first time since October 28, 1996, just days before the 1996 Presidential Election. To add some perspective, Barack Obama was just 35 years old at the time. Neither of his children was even born.

The Dow dropped to 6763.29. Obviously, traders were glued to this site since the Dow closed within inches of the Fibonacci number 6765.

Posted by edelfenbein at 6:11 PM

Since September the Dow Utilities are Up 118%!

By September, I meant the one in 1929.

Posted by edelfenbein at 2:40 PM

“They really did things that seemed outlandish”

In Vanity Fair, Vicky Ward delivers 5,000 words on Walter Noel and the Noel clan. Either Ward or Noel has been reading too much Fitzgerald:

Another person who spends time in Southampton recalls, “They really did things that seemed outlandish. The first summer they were here, I won’t forget seeing two of the daughters blocking traffic on Jobs Lane, leaning out of their convertibles, talking to each other and making what sounded like idle plans and blowing kisses, as if they owned the street—literally for five full minutes while a line of too-polite-to-honk Southampton matrons sat in silence.”

This person also complained, “They lit up their house like a Vegas casino, which shocked some of their neighbors on the pond [Lake Agawam],” who called police several times to complain about noise and music coming from the house at night. “It is not a quality that endeared them to their neighbors, including [investor] Ezra Zilkha, [NBC New York news anchor] Chuck Scarborough, [writer] Tom Wolfe, and [financier] George McFadden [who died last year], who all cherished their quiet summer weekends.”

Posted by edelfenbein at 2:19 PM

The Dow is Now Below 6900

The Dow has been as low as 6852 today. For what it's worth, 6765 is a Fibonacci number. I have no idea what this means, but if you mention it to someone at work today, it will guarantee to impress them.

Posted by edelfenbein at 11:35 AM

Revenge of the Glut

The other day I opened my credit card bill and I was surprised by how small it was. I didn't realize how much I had cut back on consumption. It wasn't a conscious effort, it just sorta of...happened.

In macroeconomic terms, what I did was a bad thing. By saving, I'm not spending money which would become someone else's income. Keynes called this as "the paradox of thrift."

Apparently, I'm not alone. The government reported that the national savings rate bumped up to 5% in January from 3.9% in December. A year ago, it was at 0.1%. Here's a graphical look.

In yesterday's column, Paul Krugman said,"we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off."

Posted by edelfenbein at 10:31 AM

Saving A Not So I, Not So G

The Dow dropped below 7,000 this morning. Let’s thanks AIG (AIG) for delivering a quarterly loss of $61.7 billion. That’s the largest loss in the history of the world. To add some perspective, that’s a loss of nearly $23 a share for a stock that’s bouncing around 50 cents a share.

In the quarter, A.I.G. took a $21 billion charge related to taxes and wrote down $25.9 billion in assets, including mortgage-back securities and credit-default swaps.

The company’s general insurance business lost $2.8 billion compared with a profit of $2.1 billion in the quarter a year ago. Premiums dropped 16.3 percent to $9.2 billion and earnings from premiums fell 5.9 percent to $10.98 billion.

The government is injecting more cash into the floundering insurance giant. This is the fourth time the Feds have come to the rescue. Uncle Sam currently owns 80% of AIG. The move was specifically designed so the credit agencies wouldn’t downgrade AIG, which would hurt the company even more.

Larry Ribstein writes: “The government is bailing out AIG because AIG undermined a system that the government was supposed to be, but wasn't, protecting. And now who's in charge? The government, of course.”

Posted by edelfenbein at 10:15 AM

NPR: Bad Bank

This American Life followed up their earlier specials on easy-to-understand lessons on the credit crisis with another installment. The first "act" explains what a bank does in very simple terms. The second looks at two guys trying to clean up the toxic asset themselves--they've hit the street to buy mortgages.

Posted by edelfenbein at 9:41 AM

Niall Ferguson Calls for a Great Restructuring

Niall Ferguson has interesting article in the Australian. He says that we need to ditch our new-found love of Keynes and work on reducing debt not expanding it. He calls for nationalizing banks that no have pulse (ala Sweden) and modifying mortgages. I agree on the banks. On mortgages, Ferguson isn’t worried about moral hazard since he doesn’t believe this bad behavior will be repeated. Hmm. I’m not so sure about that. Still, it’s an interesting take if nothing for the boldness of vision.

Posted by edelfenbein at 2:39 AM

This Just In...

Campbell Soup (CPB) has a higher market value than Citigroup (C).

Posted by edelfenbein at 12:31 AM

Was Google's Stock Manipulated?

I'm shocked, shocked to find that manipulation is going on in here!

Has Google Stock Price Been Manipulated?
Jerry Wenjiu Liu
California State University, East Bay

We present the evidence that the GOOGLE stock, one of the most important stocks in the 21st century, may have been illegally controlled by large Wall Street firms. We identify a group of smart traders, including financial firm proprietary traders and large traders who trade options with large orders. We find that they have advance information about the closing prices on post earning release and option expiration days. These smart traders sell options to the market which would become worthless after the key events, and their high success rate is difficult to be explained by normal trading behavior. Additional evidence from the tape, such as unusually high quoted depth and extremely low narrow quoted spreads during clustering option expiration days, provide direct proof that the GOOGLE stock price may have been manipulated to coordinate the institutional traders' option selling activities.

Your capital gains, sir.

Posted by edelfenbein at 12:17 AM

The Dangers of Calling a Bottom

With the market at new lows, let’s look at the question of when will things change. Trying to pick the bottom, however, is a dangerous undertaking and is, in my opinion, best left alone.

The market is strongly affected by valuations but it doesn’t turn on them. There are a few generalities that have held up well over the years. For example, the trend is like the tide, it’s much stronger than you think. A bull market can keep rising solely on its own momentum. Likewise, a bear market also keeps riding its own momentum. If you start thing, “it can’t go any higher/lower,” it probably will.

I recently wrote about the effect of Price/Earnings Ratios on the market. The effect is rather weak especially compared with short-term momentum. If one month is horrible, the odds are that next month will be horrible as well. It’s really that simple and the first two months of this year bear that out.

When the market finally does turn, it’s often in the midst of terrible news. The initial stage of a bull is generally disbelieved (I apologize for these qualifications). Prices start rises as earnings are often still falling when means that earnings multiples give out false sell signals. Everyone starts expecting the nascent rally to fall apart. Not only is a bell not rung at the bottom, it isn’t even rung several weeks afterward.

To take one example, let’s look at Microsoft (MSFT). On Friday, the stock closed at $16.15. That’s the lowest price in over 11 years. The company has a gigantic cash horde worth $2.59 a share and not a dime in long-term debt. Take the cash out of the share price, and the company’s nuts and bolts are going for $13.59 a share.

For fiscal 2008, the company made $1.87 a share (the fiscal year ends in June). Earnings for this year will probably be around 10% lower, give or take. So even by these admittedly simplistic calculations, the stock appears to be cheap. The problem is that you could have reached the exact same conclusion several months ago as well. The market will turn eventually but it will begin with a whimper not a bang.

Posted by edelfenbein at 11:34 PM