Pigs are delicious. Plain and simple. Bacon is one of my three perfect foods (the other two are Kraft Mac N Cheese and JIF peanut butter). But it seems that the pigs are striking back.
Swine Flu is going to be around for months, at best. People are already buying supplies (you can't find a medical mask in the whole of Austin, TX) and changing travel plans. I can't blame them. Trusting the federal government to protect you is a lot like asking the IRS for help with your tax refund- not the best plan.
Initially this wave of buying will show up as a bump in retail sales figures. But if the flu scare gets worse, and people stay home, then look out for more economic bad news. If affected areas decide to issue warnings to avoid public places, you can bet that shopping malls, concerts, sports events, schools, and churches will suffer in a big way. Grocery shopping will become a middle-of-the-night activity. While online sales may jump, overall sales will plummet.
Let's hope they find a vaccine soon, as that is the best way to calm this situation down. This flu doesn't have to turn deadly in the U.S. to cause a lot of pain. At least summer is here. Those poor folks in the southern hemisphere have more to worry about as swine flu mixes with their normal flu season. Uhhggg.
P.S. I bet we're within weeks of some animal lover getting mad at the fact that this whole thing is being blamed on innocent piggies...
Tuesday, April 28, 2009
Thursday, April 23, 2009
Bank Stress Test
Tomorrow we will hear a lot about the government's effort to perform stress tests on U.S. banks. The headlines will begin with the government's release of a white paper detailing the testing methodology, and then continue as the results are consumed by analysts, politicians, and pundits.
As I write this, the banks and the government are continuing to fight (right up to the last minute) about how the test results should be released. This fight is about which numbers will be used, and how they will be presented. The banks want to look as good as possible, while the government wants to increase public confidence, so I'm not really sure what they are fighting about. I imagine the fight goes something like this:
Banker "Look, we don't want to name the report 'Stress Test' anymore. We prefer 'Review of Bank Awesomeness'."
Government "That's a great idea, I just wish we thought of it at the beginning. I can't look bad by changing it now. So I'm going to say 'No Way'. But I reserve the right to use it anyway."
Banker "Fine. We also want to withhold actual financial data at our choosing. To make up for the empty space this will create in the report, we propose releasing a survey of employee stress indicators."
Government "So you want us to report on how stressed out your employees are? That might just work. Can we give them free doughnuts and coffee before they take the survey? It might make for better results. You guys are really good at this!"
If both the government and the banks have incentives to increase public confidence, then how can we expect them talk about loan losses, reductions in lending, mortgage defaults, etc.?
The real stress test is simply continuing to listen to the government pretend like they know what they are doing. Maybe a Stress Test Czar would help?! That sure sounds official and important!
As I write this, the banks and the government are continuing to fight (right up to the last minute) about how the test results should be released. This fight is about which numbers will be used, and how they will be presented. The banks want to look as good as possible, while the government wants to increase public confidence, so I'm not really sure what they are fighting about. I imagine the fight goes something like this:
Banker "Look, we don't want to name the report 'Stress Test' anymore. We prefer 'Review of Bank Awesomeness'."
Government "That's a great idea, I just wish we thought of it at the beginning. I can't look bad by changing it now. So I'm going to say 'No Way'. But I reserve the right to use it anyway."
Banker "Fine. We also want to withhold actual financial data at our choosing. To make up for the empty space this will create in the report, we propose releasing a survey of employee stress indicators."
Government "So you want us to report on how stressed out your employees are? That might just work. Can we give them free doughnuts and coffee before they take the survey? It might make for better results. You guys are really good at this!"
If both the government and the banks have incentives to increase public confidence, then how can we expect them talk about loan losses, reductions in lending, mortgage defaults, etc.?
The real stress test is simply continuing to listen to the government pretend like they know what they are doing. Maybe a Stress Test Czar would help?! That sure sounds official and important!
Tuesday, April 21, 2009
Why Should I?
The government (Bush's and Obama's) keeps asking me to trust them. And my question is- Why Should I?
Bush was a republican who started massive ethanol subsidies (a bio fuel that actually uses more carbon to produce than it saves) and kept having trouble explaining exacting why we were at war. Obama preaches fiscal responsibility while proposing to triple the national debt at the same time. Both scream "It's not my fault!"
The Bush administration had such poor ratings that the last election was a landslide of change. American citizens were tired of not hearing the full story. Now the Obama administration promises to fix everything right now, including the deficit, as long as we trust them with a ton of overspending in the short term.
Bush used fear. Obama used hope, and now fear (if we don't act now it will be a terrible mistake). But I don't trust either of them.
I don't trust that they understand how to fix the problem. I don't trust that they are above back room deals with old friends. I don't even trust that their cabinet members pay the same taxes that I pay.
Without this trust I am left to watch their actions, knowing full well that they will blame anyone but themselves. I am left wondering when to apply tough love to these drunken spenders of my money. I am left watching to see if the world really reacts differently when we talk more and shake more hands.
But so far I'm not impressed. We threw big money at terrible auto companies. We have North Korea, Iran, and Russia all saying "screw you and your softer style". We have explanations about how the bailout money would create more lending, while lending drops every quarter.
The actions are not matching the talk. This isn't a liberal/conservative issue. It isn't grounded in party politics. It is grounded in the observation of terrible performance. The only answer I know is to push for term limits in the senate and congress, while continuing to resist government spending (by anyone).
These people are crazy!
Bush was a republican who started massive ethanol subsidies (a bio fuel that actually uses more carbon to produce than it saves) and kept having trouble explaining exacting why we were at war. Obama preaches fiscal responsibility while proposing to triple the national debt at the same time. Both scream "It's not my fault!"
The Bush administration had such poor ratings that the last election was a landslide of change. American citizens were tired of not hearing the full story. Now the Obama administration promises to fix everything right now, including the deficit, as long as we trust them with a ton of overspending in the short term.
Bush used fear. Obama used hope, and now fear (if we don't act now it will be a terrible mistake). But I don't trust either of them.
I don't trust that they understand how to fix the problem. I don't trust that they are above back room deals with old friends. I don't even trust that their cabinet members pay the same taxes that I pay.
Without this trust I am left to watch their actions, knowing full well that they will blame anyone but themselves. I am left wondering when to apply tough love to these drunken spenders of my money. I am left watching to see if the world really reacts differently when we talk more and shake more hands.
But so far I'm not impressed. We threw big money at terrible auto companies. We have North Korea, Iran, and Russia all saying "screw you and your softer style". We have explanations about how the bailout money would create more lending, while lending drops every quarter.
The actions are not matching the talk. This isn't a liberal/conservative issue. It isn't grounded in party politics. It is grounded in the observation of terrible performance. The only answer I know is to push for term limits in the senate and congress, while continuing to resist government spending (by anyone).
These people are crazy!
Monday, April 20, 2009
Inflation?
The DOW is struggling to stay at 8,000 as corporate profits are reported for the last quarter. The profits are far below last year, but generally in line with analyst expectations, which many call a good thing. The logic goes like this, "If we hit the analyst expectations, then we must be doing good." Unfortunately, the analysts expect things to be terrible. So I don't see how hitting their expectations is a sign of anything positive.
It seems that the media, and stock traders, and those with stock accounts hurting from the recent down trend are all anxious to return to the old buy-and-hold mentality. Stories are being written about "Missing the Rebound" and "Recovery Quicker Than Expected". People just want to go back to the good ol' days. But it's not that easy.
We are at a very vulnerable spot. If oil goes up, we get screwed. If a major failure surprises us, we get screwed. If inflation starts to run up, we get screwed. And out of all of these very possible events, it is inflation that worries me the most.
Ballooning national debt has the terrible side effect of encouraging the government to print more money. This printing expands the total amount of money in the market, without expanding the value of the market, so every dollar is now worth less. When money is worth less, people need more of their income to spend on the basics, and non-essentials get skipped.
Is it a sure thing that the market tests the lows and falls apart? No. But does it make any sense to say that the worst is behind us? No. We're in the wait and see period. The time when we all hold our breath and try to keep the next domino from falling.
It seems that the media, and stock traders, and those with stock accounts hurting from the recent down trend are all anxious to return to the old buy-and-hold mentality. Stories are being written about "Missing the Rebound" and "Recovery Quicker Than Expected". People just want to go back to the good ol' days. But it's not that easy.
We are at a very vulnerable spot. If oil goes up, we get screwed. If a major failure surprises us, we get screwed. If inflation starts to run up, we get screwed. And out of all of these very possible events, it is inflation that worries me the most.
Ballooning national debt has the terrible side effect of encouraging the government to print more money. This printing expands the total amount of money in the market, without expanding the value of the market, so every dollar is now worth less. When money is worth less, people need more of their income to spend on the basics, and non-essentials get skipped.
Is it a sure thing that the market tests the lows and falls apart? No. But does it make any sense to say that the worst is behind us? No. We're in the wait and see period. The time when we all hold our breath and try to keep the next domino from falling.
Friday, April 17, 2009
Commercial Real Estate Troubles?
Yesterday, General Growth Properties declared bankruptcy. This is the largest real estate bankruptcy in U.S. history. Among other holdings, General Growth Properties (GGP) owns the Water Tower building in Chicago and the Grand Canal Shoppes in the Venetian at Las Vegas.
These guys own a lot of property. Over $29 billion in real estate assets backed by over $27 billion in loans from people like Citigroup and Goldman Sachs. Any of those names sound familiar?
GGP is a REIT, which stands for Real Estate Investment Trust. REITs generally act llike mutual funds. People by shares in the REIT's holding on the stock exchange, and the REIT managers use the share money to buy real estate assets and manage them.
The odd thing about GGP going bankrupt is that they have good cash flow. They can pay their bills. But a number of their loans are coming due and banks won't lend them money to refinance. So in essence, GGP is going broke because too many of the loans it carries are maturing at the same time, and they had planned on refinancing them instead of paying them off. This is the credit crunch in action.
This is a case of banking risk being bigger than market risk (market risk being the risk of real estate properties getting cheaper). Unusual, but obviously not impossible. Also not a great sign that the banks are back to normal.
These guys own a lot of property. Over $29 billion in real estate assets backed by over $27 billion in loans from people like Citigroup and Goldman Sachs. Any of those names sound familiar?
GGP is a REIT, which stands for Real Estate Investment Trust. REITs generally act llike mutual funds. People by shares in the REIT's holding on the stock exchange, and the REIT managers use the share money to buy real estate assets and manage them.
The odd thing about GGP going bankrupt is that they have good cash flow. They can pay their bills. But a number of their loans are coming due and banks won't lend them money to refinance. So in essence, GGP is going broke because too many of the loans it carries are maturing at the same time, and they had planned on refinancing them instead of paying them off. This is the credit crunch in action.
This is a case of banking risk being bigger than market risk (market risk being the risk of real estate properties getting cheaper). Unusual, but obviously not impossible. Also not a great sign that the banks are back to normal.
Thursday, April 16, 2009
Foreclosures Are Back
The temporary moratoriums on foreclosure filings, that the government pushed large banks to declare, has expired. So the backlog of mortgages that would have been foreclosed on during this period is on the way to completion. It seems that the "timeout" called by the government didn't help people find ways to pay mortgages they couldn't afford in the first place, who would've guessed?
These foreclosures enter the market as inventory, and will weigh down prices on the overall market (a big new chunk of supply), making a housing recovery difficult in the near term. But we have to do this. The "timeout" may have allowed people to breathe, but it did nothing to fix the problem. And sooner or later we have to deal with the basic fact that many people bought homes they couldn't afford to live in.
A touch over 800,000 homes were foreclosed on in the first quarter of 2009, with 5 states (California, Arizona, Florida, Nevada, and Illinois) accounting for 60% of the total. These are localized problems to some extent, and the locals feeling the pain have been very successful at making us think it is a national problem.
At the philosophical level, I seem to hear a lot of people saying that houses deserve to be safe investments. Homes should not get cheaper, period, ever. But that is crazy talk. The housing market is a large, flowing market with lots of money at stake. There is risk involved. And if we take that risk away, we will also take the rewards of smart investing away. There is simply no such thing as a risk-free market.
Buy a house at a bad price - and you'll lose money. This situation is basic. This situation is exactly what allows the other side of the story to be true as well. Buy a house at a good price - and you'll make money. Welcome to the market!
These foreclosures enter the market as inventory, and will weigh down prices on the overall market (a big new chunk of supply), making a housing recovery difficult in the near term. But we have to do this. The "timeout" may have allowed people to breathe, but it did nothing to fix the problem. And sooner or later we have to deal with the basic fact that many people bought homes they couldn't afford to live in.
A touch over 800,000 homes were foreclosed on in the first quarter of 2009, with 5 states (California, Arizona, Florida, Nevada, and Illinois) accounting for 60% of the total. These are localized problems to some extent, and the locals feeling the pain have been very successful at making us think it is a national problem.
At the philosophical level, I seem to hear a lot of people saying that houses deserve to be safe investments. Homes should not get cheaper, period, ever. But that is crazy talk. The housing market is a large, flowing market with lots of money at stake. There is risk involved. And if we take that risk away, we will also take the rewards of smart investing away. There is simply no such thing as a risk-free market.
Buy a house at a bad price - and you'll lose money. This situation is basic. This situation is exactly what allows the other side of the story to be true as well. Buy a house at a good price - and you'll make money. Welcome to the market!
Wednesday, April 15, 2009
Micro Cars Suck
OK, I get that many people feel guilty about using fossil fuels. I understand that we use them faster than they can be replaced. I understand that the carbon level is a major concern for most. I just don't care much any more. The logic simply doesn't hold up for me.
First of all, when we say that carbon levels are rising, and that global temperatures are rising as a result, we make a lot of assumptions. We assume, for starters, that people are the source of all the carbon. We assume that the levels of carbon are harmful and higher than previous periods of history. We assume that carbon levels are the main driver of temperature change. We assume that temperatures are rising faster than ever before.
But we only have data going back to the mid 1800s. That's right. We are making sweeping assumptions about how a planet that is billions of years old reacts to change based on less than 1% of the data. That is called arrogance. I guess our 150 years are the most important. Of course we are the source of everything, because we are the most important part of the equation.
Ice core samples show that carbon levels have been higher in the past, before cars existed. Ice core samples give us indications that temperatures have been higher than they are today. But that information doesn't fit with the doomsday science, so we should just ignore it.
Not only is the world heating up as we foolishly burn fossil fuels, but it is your individual responsibility to make a difference. And I would like you to do that by putting your life at risk. Drive a micro car that goes twice as far on a gallon of gas. Just don't get in an accident. Because if you do your precious micro car will fold up like aluminum foil origami. But you'll get good mileage right up until that point.
As for me, I'm driving something that weighs more. I don't trust other drivers. But I do trust the laws of physics, and the laws of physics tell me that more weight (or more specifically mass) will equate to more safety in an accident. My doomsday scenario involves a car crash - which is a realistic possibility in my life. Global change based on very limit scientific observation will have to take a back seat for now (do micro cars have back seats?).
First of all, when we say that carbon levels are rising, and that global temperatures are rising as a result, we make a lot of assumptions. We assume, for starters, that people are the source of all the carbon. We assume that the levels of carbon are harmful and higher than previous periods of history. We assume that carbon levels are the main driver of temperature change. We assume that temperatures are rising faster than ever before.
But we only have data going back to the mid 1800s. That's right. We are making sweeping assumptions about how a planet that is billions of years old reacts to change based on less than 1% of the data. That is called arrogance. I guess our 150 years are the most important. Of course we are the source of everything, because we are the most important part of the equation.
Ice core samples show that carbon levels have been higher in the past, before cars existed. Ice core samples give us indications that temperatures have been higher than they are today. But that information doesn't fit with the doomsday science, so we should just ignore it.
Not only is the world heating up as we foolishly burn fossil fuels, but it is your individual responsibility to make a difference. And I would like you to do that by putting your life at risk. Drive a micro car that goes twice as far on a gallon of gas. Just don't get in an accident. Because if you do your precious micro car will fold up like aluminum foil origami. But you'll get good mileage right up until that point.
As for me, I'm driving something that weighs more. I don't trust other drivers. But I do trust the laws of physics, and the laws of physics tell me that more weight (or more specifically mass) will equate to more safety in an accident. My doomsday scenario involves a car crash - which is a realistic possibility in my life. Global change based on very limit scientific observation will have to take a back seat for now (do micro cars have back seats?).
Tuesday, April 14, 2009
Go Navy!
The best news story I have heard in months was written about the rescue of a U.S. ship captain from pirates. You've all heard about it. Navy Seals shot and killed three pirates. That's what I'm talking about!
Finally we have a clear example of proper force being used when we felt our interests or citizens were threatened. At I haven't heard anyone crying about the poor pirates (which is surprising). Of course these were lower level henchmen. Of course they come from poor countries with few choice. But they made a choice to threaten a U.S. citizen, and I'm glad they got shot for it. Actually, we need a bit more of that.
Our kinder and gentler approach to creating a peaceful world has me exceptionally worried. The reasons are simple, and are as true on an elementary playground as they are in global politics:
Powerful responses must be three things:
Decisive
Clear - to the point of being impossible to misunderstand
Without apology
The item on that list that is most often screwed up when people attempt to act strongly is the "without apology" part. It is one thing to feel badly about needing to act strongly, it is another to apologize for doing so. Mixing up the two feelings puts you at risk of further harm, as guilt shows weakness.
Shoot more pirates. Stand tall about it. It may not be fun, or pretty, or fair, or proud. But it is necessary. And we must have the courage to do hard things if we expect to defeat bad people.
Finally we have a clear example of proper force being used when we felt our interests or citizens were threatened. At I haven't heard anyone crying about the poor pirates (which is surprising). Of course these were lower level henchmen. Of course they come from poor countries with few choice. But they made a choice to threaten a U.S. citizen, and I'm glad they got shot for it. Actually, we need a bit more of that.
Our kinder and gentler approach to creating a peaceful world has me exceptionally worried. The reasons are simple, and are as true on an elementary playground as they are in global politics:
- Bad people take advantage of weakness, unfairly
- Talk is cheap, truth is apparent only in action
- Pretending to abide by the rules while continuing to behave badly only fools blind idealists, the willfully ignorant, and cowards looking for excuses.
Powerful responses must be three things:
Decisive
Clear - to the point of being impossible to misunderstand
Without apology
The item on that list that is most often screwed up when people attempt to act strongly is the "without apology" part. It is one thing to feel badly about needing to act strongly, it is another to apologize for doing so. Mixing up the two feelings puts you at risk of further harm, as guilt shows weakness.
Shoot more pirates. Stand tall about it. It may not be fun, or pretty, or fair, or proud. But it is necessary. And we must have the courage to do hard things if we expect to defeat bad people.
Monday, April 13, 2009
Unwinding
As earning reports come out in a flurry of activity, expect to hear about how things are bad, but not super-bad. I'm not sure what that means either. But the media is desperately trying to find something positive to report on when it comes to the market.
Why? Why is the media so intent on finding a positive spin to earnings reports that are terrible compared to last year at this time? Because they are human. They tend to have their own investments in the market, and like you and me, they too are tired of the bad news. So we can expect them to hope, and to be more receptive to good stories than bad.
But the earnings are not good. Many earnings, when compared to this time last year, are down over 50-80%. In some many cases, once profitable companies are now losing money, the percentage drop is infinite. Meanwhile, the DOW is down roughly 45%. That alone tells me that there is room to fall.
So I'm staying out of the way of this market. I still believe that 2009 will be a rough year financially, and that government spending is not the answer. In fact I'm short the market at these levels. As far as I can tell, the bigger opportunity is in falling markets.
Why? Why is the media so intent on finding a positive spin to earnings reports that are terrible compared to last year at this time? Because they are human. They tend to have their own investments in the market, and like you and me, they too are tired of the bad news. So we can expect them to hope, and to be more receptive to good stories than bad.
But the earnings are not good. Many earnings, when compared to this time last year, are down over 50-80%. In some many cases, once profitable companies are now losing money, the percentage drop is infinite. Meanwhile, the DOW is down roughly 45%. That alone tells me that there is room to fall.
So I'm staying out of the way of this market. I still believe that 2009 will be a rough year financially, and that government spending is not the answer. In fact I'm short the market at these levels. As far as I can tell, the bigger opportunity is in falling markets.
Thursday, April 9, 2009
Easter Weekend
Has Easter weekend seen the beginning of a market rebirth? With Wells Fargo announcing that it will post a record quarterly profit of over $3 billion, it sures sounds like better news than we have had in quite some time. The markets love this news, and so do I.
But can we trust it? How has Wells Fargo come up with such a great new number? Simple, two ways:
1) Wells merged with Wachovia, and the merger will allow them to post savings as they lay off workers.
2) The new accounting rules issued by the FASB allowed for fewer write-offs.
Wells Fargo is really in the same boat is has been in. Lots of terrible assets. Way too much executive compensation. A slowing economy. The reality hasn't changed.
I hope we do rally further. I want better prices to sell this dead cat bounce at. This downturn is far from over. So look out for a post-Easter slide...
Cheers!
But can we trust it? How has Wells Fargo come up with such a great new number? Simple, two ways:
1) Wells merged with Wachovia, and the merger will allow them to post savings as they lay off workers.
2) The new accounting rules issued by the FASB allowed for fewer write-offs.
Wells Fargo is really in the same boat is has been in. Lots of terrible assets. Way too much executive compensation. A slowing economy. The reality hasn't changed.
I hope we do rally further. I want better prices to sell this dead cat bounce at. This downturn is far from over. So look out for a post-Easter slide...
Cheers!
Wednesday, April 8, 2009
Guatemala
I recently visited a private university in Guatemala, UFM. I was astounded by what I found. In a country torn by years of civil war, poverty, and drug gangs, there are major power blocks of both communist and socialist political groups. Democracy in this fragile country is hanging on by a thread.
In the worst of this environment, 35 years ago, 6 business men banded together to form their free market university, UFM. They built a small campus devoted to the education of free market thinkers, hoping that such education could help protect the future of their country. And so far, so good.
The school, an extremely modern campus with dedicated students, continues to teach the benefits of freedom. That may sound trivial to us in the United States, but I assure you, in Guatemala it is anything but trivial. The founders of the school, living in a dangerous environment, risked their very lives to stand for what they believe in. And if they fail, and communism takes hold, then you can be sure that prison would be about the best outcome they could hope for.
If the United States has such a university it would be a private campus with over 100,000 students (based on similar attendance percentages). It would shock the academic world by not allowing a teacher's union or tenure, and it would post graduation and job placement numbers much higher than normal. Full professors would teach nearly every class on campus, and teaching, rather than research, would be the main job of all school employees.
Personally, I want to build such a place. We need it. We can do it. And the time is ripe. Our university system in the U.S. is lazy, expensive, and arrogant beyond understanding. Unionization has tainted the system to the point of breaking. And I am appalled at the idea of spending $100,000 per child to support it.
In the worst of this environment, 35 years ago, 6 business men banded together to form their free market university, UFM. They built a small campus devoted to the education of free market thinkers, hoping that such education could help protect the future of their country. And so far, so good.
The school, an extremely modern campus with dedicated students, continues to teach the benefits of freedom. That may sound trivial to us in the United States, but I assure you, in Guatemala it is anything but trivial. The founders of the school, living in a dangerous environment, risked their very lives to stand for what they believe in. And if they fail, and communism takes hold, then you can be sure that prison would be about the best outcome they could hope for.
If the United States has such a university it would be a private campus with over 100,000 students (based on similar attendance percentages). It would shock the academic world by not allowing a teacher's union or tenure, and it would post graduation and job placement numbers much higher than normal. Full professors would teach nearly every class on campus, and teaching, rather than research, would be the main job of all school employees.
Personally, I want to build such a place. We need it. We can do it. And the time is ripe. Our university system in the U.S. is lazy, expensive, and arrogant beyond understanding. Unionization has tainted the system to the point of breaking. And I am appalled at the idea of spending $100,000 per child to support it.
Friday, April 3, 2009
Dow @ 8,000 - Short It Now
The market hit 8,000 this week, more than 1,500 points off of the low set this year of 7,465 on February 19th. It feels good. There have been lots of green numbers and positive news stories. But I'm not convinced.
The headline today on CNNMoney is "2 Million Jobs Lost in 2009". That was much more than expected, and creates a longer term problem for all of us. There are now 2 million more people requiring government assistance. 2 million more people not spending money.
In March the total number of unemployed U.S. citizens was 13.2 million, or 8.5% (according to the U.S. Dept. of Labor http://www.bls.gov/news.release/empsit.nr0.htm). So in 2009 alone, the number of unemployed workers has increased by 17.8%! That is a huge number.
So while the stick market attempts to get the bad news behind us, the real situation continues to play itself out. I'm choosing to believe the numbers. So I'm short the market.
The headline today on CNNMoney is "2 Million Jobs Lost in 2009". That was much more than expected, and creates a longer term problem for all of us. There are now 2 million more people requiring government assistance. 2 million more people not spending money.
In March the total number of unemployed U.S. citizens was 13.2 million, or 8.5% (according to the U.S. Dept. of Labor http://www.bls.gov/news.release/empsit.nr0.htm). So in 2009 alone, the number of unemployed workers has increased by 17.8%! That is a huge number.
So while the stick market attempts to get the bad news behind us, the real situation continues to play itself out. I'm choosing to believe the numbers. So I'm short the market.
Thursday, April 2, 2009
FASB Mark-to-Market
Today the FASB (Financial Accounting Standards Board) voted to ease Mark-to Market accounting rules for banks. What does that mean, you ask?
Well, it basically means that the rules for how banks report their assets (such as mortgage loans) have gotten easier. Banks can now report more value (higher dollar numbers) for the troubled mortgages they own.
This will mean that the financial statements for banks will look better, instantly. They will now have better asset values, which may allow them to loan more money. At least that is the theory.
But the reality is different. The value of these troubled assets, mainly mortgages, hasn't changed at all. They still suck. And the banks, and most investors still know they suck. So the rule change is basically a way to cover up the mess. This could allow banks to lend more money than they should. HEY WAIT - ISN'T THAT WHAT GOT US INTO THIS FREAKING MESS?!
Way to go congress (who pressured the FASB). When our banks made bad loans and got into trouble, one of your solutions was to ease their financial reporting requirements, which will allow them to loan more money against the same troubled assets.
We can't wish this away. I'm am very disappointed. Don't we have anyone in Washington that can read financial statements and understand how they relate to the real world of risk that we live in?
Well, it basically means that the rules for how banks report their assets (such as mortgage loans) have gotten easier. Banks can now report more value (higher dollar numbers) for the troubled mortgages they own.
This will mean that the financial statements for banks will look better, instantly. They will now have better asset values, which may allow them to loan more money. At least that is the theory.
But the reality is different. The value of these troubled assets, mainly mortgages, hasn't changed at all. They still suck. And the banks, and most investors still know they suck. So the rule change is basically a way to cover up the mess. This could allow banks to lend more money than they should. HEY WAIT - ISN'T THAT WHAT GOT US INTO THIS FREAKING MESS?!
Way to go congress (who pressured the FASB). When our banks made bad loans and got into trouble, one of your solutions was to ease their financial reporting requirements, which will allow them to loan more money against the same troubled assets.
We can't wish this away. I'm am very disappointed. Don't we have anyone in Washington that can read financial statements and understand how they relate to the real world of risk that we live in?
Reconcile the Image with the Actions
In a recent CNN article, Penn Jillette, the comedian/magician from Las Vegas, made a few very interesting remarks, and I quote:
"President Obama is so damn smart. He just drips smart. He clearly understands stuff that we could never understand. He's trustworthy. If Obama were teaching fire-eating, we would all learn fast. If he told you that the burns would be minor and the fire would go out when you closed your mouth, you'd believe him. If I weren't twice his weight, I'd fall back with my eyes closed into his caring arms in one of those cheesy '70s church trust exercises. He could talk me into anything.
Obama tells us that we can spend our way out of debt. He tells us that even though the government had control over the banks and did nothing to stop the bad that's going on, if we give them more control over more other bank-like things, then they can make sure bad stuff doesn't happen ever again. He says we can get out of all those big wars President Bush caused by sending more troops into Afghanistan. And I don't know. I really don't know."
http://www.cnn.com/2009/POLITICS/04/01/jillette.skid/index.html
It seems to me that there are a number of people struggling, much like Mr. Jillette, to reconcile their love of President Obama with the actions his administration is taking. This leaves many very hopeful and patriotic voters in a tough spot. Should they just believe and hope, can they do that AND disagree in any way?
Politics aren't fair, and President Obama should certainly be given some grace when it comes to the mess he has found himself in. The hope he has managed to invigorate is intoxicating, and I admit to wanting it to be enough. And maybe it can be. But we cannot afford to let the White House go unchallenged during these times. We will all benefit from vigorous debate and strong ideals.
So sit back, do your best not to be offended, and get in the fight. We need the fight. We're worth it. And for me, I'm fighting for a much smaller budget, less government, and less entitlements. Free individuals and free markets require the freedom to fight over this stuff.
"President Obama is so damn smart. He just drips smart. He clearly understands stuff that we could never understand. He's trustworthy. If Obama were teaching fire-eating, we would all learn fast. If he told you that the burns would be minor and the fire would go out when you closed your mouth, you'd believe him. If I weren't twice his weight, I'd fall back with my eyes closed into his caring arms in one of those cheesy '70s church trust exercises. He could talk me into anything.
Obama tells us that we can spend our way out of debt. He tells us that even though the government had control over the banks and did nothing to stop the bad that's going on, if we give them more control over more other bank-like things, then they can make sure bad stuff doesn't happen ever again. He says we can get out of all those big wars President Bush caused by sending more troops into Afghanistan. And I don't know. I really don't know."
http://www.cnn.com/2009/POLITICS/04/01/jillette.skid/index.html
It seems to me that there are a number of people struggling, much like Mr. Jillette, to reconcile their love of President Obama with the actions his administration is taking. This leaves many very hopeful and patriotic voters in a tough spot. Should they just believe and hope, can they do that AND disagree in any way?
Politics aren't fair, and President Obama should certainly be given some grace when it comes to the mess he has found himself in. The hope he has managed to invigorate is intoxicating, and I admit to wanting it to be enough. And maybe it can be. But we cannot afford to let the White House go unchallenged during these times. We will all benefit from vigorous debate and strong ideals.
So sit back, do your best not to be offended, and get in the fight. We need the fight. We're worth it. And for me, I'm fighting for a much smaller budget, less government, and less entitlements. Free individuals and free markets require the freedom to fight over this stuff.
Wednesday, April 1, 2009
Finally- an Alternative Budget Proposal
Today's Wall Street Journal carried an article written by Representative Paul Ryan (R-WI). The article clearly articulated, for the first time, an alternative to the $4 trillion budget currently being proposed by the White House (I've stopped referring to President Obama, people just can't stand hearing anything negative in the same sentence as his name).
In short, the newly proposed budget:
1) Drastically cuts government spending (finally, a plan that doesn't increase debt!)
2) Protects Medicaid and Social Security (social cornerstones, but in danger of insolvency)
3) Lowers and simplifies taxes for citizens and businesses
4) Eliminates the Cap & Trade program (carbon credit taxes?! whose terrible idea is that crap?!)
It is almost as if some one's dad sat down and said "Look, we can only spend what we make, so let's see what is most important to us and make sure we pay for those bills first."
I'm all for it. I want everyone to hear about it. We just can't spend our way out of financial trouble. We have to make cuts, and we have to allow individuals to feel some relief in the form of lower taxes. I simply don't trust the government to spend my money in a better way than I can.
Here's the WSJ article link:
http://online.wsj.com/article/SB123854083982575457.html
In short, the newly proposed budget:
1) Drastically cuts government spending (finally, a plan that doesn't increase debt!)
2) Protects Medicaid and Social Security (social cornerstones, but in danger of insolvency)
3) Lowers and simplifies taxes for citizens and businesses
4) Eliminates the Cap & Trade program (carbon credit taxes?! whose terrible idea is that crap?!)
It is almost as if some one's dad sat down and said "Look, we can only spend what we make, so let's see what is most important to us and make sure we pay for those bills first."
I'm all for it. I want everyone to hear about it. We just can't spend our way out of financial trouble. We have to make cuts, and we have to allow individuals to feel some relief in the form of lower taxes. I simply don't trust the government to spend my money in a better way than I can.
Here's the WSJ article link:
http://online.wsj.com/article/SB123854083982575457.html
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