ACCOUNTANT

Regulatory Reform: The New Geithner Plan

Swiftcreek1 - better option - require initial lender to retain some uninsured portion of the risk on all loans it makes - i.e. initial risk on loss up to first 10% of loan that is lost, and not allow it to re-insure that risk. Doing that would slow down the excessive risk taking dramatically and most of the other issues that occurred would fall into line without further changes to the system.

The major problem that created the bubble is that the initial lendors that were making the profits off of writing the loans then sold loans into secondary market without recourse (i.e. without risk). Thus, they had no "skin in the game", and when people can make bunches of money without having any risk exposure themselves, it creates an enviroment that leads to irresponsble behavior.

Regulatory Reform: The New Geithner Plan

I disagree with one assumption - that the problem was unrelated to compensation but related rather to risk assessment. From my perspective, that risk assessment was signficantly influenced by compensation incentives. The two cannot be de-linked from each other.

Five Reasons the Market Could Crash This Fall

Doom and gloom. Regarding unemployment - your assumption is that all people laid off or let go are the ones that are still unemployed - thus running of out benefits. that is False. We have been averaging about 500 - 600,000 people per week with first week UC claims - yet the total job losses per month have been around 500,000. That implies that about 75% of the people laid off have found new jobs. Otherwise, the math doesn't work. Regarding derivatives, not sure were the quadtrillion number comes from. But derivatives do not necessarily equate to risk. In fact, in many cases they are designed to mitigate risk. Use for example - Linn Energy - they sold derivatives in their gas futures in early 2008 at below market for the time - going thru 2010. While there is a large value to those derivatives, all they do is fix the priced of gas for both buyer and seller for a set period of time. of the Banks derivatives. Most derivatives do not represent risk to the marketplace - they remove risk. Only 14% if the $200 trillion is debt type derivatives.

Taking an Honest Look at GDP Calculation

I have talked to three of my blue collar factory worker type friends in the past two weeks - each works at a different company in a different industry - none are in industries that benefit from government spending - and all three are currently working massive amounts of overtime. Something must be going on.

Keep in mind all of the cash hitting the economy. Last year, oil was $140 per barrell (an import that gets subtracted from GDP). This year oil has been under $70 (thus a much smaller deduct) and that money is now available to spend on other items. Same thing with home mortgages. As people have refinanced their 6.5 - 7.5% loans down to 5.25% loans, it has freed up significant amounts of money for the consumer to spend on other things. Also, the people that have walked away from huge mortgages and then turned around and purchased housing at a much lower cost - more money available for the economy.

The governments huge deficit doesn't necessarily translate into additional government spending. The current massive deficit is comprised of four components - 1) the "traditional deficit" that we have been running ever since the Bush tax cuts, 2) the decline in revenues to the government due to the recession , 3) the TARP monies - which did NOT go into consumption and would not affect GDP, and 4) the stimulus monies - most of which have not yet seen the light of day. As such, skewing the GDP based in increased deficit spending is probably extremely misleading to the reality of the situation.

GE Capital: Next CIT?

One has to look at what GE Credit finances before getting too carried away. Much of their financing relates to the products they sell - and those products will experience very low default rates. If GE credit were as weak as this article implies, Immelt would not be pulling out all the ammunition in his fight against having to spin it off into a separate company, which is what he is currently doing. Sorry Tyler, but you have completely misread this one.

Shiller: Expect More Home Price Declines

Schiller also bases some of his assumptions on the fact that, when compared to inflation, housing is still 50% above where it was in 1900. But he completely ignores productivity increases made over the past 109 years - his was totally based on inflation.

For what it is worth, housing prices are up the last two months in California, one of the hardest hit areas. And in Arizona, there was a young couple highlighted on ABC that had just lost out on their attempt to buy a house for the eighth time - and they were pre-approved for a $150,000 loan. Housing market tghere can't be quite as bad as some would have us believe.

From personal experience, it took my daughter three attempts before she was recently successful in buying a house - and even on the last one, she got it because she was willing to be more flexible on the closing date - there was another offer significantly higher than hers.

Unemployment as a Lagging Indicator: Not This Time

Unemployment has been a lagging indicator in every recession since the Great Depression (no exception). It has to do with the nature of production and labor and inventories, and is unavoidable.

Companies don't start laying off until we are well into a recession. That occurs because we don't know that actual beginning month of a recession until several months later. For example, Dec 07 was not pegged as the start until summer of 08. As such, once a recession starts, inventories build up that are not getting sold. Once companies realize that's occuring, they then have to not only adjust to the reduced demand levels, but need to go well past that demand to eliminate excessive inventories.

At the back end of a recession, companies will typically not begin to rehire until they clearly see that demand is on the rise, i.e. after the recession has passed. In the meantime, they use overtime to increase production back to the demand level. Thus, unemployment cannot go down until we well into a recovery - as companies base hiring decisions on historical demand, which is an after the fact indicator.

IF you want to use labor data for a real-time indicator of what is happening in the economy - start watching for significant increases in overtime staffing. Once that starts occurring, then improvement in the labor markets will follow. But don't attempt to judge the future of the economy based on unemployment data - you will be operating 6 - 9 months behind what is actually happening every time. And that is a great way to loose money if you are an investor.

As Malls Turn into Ghost Towns, Still Looking for Green Shoots

Getting caught on your short positions, huh?

Regarding the car dealers - the ones that will be shut down do not average the average in employees - they are the small dealerships that i would bet are no more than 50% of the average or 26 employees per dealership - and many of them will get hired by the remaining dealers who will need more mechanics to do the additional work load, more sales people for the additional foot traffic, etc. fI realize trader mark wants to paint a dooms day scenario for his short positions - but if 1000 dealers go out, and if all but 10 of the employees find work at other dealers, then only 10,000 total people get displaced - excuse me - but we have 30 times that many people getting laid off each work when the economy is GREAT. Much ado about nothing!!!!!

Regarding malls, some will disappear - so what? that is what recessions do - it will make the survivors that much stronger. That is what recessions do - they weed out the weak and the stronger get stronger. Get rid of the 15% weakest malls, and sales (and RENTS) will increase significantly at the remaining 85%. That is how it works!!!

The reason everyone is so panicky on this one is two fold - first, we haven't had a real "cleansing" recession since 1981/1982, so we have a lot more chaff in the system to get rid of this time around, and 2) in large parts of the country, anyone under the age of 45 - 50 has not lived through a real recession during their adult working life. I live in the Midwest - we had no recession in 1991/1992 - that one was an east coast, west coast thing, and the 2001/2002 recession was so mild and quick that we hardly noticed it.

This process is merely setting the stage for a new period of economic growth. it had to happen. three years ago, it was difficult to find adequate quantities of capable labor - the labor market was that tight. Wage inflation was starting to spiral out of control at the time. That is not healthy either. This recession was needed to do a re-set on the economy. And it will.

This is Not a Bull Market: Stocks Are Not Up, and They’re Headed Even Lower

In the early eighties, gold was over $800 per ounce and the gold advocates could see no end to the increasing prices. Today, gold is a bit over $900, which, ajusted for inflation back to early eighties, puts it at about $300 in early eighties dollars. It was a lousy investment then - and will prove to be a poor investment today in 20 years from now - though not as bad as it was in eighties, but still a poor investment. Reason? - 98% of all gold mined still exists, as such, there is too much gold in the world to support a significant increase in prices. Gold over a certain price level looses its functionality - and therefore, its value.

Stocks, on the other hand, are a totally different deal. The 1999/2000 high, as adjusted for size of GDP and risk free interest rates (as represented by the 10-year treasury yields), will probably not be seen for another 50-75 years. However, adjusted for size of GDP and interest rates, todays market is currently at 16% of that high, and when we were at 677 on SP500 (the low) and interest rates (10-year treasuries) were yielding 2.7%, we were at 6% of that 1999/2000 high. Stocks are grossly oversold, even for a slightly deflationary economy. They will be the investment to be in for the next 7-10 years, as that 16% of the high level works its way back up to 50% - 60% of the high.

Treasury Accepts Lowball Price for TARP Warrants

The only problem with your thesis is that several of the original banks, including both Goldman and Morgan Stanley, had the government shove the TARP money down their throat. So why should the taxpayers make a bunch of excess profits off of the deal?

Let's see, we'll force the banks to take TARP money that, in several cases, they don't need or want, we will grant ourselves warrants to buy their stock at cheap prices, thus diluting stockholder value, and then, if we don't demand top dollar for the warrants, we will claim that the taxpayer is getting hosed.

Seems like an incredibly one-sided transaction to me.

Market Rally and the Return of Irrational Exuberance

Getting caught short, huh? The market does not look in the rear view mirror - it looks 6 - 12 months down the road. what happened in the first quarter is meaningless - what is projected to happen in the 1st quarter of 2010 is everything!

Worst-Case Scenario for Geithner Is Here

One problem - Geithners pessimistic unemployment rate was NOT 8.9%, it was 10.5%. Get the facts right. 8.9% was the optimistic rate.

Book Review: Great Depression Ahead

I agree that one has to take a look at Dent's history before placing a whole lot of credibility on his current book. He seems to pretty much get it totally wrong with each attempt.

Regarding aging boomers - the boomer group is 18 years long (1946 through1963). The very first of the boomers just reached 62 in 2008. Many to most of the boomers are just now hitting or are in their highest income years of their lives, which normally occurs in people's 50's.

The downsizing and reduced spending referred to by others above will gradually occur, but in reality, it will be down the road a minimum of 5, perhaps 10 years before it will start to have any significant impact on the economy. Prior to that time, the continued growth in population (which grows by about 2 million people per year) will more than offset any cut backs by the boomers. And offset against that is that many boomers are still in the process of putting kids through college, paying for weddings, or paying off college bills of their kids. When that is completed, it will free up significant amounts of money for many of the younger boomer families.

The population growth is also why the housing crisis well self correct within the next 12 months - we add almost a million new households per year in this country, plus we take out close to a half million existing houisng units each year. Translation - as long as we are having housing starts at an annual rate of under 600,000, we are absorbing close to 100,000 units of excess housing inventory each and every month.

Cramer Calls Out Roubini

Roubini has been beating the nationalization drum from the beginning. He reminds me of the Gartner Group during the leading up to Y2K. Everything you read always referenced back to their projections - which they had at $1.8 trillion in cost. Of course it was all very self-serving, considering they were selling tons of services to get companies ready for Y2K. In end, total cost world wide was estimated to be about 1/3 of the Gartner Group projected estimates.

Same type of thing will happen to Roubini - he has so overshot the estimates of the losses the banks will incur that it is funny - except that people are still listening to him. Warren Buffet is right on the mark with his assessments - and he has the inside knowledge of sitting on Wells Fargo's board. Roubini is interested in his six figure speaking engagements. Wonder which one carries more credibility.

A Stress Test Shocker: BofA Needs $35 Billion

Not sure what BoA would do with an additional $35 billion of capital. Per 1st quarter filings, they have non-performing loans totaling 2.65% of total portfolio. That works out to about $30 billion, of which $17 billion is reserved.

They generate top line quarterly revenues of about $12 billion, which is suffient to cover 30% loss rates on about $40 billion of loans, or about 3.5% of total loans each quarter.

Translation - they can take 30% losses on 13% of their loans between now and end of year and still maintain their capital base where it currently is. And their loss rates on their bad loans will not begin to approach 30%.

BoA denied looking to raise $10 billion of supposed money a couple of days ago. Not sure i believe the credibility of some of all these "leaks."