Marc Michel

Holiday Boom or Economic Doom?

Excellent article! Case-Shiller have been predicing another large decline in home values. If correct, consumer sentiment will fall significantly and certainly threaten the recovery. The impact of the impending CRE default crisis is that many regional and community banks won't be able to lend thus crimping the recovery further. Unfortunately ZIRP is not having its intended impact of greater lending by virtue of better margins to banks as they are still in hunker down mode. One possible scenario for more of a V recovery in employment was the hasty slashing and burning across all the economy that might pop back once businesses are totally comfortable that we aren't going to double dip and they understand the new taxes and costs of Washington's new policies.

Video: Why Obamacare Will Be a Budget Buster

Who is this bozo? The video might have credibility if he wasn't your spokesperson.

Nucor Corporation: Fantastic Stock at an Attractive Price

Nucor owns the best house in a bad neighborhood. I agree with all of the accolades the author heaps upon Nucor. The only problem is they operate in an industry where management has no impact on pricing. And the Chinese are putting in huge steel capacity. That will eventually hit all steel producers including Nucor.

eBay's PayPal X Platform Could Drive an Increase in Transactions

The PayPal developers kit is over 300 pages long because the platform is absolutely sklerotic, built over a decade ago. ORCA's is 12 pages long. How many developers do you think are going to wade through 300 pages of rules?

Goldman Stockholders - What Chumps

So you'll be buying more at 185 I guess.


On Oct 26 12:43 PM Jasper M wrote:

> On Oct 26 12:40 PM Micusando wrote:

Open Platforms and End User Innovation

I couldn't agree more with this thought. I can think of very few break out products that haven't come from inside our borders. America's can do and creative attitude is more important that the number of PhD's we crank out.

China's Arithmetic When It Comes to the Dollar

The Chinese-American relationship is effectively akin to our nuclear policy of mutually assured destruction. They have to keep buying dollars in order for Americans to afford the products spewing out of their factories while we continue float ungodly amounts of debt to prop up our broken economy and assuring our slow growth for the next two decades punctuated by inflation once we do start growing.

The Toxic Assets Plan - Yes, It's a Subsidy

Essentially the government is financing call options for private investors and like call options if the asset appreciates in price, the call becomes enormously valuable, and if the asset declines in value the investor has the small call premium paid while the taxpayer will be stuck with the loss. I just love these "heads the investor wins, tails the taxpayer loses" games that Geithner keeps dreaming up.

Let's face it, the taxpayer is and will continue to step up and pump more equity into the banks until the bleeding stops and things turnaround. But at least in that case, the taxpayer gets the benefit of the eventual reflation of these dud assets. In Geithner's deal, he merely privatizes gains and socializes losses. Just horrible.

The U.S. Financial Accounting Standards Board ((FASB)) will discuss mark-to-market guidelines at a board meeting Monday. The FASB says it will focus on "additional application guidance that would clarify how mark to market is used in illiquid markets." Earlier today, FASB chairman Robert Herz told a House subcommittee that new rules could be implemented within three weeks.

What if that asset is paying you a regular stream of income? Would you really sell it for zero? Of course not.


On Mar 14 01:00 PM manya05 wrote:

> Let me get this straight (I am neither an accountant, nor a financial
> expert). I have an asset for which there is no market (e.g., I cannot
> unload it at any price). Isn't it logical that its value be zero?
> nobody wants my asset, shouldn't its value be zero on the books?
> I cannot do anything with it. Yes, maybe in a month, or three months,
> or next year, there will be a market for this asset...then, I put
> it back on my books and show a value for whatever the market says
> its worth is. But maybe that day will never come.
>
> In terms of the stock market, suspending MTM would be terrible, who
> would buy bank stocks? you have no idea what you are buying, you
> may be buying a worthless scrap of paper. The government is repeating
> step by step the mistakes of Japan, we will have zombie banks for
> the foreseeable future. Terrible.

S&P 500 Trends, 1980 - 2009

Because this recession has been caused by a deleveraging of both our banks and our consumers coupled with a global collapse of GDP, this recession will take much longer to fix. This is not like the recessions of 1973 or 1980 which were caused by the Fed reigning in inflation or the recession of 2001 which was caused by a collapse of corporate investment. Deleveraging the consumer is a much longer process. That said, this might be a good time to start buying equities, but since it could take a long time for the economy to really start growing again, my advice is to get paid to wait. That is buy stocks with healthy and secure dividends like JNJ or PEP. You may not participate fully in a bull market, but nor will you suffer as greatly if indeed the market tests the 500 - 600 levels.

Alternatives to Buy and Hold (Part II)

This system would have us selling virtually everything today as over 90% of all stocks are trading below their long term average. God help us if everyone adopted it.

The New TALF: How's This for Irony?

Using the inept rating agencies isn't the worst of TALF. TALF encourages the same kind of sub-prime mortgage risk taking backed up by the taxpayer that Fannie Mae and Freddie Mac did. Investors, nay speculators, put up a small portion of the capital and borrow the rest. To the degree the assets lose value, they effectively put them back to the government - that's you and me kimosabe, the taxpayer. Its the class, "heads I win, tails you lose" scenario. Exactly the same kind of scheme that the housing mess was built on with homeonwers putting up virtually no capital and borrowing the rest from Fannie Mae. In both situations, if the asset appreciated in value, the gains went to the speculator and if the assets lost value, the loss went to the taxpyer. History repeats itself. The crazy thing, is that this is being touted as something that will save us instead of compounding our problem.

Financial Collapse: A Lesson from the '20s

Terrific summary of the book. Thank you. The more apt Powel doctrine as it relates to debt and war is that both are at times necessary, but one must have an "exit strategy" to get out of each. The biggest problem we have now with the stimulus package and the debt it creates isn't that it isn't necessary, because I believe it is in difficult times that a nation should take on debt in order to finance additional demand that has been extracted from other corners of the economy; the problem is that we didn't accompany the package with another package that would repay the debt by both cutting longer term programs and more importantly hyperstimulating the economy via the private sector. What I mean by the latter, is that a residual of long and deep recessions like we are experiencing is a damanged psychology that prevents capital owners from providing risk capital to new businesses, the true driver of our economic strength. We needed to include in the package a reduction in the capital gains tax for investments in new businesses (not stock market gains) to compensate for the illiquidity and high failure rate of such investments. We also should have reduced the corporate tax rate to 20% so as to increase the after tax rate of return on capital and incent foreign investors to participate in our stock market.

Without a strategy to increase the rate of GDP growth once we do emerge from the recession, will ultimately place a much higher burden on the taxpayer and social safety net cuts to exit our national debt.

Stress Test: It's Time for Transparency

Nationalization of the big banks may ultimately occur, but it should not and need not be the first step. The first step should be for the banks to recapitlize themselves through an equity offering to the market so they can diminish the impact of dilution and keep the banks in private hands with the Treasury offering to backstop the offering so that if it fails, only then do we end up with a nationalized bank or partially nationalized. The problem right now, is that private capital and the management of the banks won't engage in this because they don't know what the rules are. They don't know if Uncle Sam is going to bail them out or not or if so exactly how so it is freezing private capital. There is $7 trillion sitting in US money market accounts, more than enough private capital to recapitlize the banks.

A Viewer's Guide to Geithner's Speech

Although I haven't yet see the details of Geitner's plan, I fear two things. First, a massive transfer of wealth between taxpayers to troubled bank stockholders and second, like the RTC, a massive transfer of wealth between the taxpayers and savvy financial investors who are able to exploit the cheap financing and taxpayer guarantee of the assets they buy. I would much prefer a much more straightforward approach as follows. First, Treasury goes in and audits the banks books and once and for all determines the amount of write down that still needs to occur in the balance sheets. This would quantify the amount of equity capital needed to recapitalize the banks. Then, we hold a rights offering to current bank stockholders to recapitalize their bank. I use the word "their bank" because they are the owners. To the extent the current owners refuse to provide the equity capital required in order to maintain their pro-rata ownership, the equity would be offered to the rest of the private sector including private equity firms and to the extent that still fails to attract the requisite equity capital, Treasury would backstop the remainder. To those who say that this might lead to the nationalization of some of our banks, I say, "so be it". If the banks are so worthless that they can't attract private capital, then they deserve to be nationalized at least for a period of time. This plan though would do what we need to do in a much more straightforward way to recapitalize our banks, encouraging private capital to come in and without risk of a massive transfer of wealth from the taxpayer.