M-P

Ritholtz, Ratigan Take on the 'Giant Vampire Squid'

The GS/Govt relationship is clear for all to see ... per Barry, GS has a nice quid pro quo going ... they are getting exactly what they paid for. The size of their latest bonuses is basically ridiculous, given the taxpayer backstops and the way the bankruptcy rules are applied differently for GS.

The real shame would be if no one speaks up ... I have written my senators and congressman - I may be delusional, but if enough people speak up, it could become politically unfavorable for GS to pay out what they are looking to ... think John Thain and his 10m payout ...

Serious Problems with the BLS Unemployment Numbers

These are the type of pieces I love to see on SA because they educate and elucidate. The B/D adjustment is suspect right now as historicals are not that as relevant - frankly, BLS could do some sort of exponential smoothing to re-weight more recent numbers ... if you look at overall forecasting in the corporate sector, exponential smoothing has been found to be fairly accurate - more so than more complex models. I'm glad someone is unpacking to assumptions to see how tenuous they really are ... the true unemployment picture is a significant anchor to growing our GDP and improving consumer spending ... the new normal is still pruning.

Why the Dow Is Headed to 6000

I would tend to agree w/ this piece ... the savings rate is only going up, esp. w/ the unemployment picture and threat of downsizing ... the top-line picture does not look good for many firms ... you can only slim-fast your way to EPS growth for so long. I'm not sure on the 6000, but the market is over-extended and was clearly looking for anything to rally on ... the additional regs and tax hits will only slow hiring in my mind ... EMEA is clearly not well - the global picture is not great - UK, Germany, Spain, etc. have more to de-leverage and soak up - the over-capacity story is strong across the globe.

Restaurant Profits Eaten Up by Recession

I'm amazed at all the restaurant coupons I've been getting lately - BOGO's, 1/2 off, $5 off, etc. It's clearly a lagging indicator, but is telling in terms of how much they are hurting. I'm also seeing a lot more early-bird specials. At the end of the day, restaurant food is often overpriced and the food at the top restaurants is just not that much better than the value-priced restaurants - I know - I've done the "experiment" many times. I'm often dissappointed in the better restaurants - they rarely live up to the billing - tangible and intangible.

Cramer's Mad Money - Obama's Revenge (3/5/09)

Cramer is like anyone who talks a lot (forecasts, asserts, etc.) - he will be right some of the time and wrong on others. The hit rate and materiality are important. My big issue w/ the administration is that they are trying to do too much at the same time ... health care, taxes, capital injections, etc. When the world is unpredictable and in a state of change, capital sits on the sidelines. In this environment, predictability is often more important that the perfect policy, which doesn't exist anyway. Today's problems were yesterday's solutions.

With a King's Ransom in Cash, Why Still No Buying Spree in the Tech Space?

Most of the companies mentioned have traditionally sat on a lot of cash. Given the current economy, they may be able to get some incredible deals on the auction block or some sort of asset sale. The more margin of safety - the better. Also, as others have pointed out, why buy now when the price is likely to go down. I could also see some of the firms buying some net operating losses (NOLs) to springboard their future profits. Software is a tough game - fast moving and first copy costs are significant.

Will Lack of Accord on Stimulus Obscure Economic Lessons?

This all or nothing talk makes for great commentary and differentiation. The "once in a liftetime bet", etc. It's nice prose, but a little dramatic.

The bottom line on POTUS is that 4.6 out of 10 did not vote for Obama. If we round up, well ... and if disaggregate by race, SES, location, etc. we get even more profound differences. To say that the majority of the american public believe X or Y is somewhat misleading ... I don't consider 5.1 (or similar range) out of 10 people to be a tsunami of support.

As I've written elsewhere, we all know this will happen again. The moral hazard castle that has been erected with surely create the next crisis. There is too much $ to be made in problem deferral and in literally and figuratively mortgaging one's future. We are all paying for malfeasance and vegas-style bets. The partisan glasses on both sides will only strengthen their respective positions ... I don't have a lot of hope that a political/economic epiphany will happen. It is often the brightest that have a strong hardening of the attitudes.

The Economy: How to Tell When It's Improving

Let's remember what Obama is saying - it's "save or create" up to 4m jobs ... frankly, that's a metric that has some loose ends - some would say "weasel words" - how do you feasibly show that you've "saved" a certain number of jobs. Very difficult given the multiple factors that are occuring at the same time - hard to isolate.

Nevertheless, the index of leading indicators had more than a few false positives in predicting recessions. Reasonable people will continue to disagree about the timing and trajectory of a recovery - L, W, V, U, etc. Given the massive leveraging that has taken place and the coincident negatives savings rates, I think it will take at least a year to see some robust and consistent economic sunshine.

The 10 components of the Index (leading indicators) include:

Average number of initial applications for unemployment insurance
Number of manufacturers' new orders for consumer goods and materials
Speed of delivery of new merchandise to vendors from suppliers
Amount of new orders for capital goods unrelated to defense
Amount of new building permits for residential buildings
The S&P 500 stock index
Inflation-adjusted money supply (M2)
Spread between long and short interest rates (the yield curve)
Consumer sentiment
Average weekly hours worked by manufacturing workers

While this index correctly forecast each of the 7 recessions during the 1959-2001 period it also has forecast 5 recessions that did not occur.

Nationalizing the U.S. Banking Sector: There's No Choice

The real issue here, as others have pointed out, is that we really don't want to feel the pain if market forces prevail. The banks made some highly risky decisions and are now paying the price. With reward comes risk - look at the bonuses the executives made from 2004-2007. Tens of millions for making risky, correlated bets on opaque debt instruments and "insurance" products.

Look at the GDP with and without Mortgage Equity Withdrawls from 2004-2007. If we didn't have MEW's, we were growing at 1%. We were living an inflated lie that was a concoction of low rates, negative savings, and materialism. There's only so much you can do about a bad hangover.

Four Myths About the Obama / Geithner Plan

There are a couple of themes here: One is the Silver Bullet problem - we keep thinking there is a pill for all of this - there isn't. Crash diets don't work - at least not in the long term. The fundamentals of weight control will never change - aerobic, resistence training, and diet.

Perverting the market is like playing the whack a mole game - you hit one and another pops up. The ironies in all of this are classic. The paradox of thrift is a nice bumper sticker ... some people leveraged their house, overspent, didn't save and now they have a hangover ... all the taxpayers get to buy them aspirin. I believe in personal responsibility for homeowners and clawback provisions for corporate excess. Equal opportunity.

Markets Plunge Following Geithner's Plan - And That's Not a Bad Thing

We all know the government can't really control the economy. We want to believe they can, but it's a complicated mix of factors. There are no silver bullets here. It is well-known, however, that specificity manages expectations and can inspire confidence. Platitudes and bromides only win the buzzword bingo game. I like the stress-test idea - we should do that with goverment as well, including zero-based budgeting. We can't go back to the same old consumerism, negative savings rate, and reckless risk management.

U.S. Unemployment - Is It Really So Bad?

Per other comments, the demographic wave was quite strong over the period ... doesn't stand on all fours in the compare. I do think it's wise to have a more holistic context - worldwide, the tiers of employement are different - good in one region is bad in another.

The issue of whether an employee is a cost or investment isn't as clear. In certain roles - consulting and sales, e.g., - it's pretty easy to put a margin on each head ... some are positive and others are negative using a full loaded cost. Many companies can cut certain heads and not have the top line blink. However, the intangible ramifications of rank and yank can lower productivity for those remaining.

Unintended Consequences of Four Government Policies

Many of these consequences have been debated ad nauseum ... the salary cap piece is political symbolism - most have been grandfathered and the main part of total comp has not been salary ... the best and the brightest comment is amusing, if not inane. If the salaries over the last few years at GS, Countrywide, BAC, ML, etc., etc., are directly related to the "talent" that was/is there, please define talent for me - get real specific. A talent for malfeasance and literally mortgaging one's future on specious bets and vegas-style risks is not "talent" in my mind. The best and brightest and the comp correlation is weak at best - think politics, business, sports, etc. Also, the bottom line on the mark to market is the underlying asset - it was often too risky, too opaque, and too hard to value. The mark is part of the issue in illiquid, hard to value markets (mark to model markets), but the other issue is the asset itself. Risky decisions have consequences - in the mark case, it's more immediate - hopefully, the bank's, etc. decisions are within a portfolio of decisions that balance risk and prudence. The mark issue seems like a false dilemma.

Compensation Caps Will Drive Away Talent? To Where?

For those who think the "talent" will go elsewhere, please define talent for me - if "talent" can't perform, what is it ... good luck going to other parts of the world - managing the cross-region regs, the legal diffs, the work councils - they'll be back to the States. Easy to think there are no friction costs - that's a fallacy. Again, I'm all for paying for "Alpha" performance vis-a-vis the industry/market.

Obama's Stimulus Plan: It's All About the Framing

OldLimey - your comment is spot on ... it's as if we are talking out of both sides of our mouths. We complained when we had a negative savings rate and now that we are deleveraging, the govt wants us all to spend. The country is addicted to consumerism and debt. We complain about the addiction, but when we the get the withdrawl symptoms, we revert back.