AIG Outrage
Posted by Eddy Elfenbein on March 20th, 2009 at 9:59 am

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.

NCAA Tournament First Two Rounds
Posted by Eddy Elfenbein on March 18th, 2009 at 11:26 pm

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.

Citigroup Back Over $3
Posted by Eddy Elfenbein on March 18th, 2009 at 11:11 pm

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?

1,000-Point Rally
Posted by Eddy Elfenbein on March 18th, 2009 at 8:53 pm

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

Guess Who’s on Twitter?
Posted by Eddy Elfenbein on March 18th, 2009 at 1:59 pm

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

(Via: Barry.)

FOMC Announcement
Posted by Eddy Elfenbein on March 18th, 2009 at 1:58 pm

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.

The Prime of Mr. Nouriel Roubini
Posted by Eddy Elfenbein on March 18th, 2009 at 11:48 am

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.

FactSet Research Systems Reports 20% EPS Growth
Posted by Eddy Elfenbein on March 18th, 2009 at 10:06 am

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.

The Onion: U.S. Economy Gunned Down In Gas Station Robbery
Posted by Eddy Elfenbein on March 17th, 2009 at 11:48 pm

Why Do People Make Market Forecasts?
Posted by Eddy Elfenbein on March 17th, 2009 at 11:58 am

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.