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Charles A. Smith
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Charlie Smith – Principal and Chief Investment Officer of Fort Pitt Capital Group. Charlie is a graduate of Penn State University and lives in Marshall Township, PA.
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  • Big April deficit no surprise to small business owners
    In their monthly budget report today, the U.S. Treasury noted that the April 2010 budget deficit was $82.7 billion, far greater than consensus estimates of $52.9 billion. The month of April also showed the largest deficit for April ever, as personal tax payments came in far below expectations. The weak April receipts speak directly to the problems with small businesses, as millions of "S" corporation filers took huge hits to their incomes in 2009, and therefore owed far less at the April 15 filing deadline.

    Page 6 of the release shows gross individual income tax receipts (other than those withheld) for the 2010 fiscal year-to-date amounted to just $187.4 million, down nearly 17% from fiscal 2009.

    May 12 2:12 PM | Link | Comment!
  • Deconstructing the Destruction: HAL Takes Over
    I wanted to take a minute to do a quick post-mortem on yesterday's mini-meltdown. Fundamental concerns about the financial fragility of the Eurozone drove the S&P 500 down approximately 3% by 2:30pm EDT.   At around 2:30pm, selling accelerated, and it was exacerbated by trading done off the NYSE on Electronic Communication Networks (ECNs). These are automated, high frequency trades, in which prices and sizes of bids are often increased or reduced as trades are executed, depending upon trend and momentum. In other words, computers trading with other computers took over, and algorithms built on momentum models gave a turbo boost to the selling. Between 2:30 and 2:45, the S&P fell another 6%, before rebounding back to down 3% by shortly after 3:00pm.

    When the story of this episode is written, I think we'll find there was no “fat finger” trade that set things off (nobody mistook an “M” for a “B” as some reports suggest), but instead the system was set up to create this sort of cascading selling by high frequency traders. In other words, nothing "broke" (as some have surmised), but instead the system functioned exactly as it was supposed to. This is where the regulatory focus should go.  It is particularly interesting that NYSE rules stipulate that before 2 p.m., a 10 percent drop in the Dow causes the Exchange to halt trading for one hour. Between 2 p.m. and 2:30 p.m., the pause shrinks to a half-hour, and after 2:30, there is no halt in trading. The big whoosh downward began just after 2:30pm EDT.

    Disclosure: No Positions
    May 07 12:29 PM | Link | Comment!
  • Why Government Fights Deflation Like a Rabid Dog

    Paul Krugman's piece in yesterday's New York Times got me thinking about why governments everywhere are so rabidly fighting the deflationary impulses around us. For consumers and businesses which have managed their balance sheets prudently, deflation is a positive force, a simple reflection of advances in technology and productivity which are the natural product of capitalist endeavor. Government fights it to the very last ounce of its being, however, because deflation attacks its core function (or at least what liberals believe is its core function) of maintaining nominal incomes.

    Krugman states:
    The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.

    Deflation can certainly be (even a fatal) problem for severely indebted businesses, but in general businesses just deal with it. They have no other choice. Private entities respond to deflation as a matter of survival, typically quickly, sometimes overdoing it (see the huge inventory swing). For government, on the other hand, deflation reveals the inefficiencies and cronyism of government spending. Government uses the powers of taxation and the printing press to drag its feet, kick the can, delay, delay, delay. Of course, these problems are made worse when some members of the private sector are able to foist their debts on the taxpayer, as we saw with the bailouts. But the core of the matter is that the incentives for each entity (government vs. business) are exactly opposite. The goal for business is profit, which allows continued existence, and, perhaps, growth. The goal in the case of government is maintaining nominal incomes.

    Disclosure: no positions
    Apr 30 11:05 AM | Link | 1 Comment
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