Barry Ritholtz at The Big Picture dissects the "better than expected" employment report today.
Hint: It's not so good.
Copyright (C) Long Lake LLC 2009
Showing posts with label The Big Picture. Show all posts
Showing posts with label The Big Picture. Show all posts
Friday, May 8, 2009
Monday, April 13, 2009
Happy Days Are Here Again?
Barry Ritholtz at The Big Picture passes on a rumor of enormous profits at Goldman Sachs for Q1 in Taxpayer Funded GS Profits:
Karl Denninger notes that a nasty rumor is circulating about Goldman Sachs amongst observers of the Street. Allegedly, GS is about to report their second-best quarter in history, +$12 billion or so…
In this era of financial disasters, credit crisis, and recession, how is that possible?
Easy. You — and your grandkids — are the ones who paid for it:
“The fact that they (like so many others) are being paid by the taxpayer through AIG’s “conduit” for losses that didn’t (yet) happen at 100 cents on the dollar might be the basic math.
And further (and potentially much worse) there is the repeated statement by Goldman executives that they were “fully hedged” against a potential counterparty default by AIG. One wonders - was that “hedge” to be short the equity on AIG itself, perhaps?
Why is this important?
Because if that’s how Goldman hedged they got paid twice and the taxpayer literally got robbed. Someone in Congress needs to look into this now; there are already rumblings of investigation. Those rumblings need to get a lot louder and turn into subpoenas, not “polite inquiries.”
DoctoRx here. If these rumors are more or less true, then the Street will try to tell us that the past year was just a bad dream. Those who know better will know that political influence is everything, and the Government remains committed to a healthy financial sector uber alles, no matter how many tent cities spring up across from state Capitols. This was precisely the Hoover strategy.
However, now the Federal Reserve notes that are the medium of exchange for cash transactions are increasingly backed by junk bonds, and unlike in the Great Crash, the U. S. Government is heavily indebted, both to foreign powers and via all sorts of explicit promises to its own population.
It is said that a financial crash seems to take forever to occur, and then it occurs suddenly. The sham "stress tests" and the injustice of PPIP appear to be taking forever to be finalized/announced, but please consider what actually happens when the Administration can't keep the lid on the (likely) fact that if it takes its SIVs back on-balance sheet, then Citi is insolvent even on a discounted cash flow basis re its CDOs and related assets? Will there be a run on Citi? BofA?
As Elizabeth Warren, head of the Congressional Oversight Panel re TARP, keeps pointing out, per the interview Keeping Tabs on the Bailout (thanks to NC link), Treasury is unresponsive to oversight and has no clear plan for its actions. Things are just kind of happening . . . or not happening . . .the opposite of the decisive way FDR dealt with the banking crisis, or even the way the U. S. dealt with the S&L crisis when it finally could not be ignored.
At this time of shrunken profitability for the nation, the idea that the industry- Big Finance- that led the country into this mess would be subsidized to have in some cases record profits, just to continue the same charades, is unconscionable. But if appearances are correct- which they may well not be- it is in fact happening.
Copyright (C) Long Lake LLC 2009
Karl Denninger notes that a nasty rumor is circulating about Goldman Sachs amongst observers of the Street. Allegedly, GS is about to report their second-best quarter in history, +$12 billion or so…
In this era of financial disasters, credit crisis, and recession, how is that possible?
Easy. You — and your grandkids — are the ones who paid for it:
“The fact that they (like so many others) are being paid by the taxpayer through AIG’s “conduit” for losses that didn’t (yet) happen at 100 cents on the dollar might be the basic math.
And further (and potentially much worse) there is the repeated statement by Goldman executives that they were “fully hedged” against a potential counterparty default by AIG. One wonders - was that “hedge” to be short the equity on AIG itself, perhaps?
Why is this important?
Because if that’s how Goldman hedged they got paid twice and the taxpayer literally got robbed. Someone in Congress needs to look into this now; there are already rumblings of investigation. Those rumblings need to get a lot louder and turn into subpoenas, not “polite inquiries.”
DoctoRx here. If these rumors are more or less true, then the Street will try to tell us that the past year was just a bad dream. Those who know better will know that political influence is everything, and the Government remains committed to a healthy financial sector uber alles, no matter how many tent cities spring up across from state Capitols. This was precisely the Hoover strategy.
However, now the Federal Reserve notes that are the medium of exchange for cash transactions are increasingly backed by junk bonds, and unlike in the Great Crash, the U. S. Government is heavily indebted, both to foreign powers and via all sorts of explicit promises to its own population.
It is said that a financial crash seems to take forever to occur, and then it occurs suddenly. The sham "stress tests" and the injustice of PPIP appear to be taking forever to be finalized/announced, but please consider what actually happens when the Administration can't keep the lid on the (likely) fact that if it takes its SIVs back on-balance sheet, then Citi is insolvent even on a discounted cash flow basis re its CDOs and related assets? Will there be a run on Citi? BofA?
As Elizabeth Warren, head of the Congressional Oversight Panel re TARP, keeps pointing out, per the interview Keeping Tabs on the Bailout (thanks to NC link), Treasury is unresponsive to oversight and has no clear plan for its actions. Things are just kind of happening . . . or not happening . . .the opposite of the decisive way FDR dealt with the banking crisis, or even the way the U. S. dealt with the S&L crisis when it finally could not be ignored.
At this time of shrunken profitability for the nation, the idea that the industry- Big Finance- that led the country into this mess would be subsidized to have in some cases record profits, just to continue the same charades, is unconscionable. But if appearances are correct- which they may well not be- it is in fact happening.
Copyright (C) Long Lake LLC 2009
Sunday, April 5, 2009
Not All's Well Despite Ending Well
As far as weeks go, all's well that ends well? We beg to politely differ.
Firstly, an expert opines negatively:
NEW YORK (Reuters) - U.S. credit markets are not showing the same optimism on the economy as U.S. equities, suggesting that the recession will run far longer than most expect, Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., said on Friday. . .
"In general, credit markets have not demonstrated the same sense of enthusiasm as the equity market," El-Erian said, adding corporate credit spreads are still elevated.
"I suspect technical factors are in play (in the equities market), and have been over the last few days," he added. "The weakening correlations suggest that fundamental drivers are being overwhelmed, for now, by short-term technical repositioning."
Next, Nouriel Roubini (RGE Monitor, subscription required), who has not been proven wrong yet throughout this economic and markets agony, has just now disclosed all his financial assets are in cash except for his (relatively small) 401(k). He continues to reaffirm his bearishness both on the economy and stock market. He looks for 11% headline unemployment by about midyear 2010 and for the economy to underperform consensus by shrinking every quarter in 2009 and only rebounding to keep pace with population growth in 2010. Here is a summary from his website of different unemployment forecasts:
Unemployment rate forecast (not online)- RGE Monitor: 10% by 2009-end and 11% by Q3 2010 with close to 4.6 mn job losses in 2009; Morgan Stanley: 10% by 2009-end; Goldman: 9.5% by end-2009 and 10% by 2010-end; JP Morgan: 8.7% by 2009-end; Merrill: 9.9% by Q4 2009 and 10.4% by Q4 2010. Merrill Lynch: depression-style job losses with close to 3 mn net payroll loss during Oct-08 and Feb-09 with steepest employment loss since the 1940s. Fed: 8.5-8.8% in 2009, 8-8.3% in 2010 and 6.7-7.5% in 2011.
Note the Fed is the outlier in the above listing!
Roubini is therefore bearish on the stock market at this level and incidentally is bearish on gold, as he is in the deflationist camp.
Meanwhile, the publicists highlighted the "good" news. What was not highlighted as much was information such as the following:
A services index from the Institute for Supply Management, a Tempe, Ariz.-based trade group of purchasing executives, fell to 40.8 last month from 41.6 in February. Economists surveyed by Thomson Reuters expected the index to edge up to 42.
"We haven't stopped free-falling," said Joel Naroff, president of Naroff Economic Advisors (ed: Bloomberg's top economist for 2008).
The highlighting of positive news items is seen in bull markets. Look to buy economically sensitive assets when there is legitimate good news but it is being ignored, such as in the winter and spring of 2003.
Other bits of truly bad news from the March unemployment report were ignored or nearly ignored. The unemployment rate increase was correctly dismissed as a "lagging" indicator. However, January unemployment data were quietly revised to show almost a 100,000 greater count; and, there are 3 forward-looking bits in the unemployment data, and 2 of the 3 were unequivocally bearish: hours worked (record low since data collected in 1964), and temporary help employment.
It is good to go to as many experts who have predicted matters correctly this cycle. Here are excerpts from an interview with the correctly-bearish financial company analyst, Meredith Whitney, in U.S. bank woes just the start, says Whitney:
As recently as six months ago, she was forecasting that at least $2-trillion (U.S.) of available credit card lines would be eliminated by nervous bankers by the end of next year. Now she thinks she underestimated the cutback and has revised the number to $2.7-trillion. Although it's not possible to gauge the direct impact on spending by already depressed consumers, the effect is bound to be enormous.
“Since 2006, you've had liquidity coming out of the market. That's caused consumer credit to worsen. Liquidity continues to come out of the market. Therefore, consumer credit continues to worsen,” she said logically.
And the effect on the banks? “The assets on bank balance sheets are worth less and less. And they need more and more capital.”
Without doubt, more U.S. banks will fail or end up effectively nationalized. And if that's not enough grim news, there's another black hole still to come – commercial real estate. No wonder she recently opined: “It remains clear to us that core liquidity fundamentals are deteriorating at an accelerated pace.”
Consider reading the entire (brief) article.
In the meantime, the thought leaders in the blogosphere who detested G W Bush continue to move farther away from their last best hope for this country. Barry Ritholtz of The Big Picture (www.ritholtz.com) wrote today, in the comments section of Part 2 of his flaying of Larry Summers, that he was "horrified" that Tim Geithner has done little more than "adapt" the Paulson approach to this crisis. Mr. Ritholtz, a prominent Republican for Obama ("Obamacan") last fall, has to be only a hop-skip-jump away from naming Mr. Obama himself.
This issue is of special interest at this blog, which was founded in large part because the blogosphere that had harshly criticized the Bush-Paulson (+Bernanke-Pelosi-Reid-Frank etc) actions last year had expected the Obama administration to be much better, when in fact candidate Obama had supported every bail-out action by word or vote, andevery signal that came out of President-elect Obama was one of continuity with the Bush policies.
If the "bears" who have simply been correct realists continue to be correct, such as Dr. Roubini and Ms. Whitney, and assuming no dramatic change of course by President Obama, then the suspicion at EBR is that, public opinion will gradually follow that of the thought leaders, andin that case confidence in Barack Obama's policies toward Big Finance would then wane substantially.
As stated recently in an EBR post, we have already witnessed the greatest sudden wealth transfer by government from taxpayers to private companies in the history of the world. The analogy made was to Watergate, where bombshells arose ex nihilo, and one of the most sweeping electoral victories ever by Richard Nixon in 1972 was reversed and then some. Could Big Finance be in a situation similar to that of Nixon?
Copyright (C) Long Lake LLC 2009
Sunday, January 25, 2009
Rays of Sunlight for the Markets- and Then the Economy
The good news is that the finger-pointing has started.
The redoubtable Barry Ritholtz writes in The Big Picture, "Time to Get Swedish":
"If the behavior of these corporate executives is nothing short than egregious (sic the grammar but we get his point anyway): Their embarrassing attitudes, foolish excesses, sense of entitled greed is annoying but tolerable when its on their own shareholders dime; when the taxpayer is footing the bill, it is utterly unacceptable.
To paraphrase a Mellon, its time to liquidate the banks, liquidate capital, liquidate shareholders, liquidate bond holders . . ."
As if we didn't know that these guys spent BIG-TIME on themselves? Note that Mr. Ritholtz supported the TARP bill.
And from Bloomberg.com today comes the headline, "Biden, Summers Sound Economic Warnings, Push Stimulus (Update1)". In the article, it is reported that:
"Pressure to overhaul the program (TARP) is mounting after reports that John Thain, the former Merrill Lynch % Co. chief executive officer who was ousted last week, spent $1.2 million redecorating his downtown Manhattan office last year as the company was firing employees."
As if what should be done with our potentially insolvent financial system has anything to do with a million-dollar office renovation. Guys like Thain were actually being paid a million dollars a week.
From the time that the Pecora Commission began around the start of 1933 to investigate Wall Street of the 1929 Era, the Dow Jones Industrial Average tripled, from about 60 to about 180 at the beginning of 1937. From the time of the Enron collapse stretching into the hysteria about Dennis Kozlowski's water closet and party excesses (Tyco CEO), to revelations about Adelphia Communications (private company), Worldcom and other misdeeds, and the mostly-for-show Sarbanes-Oxley Band-Aid legislation, the stock market bottomed and approximately doubled from the 2002 bottom to the 2007 top in the U.S., but did far better in more dynamic and volatile markets.
As the blame game seeps from those who knew this stuff was going on all the time to the public at large, the markets will be healing and the assets that are going to go up in the next up-cycle for the financial markets will be under accumulation by the smart money.
Similarly to the blame game going on as detailed above, the same Bloomberg article described above has the following quotes:
"Vice President Joe Biden told the CBS program “Face the Nation” that “it’s worse, quite frankly, than everyone thought it was.” Larry Summers, Obama’s top economic adviser, said the economy faces “very difficult” months, speaking today on NBC’s “Meet the Press.'"
This also suggests that things are really not going to be so bad, though it does not prove the point. If they were really, really bad, no one would tell you. Then the public would get scared and make things worse yet, as they/we did after the messes with Fannie, Freddie, AIG and Lehman Bros.
The productive capacity of the world continues. Neither bombs nor plague are destroying significant amounts of physical or human capital. Terms of trade have shifted, for now, toward consumers of raw materials and toward the Western world, as the export economies of Asia are cutting prices like crazy to keep their factories busy. On a personal basis, I braved I-95 in South Florida today (rated the locale of the absolute rudest drivers in the entire US of A) and noted more speeders than before, a private indicator of animal spirits.
I do not know if common stocks listed on an American exchange will be especially good vehicles to play a rebound in financial markets, but absent nuclear war or another Black Swan event, or truly horrible policy mistakes by governments, then we should watch the fundamentals of the economy and the leading indicators, and when they look a lot better than the popular headlines and the rhetoric of politicians in Washington, things will in fact be getting a lot better.
Not that we're there yet.
Copyright (C) Long Lake LLC 2009
The redoubtable Barry Ritholtz writes in The Big Picture, "Time to Get Swedish":
"If the behavior of these corporate executives is nothing short than egregious (sic the grammar but we get his point anyway): Their embarrassing attitudes, foolish excesses, sense of entitled greed is annoying but tolerable when its on their own shareholders dime; when the taxpayer is footing the bill, it is utterly unacceptable.
To paraphrase a Mellon, its time to liquidate the banks, liquidate capital, liquidate shareholders, liquidate bond holders . . ."
As if we didn't know that these guys spent BIG-TIME on themselves? Note that Mr. Ritholtz supported the TARP bill.
And from Bloomberg.com today comes the headline, "Biden, Summers Sound Economic Warnings, Push Stimulus (Update1)". In the article, it is reported that:
"Pressure to overhaul the program (TARP) is mounting after reports that John Thain, the former Merrill Lynch % Co. chief executive officer who was ousted last week, spent $1.2 million redecorating his downtown Manhattan office last year as the company was firing employees."
As if what should be done with our potentially insolvent financial system has anything to do with a million-dollar office renovation. Guys like Thain were actually being paid a million dollars a week.
From the time that the Pecora Commission began around the start of 1933 to investigate Wall Street of the 1929 Era, the Dow Jones Industrial Average tripled, from about 60 to about 180 at the beginning of 1937. From the time of the Enron collapse stretching into the hysteria about Dennis Kozlowski's water closet and party excesses (Tyco CEO), to revelations about Adelphia Communications (private company), Worldcom and other misdeeds, and the mostly-for-show Sarbanes-Oxley Band-Aid legislation, the stock market bottomed and approximately doubled from the 2002 bottom to the 2007 top in the U.S., but did far better in more dynamic and volatile markets.
As the blame game seeps from those who knew this stuff was going on all the time to the public at large, the markets will be healing and the assets that are going to go up in the next up-cycle for the financial markets will be under accumulation by the smart money.
Similarly to the blame game going on as detailed above, the same Bloomberg article described above has the following quotes:
"Vice President Joe Biden told the CBS program “Face the Nation” that “it’s worse, quite frankly, than everyone thought it was.” Larry Summers, Obama’s top economic adviser, said the economy faces “very difficult” months, speaking today on NBC’s “Meet the Press.'"
This also suggests that things are really not going to be so bad, though it does not prove the point. If they were really, really bad, no one would tell you. Then the public would get scared and make things worse yet, as they/we did after the messes with Fannie, Freddie, AIG and Lehman Bros.
The productive capacity of the world continues. Neither bombs nor plague are destroying significant amounts of physical or human capital. Terms of trade have shifted, for now, toward consumers of raw materials and toward the Western world, as the export economies of Asia are cutting prices like crazy to keep their factories busy. On a personal basis, I braved I-95 in South Florida today (rated the locale of the absolute rudest drivers in the entire US of A) and noted more speeders than before, a private indicator of animal spirits.
I do not know if common stocks listed on an American exchange will be especially good vehicles to play a rebound in financial markets, but absent nuclear war or another Black Swan event, or truly horrible policy mistakes by governments, then we should watch the fundamentals of the economy and the leading indicators, and when they look a lot better than the popular headlines and the rhetoric of politicians in Washington, things will in fact be getting a lot better.
Not that we're there yet.
Copyright (C) Long Lake LLC 2009
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