Santelli Calls for Tea Party
Posted by Eddy Elfenbein on February 19th, 2009 at 2:00 pm

Grab your pitchforks. We have a leader.

Speaketh thy Beard
Posted by Eddy Elfenbein on February 18th, 2009 at 1:51 pm

Ben at the National Press Club. Here’s an excerpt:

Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve will ultimately stoke inflation. The Fed’s lending activities have indeed resulted in a large increase in the reserves held by banks and thus in the narrowest definition of the money supply, the monetary base. However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed. Consequently, the rates of growth of broader monetary aggregates, such as M1 and M2, have been much lower than that of the monetary base. At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time.
However, at some point, when credit markets and the economy have begun to recover, the Federal Reserve will have to moderate growth in the money supply and begin to raise the federal funds rate. To reduce policy accommodation, the Fed will have to unwind some of its credit-easing programs and allow its balance sheet to shrink. To some extent, this unwinding will happen automatically, as improvements in credit markets should reduce the need to use Fed facilities. Indeed, where possible, we have tried to set lending rates and other terms at levels that are likely to be increasingly unattractive to borrowers as financial conditions normalize. In addition, some programs–those authorized under the Federal Reserve’s so-called 13(3) authority, which requires a finding that conditions in financial markets are “unusual and exigent”–will, by law, have to be phased out once credit market conditions substantially normalize. However, the principal factor determining the timing and pace of that process will be the Federal Reserve’s assessment of the condition of credit markets and the prospects for the economy.
A significant shrinking of the balance sheet can be accomplished relatively quickly, as a substantial portion of the assets that the Federal Reserve holds–including loans to financial institutions, temporary central bank liquidity swaps, and purchases of commercial paper–are short-term in nature and can simply be allowed to run off as the various programs and facilities are scaled back or shut down. As the size of the balance sheet and the quantity of excess reserves in the system decline, the Federal Reserve will be able to return to its traditional means of making monetary policy–namely, by setting a target for the federal funds rate.
Importantly, the management of the Federal Reserve’s balance sheet and the conduct of monetary policy in the future will be made easier by the recent congressional action to give the Fed the authority to pay interest on bank reserves. Because banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed, the interest rate the Fed pays on bank reserves should help to set a floor on the overnight interest rate. Moreover, other tools are available or can be developed to improve control of the federal funds rate during the exit stage. For example, the Treasury could resume its recent practice of issuing supplementary financing bills and placing the funds with the Federal Reserve; the issuance of these bills effectively drains reserves from the banking system, thereby improving monetary control. As we consider new programs or the expansion of old ones, the Federal Reserve will carefully weigh the implications for the exit strategy. And we will take all necessary actions to ensure that the unwinding of our programs is accomplished smoothly and in a timely way, consistent with meeting our obligation to foster maximum employment and price stability.

Analysts Were Way Off
Posted by Eddy Elfenbein on February 18th, 2009 at 12:29 pm

I prefer to use trailing Price/Earning Ratios, though it’s not the only metric I use, when looking at stocks. The problem with forecasts is how far wrong you can be. The guys at Bespoke have tracked how poorly analysts did this past earnings quarter. Just four-and-a-half months ago, Wall Street saw a rosy future.

It’s actually worse than that. If I understand the chart correctly, it shows the sum of the previous four quarter earnings. Wall Street analysts weren’t even close this earnings quarter.

Hedgies to Consolidate
Posted by Eddy Elfenbein on February 18th, 2009 at 12:25 pm

From Bloomberg:

Hedge funds are looking to consolidate after record investment losses and customer withdrawals cut assets by 37 percent in the second half of 2008, squeezing their main source of fees. As many as 40 percent of the 9,000 hedge funds and funds of funds may disappear in the next two years, according to Karamvir Gosal, a New York-based investment banker at Jefferies Putnam Lovell. While some will return money to investors and shut their doors, mergers and acquisitions will be more prevalent than in the past.
“The conditions at the moment lend themselves to a surge in M&A activity in the hedge-fund world,” said Udi Grofman, a partner at Schulte Roth & Zabel LLP, a New York-based law firm that advises hedge funds. “We’ve already seen some players looking to take advantage of the low valuations and get their foot in the door, particularly when it comes to managers specialized in areas that are likely to be active in the near future, like mortgages and distressed debt.”

Yesterday’s Close
Posted by Eddy Elfenbein on February 18th, 2009 at 12:23 pm

The Dow finished yesterday at 7,552.60 just 0.31 point above the November 20th close which was the lowest close since March 2003.

New York Times’ Share Price Less Than Sunday Newspaper Price
Posted by Eddy Elfenbein on February 17th, 2009 at 10:46 pm

Check out this very ugly chart:

Shares of NYT (NYT) dropped 29 cents today to close at $3.77. The Sunday paper goes for $4 at the newsstand.
Maybe they could save costs by printing the paper on their stock certificates.

Yes We Can!
Posted by Eddy Elfenbein on February 17th, 2009 at 4:29 pm

Obama Signs
Posted by Eddy Elfenbein on February 17th, 2009 at 3:38 pm

Congratulations bill, you’re a law.

President Obama on Tuesday signed the $787 billion American Recovery and Reinvestment Act into law.
But he’s far from being able to declare “mission accomplished.”
“Today does not mark the end of our economic troubles,” Obama said before signing the bill at the Denver Museum of Nature and Science. “But it does mark the beginning of the end — the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs; to provide relief for families worried they won’t be able to pay next month’s bills; and to set our economy on a firmer foundation.”

Fourth-Quarter Earnings
Posted by Eddy Elfenbein on February 17th, 2009 at 2:15 pm

According to the latest numbers I have from S&P, fourth-quarter S&P 500 earnings reports are 85% in. The number for operating earnings looks to be $5.77 which is down from $15.22 from the fourth quarter of 2007. The “as reported” earnings negative.
I doubt operating earnings will crack $50 for all of 2009. Here’s a look at the S&P 500 and operating earnings for the past few years.

The black line is the S&P 500 and it follows the left scale. The gold line is operating earnings and it follows the right scale. The two lines are scaled at a ratio of 16 to 1 so when the lines cross, the P/E Ratio is exactly 16.
What’s interesting is that the earnings multiple hasn’t changed much over the past few years. You can also see how much of 90s rally was due to multiple expansion.

SEC Charges Stanford Financial in $8B Fraud
Posted by Eddy Elfenbein on February 17th, 2009 at 1:44 pm

Finally:

The Securities and Exchange Commission today charged a prominent Texas businessman and three of his companies with an $8 billion fraud in the sale of certificates of deposit. The case appears to mark one of the largest alleged frauds by a money manager in U.S. history.
Robert Allen Stanford and his companies sold $8 billion of CDs — guaranteed fixed-income investment products — to investors by “promising improbable and unsubstantiated high interest rates,” the SEC said in a statement. The agency named in its complaint Stanford International Bank Ltd., based in Antigua, and related firms based in Houston.
The SEC said the firms falsely claimed that their deposits were safe, that more than 20 analysts monitor the investments, and that yearly audits were being conducted.
In addition, one of Stanford’s companies falsely told customers that it was not exposed to the $50 billion Ponzi scheme allegedly orchestrated by Bernard L. Madoff, the SEC said.