TonyCinTX

Has the Market Decoupled from Economic Reality?

The answer is simple; the government has proven by its actions that they have decided the Fortune 100 companies must not fail. The decoupling mentioned by User 353732 above is decoupling risk from performance. As has been said before, the Fortune 100 has pretty successfully privatized profit while making all risks a public responsibility, with losses now borne by taxpayers in the form of government bailouts, stimulus, zero-interest loans, and on and on.

The value of the DOW and S&P 500 companies has risen because risk has been abated, and in some cases eliminated. Smart, big-money investors discount prices for business risk, but when risk vanishes the discount is zero and the price rises.

This is why stock prices jump (in either direction) after a contract is signed or declined, or the FDA approves a drug or decides against it, or a lawsuit is settled in favor of or against a litigant: Until the final signature, bets exist on both sides, after it, all bets are settled up.

Well, my fellow citizens, we have collectively spent about a trillion dollars this year defining a whole brand new class of corporation in this country:

Too Big To Fail.

Insiders Confirm: Rally Is Fake, Economy Is 'Getting Worse'

I have received stock options in three companies that I worked for. Seriously, folks, sell 'em when you get 'em, I did not in the first and that was a mistake, I did in the 2nd and 3rd and although I could have made about 50% more by holding a year or so, I made twice as much as the people that held two years or more. Trying to guess the peak is a loser's game, my recommendation (which I followed myself) was to get OUT of the company I was working for and buy dividend producing companies that are already about as big as they can get.

Yes it is wonderful if you can ride a rocket to the top, but the sad fact is that most companies are too greedy and try to grow too fast and are managed incompetently; and that means the odds are very good they will falter and fall long before they dominate a market. As DVK says before me; finalize your compensation and diversify. If your company really does grow, your options that mature next quarter or whatever will be worth more. Why bet everything on one unproven long shot that is likely to fail?

CEO Pay and the Reverse Robin Hood

@Jack789:

Ah, well, I once believed Obama's rhetoric, enough to vote for him, but I am disillusioned now. You have no need to worry, Obama is just as much in the pocket of big business as any other politician. I have no doubt he will protect the existing system of ripping off the common man to benefit the wealthiest corporations; for the latter it will still be ice cream and cake, perhaps different flavors but just as delicious.

Obama's rhetoric is for the common folk like me, but as he has proven at least a dozen times already by signing statements, orders, and secret deals, his words are just words. Whatever "fundamental change" he claims to accomplish is going to be superficial and cosmetic, I feel certain.

And let me preempt any that disagree: I speak as a hard left liberal that donated $500 to the liar. Obama will protect the WORST of the capitalist system. I thought differently during his campaign, but the day he voted for telecom immunity after promising to *filibuster* over it, we knew for certain who was buttering his bread.

On Sep 05 09:00 AM jack789 wrote:

CEO Pay and the Reverse Robin Hood

@GALT:

You miss a crucial difference between actors, actresses, news anchors, sports stars, music stars and other celebrities and CEOs.

Not one of these celebrities, including the ones you mention, has any responsibility to others when allocating their own pay. Katie Couric is not responsible to the shareholders of CBS for using their money wisely; she is an independent contractor. She demands a salary and perks, and the fiscal geniuses at CBS decide whether her services are worth it to them.

Julia Roberts doesn't own a movie studio. Somebody else owns the studio, approaches her (through an agent), pitches their picture and her share. She is an independent businesswoman with her own staff, lawyers, and negotiators. Somebody else decides whether she commands enough audience to be worth $20M, and that person has the fiduciary obligation to spend the money of their shareholders or investors wisely.

In all of your counter-examples, not one of those celebrities has any fiduciary obligation to the shareholders of the company paying them. In all of those cases, somebody else is trying to get the most bang for the buck out of their money, or the money of their investors or shareholders. Call that "maximizing value."

In the case of the public companies, The BOD and C-Level officers ARE specifically responsible for maximizing value, and setting their own salaries is a direct conflict of interest.

@Wisdom vs... saying "don't buy their stock" is like saying if you don't want to get mugged, stay in the house. I have a fundamental right not to be robbed, defrauded, misled or lied to by companies in which I invest, and I believe I have the right to not get mugged by CEOs or boards that are supposed to be representing my interests, even if that mugging is only 1% of my profits.



> On Sep 04 03:04 PM John Galt wrote:

CEO Pay and the Reverse Robin Hood

It is pretty simple, really. Once you get to these levels of compensation, the best interest of the Cxx and BOD is to maximize their own short-term compensation even if it screws the stockholders, investors, lenders, workers, and society. They can get their money and walk away from a total train wreck. We rely upon their honor and integrity and the potential for shame, but at our peril, because some of them HAVE NONE.

We may know who they are, but nobody gives a crap, because the big traders only own the stock for a few months before selling; they are all short termers too. Corporate governance be damned, that is always the next buyer's problem. I admit I am always surprised to receive a proxy statement to vote on the corporate executives; I usually don't know them and don't care, I just happened to be holding the stock on the day of record.

The problem is one of scale, that is all, and the way to fix it is to limit the SCALE of public companies. I am not sure what the best measure of that is, but perhaps we limit them to 1000 employees, or $1B in revenue, or both. If they grow larger than that, we require them to split in two with equal assets and equal rights to any intellectual property and to be completely independent. The shareholders get a share of each stock in return for their original share, but no officer of one can vote any shares in the other for at least three years. Let them compete with each other.

Then the companies always have competition, they must compete for the workers who now have a choice, the shareholders have more than one company to choose to invest in, and consumers can choose between their products and be rewarded by price competition.

If a company doesn't want to split equally, let them spin off independent public firms before they get to that point, but require true independence of the spin offs with no possibility of manipulation by the parent: All they get is non-voting stock.

And for any private company, no such limits, except for anti-trust laws already in place.

Keep companies small, and this runaway compensation will come to a halt.

Has the Rally Already Exhausted Itself?

People don't need companies to work for. They can work for the military, work for the federal government, work for the state government or highway department, and work for the county government. All those pay money. I work for a state college and I am proud of my work (and I pay my taxes), it isn't a "company."

'Green Shoots' Are a Mirage: Economy Will Deteriorate Further

Of course you can't get something for nothing; I don't think anybody expects that. Nobody expects Walmart to start handing out free TVs. The question is always whether what you bought was worth the money, and this is true whether it is a country doing the buying or a six year old.

Personally I'd rather have let the bastards go bankrupt and let the chips fall where they may. On the other hand, if the economy really needed a stimulus, I'd rather we spent three trillion flat out on infrastructure and energy independence research. THAT would have been worth the money; I fear Mr. Kim's predictions will come true because we have failed to let the free market work and let the rich bastards blackmail us and hold us hostage for a trillion dollars in bail outs, when they should have gone bankrupt. Even if that DOUBLED my taxes I'd rather have dealt with the fallout of that problem. Instead we just perpetuate the rip-off for another decade.

Creating Debt to Reduce Debt Doesn't Work

Okay, rail can't save a trillion dollars a year; I was exaggerating. But it gets 10 times the fuel efficiency of an eighteen wheeler, the primary alternative, so it can save a few hundred billion.

Creating Debt to Reduce Debt Doesn't Work

Tony Daltorio:

There is a difference you fail to appreciate between borrowing money to spend it on personal gratification and borrowing money to invest it in your future.

I borrowed nearly $100K to get my Bachelors and then two graduate degrees; every year I borrowed three times my take home pay at the time. It worked, I became a consultant and paid it all back and was left with a well paid career. When I was 20 I borrowed $4000 to buy a used car, but without it I wouldn't have been able to work during college, and probably wouldn't have been able to stay in college. That piece of junk was critical to my prosperity.

A neighbor on my street started a business twenty years ago by borrowing: He borrowed $30K and bought a used mini-bulldozer / trencher with a trailer to carry it, and maintained and ran it himself as a sub-contractor. Now he owns about 20 different machines and employs a half dozen people and is pretty well off. He borrowed his way to prosperity.

It all depends on how you spend it. Governments are not like people, they are not in business to make a profit for themselves. Government investment is to make it easier for citizens to make a profit. That means investment in things the vast majority of us need, like roads, infrastructure, and cheap energy. And health care: The cost of health care and insurance is crippling businesses and individuals.

Now, government has been spending like a sailor under two administrations, and is now in a position where it cannot operate without a deficit budget. It is committed by law to spend more than it brings in, on the military, social security and Medicare and other entitlements. The fiscal conservative stance is to directly cut spending, but that is a FANTASY. Bitch all they want, only Congress can change those laws and there will NEVER be the political will to do that, EVER. They might as well be demanding geese that lay golden eggs.

The way out is to increase government income, and the best way to do that is to increase prosperity, and the best way to do that is to invest in the things that make more people profitable so the existing tax rates will generate more income.

Cutting taxes doesn't do it; we will just have to borrow to spend on the entitlements. We are living beyond our means, AND we are legally obligated to do so!

But we are allowed to borrow, at pretty low interest rates, and thus the way out is to borrow money for INVESTMENT in areas that will make the USA profitable. How do we do that? By funding research in clean and plentiful energy, for one. By cutting the cost of healthcare by destroying the profit system in healthcare that lets for-profit hospitals and insurance company hold people's lives hostage until they cough up everything they own; that will reduce costs for all of us. By investing in infrastructure (power lines, roads, bridges, passenger rails) and power so we stop shipping $700B a year out of the country, mostly to petro-dictatorships.

But of course we must borrow this investment money in order to save the country, because there is no way in THIS lifetime we will ever cut the military in half, or cut SS in half, or cut Medicare or the prescription benefit in half. EVER.

As proof, let me present the Bush administration. The Republican party is home to fiscal conservatives and libertarians. For years after 9/11 they could do anything they wanted, and they ran roughshod over the Dems. What did they do? Even with the trillion dollar expense of the WoT completely off the books, even not counting that at all, they spent like sailors.

Well if they can't do it, nobody can. Face it. Congressmen get elected by spending money and that will never change. There are babies in my extended family, and I don't expect this to change in THEIR lifetimes. So if government is going to spend either way, what do you want them to spend it on? Moon shots or new and modern railroads that can save a trillion dollars a year in fuel costs? New clean power stations, nuclear and geothermal and solar, or wars of choice in the Middle East? Research on electric cars or bailouts for vampire banks?

If your answer is you just want them to stop borrowing and stop spending, you are just pouting in the corner, like the author of this column, because that is not an option and I doubt it will ever be. It is like demanding the sun not rise and the tide stay out. There will be borrowing, there will be spending, that cannot be prevented, and the only choice is what shall we spend the borrowed money on? THAT is something we can influence.

Creating Debt to Reduce Debt Doesn't Work

This columnist and these comments are idiotic.

Before the real estate bubble we had fifty years of people borrowing their way to prosperity in the form of mortgages on houses, loans for cars, and loans for businesses. Without that borrowing they would have been paying rent that increased with inflation, bicycling to work and wage slaves to some taskmaster instead of wealthy business owners. The SBA has been helping people successfully borrow their way to prosperity for decades.

The idea that you cannot "borrow and spend" your way to prosperity is a total LIE, it has been proven to work MILLIONS of times. Any non-idiot can see that the paid off, 30 year fixed rate mortgages made in 1979 and before have been a net economic win in real dollars for the borrowers, especially compared to apartment dwellers, whose rents keep pace with inflation (while mortgage payments decline in real dollars with inflation).

Whatever the debt is now, borrowing money to invest in less costly energy and health care creates prosperity that will help pay off that debt. We pay TWICE what the average first-world citizen pays for health care, ALL factors considered. That is because we are being blackmailed by medical, insurance and pharmas run amok in their pricing, and we cannot stop them because they literally hold the power of life and death over us, and that makes for zero leverage on our part.

Likewise, the middle east (or OPEC) can cripple our economy in a heartbeat with an agreement made over their afternoon tea. At this point we need to spend money to cut our costs and create a positive cash flow so we can pay down the idiotic expenses of the two previous administrations (Bush and Clinton). Anybody that doesn't think so is delusional.

Stocks Will Fall 37% or Gold Will Rally 60%

Actually gold has several industrial uses; it is a great conductor and the only metal that does not oxidize. It doesn't rust, period. Not only that, but gold in general is highly resistant to corrosives and acids; and highly reflective of electromagnetic radiation. It is used as a very thin layer of shielding on satellites, effective but weighing almost nothing. Gold is the most malleable and ductile pure metal known. It is used inside billions of electronic chips as the connecting wires to the outside world, and as a coating on sliding connectors that must be reliable.

Stocks Will Fall 37% or Gold Will Rally 60%

Why use the MEDIAN stock to gold ratio, especially the median over 106 years?

How about telling us when was the last time the gold to stock ratio actually WAS 5.4, or less than that?

World finances changed fundamentally after WW II, and there is no reason on EARTH to include any financial data from before 1945 in any analysis of any kind, at least not without more justification than just because you say so, or just because it gives you the number you want. Essentially you are telling people that data from 1903, before World War One, is an essential part of this analysis; because it certainly contributes to which ratio will be the median.

Let's take a look at the last 64 years, since 1945, and see what the median ratio is there. Or perhaps we will look at the linear trend, or robust regression. I see no reason to believe the median ratio is the best predictor (or even a good predictor) of where we should be, when the world is changing.

For example, would anybody believe us if we used IBM's median revenue since inception to predict its revenue next year? I think not. Why then should we believe the ratio of DJIA to Gold should be a constant?

Gary Shilling: Say Goodbye to the Great Gatsby Era

Just to counter the blithering political idiot above; I am a C-level executive in a corporation and I earn in the top few percent of the country and I voted for Obama without any expectation of a handout. He has reversed field on a few things I find important, but I was and remain willing to pay DOUBLE my current taxes if it would produce universal health care and eliminate our dependence on Middle Eastern oil, preferably replacing it with wind, geothermal, natural gas and thermal solar power. We have enough of these home grown energy sources to power the entire USA 250 times over our current usage.

So no, I and my colleagues did not vote for Obama looking for a handout at the expense of the rich, we ARE the frikkin' rich, and we want a government that isn't wasting trillions on wars and debt when a few hundred billion can solve the problem here at home AND boost the economy at the same time.

Economic collapse will devalue my assets just like anybody else's, and I want a government that does what I frankly cannot do, which is to pool my taxes and invest billions in basic research and science and development, so we can get divorced from the Middle East altogether.

The Dow's Weight in Gold

Oh c'mon, a linear trend on an obviously exponential curve? This is a joke, right?

Not by any chartist magic, but by simple robust statistical fitting to *appropriate* curves, we can see a significant chance of the Dow settling in at the 6000 range (but more likely 9000) and a rise in Gold to 1200 with what seems like inevitable inflation (not hyper). I can't even see where a ratio of "5" or "7" is on this stupid chart.

The biggest thing holding Gold down right now is increased supply due to sales of scrap gold (old jewelry), which has risen due to the recession, and will play out in a few years.

So let us ask the most basic question: By what logic is the relationship between Gold and the Dow meaningful at all? I don't understand what the interaction between these is supposed to be; it isn't like a company where earnings and growth and the value of future opportunity all determine the stock price, which can thusly be used as a rough proxy for judging the competence of the company, or at least the public perception of the prospects of the company.

I think this Dow/Gold comparison is just a skewed version of the Dow itself, it tells us nothing new.

Seven Reasons the Market Has Already Bottomed

I won't believe we hit the bottom until the unemployment number turns around. And if we look at under-employment, meaning people technically "employed" but working half time or less or for less than half their peak salary, the equivalent unemployment rate is 15%.

I know the market will recover before the real economy does, but for now I don't think we have enough information on the depth and breadth of the unfunded corporate commitments to be calling a bottom. Let's wait and see what happens when we hear GM will officially enter Chapter 11, about 54 days from now (unless the Obama administration gives them an extra few months to come up with an impossible plan.)