Thursday, February 5, 2009

Bad News Cycle

The headlines look poor today:

Volcker Chafes at Obama Panel Delay, Strains With Summers Rise:
The story is that Volcker looks to be more of a figurehead than an influential person. TOO BAD.

Goldman, JPMorgan Won’t Feel Effects of Executive-Salary Caps:

Some analysts said the new rules wouldn’t have much effect.

Obama, 47, “is not proposing to go back and get that $18.4 billion in bonuses back,” Laura Thatcher, head of law firm Alston & Bird’s executive compensation practice in Atlanta, said of the cash bonuses New York banks paid last year, the sixth- biggest haul in history. “Right now, we have not clamped down” on pay at banks.

Huge Paydays

In addition, some executives may be compensated for the potential reduced salaries with restricted stock grants, which may result in huge paydays after the bank repays the government assistance with interest.

“They’re just allowing companies to defer compensation,” said Graef Crystal, a former compensation consultant and author of “The Crystal Report on Executive Compensation.”
The restrictions are “a joke,” he said, because “if the government is paid pack, you can be sure that the stock will have risen hugely.”

So yesterday's headlines by the president look to be mostly PR.

U.S. Automakers ‘Choking’ Without Credit Await Fed Loan Program

“This is what is choking us to death,” Mark LaNeve, GM’s sales chief, said in an interview Feb. 3 after the biggest U.S. automaker posted a 49 percent drop in January sales in its home market. “If you can’t get credit, you can’t sell vehicles.”

The comment here is that everyone in the industry has known for years that the "Big Three" were finance companies masquerading as manufacturers. The country has to get away from debt-financed production and consumption. A modest proposal: given how rapidly Big Three cars depreciate, ban auto loans for more than, say, half the value of the car.

Eventually supply and demand will come into balance. The demand, however, will be real demand. Environmentalists such as Barack Obama should be in favor of a lower trend-line auto sales chart.

GSK delivers EPS of 104.7p before major restructuring
Dividend increased 8% to 57p

(See for above, not Bloomberg)

Not stated in the GlaxoSmithKline press release is the fact that earnings were actually down 40% year on year, the stock buyback program was cancelled to pay for the dividend increase, and a mysterious legal charge occurred in the quarter that apparently shareholders are not supposed to know anything about.

Back to

Russia Fueling Ruble Tumble With Loans, Banks Say

Russia’s central bank is exacerbating the ruble’s 35 percent plunge since August, even as it struggles to defend the exchange rate, by providing loans to banks that speculate on the currency, say Alfa Bank and UniCredit SpA.

And from their video section, this headline:

(Jimmy) Rogers Says Russia May Break Up


Worker Anger Sees Brown Facing Winter of Discontent

Spreading strikes, reduced workweeks and tens of thousands of job cuts are throwing British Prime Minister Gordon Brown back to the 1970s.

I have been saying for some time that what is happening is a toxic mix of the 1930s and 1970s.
Another Bloomberg article reports that the Bank of England lowered rates to a further record low of 1%.

Senate Adds Homebuyers’ Tax Cut to Stimulus as Final Vote Nears

Swiss Re Gets $2.6 Billion From Buffett After Loss

However, a man named Grodzki is pictured on's video section as saying that Buffett's stake in Swiss Re is "reassuring". Perhaps he was making a great pun. The truth is that Buffett is a shark. Perhaps he means that he is reassured that Buffett knows that Swiss Re lost its shirt venturing into derivatives in a vain search for growth and that Berkshire will probably prosper. It is not reassuring that the giant reinsurer Swiss Re joined the insurers Ambac, MBIA and others in forgetting that its role in society was to be a strong reinsurer, not to produce profits generated by gambling.

Senate Adds Homebuyers’ Tax Cut to Stimulus as Final Vote Nears

Closer to home, Republicans were allegedly making progress in getting the "stimulus" bill to eliminate non-stimulating spending. It appears that just as in the TARP bailout bill last fall, the Congress really just wants to borrow and spend more. The debt culture remains on top for now.

Perhaps you can be reassured that living in Japan in the 1990s post-bubble was not so bad. On the other hand, from the Leslie Howard movie The Scarlet Pimpernel is the great quote (which I attempt to repeat from memory): "There is nothing quite so bad as that which is . . . not so bad".

Have a good day.

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