H.J. Huneycutt

Former Fed Chairman Alan Greenspan and Paul Volcker say they're opposed to auditing the Fed, noting the measure would destroy the central bank's independence (.pdf). Fed chief Ben Bernanke told Congress in June that Sen. Ron Paul's provision "would effectively be a takeover of policy by the Congress and would be highly destructive to the stability of the financial system, the dollar and our national economic situation."

Ron Paul's "Audit the Fed" proposal is a well-intentioned piece of legislation, but it might be a disaster waiting to happen, as well. In reality, it wouldn't make the Fed more "accountable", per se. It would simply make the process more politicized.

For that matter, if you ask me who do I trust more --- Congress or the Fed --- I say the Fed in a heartbeat. It's not that I believe the Fed is beyond reproach. It's that I have absolutely ZERO faith in Congress's ability to assess the merits of its actions. Flawed as it may be, we're better having an appointed, but autonomous Fed, rather than a politicized one that makes policies based on the whims of public polling at any given moment.

I also think that by "auditing the Fed", we actually might be setting it up to be *more influenced* by outside lobbying. Our Congress is bought and sold by special interests and they represent those interests (who pay their campaign bills) more than they do "the people" at this stage of American history. It's a sad reality, but all the same, it is our reality.

When you really get down to it, Congress is mostly influenced by three factors:

(1) Public polling

(2) Special interests

(3) The media

Do you really want those three items to determine the nation's macroeconomic policies? I don't.

I'd like the Fed to be more accountable, but this isn't the way to go about it.

Even Amazon Bears Are Bullish

I don't know that 25% revenue growth, in absence of competition, would be impossible for AMZN over the next decade. In fact, the comparison to TJ Maxx hammers home the point --- the Internet retail market still has a lot of growth left in it.

The bigger issue to me is that I question whether AMZN can maintain their stranglehold on Internet retail. AMZN is raking in the dough like no other company in the market place right now (with the possible exception of AAPL). Other companies tend to notice things like this and make decisions to get a piece of the pie.

There are two big players here that could give AMZN more competition: Target (TGT) and Wal-Mart (WMT). Both sell items over the Internet, but have never dedicated much resources or effort to those endeavors. What if Target or Wal-Mart decides to hire a team to develop an online retail website that is comparable to Amazon? AMZN will probably be able to survive given the moat they've already built, but it definitely might sap into that "25% growth in revenues".

At $128, AMZN is a tempting short, because it looks like there's a very high chance it's overvalued. All the same, it's tough to bet against a company as well run as AMZN. But I definitely would not buy in at this price and if I held AMZN stock, I'd be a seller at this point.

Why Magazine Covers Are Historically Great Contrarian Indicators

There's probably some truth in this. My theory is that the mainstream media is always the last to catch on to things in the business/financial world. Hence, once they start writing huge stories about some major event, it's already at its end stages.

Electronic Arts Will Lead the Gaming Industry When the Time Comes

To suggest that merely because EA is down from its highs, that all downside is "priced in" is a bit fallacious. If EA can't turn a profit soon and/or find a way to succeed in online social gaming (which they've suggested they want to move towards), then the company isn't worth a whole lot. Even $10 might be too high.

I'm not really convinced that 'being large' gives EA some sort of magical advantage here. We've seen a lot of large gaming companies come and go. Sierra used to be a dominant player in the PC gaming industry at one point, before being absorbed by Activision-Blizzard and fading out of existence. It's a common theme.

No matter the size, gaming companies are only as good as their developers and management. If the developers aren't that innovative or if management creates an environment that is not conducive to creating innovative games, then a gaming company is essentially worthless. Things move too quickly in the consumer electronics industry in order for companies to develop huge advantages merely by having a bunch of resources and throwing their weight around.

I don't see EA doing anything right now that particularly impresses me. So they downsized their library of games ... big deal. It won't do them one iota worth of good unless they can adapt to the times and develop new games that can turn a profit. And I'm just not sure that EA has the right culture to do it.

The Congressional Budget Office's word on the Senate's healthcare reform bill: $849B cost and a $127B reduction in the deficit over 10 years. Majority Leader Harry Reid will need 60 votes (including three or four Senators who are bristling) to prevent a filibuster of the legislation.

I tend to think the GOP's charge for "tort reform" is as bogus as the Democrat's drive for ... whatever this is. The problem with the plans for "tort reform" is that they inevitably all target the people who are actually harmed and deserve compensation rather than the people filing bogus lawsuits.

Instead of limiting damage awards and essentially making doctors unaccountable for their actions, they should instead allow a "frivolous lawsuit" counter-claim that would allow the defense to take home $1 million plus reward (in the form of damages) from the party filing suit in the event that the lawsuit was judged "frivolous" and "completely without merit" by a judge.

The real problem isn't the payouts. The problem is that crafty lawyers *know* they can sue based on questionable grounds and that the other party will normally chose to settle in spite of the fact that they know the lawsuit is bogus. Why would they settle a bogus lawsuit? Because it's cheaper than litigating it and there's no reward in Court for winning against a frivolous suit.

So make people accountable for their actions and allow a heavy penalty to be slapped on them for filing bogus suits. I'm not saying it would fix our out-of-control costs completely, but it would at least make sense and help bring some sanity to the court system. It should also limit the number of suits filed since lawyers might be more fearful to file bogus claims knowing that they could be liable for $1 million by doing so.


On Nov 18 10:34 PM David White wrote:

> An example of an easily explainable reason for a medical plan saving
> the US money would be that it is going to legislatively cut medical
> malpractice costs associated with the plan. If the plan made the
> standard for medical malpractice tougher, that would cut costs. If
> the plan made arbitration a mandatory first step for all malpractice,
> that would help. The standard for over turning an arbitration decision
> would be much higher than for an initial malpractice suit today.
> This would cut costs immensely. It would also cut lawyer's desire
> to sue considerably. There would be less money in a suit for them.
>
>
> I am not saying this is the only way to save money. However, it is
> a big part of costs in medicine. Reigning this cost in (and medical
> malpractice insurance expenses in the bargain) would make medicine
> more cheaply available to a larger group.
>
> Mandating the use of generic drugs when possible might be another
> possible money saving action. I am sure the major drug companies
> would be horrified with this suggestion. They might even call it
> illegal. Never the less, it would save money.

The continual rally on declining volume speaks to a "frightened" mood that is bullish for stocks, says Potomac Research's John Mendelson. He's among analysts that see low volume as pessimistic and a contrarian indicator.

I am going to take a wild guess that after previous major recessions and depressions, the stock market did not move upwards on heavy volume, either. Investors tend to dip their toes in the water for a long time before they finally jump in completely.

Cramer's Mad Money - You Can Buy Pretty Much Everything (11/16/09)

NAL doesn't look all that appealing to me. For one, insiders appear to be selling it, rather than buying in. This is not necessarily a signal that it's overvalued, but it might at least be an indication that insiders don't believe the company is significantly undervalued.

My next issue is that I simply don't see the bank as having that much earnings potential. Right now, they are earning about 45 - 50 cents per share on a yearly basis. There seems to be little that could be distorting that figure downwards.

Could an acquisition boost earnings? Sure, but by how much? And would it be worth it?

Tangible common equity appears to be worth more like $8 - $9 per share; if you write down their loans a bit more for safety, you could maybe say that adjusted TCE is about $7 per share.

So, TCE of $7 per share and earnings of 50 cents per share ... what does that make it worth? 12? 15? Guess it depends on market sentiment. But even if they boosted earnings to 75 cents per share or $1 per share ... where does that put it? $20?

The other thing I don't like is that their net interest margins are only 2.8%. Seems a bit low.

All in all, this bank has played things conservatively and could be a reasonable buy, but I'm seeing a lot juicier buys in the sector, even amongst some of the safer banks. But at this stage, you could put every small-cap bank with a sizable equity cushion on a dartboard, blind fold yourself, and toss the dart to pick your buy and you'd still probably make a reasonable return.

Why GMAC Shouldn't Have a Government Ally

KC Shuffle,

While I can understand your argument, I think it ignores the bigger picture here. This is the third time GMAC has gone to the well (i.e. the government). They are essentially offering unrealistically high rates at the expense of the taxpayers. This is a subsidy that is being abused more or less.

I'm all for higher rates if that's what the market produces, but this is a case where a financial services company is offering rates that they cannot profit off of on the basis that they can suck on the government teet to make up the difference. Sure, if you're a consumer and you're essentially getting free government money, you like this, but it's not good for the system and the end result is that we are all paying higher taxes in the future to pay for this.


On Nov 17 01:40 PM Kansas City Shuffle wrote:

> Why is this a bad thing? As a saver I get higher rates, which act
> as some form of retribution for all the TARP money invested in banks.
> Not to mention, this forces other banks to stop paying out absurdly
> low deposit rates. If a bank has to raise money, better to do it
> via deposits than more and more TARP money we will never see back.
> Furthermore, the argument that GMAC/Ally has some form of government
> backing that no other bank has is wrong. Citi is owned by the government
> and all banks are existing under a de facto guarantee by the government.
> For banks to whine that they are being forced to pay more to the
> American saver at a time of record profits is an embarrassingly bad
> pr stunt.

The $44B deal for Burlington Northern (BNI) was no bargain, Warren Buffett tells Charlie Rose, but the railroad's results in the next 100 years will justify it. "It’s a good asset for Berkshire (BRK.A) to own over the next century ... You don’t get bargains on things like that. It’s not cheap."

Cincinnatus,

The Highway Trust Fund is dramatically underfunded. Since legislators have refused to take the politically unpopular step of raising gasoline taxes over the past two decades, instead, they've begun using general taxes to subsidize the system. We are now at a point where only 70% of the system is funded from gasoline taxes (90% on the Federal level, but only 60% on the state level).

It's a extremely mistaken viewpoint that public transit "steals" money from the highways. In actuality, public transit struggles becoming viable precisely because policymakers' misguided obsession with the highway system.

The thing about highways is that they have no real self-funding mechanism other than (static) gasoline taxes. Whereas, public transit agencies are required to charge usage fees that help pay for maintenance and development.

On top of this, states have (particularly in the past) had a tendency to tax the living h@!$ out of the railways. So you had a situation where the trucking industry was being massively subsidized, while rail was being forced to pay overwhelming taxes in order to compete. It was the ultimate distortion. Taxes on railroads have moderated some since then, but there are still heavy distortions created by Federal and state subsidies for the highway system (from general taxes).

Our entire transportation system is greatly affected by these cost distortions because, for years, rail


On Nov 13 07:34 PM Cincinnatus wrote:

> Could you explain how the federal road system (or state highways)
> are heavily subsidized? I see this often claimed but never defended.
> In fact just the opposite is true - our roads are one of the few
> areas where user fees/user pays is actually applied. The federal
> highway trust fund has been raided constantly for mass transit and
> deficit reduction. I understand it's nearly depleted now, but would
> not be if it had not been raided for the last 20 years for other
> purposes. Likewise my state (Oregon) raids the state highway fund
> (fuel taxes) constantly for light rail, bus lanes, bike lanes, etc..
> The problem is in fact just the opposite, decreasing fuel-use per
> capita is starving the very projects (like rail) that rely on subsidies
> by fuel taxes that should have always gone to roads.

The $44B deal for Burlington Northern (BNI) was no bargain, Warren Buffett tells Charlie Rose, but the railroad's results in the next 100 years will justify it. "It’s a good asset for Berkshire (BRK.A) to own over the next century ... You don’t get bargains on things like that. It’s not cheap."

This sort of disproves the coal theory being thrown around. This is a bet that the trucking industry dies --- pure and simple. And Buffett is right --- they will.

Why, you ask?

(1) Rising oil prices resulting from increasing scarcity and higher costs of extraction

(2) The American states and Federal government heavily subsidize the American road system --- neither is going to be able to do so and stay solvent in the future like they have in the past; there will be more tolls and charges for usage

(3) Highway congestion is already costing trucking companies opportunity costs and it's a catch-22; either the road system stays nightmarish or it gets more expensive. The highway building machine that America has become will be all but dead within two decades

(4) Political pressure for more environmentally friendly alternatives to oil will increase over time --- rail is the cleanest transportation we have right now

All in all, I wouldn't be betting on the trucking industry either. Rail was the past and rail is the future.

A look over at least a small part of China's 8% growth: a modern city, made of glass walls and clean streets, built by the government and entirely devoid of people.

China's economic growth right now is largely a mirage, but I still wouldn't "short China" like some are advocating. Mind you ... George Soros was writing about the ills in the American banking system as early as the mid-1980s and it took about two decades for that one to fall apart.

Green Bankshares: Value in the Tennessee Valley

Panda,

You're trying to do a macroeconomic analysis on the economy. Macroeconomic analysis does not aid you in valuing particular companies. You are saying 'don't buy small banks' with absolutely zero awareness of the price and market reality of these particular companies. You simply assume that they should sell 'cheaper' because of a macroeconomic analysis that ignores the little picture. It's like saying that a barrel of oil should sell for $1 because there is oversupply and the economic outlook is bad --- market prices aren't that simple.


On Nov 12 03:26 PM a fat panda wrote:

> HJ,
>
> I am not looking at them. I am saying that fear isn't dominating
> anymore.
>
> Anyway you slice it, we have a massive over-capacity in lending.
> Over-capacity is going to be bled out through tough competition.
> How are your small banks going to compete for capital with the mega
> banks who are backed by the government. What most people aren't
> seeing is that these mega banks are now able to raise substantial
> capital in the private markets as well as getting gifts from the
> government.
>
> To win, you have to be wellpositioned in whatever the government
> is subsidizing next. When it is cash for clunkers, you need an auto
> arm. When it is tax credits for housing, you need mortgage lending.
> How are you going to predict what the government will pick next.
>

Green Bankshares: Value in the Tennessee Valley

If you're looking at the Goliath banks, you're looking in the wrong place. As I said in my first article, I'd keep away from them. It's the small-cap/mirco-cap banks that are worthwhile right now.

On Nov 12 02:08 PM a fat panda wrote:

> "My basic hypothesis is that there are some huge opportunities in
> that sphere right now, as investor fear is at all-time highs. "<br/>
>
> I am not sure how you say that fear is at all time highs. The Russell
> 2000 is outperforming the S&amp;P. I am watching what is happening
> to the publically traded debt of Citi, MS, and BOA debt. These aren't
> a sign of fear, but a willingness to take on risk because interest
> rates have been forced into the ground.

Cramer's Stop Trading! Toll Brothers' Sign of Stabilization (11/11/09)

I'm not sure how Ormat (ORA) has "always been at the top of the field" in solar, when they only jumped into solar about one month ago. For that matter, they are not even comparable to First Solar (FSLR), which is a solar panel manufacturer. ORA is a geothermal energy operator that appears to be looking for opportunities to operate solar energy systems.

All the same, it's a very well run company that will grow significantly over the next decade, so I have no gripe with Cramer's pick. Just curious about the logic here.

The Global Oil Scam: 50 Times Bigger than Madoff

Yet another reason why the US needs to end its dependence on foreign oil. We need to move towards domestically produced natural gas, geothermal energy, alternative energies, and even nuclear power. We need to build up our rail infrastructure, for both passenger and freight service. In essence, almost anything is better than oil if we want to maintain our position in the world.