In true US Gov't fashion, the employment report shows a drop of 240K for October. But more important, a massive downward revision to August and Septemeber. Gee, was there an election this yr-u betcha. Workforce increased 800k, and of the 800k-600k were unemployed. Finally the US is getting back to reality. Expect large revisions to q3 GDP and for the recession to be dated for early 2008. Once again the rear view mirror is crystal clear with the gov't.
Going forward-expect to see an unwind of all the Republican efforts to make the economy better than what it was before the election. That ploy failed miserably-maybe the gov't will learn that doctoring/shading numbers is a failed strategy and will only affect short term decisions. Unemployment rate up to 6.5%-proabably on its way to 8-8.5%. One bright spot-avg hourly earnings up slightly.
FACT: The largest economy is in a tailspin. NOW that the truth is out and the disease has been identified, maybe the proper treatment can be administered.
As an aside-part of the large revisions is due to reduced government employment. Deficits do matter Mr. Cheney.
Friday, November 7, 2008
Wednesday, October 1, 2008
GE and Buy Backs
Last week GE released an earnings update-they would miss the ANALYSTS expectations. They maintained their dividend, but they cut their share buyback program. How much have they bought back over the last 5 yrs and what was the average price. According to their annual report, GE purchased 13.9 bln of stock (357mm shares=avg. cost of 38.9) in 2007. In 2006, GE purchased $7.8 bln of stock (229 mm shares=avg. cost of 34.06). Today they issue 12 bln of common stock at $22.50. WHAT is WRONG with this picture. Very simply management is inept-buying high and selling low. Instead of paying down debt and giving shareholders a bigger dividend, GE wasted its capital buying back shares that were issued under employee/executive pay programs. The more complicated the books, the more likely their is some dirty laundry in the mix. On top of that, Warren Buffett continues to build his cash spinning empire by buying a special class of preferred shares (10% dividend yield) plus warrants thrown into buy the common shares. Sounds to me like another round of expensive financing ala Goldman Sachs.
On a positive note, LIBOR dropped to 4% today from 6%, so all those short term LIBOR based loans are a little less expensive today. Let's see how long this lasts.
On a positive note, LIBOR dropped to 4% today from 6%, so all those short term LIBOR based loans are a little less expensive today. Let's see how long this lasts.
Tuesday, September 30, 2008
Solving the problem
Either the world deflates as in 1929, or the world infltes like 1923 Germany. I suspect 1923 will be the choice .
The Day After
Mkts cratered yesterday as the spineless and undercapitalized/over leveraged mkt participants were all leaning on the bailout going through. Call it a rescue package or whatever, but it does not help the average US citizen. In fact, the homeowner up to his eyeballs in debt is in the drivers seat. They can just stop paying their mortgage and and then wait for the bank to try and foreclose-good luck as the bank probably has no paperwork regarding the titile to the property. The mortgage has been packaged and re packaged and probably repackaged again. It will take months if not years to put all the pieces back together. Wait unitl the majority of subprime borrowers and then Alt-A borrowers and then credit card borrowers and then Auto borrowers go through the same process and then realize that if they stop paying, the banks/financial institutions have recourse only to the pledged asset. Given that the pledged asset is upside down, highly unlikely the banks are in a rush to take the asset back.
Friday, September 26, 2008
Fireworks
Listening to the Financial News on the MSM, one would think the world is coming to an end. Maybe the financial world, but not the real world. In a capitalist society, bankruptcy is necessary to reign in excessive risks. Thw wise and strong will survive, while the ignorant and weak wither. For the last 8 yrs, risk control has taken a back seat to greed. Now the opposite is happening as risk control has shifted to the other side and fear reigns supreme. How long this lasts is anybody's guess. The 'Free' Market will sort it out eventually, but the markets have been anyhting but free in the last 12 months. Heavy PPT intervention, followed by excessive rule changing has completely screwed the system up. Let the Mkts work-set the interest rate, provide liquidity and then help the players build a solid base to continue business. The fact is that when the retail investor has been duped into buying stocks that are supported by a 25-1 leverage ratio-bad things happen. There are some great investments out their right now, but with capital short and tied up in illiquid and junky assets, it can not migrate to the better investments. The Paulsen plan would help free up some of that capital, but it is being bogged down in Congress as the cost of the plan is being difficult to sell. The US gov't has abandoned the middle class in the last 8 yrs while pandering to the rich. The gall to ask for taxpayer funds to support the Fat Cats is ridiculous. Let the mkt work it out-sure there will be bankruptcies, but that is life. The sun will rise in the East and Set in the West-life will go on, but it will not be as nice as it was when money and credit were cheap and esy to get.
Saturday, September 20, 2008
Fed Losing Influence
One thing to note that is being downplayed by the MSM is that the Treasury had to go to the market for more money to initiate some of its programs. The US FED is raising NEW MONEY to pay for these bailouts. In the past the FED was able to use its existing balance sheet to bailout financial institutions or influence the mkts. More fund raising required.
An early morning Saturday note is the Pres. Bush has just requested Congress to raise the National Debt limit to 11.3 trillion from 10.6 trillion. This is after Paulsen and Bernanke had the debt limit raised form 9.8 trillion to 10.6 trillion for their rescue plan for Frediie and Fannie (also AIG). The ink is not even dry on the proposals and the price tag is rising (just like oilsands projects). In the last 2 months, the National debt limit has been raised from 9.8 T to 11.3 T or 15% (1.5 T total). If it was not so sad, it would be funny. To put it into context, each and every US citizen has just gone $5,000 deeper into debt.
An early morning Saturday note is the Pres. Bush has just requested Congress to raise the National Debt limit to 11.3 trillion from 10.6 trillion. This is after Paulsen and Bernanke had the debt limit raised form 9.8 trillion to 10.6 trillion for their rescue plan for Frediie and Fannie (also AIG). The ink is not even dry on the proposals and the price tag is rising (just like oilsands projects). In the last 2 months, the National debt limit has been raised from 9.8 T to 11.3 T or 15% (1.5 T total). If it was not so sad, it would be funny. To put it into context, each and every US citizen has just gone $5,000 deeper into debt.
Saturday Notes
Capital markets rally huge on Friday as the World Gov'ts intervene in the mkts. Banning short selling in the finacials resulted in a massive short squeeze. Other events-guaranteeing MMKT funds, creating a RTC and/or RFC type gov't agency to take the bad debts off the banks balance sheet. What has become clear in the last month is that US Financial Institutions are a protected species. They are also an endangered species are on the protected list-NO HUNTING US BANKS.
Interesting timeline. IN 2004 the SEC granted 5 US Broker Dealers with the ability to leverage themselves up from 10-12X to 30-40 X. Who were they-Bear Stearns, Lehman, Merrill Lynch, Morgan Stanley, and Goldman.
3 of the 5 have blown up or been married off. If that was not bad enough, the top talent from these firms went off to set up hedge funds which in turn were levered 20 to 40X. So the capital pyramind not only get bigger, but it almost got more unstable. NOTICE the SEC created this mess and the greed on Wall Street amplified the mess. Was this a plan by the NEOCONS to finance the US economy. This entire leveraging experience is going to unwind. The process is 1/3 to 1/2 way through.
The FEDS are taking the inflation way out. Instead of letting asset prices fall to a clearing level-DEFLATION, they are going to maintain asset prices by deflating the value of the USD. All of these plans by the government are going to require new debt to be issued and new money to be created to pay for this. The US TAXPAYER is going to get creamed in the next decade. The US is going to muddle along for years as the excesses are unwound. The fraud is coming out and it is just like ENRON and Worldcom-only larger. Interest rates are going a lot higher as they full faith of the US GOV'T has been compromised. Foreign investors are skeptical of the US Gov't actions. The theory it will never happen due to mutual economic destruction (similiar to the Nuclear arms race) is now toast. The Chinese, Middle East, and Europeans are going to build their domestic economies up and stop relying on the US for there products. The Chinese have 1.2 Trillion of reserves and part of that is going to be used to maintain a positive domestic economy.
Hang on-my fearless forecast: Interest rates, Precious Metals up, oil prices flat at 80-120, copper up (due to the electrification of global economies), base metals down to flat, food crops up as the third world wants to eat, stocks down as the higher interest rates will decrease the multiple investors are willing to pay. In addition as the demographics swing to a retiring population, the asset mix is going to favor fixed income/dividend products. Corporate bonds are trading at wide spreads as default rates rise. If 5 yr corporate bonds are yield 6%+, why buy equities?
Interesting timeline. IN 2004 the SEC granted 5 US Broker Dealers with the ability to leverage themselves up from 10-12X to 30-40 X. Who were they-Bear Stearns, Lehman, Merrill Lynch, Morgan Stanley, and Goldman.
3 of the 5 have blown up or been married off. If that was not bad enough, the top talent from these firms went off to set up hedge funds which in turn were levered 20 to 40X. So the capital pyramind not only get bigger, but it almost got more unstable. NOTICE the SEC created this mess and the greed on Wall Street amplified the mess. Was this a plan by the NEOCONS to finance the US economy. This entire leveraging experience is going to unwind. The process is 1/3 to 1/2 way through.
The FEDS are taking the inflation way out. Instead of letting asset prices fall to a clearing level-DEFLATION, they are going to maintain asset prices by deflating the value of the USD. All of these plans by the government are going to require new debt to be issued and new money to be created to pay for this. The US TAXPAYER is going to get creamed in the next decade. The US is going to muddle along for years as the excesses are unwound. The fraud is coming out and it is just like ENRON and Worldcom-only larger. Interest rates are going a lot higher as they full faith of the US GOV'T has been compromised. Foreign investors are skeptical of the US Gov't actions. The theory it will never happen due to mutual economic destruction (similiar to the Nuclear arms race) is now toast. The Chinese, Middle East, and Europeans are going to build their domestic economies up and stop relying on the US for there products. The Chinese have 1.2 Trillion of reserves and part of that is going to be used to maintain a positive domestic economy.
Hang on-my fearless forecast: Interest rates, Precious Metals up, oil prices flat at 80-120, copper up (due to the electrification of global economies), base metals down to flat, food crops up as the third world wants to eat, stocks down as the higher interest rates will decrease the multiple investors are willing to pay. In addition as the demographics swing to a retiring population, the asset mix is going to favor fixed income/dividend products. Corporate bonds are trading at wide spreads as default rates rise. If 5 yr corporate bonds are yield 6%+, why buy equities?
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