Wall Street Breakfast: Must-Know News [View article]
I read that 2/3 of companies reporting so far have beat estimates. And yet a vast majority of these reported losses or lower earnings and significantly reduced revenue. Beating estimates in this climate seems to me to be more a critique of they analysts' estimates (they were excessively pessimistic) than the positive spin it implies, that companies are doing better than expected.
Swine Flu: Why You Can Ignore the Hype [View article]
This is your prediction based on what? We are 1 week into the epidemic, the WHO and CDC are concerned enough to signal an alert and you say it's smoke? Right now, no one has any idea what the final outcome will be but we should be on the alert. Stick to investing. You are a poor epidemiologist.
If the value of everything falls (homes, businesses, investments), and the price of everything falls (tv's, cars, food, clothes), and if the amount people earn falls, isn't that 'deflation'? It turns out that the easiest of these to measure is prices and I would guess that, over time, it is the best way to measure inflation/deflation (as well as being the definition). Price changes may influence monetary policy however there is not a very good correlation between the two except during certain periods of time.
Isn't money like stock? If a company decides to split 2-1 what happens to the price/share? When a government increases the money supply, the same happens to value of currency. This gets quite confusing when most governments in the world do this at the same time because it amounts to every country devalueing their currency simultaneously. Somehow, markets are expected to sort out what the relative values are. We can only hope that they're efficient!
Closing Update: Streak Stretches Six [View article]
You forgot to mention WW IV.
On Apr 18 02:30 AM MarkitWacha wrote:
> One problem with the up, up, and away theory - CMBS. Commercial real > estate will hit Chase hard. It's so bad, that a rational businessman/woman > might want to close any real estate business and walk away from the > mortgage. Anecdotal evidence suggests retail properties are down > approx. 30%. Here's how I think it will play out: > > * In 3 months, office occupancy rates will hit new lows. > * the retail story will linger, causing smaller retail bankruptcies > as we drift further away from the 2008 Christmas season. 2009 Christmas > will disappoint and we'll see strip malls turn into ghost barracks. > The rebound will happen when unemployment drops to 6.5%, but no one's > predicting that till 2012. > * the corresponding reduction in property taxes will stress quite > a few municipalities into crisis. > * the muni bond market will deteriorate significantly. > * mayors, citing budget crises, will cut city staff across the board. > > * Boeing will announce plans to leave Washington state. Microsoft > will stop hiring in Washington in favor of Canada. Weyerhauser will > split and report taxes like a REIT. > * The Solar photovoltaics businesses and wind power generation businesses > will be shocked. Electricity generation will dramatically drop in > cost via traditional methods to ~8 cents/kWh. This will sap up demand > for alternates as if it were cocaine in the 80s. After some major > bankruptcies, electricity prices will bounce upward with the recovery > in late 2010, but too late for the big alternate energy producers > that couldn't get bridge loans. > * California will threaten to default once on their bonds. The Federal > reserve will bail them out, and politicians will jump in, trying > to control Cali's budget from blackberrys in DC. > > The data suggest that this rally is driven by quants. I'm saddened > that it's taking in what's left from the typical 401k investor. I > can just see people throwing good money after bad, risking their > tax return, hoping it will double to cover another mortgage. > > To take advantage of the second major bear market that's coming in > this drama, short municipal bonds or municipal bond funds. Just in > case the Fed becomes the backstop for munis, short the treasury bonds, > via TBT, as well. > > > > >
Definition of CMO Trading: Look for People Dumber than You and Take Advantage of Them [View article]
OK Tim, what kind of fellow has an Irish first name and Italian last name? Just what are you up to?
Raising doubts about the integrity and intelligence of the best and brightest (you don't have to be best and brightest after all, just not as dumb)? Revealing the true motives traders (greed vs. greed - take advantage of whomever, whenever)? Behind every good trader is a good programmer who can take all the complicated thinking out of playing with other peoples' money and keeping it for yourself?
And really, kindergarteners? (This brings to mind a friend's son who took a job with a small firm on Wall Street right out of college, 22 years old, showed up months later in a Lanborghini with a really hot chick in it, and started lavishing his parents with goodies. Then at age 24 he went to prison, helped prosecutors put away the masterminds at the firm, which turned out to be a 'criminal enterprise', and got out with a reduced sentence and much wisdom.) Small firms can be prosecuted, but as with many other areas of justice, the wealthy and well connected are not. But really what's the difference between the small crooks and the big ones, most of which are still alive and well? AIG, Lehman, Bear Stearns, Goldman, Morgan Stanley - are their hands clean?
Unfortunately you missed the best allegory - the obelisk in 2001 Space Odyssey which took Dave (traders and their programmers) to Jupiter and beyond the infinite - well, at least that's what they were shooting at.
naked shorting is selling stock that you neither own nor borrow. it creates shares that don't already exist for the purpose of a sale (on a gamble that the shares will decrease in value). only a company's board of directors should be allowed to create stock. naked shorting should be criminalized and aggressively invesigated.
wouldn't it be fun if you could sell other assets you don't own. like your neighbor's house for example. they actually catch people doing that from time to time and they end up in prison. so too naked shorters.
Bonus Backlash Is Upon Us, But a Well Structured Plan Benefits Shareholders [View article]
Not ALL the talented people. Only those who think they're valuable will move on. So what! There are plenty of other talented people vying for the vacated jobs. Besides, it won't be long before these private boutiques learn that they can hire new employees at a much lower rate. It's also offensive that you seem to value financial people who work 80 hours a week for megabuck more than commoners who work 80 hours a week to keep up with their rent and feed their families. This strikes me as class arrogance.
On Mar 19 05:12 PM A. Corinne wrote:
> All the talented people, especially in finance, will end up at privately > held boutiques. You would have to be insane to continue working 80 > hours a week for a firm that isn't able to pay you any of the profits > you generate for the firm. The WSJ has just posted the following... > > > The House voted 328-93 to approve a bill imposing 90% taxes on employee > bonuses from firms bailed out by taxpayers. > > The bill would tax bonuses paid by firms that received more than > $5 billion from the TARP. The Senate is working on its own plan to > try to recoup bonuses. > > The House bill is a response to the furor over millions in retention > bonuses paid by AIG.
Bonus Backlash Is Upon Us, But a Well Structured Plan Benefits Shareholders [View article]
Definitely the word 'performance' needs to be juxtaposed once again with 'bonus'. Companies losing money are not performing so no bonuses. Divisions that don't perform - no bonuses. Bonuses should not be contractual and should ALWAYS be at the discretion of the board of directors even if performance targets are met - they have a fiduciary responsibility to shareholders. Bonuses that are an exponential function of rank should be eliminate (arithmetic is better) and made less rich for higher levels and more rich for lower levels. Cash bonuses, if any, should be a small % while stock,etc. a large % with a multiyear vesting period. Rich executive bonus plans such as we have seen on Wall Street and beyond are little more than theft from stockholders and consumers. We all pay for these outrageous plans which is not that different from taxpayers paying for them.
If not the fed who will re-ignite the economy? Congress? Wall Street? The free market?
Congress is gridlocked once again, this time over the issue of executive bonuses and won't be able to act on anything for awhile, at least until every one of them weighs in several times on the issue, and we have a few more hearings on the matter. There have only been a few times in our history when both sides of congress actually worked constructively together and most of these were times of war. Congress is where great (and not so great) debates occur and that's what they will do. Don't look for real long term solutions here.
Wall Street is on life support and won't be able to do much on its own. In this regard, the fed and the administration are their doctors who might just bring them back to life. It looks like a long recovery however and they will not be the freewheeling playboy gamblers they once were. Medicare has saved more than one life and that's a good thing. In the final analysis we really need a Wall Street but they will have to be carefully monitored in the future because your health and mine are a stake.
Admitedly, the free market will also work, however its solution would be too tragic to contemplate. Try to consider what would happen if all congressional, executive and fed initiatives were removed (or didn't happen in the first place). For starters, dozens and dozens of large financial and manufacturing firm bankrupcies causing massive unemployment which would lead massive federal spending for unemployment compensation, pension fund takeovers, and welfare. State and local governments would also fail due to loss of tax revenue. We would also likely see the beginnings of anarchy as literally everyone loses hope of a better future. If the American economy dies, the rest of the world economy dies with it setting the stage for all sorts of trade and shooting wars. Allowing this to happen is probably the quickest way to get us to a socialist-authoritarian government. Free market advocates, in the strictest sense of that definition, believe in a theoretical, idealistic dream world inspired by John Galt that has never existed except in the pages of Atlas Shrugged.
AIG Bonuses: The Tipping Point Toward Decisive Action? [View article]
Dear elcopone - capitalism did run its course and in the end forced world governments to step in and save all our asses. Anyone who thinks the insolvency of most major banks, most major wall street firms, the major auto manufacturers and whatever else, all coming at the same time is delusional to believe that would be a superior result to what we are seeing, which is bad enough.
'Capitalism' will return, hopefully better managed and better regulated. But what you think this is and what it will be are probablly two different animals. First of all, capitalism in America hasn't existed for a long time. For beginners, there are tax policies. Towns, cities, states and the federal government all stimulate or choke commerce through tax policy. My town lured big box stores through property tax incentives, other towns impose punitive measures to discourage the same type of development. States have enterprise zones. The federal government gives tax breaks to big oil, ethanol, alternative energy or whatever else the polically powerful are able to connive. This works against the most basic premise of capitalism that all businesses have a fair and equal shot in the beginning. Agriculture is another example. Price supports, crop subsidies, payment for retired lands have turned agriculture into a game for large corporate farmers who angle for federal welfare payments. This trickles all the way up to your shopping cart through thousands of businesses between the farmer and your dinner table. And why in the hell do we still support the tobacco industry? They kill people with their products. And wouldn't it be great if we had capitalism in the drug industry (I assume a capitalist objects to the rigorous oversight of the FDA drug approval process). This and many other areas need rigorous control by the federal government to protect the nation's and individual's health and well being. The financial industry also needs this more rigorous control until they can prove that they can be trusted.
Jeremy Grantham: Reinvesting When Terrified [View article]
I invested in top rated mutual funds - some of the best Fidelity and Hartford funds and lost a bundle. I invested in some of the top rated financial firms - AIG, Lehman, Merrill, Goldman, Morgan Stanley and lost a bundle. I invested in some of the top manufacturing firms - GE, UTX, Boeing and lost a bundle. Even BRKA. At no point did I feel that I was taking bigs risks because at the time, these investments were rated as among the best - AAA or their near equivalent. That happens in a bear market - the good turn bad, bad turn ugly, the ugly cease to exist.
So how will I make it back in then next bull market? Lots of people like those above will have ideas. In a true bull market the herd effect wil ensure most of these will enjoy some success, some will enjoy great success, a few will not pan out.
Our culture, society and economic structure are presently undergoing great change. So how do you pick winners of the future? Alternative energy, fuel efficient autos, digital technology, manufacturing, commodities, internet plays? Lots of people have ideas and will develop rationales for supporting them, but in reality these are nothing better than guesses. Which will turn out right? Which won't? This is the risk side of investing.
So here's my epiphany. The most powerful forces in the market are not you and me but mutual and hedge fund managers. Mutual fund returns in particular are routinely compared to the S&P 500, some do a little better, some not quite as well. In the total universe of funds, a small percentage of outliers are above or below the S&P and are usually specialty funds or targeted in some way. If the S&P is the standard for comparison, why should I gamble that I am prescient or lucky enough to pick the right fund (actually the right fund manager), or the right stock (which can tank if a great leader gets sick or takes a leave of absence), or the right hedge fund (who's manager and activities are great mysteries)? Why not just invest in the S&P 500? Like smaller companies? Russell 2000 or 3000. Like foreign companies? EEM. Perhaps a blend of the three.
Lots of people will argue that I will only get average returns with this strategy. In retrospect, I would love to have those average returns. I will throw a challenge to the staticians among you. I suspect that the majority of mutual fund managers and individual investors have NOT outperformed the S&P 500 over the long run. Hopefully we will see a future article on this.
Just like at the casino - if you play for awhile you're bound to win some but the vast majority go home with less money than they started with. However they usually tell confidants about their wins or, if they admit to losing, remind people that they went there primarily to be entertained anyway so the cost was worth it.
Why Economists Have Downgraded Obama to Bush-Plus [View article]
And who grades the economists? Isn't this the group who, in 2007, thought 2008 would better than ever and, in the last half of 2008, thought there was only a mild risk of a possible mild recession in 2009? Asking these guys to give a grade to someone is like asking a dropout to grade the principal.
The U.S. Financial Accounting Standards Board (FASB) will discuss mark-to-market guidelines at a board meeting Monday. The FASB says it will focus on "additional application guidance that would clarify how mark to market is used in illiquid markets." Earlier today, FASB chairman Robert Herz told a House subcommittee that new rules could be implemented within three weeks. [View news story]
Buffett credits Graham with saying 'Price is what you pay, value is what you get.'
When there is an active market, buyers equate the two - current price=current value. They obviously hope that value will increase over time making the price they paid a good deal. Sellers? Well they either got their good deal or decided it's time to get out for any number of reasons.
When there is no market or a thin market, what is the value? Is it face value, what you paid, zero, something else?
As dixie alludes, in these situations market value= distress value, which is not necessarily the best measure of value for all the other holders of the asset. The seller has its own reason for accepting the market/distress price, however other owners may have a longer term horizon and have a different concept of value. Whatever concept that is needs guidance so that other investors are not misled.
It's good the FASB is looking into modifying mark-to-market rules as applied in illiquid markets. Mindless application of mark-to- market over the last year and a half have caused a lot of incorrectly interpreted and unnecessary financial disasters. I just wish FASB understood the concept of urgency.
Wall Street Breakfast: Must-Know News [View article]
Swine Flu: Why You Can Ignore the Hype [View article]
Deflation Returns to Britain [View article]
Isn't money like stock? If a company decides to split 2-1 what happens to the price/share? When a government increases the money supply, the same happens to value of currency. This gets quite confusing when most governments in the world do this at the same time because it amounts to every country devalueing their currency simultaneously. Somehow, markets are expected to sort out what the relative values are. We can only hope that they're efficient!
Closing Update: Streak Stretches Six [View article]
On Apr 18 02:30 AM MarkitWacha wrote:
> One problem with the up, up, and away theory - CMBS. Commercial real
> estate will hit Chase hard. It's so bad, that a rational businessman/woman
> might want to close any real estate business and walk away from the
> mortgage. Anecdotal evidence suggests retail properties are down
> approx. 30%. Here's how I think it will play out:
>
> * In 3 months, office occupancy rates will hit new lows.
> * the retail story will linger, causing smaller retail bankruptcies
> as we drift further away from the 2008 Christmas season. 2009 Christmas
> will disappoint and we'll see strip malls turn into ghost barracks.
> The rebound will happen when unemployment drops to 6.5%, but no one's
> predicting that till 2012.
> * the corresponding reduction in property taxes will stress quite
> a few municipalities into crisis.
> * the muni bond market will deteriorate significantly.
> * mayors, citing budget crises, will cut city staff across the board.
>
> * Boeing will announce plans to leave Washington state. Microsoft
> will stop hiring in Washington in favor of Canada. Weyerhauser will
> split and report taxes like a REIT.
> * The Solar photovoltaics businesses and wind power generation businesses
> will be shocked. Electricity generation will dramatically drop in
> cost via traditional methods to ~8 cents/kWh. This will sap up demand
> for alternates as if it were cocaine in the 80s. After some major
> bankruptcies, electricity prices will bounce upward with the recovery
> in late 2010, but too late for the big alternate energy producers
> that couldn't get bridge loans.
> * California will threaten to default once on their bonds. The Federal
> reserve will bail them out, and politicians will jump in, trying
> to control Cali's budget from blackberrys in DC.
>
> The data suggest that this rally is driven by quants. I'm saddened
> that it's taking in what's left from the typical 401k investor. I
> can just see people throwing good money after bad, risking their
> tax return, hoping it will double to cover another mortgage.
>
> To take advantage of the second major bear market that's coming in
> this drama, short municipal bonds or municipal bond funds. Just in
> case the Fed becomes the backstop for munis, short the treasury bonds,
> via TBT, as well.
>
>
>
>
>
Definition of CMO Trading: Look for People Dumber than You and Take Advantage of Them [View article]
Raising doubts about the integrity and intelligence of the best and brightest (you don't have to be best and brightest after all, just not as dumb)? Revealing the true motives traders (greed vs. greed - take advantage of whomever, whenever)? Behind every good trader is a good programmer who can take all the complicated thinking out of playing with other peoples' money and keeping it for yourself?
And really, kindergarteners? (This brings to mind a friend's son who took a job with a small firm on Wall Street right out of college, 22 years old, showed up months later in a Lanborghini with a really hot chick in it, and started lavishing his parents with goodies. Then at age 24 he went to prison, helped prosecutors put away the masterminds at the firm, which turned out to be a 'criminal enterprise', and got out with a reduced sentence and much wisdom.) Small firms can be prosecuted, but as with many other areas of justice, the wealthy and well connected are not. But really what's the difference between the small crooks and the big ones, most of which are still alive and well? AIG, Lehman, Bear Stearns, Goldman, Morgan Stanley - are their hands clean?
Unfortunately you missed the best allegory - the obelisk in 2001 Space Odyssey which took Dave (traders and their programmers) to Jupiter and beyond the infinite - well, at least that's what they were shooting at.
Naked Shorting: An IM Exchange [View article]
wouldn't it be fun if you could sell other assets you don't own. like your neighbor's house for example. they actually catch people doing that from time to time and they end up in prison. so too naked shorters.
Bonus Backlash Is Upon Us, But a Well Structured Plan Benefits Shareholders [View article]
On Mar 19 05:12 PM A. Corinne wrote:
> All the talented people, especially in finance, will end up at privately
> held boutiques. You would have to be insane to continue working 80
> hours a week for a firm that isn't able to pay you any of the profits
> you generate for the firm. The WSJ has just posted the following...
>
>
> The House voted 328-93 to approve a bill imposing 90% taxes on employee
> bonuses from firms bailed out by taxpayers.
>
> The bill would tax bonuses paid by firms that received more than
> $5 billion from the TARP. The Senate is working on its own plan to
> try to recoup bonuses.
>
> The House bill is a response to the furor over millions in retention
> bonuses paid by AIG.
Bonus Backlash Is Upon Us, But a Well Structured Plan Benefits Shareholders [View article]
The Fed Must Be Crazy [View article]
Congress is gridlocked once again, this time over the issue of executive bonuses and won't be able to act on anything for awhile, at least until every one of them weighs in several times on the issue, and we have a few more hearings on the matter. There have only been a few times in our history when both sides of congress actually worked constructively together and most of these were times of war. Congress is where great (and not so great) debates occur and that's what they will do. Don't look for real long term solutions here.
Wall Street is on life support and won't be able to do much on its own. In this regard, the fed and the administration are their doctors who might just bring them back to life. It looks like a long recovery however and they will not be the freewheeling playboy gamblers they once were. Medicare has saved more than one life and that's a good thing. In the final analysis we really need a Wall Street but they will have to be carefully monitored in the future because your health and mine are a stake.
Admitedly, the free market will also work, however its solution would be too tragic to contemplate. Try to consider what would happen if all congressional, executive and fed initiatives were removed (or didn't happen in the first place). For starters, dozens and dozens of large financial and manufacturing firm bankrupcies causing massive unemployment which would lead massive federal spending for unemployment compensation, pension fund takeovers, and welfare. State and local governments would also fail due to loss of tax revenue. We would also likely see the beginnings of anarchy as literally everyone loses hope of a better future. If the American economy dies, the rest of the world economy dies with it setting the stage for all sorts of trade and shooting wars. Allowing this to happen is probably the quickest way to get us to a socialist-authoritarian government. Free market advocates, in the strictest sense of that definition, believe in a theoretical, idealistic dream world inspired by John Galt that has never existed except in the pages of Atlas Shrugged.
AIG Bonuses: The Tipping Point Toward Decisive Action? [View article]
'Capitalism' will return, hopefully better managed and better regulated. But what you think this is and what it will be are probablly two different animals. First of all, capitalism in America hasn't existed for a long time. For beginners, there are tax policies. Towns, cities, states and the federal government all stimulate or choke commerce through tax policy. My town lured big box stores through property tax incentives, other towns impose punitive measures to discourage the same type of development. States have enterprise zones. The federal government gives tax breaks to big oil, ethanol, alternative energy or whatever else the polically powerful are able to connive. This works against the most basic premise of capitalism that all businesses have a fair and equal shot in the beginning. Agriculture is another example. Price supports, crop subsidies, payment for retired lands have turned agriculture into a game for large corporate farmers who angle for federal welfare payments. This trickles all the way up to your shopping cart through thousands of businesses between the farmer and your dinner table. And why in the hell do we still support the tobacco industry? They kill people with their products. And wouldn't it be great if we had capitalism in the drug industry (I assume a capitalist objects to the rigorous oversight of the FDA drug approval process). This and many other areas need rigorous control by the federal government to protect the nation's and individual's health and well being. The financial industry also needs this more rigorous control until they can prove that they can be trusted.
John Galt died a long time ago. Get over it.
Jeremy Grantham: Reinvesting When Terrified [View article]
So how will I make it back in then next bull market? Lots of people like those above will have ideas. In a true bull market the herd effect wil ensure most of these will enjoy some success, some will enjoy great success, a few will not pan out.
Our culture, society and economic structure are presently undergoing great change. So how do you pick winners of the future? Alternative energy, fuel efficient autos, digital technology, manufacturing, commodities, internet plays? Lots of people have ideas and will develop rationales for supporting them, but in reality these are nothing better than guesses. Which will turn out right? Which won't? This is the risk side of investing.
So here's my epiphany. The most powerful forces in the market are not you and me but mutual and hedge fund managers. Mutual fund returns in particular are routinely compared to the S&P 500, some do a little better, some not quite as well. In the total universe of funds, a small percentage of outliers are above or below the S&P and are usually specialty funds or targeted in some way. If the S&P is the standard for comparison, why should I gamble that I am prescient or lucky enough to pick the right fund (actually the right fund manager), or the right stock (which can tank if a great leader gets sick or takes a leave of absence), or the right hedge fund (who's manager and activities are great mysteries)? Why not just invest in the S&P 500? Like smaller companies? Russell 2000 or 3000. Like foreign companies? EEM. Perhaps a blend of the three.
Lots of people will argue that I will only get average returns with this strategy. In retrospect, I would love to have those average returns. I will throw a challenge to the staticians among you. I suspect that the majority of mutual fund managers and individual investors have NOT outperformed the S&P 500 over the long run. Hopefully we will see a future article on this.
Just like at the casino - if you play for awhile you're bound to win some but the vast majority go home with less money than they started with. However they usually tell confidants about their wins or, if they admit to losing, remind people that they went there primarily to be entertained anyway so the cost was worth it.
How to Not Pay the AIG Bonuses [View article]
Why Economists Have Downgraded Obama to Bush-Plus [View article]
AIG Rewards Failure: How Could the Brightest Be So Blind? [View article]
The U.S. Financial Accounting Standards Board (FASB) will discuss mark-to-market guidelines at a board meeting Monday. The FASB says it will focus on "additional application guidance that would clarify how mark to market is used in illiquid markets." Earlier today, FASB chairman Robert Herz told a House subcommittee that new rules could be implemented within three weeks. [View news story]
When there is an active market, buyers equate the two - current price=current value. They obviously hope that value will increase over time making the price they paid a good deal. Sellers? Well they either got their good deal or decided it's time to get out for any number of reasons.
When there is no market or a thin market, what is the value? Is it face value, what you paid, zero, something else?
As dixie alludes, in these situations market value= distress value, which is not necessarily the best measure of value for all the other holders of the asset. The seller has its own reason for accepting the market/distress price, however other owners may have a longer term horizon and have a different concept of value. Whatever concept that is needs guidance so that other investors are not misled.
It's good the FASB is looking into modifying mark-to-market rules as applied in illiquid markets. Mindless application of mark-to- market over the last year and a half have caused a lot of incorrectly interpreted and unnecessary financial disasters. I just wish FASB understood the concept of urgency.