H.J. Huneycutt

What Are Some Market Risks for 2010?

If the market crashes again, platinum and palladium will not be very safe places to be. The value of both metals is highly dependent upon auto manufacturers purchasing them. Even silver has turned more into an "industrial metal" if the last crash is any indication.

A rising US Dollar is one of those things that I think might be the big surprise of 2010. Very few are expecting it; yet no reason it couldn't happen; especially if deflationary pressures re-emerge.

Two-thirds of Americans want the government to spend more money on job creation and tax the rich to pay the bill, according to a new poll by Bloomberg. While the public sees both unemployment and the deficit as a threat, anxiety over unemployment is higher: 8/10 respondents call unemployment a high risk to the economy, while 7/10 say the same about the deficit.

In theory, taxing the rich to spend on job creation works.
In practice, not so much.

Higher income taxes simply mean that the rich move their money to other nations. We don't live in the 17th Century or even the early 20th Century any more. The world is highly mobile now and there are few barriers for wealthy individuals who want to pack it up and head for greener pastures.

A better solution would be to scale back our bloated military budget; use some of the difference for infrastructure projects (e.g. high-speed rail) and use the rest to pay down debt. That would help America more in the long-run.

According to a person familiar with Citigroup's (C) talks with the government, Citi is pushing for an equity raise of roughly $15B; it's not clear any deal is imminent; and the Treasury is said to be warmer to Citi's plans than is the FDIC. (Reuters)

I'd side with the FDIC here.

As a previous commenter hypothesized in an earlier feed, what would happen if Citi was allowed to do this, and then needed help again? Would the Feds bail them out again?

Hopefully not, but they'd pretty much have to do so for the sake of the FDIC. You want to talk about outright disaster --- I can't imagine any scenario where the public would be more infuriated than one where Citi was allowed to exit TARP, pay out bigger bonuses, and then get bailed out AGAIN!!!!

If anything, the Feds should not only forbide Citi from doing this, they should also slowly devise a way to start dismantling Citi before the opportunity is up. The taxpayers are going to be on the hook for that monstrosity so long as it exists in its current form. Its time to move it out of its "current form". (And re-enact Glass-Steagall, for that matter).

U.S. Steel: Overpriced and Overhyped

If you're buying into X, you're not really buying for the short-term outlook. Demand for steel will continue to be somewhat weak for a year or two, at least. Rather, you are buying for future earnings.

$17 per share is probably not happening again any time soon, but $5+ per share is not unreasonable 3-5 years down the road. The company could be worth upwards of $80 per share at that level.

Overall, I'm kind of neutral on X right now. I own it (bought it around $26 back when it was dropping like a rock) and don't have any problems holding it. But I don't expect a quick buck on it right now; but over the long haul, it should outperform.

Chinese steel demand is really only part of the equation. You say that's where the growth is coming from now ... well, that's because the Chinese government is pumping all kinds of money into the economy and the rest of the world hasn't been as aggressive. Eventually, economies will rebound a bit and the rest of the world will need steel again. X will inevitably benefit.

I can see a short-term case against it, but I think from a 3-10 year perspective, it's still a good bet.

George Soros says he's sure the Greek government will not be allowed to default on its debts, despite growing budgetary difficulties. There has to be pressure on Greece to put its house in order but I'm sure that Greece will not be allowed to default. The same applies to the U.K."

Soros is correct about the danger of sovereign defaults being remote for the present time.

This is not to say there is not a *problem*. Rather, the problems will become more evident in the upcoming decades; possibly after people have put the current crisis out of their mind. So, in essence, yes ... there is a problem with sovereign debt loads ... it's just not so bad that it will become an issue in the upcoming years.

But I'm willing to wager that in 2020 or 2030, it becomes a bigger issue as democratic governments continue to drag their feet and engage in their time honored tradition of increasing services while decreasing taxes. I hope I'm wrong.

Sources say Citigroup (C) plans to raise up to $20B in a share offering that could be announced as soon as today to pay back its TARP loans. Analyst Dick Bove says the move "doesn't do much for shareholders," and questions the logic of such a large dilution.

Dick Bove is right.

One of the things being ignored in this crisis is the case for corporate reform. It's too common to find companies that don't work in the shareholder interests and the whole system of shareholder voting doesn't necessarily work in a productive fashion (as most shareholders are passive and pay little attention to the daily goings on at these corporations).

The boards are often staffed with directors that are friendly to management and will scratch their backs, so long as they have their own backs scratched in return. This ends up being particularly true with these Goliath corporations where shareholders are more diverse and have lesser interest.

I don't have an easy solution to the problem, but I think the problem needs to be explored more. In truth, the American corporate structure is the reason why we have excessive executive compensation. It needs to be modified, because it benefits neither consumers, shareholders, nor most of society. It only benefits executives.

Former FDIC Chairman William Isaac says charges that the FDIC is in denial about the condition of the Deposit Insurance Fund are "bogus," and bets skeptics a fine dinner that current loss reserves are too high and will be reversed in the next five years.

What I don't understand is why the maximum insurable amount for individuals was increased to $250,000 given the state of the FDIC. It really makes no sense. It was done for political reasons. I wouldn't have had a problem with it if it had been implemented a decade ago and the banks had been paying premiums based on the $250K amount, but it's bogus to amend it right during the financial crisis.

All the same, Mr. Isaac may very well be correct. But also consider the background --- the FDIC has significantly raised fees over the past year and I believe the current proposal is that the banks have to pre-pay for three years in advance. So yeah ... after that, maybe the FDIC really isn't in as bad shape as it seems.

Also consider that one of the less noted reasons that the US gov't implemented TARP was that the failure of Citi, Bank of America, Wachovia, or any of the other Goliath banks would've probably bankrupted the FDIC. Once the government started directly injecting capital into those institutions, the FDIC had a chance to survive.

So, Mr. Isaac is probably correctly, but it is in some sense by a technicality. All the same, I actually do believe that Sheila Bair is doing a good job at the FDIC. It's not really her fault nor the FDIC's fault that the banks and politicians created this mess. They just have to deal with the aftermath.

China executes a former securities trader for embezzlement, the first person in the industry to be put to death. "Preserve your moral integrity and don't set too much store by business results," Yang Yanming said just before dying. He took the whereabouts of 65M yuan ($9.5M) of the misappropriated funds with him to the grave.

Why can't we do this? The only thing better than this would be caning crooks before a public audience. Shame as a form of punishment is underrated.

Time Warner Cable (TWC) CEO Glenn Britt floats the possibility of smaller, more focused cable packages, but stops short of endorsing a-la-carte, which he says "doesn't work." Consumers say they want more pricing options and smaller packages, which may force changes to cable's longstanding business model amid rising programming costs and challenges from online video.

Cable companies don't like a la carte because they won't be able to charge consumers for a bunch of crap they don't want. It's sort of the same as the newspaper model --- which the internet has undermined.

Yet, if consumers could do a la carte, it would mean that the networks would have to set more reasonable market prices since the price of the specific networks would be reflected in one's bill.

Could cable companies survive with a la carte models --- maybe not, but maybe they could survive by making smaller bundles and organizing them by companies. For instance, all the networks owned by Disney are in one selected bundle --- that way the power of the larger companies is undermined to a degree. It's not perfect, though, since Disney will use ESPN as a chip to make people pay for some of their other networks.

Btw, I'm not sure if this is accurate or not, but the Wikipedia article for the Walt Disney Company (DIS) suggests that the profitability of the Disney Media Networks division has skyrocketed over the past few years. Things that make you go hmmmm ....

Despite some easy yearly comps, rail traffic isn't showing improvement. Intermodal traffic is down 6.4% from poor numbers in 2008 - and down 32% from 2007.

Actually, the chart doesn't look that bad after the big bust in November and December of '08. Volume has been steadily increasing since then.

Using 2007 and 2008 as guide years is somewhat misleading because of the commodity boom that continued all the way into late Summer '08. Using those years as some sort of standard doesn't make sense.

Cramer's Stop Trading! What the Dell (11/20/09)

I don't think this is true. I bought a Dell desktop PC in June and, low and behold, the wireless card (that I had to pay extra for adding) was a piece of crap!

When I called Dell, I had to deal with a tech support guy from India. He was actually relatively friendly, but I could tell that Dell's policy was to force the user to jump through a gazillion hoops until they finally gave up and decided it wasn't worth their time to pursue the matter.

So I just bought a USB wireless card from a store for about $25 after the guy told me they couldn't replace the card until I physically took the computer apart and did some completely inane tasks. (They refused to admit the wireless card they installed was simply a piece of garbage)

Dell's tech support is a complete joke. You're better off not getting warranties and just taking your chances. They make them so cheap these days, that you could practically buy a new computer for the added warranty service.


On Nov 22 07:49 PM Old Trader wrote:

> Its my understanding that Dell has brought tech support back "home"
> precisely because of all of the complaints. Both of my puters ( old
> HP desktop, "old" IBM Thinkpad laptop) run on XP, and I'm hearing
> that 7 is leaps ahead of Vista.
>
> Like many, I'm past due to upgrade on hardware, but am holding off
> to make sure 7 is thoroughly de-bugged...otherwise, I'll look at
> Apple.

Why I'm (Cautiously) Optimistic About the Future

Great article. Thanks for the read.

In Newsweek's cover story this week, Harvard economist Niall Ferguson calls the U.S. "An Empire at Risk": "If the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it may, then the entire balance of global economic power could shift." Paul Krugman responds: "These [debt] numbers look huge, but our entire economy is huge."

There's two ways to look at this:

(1) Things really aren't nearly as bad as they might seem. America is one of the most open societies on the planet and we have the most creative, entrepreneurial, and ambitious people here. Even when our politicians try to distort numbers, we have free speech and the ability to challenge that information. And if there's any nation that can "innovate" itself out of this mess, it's the US.

While our debt burden is getting high, it's still manageable and we could eliminate a large portion of it by sizing down the military. Given that our military is about 5 times more expensive than our next closest competitor, we would still be able to do this fairly easily (at least on paper). Therefore, if we really wanted to do so, we could balance the budget. Moreover, we'd probably be much better off without giving our politicians massive tools of destruction to unleash on the rest of the world anyhow, which would actually make us a stronger nation.

(2) In spite of the fact that things are still relatively manageable, our political class is so out of control, that there might be little hope of ever balancing the budget, so that we end up with a spiraling out of control deficit that eventually sinks the American economy. We have one party that is "tax and spend" and another that is even worse: "spend and spend". Also, the debt-to-GDP numbers do not even take into account state and local debts, which are arguably worse in many cases than the Federal debt.

In spite of our massive deficit, virtually no media discussion has centered around the big 800-pound gorilla: massive military spending. Indeed, the "military-industrial complex", as President Eisenhower termed it, may be the only thing more powerful than the banking lobby. Given this, we may drag on for two or three more decades before we're finally forced to lower military spending.

We have other issues, too, including social security and Medicare.


I see it both ways. I'd like to think that maybe we start making an effort to control the budget in the next decade, but the cynic in me sees the American political system as increasingly out-of-control and unable to deal with the challenges facing it.

Forbes Best Small Companies for 2009: Part IV

Strange that the Graham Formula would turn up more aggressive valuations than a DCF in many cases. Why would that occur?

It's one thing to hear a blogger saying that credit cards are a wealth-transfer scheme from the poor to the rich; it's another to hear it from a former card-company CEO, Mike Konczal writes, previewing tonight's Frontline special on "The Card Game."

This obsession with taking down the CC companies is actually just opening up the market for less reputable lenders, unfortunately. I have no problem with credit cards. People who claim it's usury are exaggerating in the extreme. Credit cards have helped facilitate transactions and improve commerce immensely, all while creating lower risk for merchants.

They charge higher rates because the debt is not backed by an assets and the CC companies are S.O.L. in the event of a bankruptcy. Hence, they could not operate without charging the rates that they do. In fact, the thing many people don't understand is that the credit crisis was partly caused by lenders ignoring risks and charging *TOO LOW* interest rates on risky borrowers.

There are problematic lenders in the US, but it's not credit card companies. It's pay-day loan companies and companies like WRLD that seem to operate via tactics that are questionable from a legal and ethical perspective (some are, in essence, legal loan sharks). Moreover, some of these companies are charging effective interest rates upwards of 50%. But all the plans to "reign in" the CC companies I have heard would seem to have the negative consequence of increasing business to these shadier, more problematic lenders who actually are charging usurious rates.

So long as credit is available, however, there will be people that abuse it. You can't prevent that. Of course, the system does factor this into account --- which is why if you've abused it repeatedly, you're paying ridiculous high interest rates and if you're not abusing it, you're probably paying much lower rates. Maybe credit cards are a "wealth transfer scheme", but if they are, it's in the sense that it transfers money from irresponsible individuals who make poor decisions to those who don't.


I believe we're moving towards too much regulation of the credit cards. They're mostly fine as they are. The only restrictions I would consider would be:

(1) Requiring that minimum monthly payments be at least 8% - 10% of the balance. I'm always dumbfounded when I have a $1000 credit card bill and a minimum payment of $20. This would help deter credit problems before they started because if you're unable to pay 10% of your balance every month, your balance is too high.

(2) Requiring CC companies not to send out those ridiculous blank checks in the mail. While these offers always have highly unfavorable terms for consumers; my bigger qualm is that they create easy opportunities for fraud. Yet, all the card companies mail them out relentlessly.

Other than that, I'm pretty satisfied with the CC companies. They are actually better regulated than the banks. I'd much rather use credit cards (with protections) rather than debit cards (which leave consumers very vulnerable to fraud and various forms of abuse).