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epeon

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  • Detroit's despair: Population has plunged 25% in a decade to hit a 100-year low; vacant housing units now comprise 20% of the city's housing stock. The no. 1 reason, IBD says: the United Auto Workers union. As long as total full-time pay and benefits for a Big Three factory worker stay near $140,000/year, Detroit will continue its descent.  [View news story]
    I have thought about this. When Obama threw $50 + billion dollars at GM he did three things. First, he screwed the bondholders. Secondly, he screwed the taxpayer by leaving us with the bag. And, finally, he prevented a good bankruptcy judge from making the changes that were necessary.

    How many people who were bondholders or are related to bondholders hold a grudge and will never deal with GM again? How many taxpayers resent being used as a bank for GM and the UAW and will say "screw Government Motors"? And, finally, GM still makes non-competitive cars. Did Obama do the UAW any real favors?
    Mar 24 07:34 PM | 18 Likes Like |Link to Comment
  • General Electric: What's the Story? [View article]
    I have commented on GE before. It is a large conglomerate of business that are not really connected. GE is at best at turbo machinery (jet engines, steam turbines, etc). Everything else is kind of a "me-too" product. As a bank, it is definitely mediocr.

    Its business is fully valued. It has outsourced for years, but not reallywell. It has covered up its operational deficiencies by financial gimmicks like downsizing its loss reserves in its insurance companies. However, at this point, its remove for such financial tricks is minimal. It nees to perform. By this, I mean it has to make products of world class quality at world class prices. The market is not sure they can do this. So far, they have not.
    Jun 29 02:58 PM | 18 Likes Like |Link to Comment
  • Why Capping Pay Is Likely to Work [View article]
    Here is what will happen: nothing. These big companies will still have CEOs, they will still live the corporate lifestyle, they will still have people want the jobs. In fact, it is very hard to see any correlation between income and performance at all.

    After a few years, we are going to start to realize that the boards were just overpaying CEOs. That they can get the same level of talent for the fraction of the money. Hopefully, the stockholders will realize this, too.
    Feb 4 11:06 AM | 18 Likes Like |Link to Comment
  • The Coming Consequences of Banking Fraud [View article]
    Man, talk about gloom and doom. Anyways, I think it is far exaggerated. We have always had fraud and we have always had exaggeration. But, a couple of points.

    Blowback is not a term coined for the cia. It occurrs many places, primarily in the blowback principal of firearms. Many of the low caliber weapons have a simple blowback mechanism that rechambers the weapon for the next round. However, as the round becomes more powerful, the blowback effect has many unintended consequences. These include ejecting the old shellcase with such force that the shell case will travel 20 meters. If the round is large enough, you can actually see a flame from the ejection port. Large rounds make a simple blowback weapon non-workable as the force will break things. Thus, Blowback referred to the unintended consequences of ejecting a shell from a weapon. As the shell became larger, the unintended consequences become larger and larger. This was an analogy for the consequences of CIA actions and, as the actions became larger, the blowback was larger.

    As far as the huge writeoffs, yes , we have had them and, no doubt, will have more. Many bonds were selling for 50% discounts against their face value a few months ago. That has changed because we now have a modified "mark to market" rule. The old rule caused a lot of these problems because it exaggerated the losses of banks. If you could not market a security it was assumed to have a value of zero. That is clearly not right, but it caused a lot of panic.

    That politicians are on the "take" is no suprize. Sure, it is legal, but do you think Reagan taking large speaking fees was anything different then what we are doing today (at least Reagan was interesting, but both Ford and Carter were getting similar fees - ugh!).

    In short, there is nothing new in your article. Just same old, same old.

    Sep 9 03:32 PM | 17 Likes Like |Link to Comment
  • A Few Thoughts on the Upcoming Auto Sector Implosion [View article]
    The idea of a "quick" bankruptcy is a nice "lawyer" way of resolving the issue. However, is it likely? When you go into bankruptcy, do you really think all the bondholders getting the shaft are going to nod their head and let a quick bankruptcy proceed? Or, do you think they are going to sue like mad saying that they should be the beneficiary of any money raised in bankruptcy? You really think that GM is going to shed its debt quickly and easily like you would an old coat? I think not.

    I think GM will be in bankruptcy a long time, just like Delphi. I remember all the stories about Delphi going into a quick bankruptcy, they have been run by the courts by years. And, let me tell you, being run by a judge ain't good for a business.
    Apr 13 04:24 PM | 15 Likes Like |Link to Comment
  • Do Covered Calls Improve Expected Returns? [View article]
    First, I really liked your study. I appreciate the effort that it took and I compliment you for what you did. Thank you.

    Secondly, I have been doing covered calls for a long time and I have done well with them. You are, I believe, completely correct in that one cannot be indiscriminate in their use. I look for dividend paying stocks with low p/e ratios and I sell usually one month forward out of the money. My "rule of thumb" is that if the combined capital gain necessary for me to loose the stock added to the covered call premium is greater then 5% in one month then I write the covered call. So far, this guideline has worked for me.
    Feb 28 09:25 AM | 14 Likes Like |Link to Comment
  • Big Banks: The Consensus Is Cracking [View article]
    I completely, totally agree. This whole concept of "too big to fail" is just disasterous. The best way to handle this is to break up these big oligopolies so that they are, indeed, small enough to fail with no systemic consequences. Why a democrat like Obama wants to defend such concentration of power is beyond me.
    Oct 21 11:43 AM | 14 Likes Like |Link to Comment
  • A Capitalist's Letter to President Obama [View article]
    Dear Gene,

    Weren't you listening to the campaign? Everything Obama has done and is doing is exactly what he said in the campaign. I listened to him when he talked to union members in Detroit. He said he would mitigate the failures of GM and Chrysler as much as he could. So, changing the debt structure to favor the union is entirely consistent with what he said he would do. Time and time he said that wall street took too much risk, too much leverage. They would have to be reined in. so, that is what he is doing. He told steel workers, auto workers, union members that NAFTA wasn't fair. We needed "fair trade" not "free trade". Remember that line? Well, that is what you are getting.

    Obama is entirely consistent with his campaign. If you weren't paying attention, well too bad. You get an F in politics for this presidential cycle.
    May 7 10:15 AM | 13 Likes Like |Link to Comment
  • Electric Utilities: Coal vs. Renewables [View article]
    Passing a mandate is congress' chicken shit way of passing a tax increase without suffering the political consequences of doing so. The net result would be a substantial increase in the cost of electricity, but the person paying the freight won't necessarily know that the increase is due to this mandate and not inevitable.
    Apr 13 08:19 AM | 13 Likes Like |Link to Comment
  • Is There Enough Natural Gas? [View article]
    The whole concept of this article is terribly wrong. It is not the government's job to determine how energy is developed and used by our society. Or, is that clause in the constitution one I have forgotten about?

    There are lots of sources of energy. The marketplace makes these decisions. If natural gas is truly cheaper then coal then people will build natural gas fired boilers. If we have learned nothing in the last century we have learned at least this: the market does a far better job of allocating resources and picking technology then does a central government bueracract. This is true whether the bueracrat is in Moscow or Washington, DC.

    The government will continue to back things like shale oil, ethanol, windmills, solar cells, etc. All of these are sinks for taxpayer money. And, when they are no longer trendy, they will be shut down one by one.
    Apr 27 09:32 AM | 12 Likes Like |Link to Comment
  • U.S.: Left Behind in Nuclear [View article]
    I absolutely agree with you that we need to build nuclear plants. It is a real shame that no one in the Obama administration understands this and provides any leadership.

    As far as the comment about graying engineers and the need to graduate new engineers, well as a graying engineer, I have a few comments. The problem is this: there is no economic base for hiring engineers in the US. I live in Houston and there are very few companies actually hiring eingineers. Most people with technical degrees don't even work in their field.

    My son graduated with honors from Georgia Tech with degrees in electrical engineering and a masters in computer engineering. His wife graduated from yale with a finance degree. He makes $80,000 as an engineer, she makes $350,000 as a hedge fund analyst. And, yet, she asks him all the time to help her with the mathematical analysis of her accounts. So, which field do you want to go in to?
    Oct 5 08:48 AM | 10 Likes Like |Link to Comment
  • Crude Oil Demand and the Quick Recovery Hoax [View article]
    First, the oil majors did not have losses. What they had was a reduction in their earnings. That was pretty inevitable given that oil prices peaked last year. Secondly, as I write this, the price of crude has topped $70/bbl. The oil majors will do fine on that price.

    What you do not understand, it seems to me, is that even if deman is flat, there is a 3 to 5% reduction in supply every year via depletion. That is the reason why this industry spends a $1 trillion/year to keep supply flat and not declining. However, that spending has been cut. Which means that in a few years supply willl drop off the table. At that time, we will get another spike.
    Aug 3 08:37 AM | 10 Likes Like |Link to Comment
  • The Big Banking Emperors' New Clothes [View article]
    I have been looking at some mortgage backed securities. These things are about 92% performing (i.e. paying interest). The bank securitized this by issued bonds which paid 6.75%. The underlying mortgages would pay about 7% plus fees (when people sold houses, the banks get lots of fees). The bank sold 95% of this loan. So, the bank is not getting 7% anymore. They are getting abot 6.5%, yet they are still paying 6.75%. Thus, the cashflow is negative. So, marking the loan mark to market or not doesn't save the bank any money.

    Worse, there is no reason to believe that these aren't going to go to about 85% performing (others are). The underlying assets are in California so the values are down about 30%.

    Thus, these are money loosers and marking them to anything isn't going to help.
    Apr 2 12:30 PM | 10 Likes Like |Link to Comment
  • If Asset Prices Are Dropping, Why Are Bank Stocks Rising? [View article]
    All that you say may be true, but the cost of money for the banks right now is next to nothing. And the spread is pretty good. So, business going forward is going to be very lucrative. Can the banks earn enough to eventually work themselves out of the current mess? Maybe so, which is why the bank stock prices have been good. Particularly those that don't have a lot of trash on their books.
    Aug 21 08:37 AM | 9 Likes Like |Link to Comment
  • Seven Uncomfortable Predictions for the Economy [View article]
    Buy your guns, run for the hills, plant a garden, start hunting deer. Damn, the appocalypse is at hand!!!
    Mar 30 08:53 AM | 9 Likes Like |Link to Comment
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