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Michael Shulman

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  • Where Is the Foreclosure Mess Leading? [View article]
    The foreclosure mess is one that a central government cannot solve based on current contract law. I have been arguing, since 2007, that the housing prices , the key to a housing rebound, will not bottom until late 2012, probably mid 2103 and if this foreclosure stalemate escalates, add a year or two. Foreclosed homes compete with new homes; new home building is 80% off of peak, inventory of unsold homes at double historical levels, and 40% of all new jobs created bet7ween 2002 and 2007 were in home building. You see where I am going -- I see a double dip coming anyway, this will prolong it.
    Oct 7, 2010. 01:42 PM | 18 Likes Like |Link to Comment
  • America's Banks: Are They Really Insolvent? [View article]
    Insolvency, in banking does not mean a bank shuts down in a meaningful way -- the customers can get their money, the loans are still serviced and so on. Insolvency means the banks have less tangible equity than liabilities -- and this is truly the case for several very large banks. Geither would not look like a deer caught in the headlights if this were not true -- and check out page 21 of the Citgroup town hall meeting presentation last November where they use acronyms to describe more than $1.2 trillion in off balance sheet assets. What insolvency means is shareholders in selected banks, over time, will be wiped out and so will some unsecured bond holders. Any solution you come up with, including bone head ones like suspending market rules, and there is so much dilution and so little of the current equity left shareholders get killed. And that is exactly the way it is supposed to play out. When I said this on Fox Business a week or two before Freddie and Fannie disappeared Ben Stein made fun of me, saying this was somewhere between improbably and impossible. So.....
    Feb 12, 2009. 08:47 AM | 16 Likes Like |Link to Comment
  • Growth and Value: RIM Stands Out in Smartphone Market [View article]
    Te application of value methodology to a company such as RIM is inappropriate given they do not pay a dividend in an environment where people appraising slow growth, mature companies such as RIM are also looking for yield. Using old language from the greatest tech guru of all time -- Andy Grove - we have reached an inflection point in the PDA/smartphone/handheld device market. RIM essentially produces smart PHONES and manages a text network; the world is rapidly shifting to hand held computers using an open network, the Internet. This is not just about products it is about culture. MSFT has been managing and responding to customers for a generation and has had not had a compelling new product developed internally during the same period of time. Going back to Grove, companies have to be willing to "eat their children" - and RIM has shown it is unwilling to do so. They will continue to produce more cash than most companies, and keep their brand very much alive, but the battles have been fought and won by Apple (high end closed system) and Android/Google (low end open system). There is no place left in the middle for RIM and the next decade will see them slowly decline in market presence as they continue to cater to their existing customers and have corporate culture built around phones, not computers.
    Jan 20, 2011. 08:35 AM | 12 Likes Like |Link to Comment
  • The First Stage of Inflation Has Already Hit, Next Up Is the Currency Collapse [View article]
    Data in this piece has been twisted and parsed to prove a philosophical point -- a very dangerous form of analysis for investors, fine for university professors. The analysis assumes the money the banks are sitting on will someday go into circulation, it will obtain some velocity -- it will not. Toxic assets are still on balance sheets to the tune of $500-$700 billion dollars. Option ARM resets and the next wave of foreclosures -- 5.5 million or more in the next three years -- will cost banks another one or two hundred billion. Commercial real estate defaults are being hidden by changes in accounting rules -- as the real value of toxic assets - and it is now known how much capital will be needed to take care of this balance sheet problem. And, today, Basel III rules were set, requiring, worldwide, another $762 billion in bank capital and at least $1.3 trillion in cash reserves worldwide by 2018. The bottom line: when you whip out the first three paragraphs of a textbook on monetary theory and parse data to create a headline, you do a great disservice to investors.
    Dec 17, 2010. 01:08 PM | 11 Likes Like |Link to Comment
  • How Apple Keeps Screwing It Up [View article]
    A great headline to attract readers -- that is why I clicked on -- and a piece that is not just dead wrong but points out the strengths of Apple going forward. You are writing with the perspective that Apple is a technology company and future success needs to conform to the model of the "open" personal computer marketplace. Apple uses tech; it is a consumer products company, the finest in the world with an ability to sell products at literally twice the cost of supposed competitors because of the ease of use. That ease of use can only be maintained and guaranteed by the very strictures you say is no good for future of the company. Apple is about margins, there's being almost three times higher than many other tech outfits, not market share; other "tech: companies need to worry about share to hold down costs. Several years ago I explained this to a hedge fund type when the stock was at $12. She could not buy in, she could not get past her background watching Dell and Cisco and so on. Your other work shows are smart enough not to make the same mistake.
    May 26, 2010. 08:46 AM | 11 Likes Like |Link to Comment
  • March New Home Sales: How Much Inventory Is Moving? [View article]
    This is a very weak analysis and misleading conclusion. New homes compete with foreclosed homes, many of them close to being new. The inventory number to measure new home sales against is the inventory of new homes plus homes in foreclosures and listed. That is the number to measure sales against. And new foreclosures. Slightly less than three million homes went into default in 2010, only one million were taken over by the banks, and the past year, most will be foreclosed ans there are five more million seriously delinquent loans out there. Translation: new home sales will stay at radically reduced levels through 2014 and home buildes have absolutely no earnings power worth mentioning.
    Apr 25, 2011. 02:11 PM | 9 Likes Like |Link to Comment
  • Jobless Claims Are No Surprise [View article]
    In my opinion the structural shift in employment is not because of too much statism but a misdirection of capital and the acceptance of China into the WTO. Capital poured into housing does not boost national productivity and therefore is not an engine of future growth unless that capital produces returns -- gains -- that are invested elsewhere. China should never have been admitted into the WTO as early as it was -- the developed world was unprepard and China had no intention or ability to be a fair trading partner. The job loss due to China has been ferocious, is permanent and these individuals were in the low and medium skilled strata of the industrial workforce. They became residential and commercial construction people. Then boom.
    Aug 19, 2010. 12:16 PM | 9 Likes Like |Link to Comment
  • Don't Call It a Double Dip [View article]
    I do not believe the Fed expanding its balance sheet is leading to inflation, I believe the Fed needs to expand its balance sheet more as the money supply, as measured by M3, is still shrinking.
    Aug 11, 2010. 09:39 PM | 9 Likes Like |Link to Comment
  • Bernanke's Dilemma: Hyperinflation and the U.S. Dollar [View article]
    The language and vocabulary put you out there -- very impressive -- but it is all drawing angels on the head of a pin. Inflation and its cousin, hyperinflation, only occur when the money supply outstrips (inflation) or far outstrips (hyper inflation) the ability of an economy;s productive capacity to produce goods and services at the rate the amount of money is growing. Goods include assets. It will take 5-7 years for the US to absorb the currently unemployed and underemployed; domestic and worldwide manufacturing capacity, outside of select commodities, is completely out of sync with demand and will be for at least a decade unless trade barriers are put in place. And asset prices continue to head south - we are experiencing deflation, not inflation. That is my real world comment. Here is the theoretical rejection of your arguments - although hyperinflation does make for a good headline - part of the money supply yet to be recognized in classical economic theory is credit. In the US alone roughly three trillion dollars has been removed form consumer credit lines -- and buying power -- their purse -- and more than twice that from the shadow banking system supporting other kinds of purchases. The world monetary base has contracted -- radically, by more than fifteen trillion dollars - in the past three years, explaining the current round of asset deflation. Forget you charts -- although they do look good - read Adam Smith and David Ricardo. If you are going to write about theory, you need to start over.
    Mar 10, 2010. 08:24 PM | 9 Likes Like |Link to Comment
  • If This Is a Recovery... [View article]
    A narrow answer to the question of retail sales is the confusion among investors -- and of course, blow dried media pundits -- about retail sales and consumer spending. Government statistics on consumer spending include spending health care -- typically exempt from state taxes. Health care spending, doing very simple math, 17% of the economy or 17 into 65, the percent of the economy that is consumer spending and you can see health care spending is at least 25% of consumer spending. And expenditures are rising monthly due to medical cost inflation. You can do the math and see why retail sales are much worse off than consumer spending. And retail sales drive many kinds of employment, drive rents on retail space and so on, shipping, manufacturing and so on. Bottom line: the fall of retail sales is much worse than consumer spending in general and, in my opinion, not recover to previous levels, holding down employment, especially at the lower end go the job market. Recent surveys by ChangeWave ( show consumer spending is flattening out. That being said, do not short the retailers, the Street continues to love them, if you want to short traditional retail, go long Amazon as I recently wrote in my service, ChangeWave Shorts (also
    Nov 15, 2009. 11:42 AM | 9 Likes Like |Link to Comment
  • Two Flawed Currencies [View article]
    This entire column is predicated on classical monetary theory -- theory built. and effective, in an era of fixed exchange rates and the gold standard. This world no longer exists. Using simple geometry, if the ECB, the Fed, the Bank of England and the Bank of Japan all began printing money simultaneously -- they are close to doing that right now - whose currency would take a hit? The geometry of the situation says no currency would take a hit but undervalued currencies of previously third world nations would appreciate. Why? Because they are commodity intensive and major exporters -- and their currency should appreciate because their economies are growing, and stabilizing, and improving, at a rapid rate. Criticism of today's monetary policy based on theories -- and geometry - that no longer works provides no value. We need a genius, a Milton Friedman II, to push ahead into a world where something of functional value, i.e. usable commodities and not precious metals - become the barometer of the value of a printed currency. Precious metals became standards because even in ancient times their purity could tested. That is possible today for any commodity except the opinion of pundits.
    Dec 8, 2010. 09:08 AM | 8 Likes Like |Link to Comment
  • It All Happens This Week [View article]
    Consensus estimates are for half a trillion, not $1-$2 trillion, according to the latest survey of the Street. This set of expectations more manageable should Bernanke disappoint. That is a trading issue. Longer term, QE is with us for the foreseeable future as we are in the midst of radical asset deflation, official unemployment and underemployment of 17.5%, real world unemployment about five points higher, and banks using temporary accounting standards that if switched back to 2007 standards are near or at insolvency. QE is all about the banks, wrapped in political or economic rhetoric - they need another trillion in capital, at least, to heal, it is not coming from Congress, the banks are not raising capital, it has to come from somewhere, so Bernanke is going to keep interest rates low and spreads high until the banks can go on their own and perhaps keep a real set of books.
    Nov 1, 2010. 10:55 AM | 8 Likes Like |Link to Comment
  • A Vector Finally Pointing in the Right Direction? [View article]
    The key is the data presented here. Credit quality is improving at the margin due to a declining number of consumers participating in credit markets. While this is good news for those involved in securitization of auto and other consumer debt, it is not good of the economy, consumer spending, retail sales, corporate profits and stock prices -- in that order. More than 25% of consumers have credit scores below 600, pushing them out of the credit market altogether, and more than $2 trillion in credit lines have been pulled with more to be done in the next 12 months. This contraction reduces spending power, reducing economic activity and so on.
    Jul 29, 2010. 07:21 AM | 8 Likes Like |Link to Comment
  • Home Depot or Lowe’s: Why Not Both? [View article]
    The bulls, as individuals and collectively, have temporarily lost their mind or have forgotten third grade math. Just do the math -- projected sales growth is less than inflation, consumer sentiment is falling like a rock, consumer credit is shrinking, consumer wealth from their homes is shrinking and, most important, national income continues to fall. It is not the unemployment rate that matters -- it is the number of people working times hourly average wages times average hours worked per week. This number is on a steady decline -- and it is this number that drives consumer spending.
    Feb 23, 2010. 03:47 PM | 8 Likes Like |Link to Comment
  • The U.S. Will 'Find' Another 825,000 Unemployed This Friday [View article]
    I agree -- 800,000 at least -- and when the final GDP revisions for Q4 come in about three years from now the GDP will probably be negative. I also believe - based on data - that more than one in five Americans who prefer working is out of work -- or has too little work. The official number is 17.5% and that is too low. The only value in this misinformation is the time it gives an investor or trader to prepare for the double dip -- you cannot have a recovery with this kind of real world unemployment.
    Feb 3, 2010. 05:02 PM | 8 Likes Like |Link to Comment