Weekend Reading
Posted by Eddy Elfenbein on March 29th, 2009 at 3:12 pm

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.

WaMu: Not Stodgy Old Banking
Posted by Eddy Elfenbein on March 29th, 2009 at 2:59 pm

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.

Laid Off Wall Streeters Turning to Stripping
Posted by Eddy Elfenbein on March 29th, 2009 at 2:53 pm

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).

Weekend Poll
Posted by Eddy Elfenbein on March 27th, 2009 at 6:33 pm

Freeman Dyson: A Civil Heretic
Posted by Eddy Elfenbein on March 27th, 2009 at 4:48 pm

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.”

Corporate Bonds Don’t Believe the Rally
Posted by Eddy Elfenbein on March 27th, 2009 at 1:34 pm

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.

Banks and Toasters
Posted by Eddy Elfenbein on March 27th, 2009 at 9:18 am

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.

Did New Homes Sales Improve?
Posted by Eddy Elfenbein on March 26th, 2009 at 9:02 am

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.

Q4 GDP -6.3%
Posted by Eddy Elfenbein on March 26th, 2009 at 8:55 am

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.”

I Guess Jon Stewart Was Right
Posted by Eddy Elfenbein on March 26th, 2009 at 7:51 am