• Crimson in the Red
    Posted by on December 5th, 2008 at 5:13 pm

    Ha-vahd goes to the bond mah-ket.

    Harvard College on Friday launched a $1.5 billion three-part taxable bond offer with Goldman Sachs, Morgan Stanley and JPMorgan acting as lead managers, according to IFR.
    The Triple-A-rated university is planning to sell $500 million in 5-year, 10-year and 30-year notes, with all maturities expected to price at a yield spread of 337.5 basis points over comparable Treasuries, said IFR, a Thomson Reuters service.
    The proceeds of the sale will be used to refinance taxable commercial paper and for other corporate purposes.
    The bond sale comes just two days after the world’s richest university announced that its endowment has lost 22 percent, or about $8 billion, in the last four months.
    That has placed it on track for its worst annual returns in 40 years.

    +337 for Harvard! I mean, Yale I could understand, but not Harvard…
    (H/T: Alea)

  • What Will the Fed Do?
    Posted by on December 5th, 2008 at 2:24 pm

    The Federal Reserve meets again on December 15-16. They actually increased that meeting from a one-day to a two-day affair.
    The target rate for Fed Funds is currently at 1%. Just recently, the futures market expected a 0.5% cut. But now it looks like a 0.75% cut. (Note: that’s corrected from an earlier version).
    By the way, have you noticed that the Fed is having a lot of trouble staying on target recently?
    research.stlouisfed.org120508.png

  • Job Losses Soar
    Posted by on December 5th, 2008 at 10:47 am

    Ugh…it’s not looking so good.

    U.S. employers axed payrolls by 533,000 jobs in November, the most in 34 years and far more than expected, government data on Friday showed, as the year-old recession hammered every corner of the U.S. economy.
    U.S. stock markets opened lower, oil prices and the dollar weakened and U.S. government bond prices rallied as the data showed the U.S. downturn was deepening.
    “You can’t get much uglier than this. The economy has just collapsed, and has gone into a free fall,” said Richard Yamarone, chief economist at Argus Research in New York.
    The Labor Department said the unemployment rate rose to 6.7 percent last month, the highest since 1993, from 6.5 percent in October. It would have been even higher except for an exodus of Americans who became discouraged in their search for work and left the labor force.

    image746.png
    According to the BLS, there are currently 10.3 million Americans out of work.

  • Michael Moore’s Curious Economics
    Posted by on December 4th, 2008 at 12:34 pm

    At the Huffington Post, Michael Moore writes:

    Of course, the auto magnates used be the Masters who ruled the world. They were the pulsating hub that all other industries — steel, oil, cement contractors — served. Fifty-five years ago, the president of GM sat on that same Capitol Hill and bluntly told Congress, what’s good for General Motors is good for the country. Because, you see, in their minds, GM WAS the country.

    This is the myth that refuses to die. Charles Wilson was the head of General Motors in the 1950s when President Eisenhower selected him to be the Secretary of Defense. During his confirmation hearings, Wilson was asked if he could make a decision against of the interest of General Motors. He said he could but he could think of such a situation “because for years I thought what was good for the country was good for General Motors and vice versa.”
    Ever since, this humble statement of dedication to public service has been twisted into sounding like some statement of Nietzschean corporatism. Moore even has to add “bluntly” to his description.
    So what’s Mike’s plan. Nationalize the car companies. I’m serious; he wants the government to buy all the outstanding stock, but he’s quick to add “None of us want government officials running a car company, but there are some very smart transportation geniuses who could be hired to do this.”
    I’m a little lost of the logic here. Does he think the problem is simply poor management? If so, why is it dragging down all of the companies at once? His complaint is that the companies’ restructuring plan involves cutting jobs. Although that seems perfectly obvious to me, Moore finds it idiotic.
    His plan is took nationalize the companies, turn them over to “very smart transportation geniuses,” force them to build environmentally friend cars and not lay anyone off.
    Though I do agree with one part of Moore’s take: “Let me just state the obvious: Every single dollar Congress gives these three companies will be flushed right down the toilet.”

  • Buy List Updates
    Posted by on December 4th, 2008 at 10:37 am

    Here’s some recent news on our stocks.
    Amphenol (APH) cuts fourth-quarter guidance.
    Stryker (SYK) increases dividend by 21%.
    Joseph A. Bank’s (JOSB) quarterly profits rise 31% and beat expectations.
    Bed Bath & Beyond (BBBY) lowers Q3 outlook.
    Medtronic (MDT) is sued over bone product. Here’s the company’s response.
    UnitedHealth (UNH) affirms guidance. Plus their new product: Insurance that covers your insurance!

  • A Healthy Democracy
    Posted by on December 3rd, 2008 at 11:45 pm

    This is stunning.
    Total Democratic Presidential Votes Since 1932: 745,407,082
    Total Republican Presidential Votes Since 1932: 745,297,123
    Total Third-Party Presidential Votes Since 1932: 66,061,486
    How’s that for parity? That’s a difference of 109,959 votes out of over 1.5 billion cast.
    Here’s a spreadsheet.
    Source: uselectionatlas.org

  • Questions about the Wal-Mart Death
    Posted by on December 3rd, 2008 at 4:12 pm

    Wal-Mart is now being sued by the family of the worker who was trampled to death on Long Island. I truly hate these kinds of lawsuits but I can’t say I’m surprised.
    I would like to raise an uncomfortable question. The City of New York went out of its way to block every attempt by Wal-Mart to open a store in the city which included one in Queens.
    According to the Census Bureau, the village of Valley Stream is 7.5% black, while the pictures show that the crowd was heavily black. Would a store located in the neighborhood of its customers have been better able to handle a crowd? Please note: I’m not talking about race but geography.
    I don’t know what the answer is, but I think it’s worth asking. I’m not convinced the anti-Wal-Mart activists helped anyone.

  • 100-Year Bonds
    Posted by on December 3rd, 2008 at 12:46 pm

    David Merkel has advocated the U.S. Treasury issue longer-dated bond, as far as 100 years. It makes sense. We can be pretty sure the government will still be around in 2108. The general idea is that the more in debt you are, the longer you want your term structure to be. Fifteen years ago, Disney issued 100 year bonds, and later Ford did. Of course, I don’t know if Ford will be around in 100 years. Perhaps as a minor division of Toyota.
    Now, Peter Fisher, who used to be Treasury undersecretary, has also come out in favor of a 100-year bond. Fisher was the same guy who ditched the 30-year bond a few years ago. Of course, Uncle Sam’s finances looked a lot better then. Fisher was also the guy who got calls from Bob Rubin to help out Enron when it was going under. Fisher told Rubin (correctly) that the economy would survive an Enron bankruptcy.
    I could go one step further and say we need perpetuities—bonds that never mature. The Brits call these consol bonds. Mathematically, there’s something I like about perpetuities. You can ditch the complex YTM formula and simply divide the coupon by the current price of the bond.

  • Big Three Seek $34 Billion Aid
    Posted by on December 3rd, 2008 at 10:44 am

    Detroit’s plan for survival includes a lot of our money:

    Detroit’s Big Three auto makers presented turnaround plans to Congress on Tuesday that indicate both General Motors Corp. and Chrysler LLC could collapse by the end of the month unless they get billions of dollars in emergency government loans.
    As part of a renewed bid for a bailout, GM said it needs an immediate injection of $4 billion to stay afloat until the end of the year, a fact it hadn’t before disclosed. In total, the company said it needs $18 billion in loans — $6 billion more than it said it would need just two weeks ago.
    Chrysler’s 14-page summary of its presentation to Congress requests $7 billion, and it said it needs the funds by Dec. 31. Chrysler also wants $6 billion from a Department of Energy program aimed at promoting fuel-efficient vehicles.
    Ford Motor Co. seeks a $9 billion line of credit from the government, though it adds it may not need to tap it. In addition, Ford wants $5 billion from the Energy Department program.
    All three makers said they will consolidate operations and accelerate production of higher-mileage vehicles. In addition, GM and Ford plan to trim their brands.

    I’m not political strategist, but I don’t see how a bailout could pass. The financial bailout was a special situation. But here, the car companies are just going broke.

  • Time to Ditch the Extra-Point?
    Posted by on December 2nd, 2008 at 10:23 pm

    Extra-points are getting out of hand this year. The PAT success rate is normally very high, but this year it’s reaching absurd levels. Through week 13, only 3 extra-point attempts failed out of 884 tries. That’s a success rate of 99.66%. Sheesh, that’s even higher than Ivory Soap.

    Sorry, but anything that consistent isn’t a game anymore. To put it in context, the number of missed PATs is down by about 90% from 20 years ago. Remember, football is a game. That means it’s supposed to be, you know, fun to watch. Well, 99.66% ain’t fun to watch. It’s a mockery of sports. The PAT has become a useless play that could only cause injuries.

    So should we just get rid of it? Nah, it’s been around forever, so let’s try modifying it.

    How about moving the extra-point line back? Well, let’s look at the data. In the 20 to 29-yard range, kickers have made 203 of 206 attempts this year for a 98.54% success rate. I’m assuming that’s a median attempt of 24.5 yards, meaning the line of scrimmage is about the 7 or 8. Remarkably, that lower success rate is still higher than the league’s extra-point success rate until 15 years ago.

    One idea would be to move the PAT line back to, say, the 10-yard line. Of course, that would make a two-point conversion much harder. The problem is that the 2-point conversion already can’t compete from the 2-yard line. The success rate runs at 44% which makes it inefficient compared to the 1-point try. The 2 is only used when it has to be. (Do the one- and two-point attempts have to take place at the same place? Hmmm. For simplicity’s sake, I’d say yes).

    Here’s a look at the percent of missed PATs going back to 1974 when the NFL moved the goalposts to the back of the endzone. I should note that there have been some rule changes. For example, running “leaps” by the defense were banned in 1984. Cool to watch but probably a bit dangerous.

    image745.png

    The rule change I’d support wouldn’t be to move the extra-point line back, but moving it in a little bit. Perhaps to the one-yard line, or maybe the four- or five-foot line. That would make the 2-point try more competitive while having no impact on the 1-point try. Just like in economics, it’s all about incentives.

    Update: Brian Burke has more. He says to narrow the goal posts.