The Death of the Cities

In 1987 I traveled to St. Louis, Missouri for the first time on business. The downtown center city was a vibrant destination. Along with streets filled with shops and shoppers, the riverside beneath their famous arch was an attraction in itself with riverboats boarding for evening cruises and a plethora of taverns and cafes serving every nature of cuisine from Kenya brewed beer to Missouri meatloaf sandwiches. Business was good then and the participants in my meetings engaged in the process and the negotiations.
This week I returned for the first time since 2002 to the downtown of this major city. There was an immediate feeling of emptiness. Where had all the people gone? At 4 pm in the afternoon on a Monday there was almost no traffic. The sidewalks were deserted except for a few wandering vagrants. The City buses went by either empty or with a couple elderly passengers staring vacantly out the window.
My hotel was ironically called the Renaissance. The room was mediocre equipped with a fading analog tv and two dusty bottles of Fiji water for $5.00 each. Outside my room three dirty glasses, one stuffed with a used paper napkins and another half empty with bubbleless Coke were in plain view in the hallway. There they stayed, even AFTER my room was made up, for 36 hours until I finally went to the front desk and told them that this made their hotel seem tacky. Insults sometimes get results. The glasses were taken away.
Across the street from the hotel was a huge convention center. Empty. No future programs were advertised on its marquee. I have been to New Orleans - the same. Akron, Cleveland, Detroit, Houston and on and on. Where has our nation gone? Sphere: Related Content

Value or Illusion?

Gold is forging ahead in the number of U.S. dollars that it takes to buy 1 ounce of the metal, but does that mean that gold is "worth" more? For the last several months it appears that gold have been coupled to the general rise in the overall U.S. stock market as measured by the level of the SP500 index. In the chart above, I found it remarkable that the gold price and SPX seemed to track so directly for that period. It almost seemed that as the stock market rose, there was a corresponding hedge into gold which acted as a counter balance or protective investment going on elsewhere in the world. That may have been a correct assumption if you accept that central banks around thw world are buying gold to place in their treasuries - buying the metal as a storehouse of value - buying the metal with U.S. dollars which we now see may be losing their value.

So the question is "does the U.S. stock market represent a way to maintain the spending power (let alone increase the spending power) of your dollars?" If you ask the central bank of India which just purchased several billion dollars of gold for its treasury, I suspect they might answer "well we're not sure, so we are hedging our dollar position in U.S. treasury debt by replacing some of those dollar denominated investments with gold." This may explain the recent decouplingof the gold price and the SPX shown in the chart, the movement of the SPX off the several months of uptrend (higher highs and higher lows) and the weakness of the U.S. dollar. Sphere: Related Content

Tango

The spirit of tango, expressed in sound and pictures by editing:

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Selective Advances - Selective Declines - Mostly Sideways

It was recently said that the stock market is entering a very selective phase. Although there is significant pessimisim (some 2/3's of all people believe we are still in a recession, me included), there are some equities that are advancing. Here are some selected results:
Exxon XOM - same price today as 3/26/2009
U.S. Steel X - same price today as 2/9/2009
Walmart WMT - same price today as 2/6/2009
Tyson Foods TSN - same price today as 5/7/2009 Sphere: Related Content

Meteoric Rise - Rapid Decline?

Tomorrow, October 16th, is another options expiration day. The shorts will have to be covered and the longs will collect their profits. Three months in a row there have been bearish prognostications of imminent fall of the markets back to some normal progression based upon value and three months in a row the market has continued to surge upward. If you simply followed the trend and did not let your emotional predilection or the previous 24 months of volatility and loss influence your thinking, you would have made money in this market. I don't believe that there were many so fool hardy.
The interest rates are so low now, though, that us post war baby boomers are going to have to start taking some risks to get through the next 20 or so years of life. It takes $100,000 now invested in a U.S. Treasury bond of 20 year duration to pay yourself a meager $ 175 per month. I predict that more and more grey haired workers will be looking to continue their employment way beyond the usual mid-60's retirement age. We won't be riding motorcycles into the sunset or taking long trips in Winnebagos. We will be doing something just to afford buying groceries and to pay the real estate taxes on houses that we can't sell.
Don't laugh. When the money runs out, we will be moving in with our kids. Sphere: Related Content

Living the Amish Life

Yesterday we visited The Farm at Walnut Creek in Holmes County Ohio. This very large farm has been transformed into a tourist destination for those who want the beautiful serinity of rolling Ohio hills and the amazing good food and pasteries provided by the Amish community in the area between Sugar Creek and Wooster.

The Farm provides a safe and exciting opportunity to interact with a large menagerie of animals from all over the world. They come up to your car, you roll down the window and they eat from your hand or a plastic bowl provided when you buy the feed. They are mostly quite polite, some more hungery than others. It takes about 45 minutes and who can forget having a giraffe put its head in your car.

http://www.thefarmatwalnutcreek.com/

However, it is when you finish the ride through the outdoor zoo that you really have a cultural adventure. The family who created the farm also created a fully functional Amish farm and you can walk through the farm buildings, stables and even the large home and visit with women and men who are working at their crafts and trades; sewing, mending, cleaning, building and simply maintaining their uniquely simple and beautful lives.

The Amish have specific beliefs related to technology that I can't quite figure out. For example, there are solar panels on the house, but there are no wires connecting the house to outside world. They supply all their electricity from the panels or natural gas generators. More later Sphere: Related Content

Saturday Morning Revelations - August 15, 2009

It has been a while since I last wrote in this blog. Maybe it was depression over the economy and my retirement and Rama or maybe just a whirlwind of unproductive activity. At home a beautiful garden was created and then eaten by the deer. At dance my shoulder posture wasn't good and righting it caused pain. My fox didn't trot and my two step was only 1.5. But it is fall again and time to reassess before the coming winter.
In the bathtub this morning I read yesterday's Financial Times. The Wall Street Journal pulled a fast one and near doubled my subscription cost - without notice to me, at least one that ever reached me, so I pulled the plug on WSJ - at least for a while in absolute irrational revenge mode. Me against Rupert?? Don't even think about it.
So what made me want to write? In the FT for Friday August 14, 2009 there were several articles of note. Robert Gates, Secretary of Defense, says that one day the war in Afghanistan will be over. Ho Hum! However, on the Editorial page there is a letter from Todd Roberson of the Indiana Univerity Department of Economics. He makes the case for Obama having only one term. Pretty gutsy of a London based financial paper to publish that one. On the next page George Magnus of UBS describes how to release the next boom. Well, let me tell you, I just got back from Indiana and the boom hasn't started yet. The road from Cincinnati (I-74) looks like a Mad Max at the Thunderdome set and is full of potholes and cracked cement. At the Shelbyville shopping center the only activity was a few shoppers at Walmart and all the kids who should have been employed were hanging out at Starbucks idly talking about nothing important. Maybe we are going to continue stimulus packages until the currency becomes so diluted that even a shot of watered down Half and Half won't make a latte substitute.
However, on pages 050-051 of this week's Business Week magazine (sort of like saying today's USAToday) there are charts which if interpreted correctly seem to indicate that investor sentiment has doubled its optimism since March 2009 and that the CBOE VIX indicator has fallen (that's optimistic, the lower the VIX the more stable the markets) and the stock market has had 5 weeks of really strong upswing.
More importantly, however, I think, is Dan Ariely's piece on page 049 of BusinessWeek - "The Curious Paradox of "Optimism Bias." He argues that if we get a little giddy with optimism, then we will be more likely to take the risks necessary to make our economy grow again. Dan, I am just not getting it. Wasn't it irrational exuberance that got us into this mess? Do you think that Mom and her spouse Joe Dinnerbucket want to bet the last shreds of their life savings again? We aren't going to start spending/buying again for some time - maybe ever. I think we learned our lesson. Sphere: Related Content

Treasury Rates Respond to Future Volume of Debt

Whether this is simply a excess supply or the harbinger of inflation or both I leave to the economists to discuss. However, as an investor trying to save enough to retire, this has caught my attention. Sphere: Related Content

Our Friend Rama

May he chase mice and butterflies forever. Sphere: Related Content

The End of an Early Retirement

The dollar is weakening rapidly as evidenced by the the sharp drop in the DXY (dollar index) and the equally rapid increase in the return on the 10 year U.S. Treasury (TNX). Sphere: Related Content

My Granddaughter walks

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The Coming Collapse of the Middle Class

Click on the title of the post to go to the 57 minute lecture by Professor Elizabeth Warren of Harvard University. Sphere: Related Content

Austan Goolsbee Speaks on AIG

http://www.cbsnews.com/blogs/2009/03/22/politics/politicalhotsheet/entry4882487.shtml Sphere: Related Content

European Employment for Financial Workers

American financial services employees may find a more favorable environment if they go to work for non-U.S. companies.

http://www.mercer.com/pressrelease/details.htm?idContent=1254330 Sphere: Related Content

Politics and Decimal Points

Congress needs to take a remedial math course. Congress is going to excoriate the President of AIG today - a president, by the way, who is working for a salary of $1 per year and who was hand chosen by the Treasury Secretary Paulson to replace the deposed executives of the too big to fail company. Liddy is going to be embarrassed, regaled and accused of being evil. Congress will likely ask for his resignation and send this "public" servant off to a final retirement of shame. For what? Liddy failed to ignore contracts, legal contracts, made by the company, for the payment of executives who continued to work for the company, in good faith, to work the company out of whatever troubles it was in or is still in. Without those people, both in the credit default swap group or the auto insurance or any of the other plethora of insurance businesses of the company, the company would just have gone out of business. A company is its people.


What would Congress want the company to do? Fire everyone, default on the contracts to people who had seen their own investments in their employer go to near zero? Remember, that at the level of compensation that we are discussing, the governments of New York State and the United States will get about 50% of the bonuses back in tax payments. Which brings me to the final point - the decimal point. Assume that AIG's credit default swap insurance contracts that had claims that the government bailout paid for total $ 150,000,000,000 ($150 billion). The bonuses to the employees total $150,000,000 ($150 million) That works out, check my math, to 1/10th of 1% 0.1%. That's the cost of doing business Mr. Congressman. Would it have been more honest - more political expedient to fire all the executives, leave the company offices empty and turn the claims over to vote of the public. That would mean that the world financial system would have crashed, banks everywhere that were reimbursed by the AIG insurance payments would have gone under and probably we would all be burning furniture to stay warm this winter like 1918 Russia.

Kanjorski, Chairman of the Capital Markets Subcommittee, is going to make Mr. Liddy seem evil and in cahoots with some group of mysterious coordinators of doom. I've got to stop typing now, a rerun of Conspiracy Theory is on the movie channel. Give me a break. Sphere: Related Content

The New Vocabulary

I have just begun to read the riveting (for me at least) new book by Cohan, "House of Cards." The book is the story of March, 2008, just a year ago, and the collapse of Bear Sterns. The narrative is almost moment by moment as one rumor leads to fact and some rumors lead to action and no one is able to turn the stampede away from the precipice. It is, as my friend David Worrell used to say, "a buffalo jump."

In the old days, before modern meat processing facilities, the American Indians out on the wide spaces of Montana, would find a relatively level plain which ended in a cliff. They would stalk buffalo and when the herd was in the right attitude, they would cause a stampede towards that cliff. Those in front, no matter how they might try, could not stem the surge behind them and over the cliff they would all go. Other members of the tribe would wait below and harvest the buffalo to feed and clothe their families. An apt analogy, almost.

The problem with this view of the fall of Bear Sterns is that the American Indians intended the consequence, planned the stampede and executed the plan perfectly. Bear Stearns did not intend to fail it just made assumptions about the future that they should have realized were false. The old adage that if something sounds to good to be true, it is probably not true should be hanging on the wall of every home in America and the wall of financial consultants as well - as a warning.

In Cohan's reportage of March, 2008, even his precise writing is a report of chaos. I read slowly, immersed in the deluge of terminology only a trader could understand, but coming through that guantlet, just knowing some of the definitions started to make all this financial horror somewhat clearer. Here follows what I understand.

CDO Collateralized Debt Obligation. One firm takes a number of similar based debts that it is owed and packages them together into an "obligation" which can then be sold. Maybe the average debt term in the package is 6.0%. The packing firm sells the package at 5.8% to the buyer return and keeps the value of the spread between 6.0% and 5.8% as its profit. But wait. There is more to this simple transaction. Trace it back a little further. In order to own the debt in the first place, the packager had to loan money to someone else in return for a promise to pay the load back, with interest at 6.0%.

Make it simple. ILOAN2U, Inc. loans $ 400,000 to Joe Dinner bucket to buy a house. Joe agrees to pay ILOAN2U back with 6% interest every year on the unpaid balance. Simple enough. The proceeds of the loan, the $ 400,000 get split up between a real estate broker, lawyers, loan originators, bankers and, oh yeah, the person who actually sold the home.

Wait, there's more! Where did the $400,000 come from that ILOAN2U just forked over? Yep, you guessed it. ILOAN2U borrowed it!! From where? From a bank where Joe Dinnerbucket and all his co-workers deposit their paychecks. Well, if the bank loaned out the money that Joe and others put in the bank, how much money does the bank have actually in the vault? Answer, not much.

What does the Bank do if ILOAN2U doesn't pay the Bank back when ILOAN2U sells off the "obligation" that it packaged in the paragraph 1 above? Well they used to not worry about that because, you might have guessed it, the Bank bought what are called Credit Default Swaps, which are insurance that debts are repayed.

Who wrote the insurance? Well, one of the big writers of that kind of insurance was AIG. Now you are catching on.

There are a lot of variations on this story, but mostly they are related to the nature of the underlying debt. Could be credit card debts, could be small business loans, could be annuity payments, could be lottery payments, could be car loans, could be business leases on commerical office or manufacturing space.

CMS - Collateralized Mortgage Security
CDO - Collateralized Debt Obligation
RMBS - Residential Mortgage Backed Security
CLBS - Commerical Lease Backed Security
Credit Default swaps
Alt A
Subprime
Hedge Fund
Hedge
Mark to Market
Mark to Model
FASB
Liquidity
Repo Desk
Overnight Funding Sphere: Related Content

No Technical Analysis Available

Like the beginning of Apocalypse Now, I hear the voice of Jim Morrison singing, "This is the end......" If you take a look at the charts of the major indices of the U.S. stock market you will see that they all are at levels which have not been seen since the mid-1990's. That is not a level of support. That is just a number. The U.S. stock market is hanging over an unknown abyss. Maybe there is no saving it. It's like having a Windows computer. When it locks up that's it. Someone please press the reset button. I want a reboot. Make this nightmare go away. Sphere: Related Content

Getting Ready to Turn Out the Lights at GE

When I was a senior in high school I was awarded the Optimists Club Student of the Year Award at Lee High School in Springfield, Virginia. Ever since then, 46 years since then, I have tried to live up to that award and be, well, optimistic. Occasionally that has been difficult. Life throws you a curve every once in a while, but generally I smile and keep on truckin'.
Darn it but this economy is really challenging my smile o meter. In fact I cannot figure out what's wrong. Just a couple years ago General Electric was worth more than $500 Billion dollars, that's like $50 per share. It made everything from light bulbs to refrigerators to jet engines but most of all it made money and created lots of jobs.
GE, with the possible exception of Procter & Gamble, was considered the best place for a smart MBA grad to go work to learn from Jack Welch and someday become CEO of GE or another Fortune 500 company. If you want to learn to run a business, go to GE.
Well, that's not true any more. The stock is below $9.00 per share and the dividend has been cut by 66.7%.. It just ain't true and I think that we may all be getting ready to turn out the lights...and they aren't made by GE any more. Sphere: Related Content

Kendrick Meek Responds Quickly

I asked Congressman Meek a question via Facebook about the Homeowner Affordability and Stability Plan. I couldn't find the details of the plan on the White House website. Within a few short hours I got a direct answer, giving me a website address and an answer as to why there was not yet a detailed plan, only an Executive Summary. That kind of intelligent quick response means that Congressman Meek runs an excellent office of hardworking public servants. I like him.

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Responsive Whitehouse Website - Excellent?

Last night I listened as the White Press Secretary accused Rick Santelli of not reading the Homeowner Affordability Plan. Since I was opining about the situation or at least reporting on it for my own records (no one reads my blog except me, I think)I thought in intellectual honestly that I should read the full report myself. I went to http://www.whitehouse.gov to find it as the Press Secretary had suggested. I couldn't find it. I used their search system. It did not disclose where to find the plan. I emailed the White House and asked. The Whitehouse did not answer my email, but apparently no one else could find the plan either because this morning, on the Whitehouse website, there is a link to the Treasury Department website which has an "Executive Summary." Where is the whole plan? I haven't found it yet. If you stumble on this blog and know the answer, please post a commment.
Thanks.

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