Annualgain

"After watching the Liddy debacle on C-SPAN, it has become painfully clear to me that our federal government is a joke. Those jerks were personally attacking a man working very hard to pull our collective butts out of the fire, all at great risk to his reputation, and for only $1 per year. I was angered and saddened."

This comment is right on. The government is on a witch hunt the likes of which we haven't seen since Joe McCarthy. Somebody needs to stand up and stop them.

AIG Bonus Outrage Only Grows Worse

Congress's initiative to tax retention bonuses down to zero reeks of witch-hunt and Joe McCarthy. Say what you want about Barney Frank, but his suggestion to go after the bonuses as a shareholder instead of as a legislator or as a regulator is right on.

NY AG Cuomo warns AIG: Provide details ("each individual's job description and performance") on bonus recipients by 4:00 p.m., or we'll issue subpoenas. "Taxpayers of this country are now supporting AIG (AIG), and they deserve at the very least to know how their money is being spent."

A 4pm deadline? Kind of ridiculous.

Wall Street Breakfast: Must-Know News

BCS is actually up 14.3% in the premarket, not down.

Crude oil -1.6% to $46.30. Gold +0.75% to $46.30.

Hey - gold at $46.30 - sounds like a good deal.

Has the U.S. Layoff Trend Turned?

Challenger Gray data also showed a decline in layoff announcements from January to February. As far as I know, this is the most comprehensive collection of layoff announcements. This is forward looking as announcements are often for layoffs that will occur in the future. Of course, the numbers are still up by A LOT vs. 2008.

January 241,749
February 186,350

URL to cnn story to support my comment:
money.cnn.com/2009/03/...

The State of Hedge Funds: How We Got Here and Where We're Going

I believe that 2/20 has to go away. I also think that fees for long-only strategies will be compressed.

Don't blame us: API, the U.S. oil industry's main lobby, says the refiners are not to blame for recent price hikes at the pump. "We've heard people say, 'Oh, the refiners are trying to manipulate the prices,' but it just isn't true."

The crack spread (difference between crude and wholesale gasoline) is moving up, currently at $16 per barrel or so, but is within the $5-20 range that it normally is. What WAS abnormal was the breakeven crack spread we hit at times in Q4. What were the refiners supposed to do - run themselves into the ground? It seems normal to me that they cut back production to allow themselves to breath a little. I bet the spread goes back down to $10 and everyone will stop pointing fingers.

There's a Whiff of Reflation in the Air

I think that this article over-emphasizes the impact of energy on the PPI. True, the 3.7% jump in the energy component moved the overall PPI to 0.8% while the ex-food and energy component was up only 0.4%. But that 0.4% in the core (ex-food and energy) rate of the PPI is also meaningful, as it was up only 0.1-0.2% in Nov-Dec, below the average of 0.4% for the first 10 months of 2008. In my view, those worried about a deflation doomsday can breath a sigh of relief as these PPI numbers filter through to the consumer. Now we can start worrying about inflation again.

The BLS press release on PPI can be found at this link: www.bls.gov/news.relea...

America's living standard is undergoing a 'permanent change' and 'the worst is yet to come,' says Howard Davidowitz on TechTicker. Watch the video here.

Good video. So what does all this mean? Let's look at some (very round, don't quote me on these) numbers:

AUTOS
Nationwide Fleet 200,000,000
Average Life of a Light Vehicle (years) 20
Scrappage Rate 5.0%
New Autos Needed Annually 10,000,000

HOUSING
Households 100,000,000
Household creation (% growth) 1.0%
Number of new Households 1,000,000
New Homes Needed Annually 1,000,000

During the credit bubble, people consumed beyond their needs. We had an auto build rate of 16-17 million and we built 1.5-1.7 million homes per year.

The bubble bursting is forcing the economy to purge its excesses.

Right now we are building about 500,000 new homes and making 9,000,000 new cars after huge pullbacks in manufacturing. However, I would argue that echo-boomers won't live with mom and dad forever and we won't drive our autos forever. There is a minimum need for homes and autos, and right now we are under-producing.

Multiply this across other large sectors of the economy. Commercial aircraft, personal computers, hotel rooms, you name it. We are purging our excesses at an incredibly fast rate. Only when these excesses are gone will the economy recover. My guess is that we're 12-18 months from that point.

Barron's Plan to Save the Economy - For Just $200B?

While it's true that the first place the credit crisis showed up was in sub-prime land, the same issues that have plagued sub-prime are true elsewhere. Easy credit inflated the value of assets. Housing, yes; but it's also true that we have too many retail stores, too many hotel rooms, capacity to produce autos well beyond the level of "normal" demand, the list goes on. Fixing subprime mortgages in the way suggested by Barron's only addresses one small aspect of the excesses created by easy credit.

Fair Value for the S&P: It's Not 440

It's true that STOCKS can trade at a higher multiple of trough earnings, like a commodity company whose earnings go to $0.01 can trade at a multiple of something like 10,000. But the STOCK MARKET usually does not behave that way. It seems likely that the market will bottom at 10-12x ongoing, operating earnings.

Breakout or Fake-Out?

I'm not a technical analyst, but the S&P's inability to break through the 50-day MA today spells sell-off on Monday to me.

stockcharts.com/h-sc/u...

This Is Not Your Garden-Variety Downturn

Doesn't this suggest that your proprietary economic indexes need fixing? How many years of data were used to develop them?

Talk of a housing bottom is premature, says 24/7 Wall St., since there's been no improvement in employment or credit access. "The factors which would lead to a housing recovery are nowhere to be seen."

It's true that it's too early to call a bottom on the housing market. Also, I think importance of existing home sales increasing in December was greatly exaggerated. However, the one important bit of data that came out of that press release from the National Association of Realtors was the fact that the inventory of homes for sale declined vs. December 2007, the first such decline in well over a year. Yes, there is no sign that housing prices are bottoming. The only way they will bottom, in my view, is if the inventory of homes for sale gets back to a more normal level of about 2 million from a peak of about 4.5 million in April. Home inventory levels is perhaps the most important data point in this crisis. It will be interesting to see what it does after this wave of layoffs.