Tuesday, June 30, 2009

Protest Outside GS

I recommend that this protest patron the following places instead: Fannie Mae, Freddie Mac, Congress, and the Federal Reserve.

Market Valuations: A Look at Inflation and Volatility

The Technical Take has an interesting article (which is really a commentary on an article posted by William Hester with the Hussman Funds) on the characteristics of the current market as compared to prior bear markets.

Excerpt from William Hester:
"...secular bear markets of last century shared three characteristics. They each lasted for more than 15 years, they each ended at extremely attractive levels of valuation (generally about 7-9 times trailing 10-year earnings), and , and they each endured many years of growing volatility in output and inflation, which eventually created the mindset for investors to price stocks at attractive levels of valuation. The current secular bear market can claim none of these characteristics yet."

Friday, June 26, 2009

Arizona to Outlaw Global Warming Legislation

For the first time ever, I am posting positive news. Dailytech reports:
One state looks to ensure its citizens do not have to pay for climate change efforts.

Climate change is a controversial topic. Some believe man is causing the world to warm. Others point out that the Earth has undergone solar warming and cooling for millions of years and that current temperatures are well within historic levels. A recent report challenging AGW theory showed significant support with 31,478 U.S. researchers and scientists, many of whom hold Ph.D's, signing a statement that they believe that man has not played a part in the current warming trend.

Arizona is now close to becoming the first state to outlaw climate change legislation. The state Senate voted Monday, 19-10 to approve a bill banning the Department of Environmental Quality from enacting or enforcing measures with language pertaining to climate change. The bill is now awaiting House approval.

The bill will likely pass and be signed into law thanks to a switch in power. Formerly, Janet Napolitano (D) was governor of the state, but she left to join Barack Obama's Cabinet. Napolitano was replaced by Jan Brewer (R), who has not indicated a strong desire to support AGW theorists.

If Senate Bill 1147 passes it will block rules passed by the DEQ that set harsher emission standards. The proposed increases were hastily pushed through by the former governor, despite complaints from industry leaders. It would also end work on "cap and trade" carbon legislation, which has been opposed by the utility industry. Such a scheme could help to raise power prices for the state's citizens significantly.

A passage could also give the state means to challenge the federal government in court over the proposed Waxman-Markey bill, which would put over $1,600 in yearly costs on American citizens to cut carbon emissions. The legislation, which has also received criticism for potentially hurting farmers, is currently making its way through a Democrat controlled House and Senate, awaiting Barack Obama's approval.
This is a nice follow-up to yesterday's piece on Cap & Trade -- it's refreshing to see renewed resistence to the 'hell in a hand basket' policies that have been propigating throughout our country with ever increasing speed.

Thursday, June 25, 2009

Cap & Tax

WSJ opines on new inane legislation that continues to pave the path of economic destruction. The weed-be-gone policy to any economic greenshoot has gained new footing and is working its way into law as the House tries to pass even tighter restrictions on Cap and Trade.

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn't take into account the fact that certain regions and populations will be more severely hit than others -- manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.

Even as Democrats have promised that this cap-and-trade legislation won't pinch wallets, behind the scenes they've acknowledged the energy price tsunami that is coming. During the brief few days in which the bill was debated in the House Energy Committee, Republicans offered three amendments: one to suspend the program if gas hit $5 a gallon; one to suspend the program if electricity prices rose 10% over 2009; and one to suspend the program if unemployment rates hit 15%. Democrats defeated all of them.

Lovely. I still think these are rosy estimates, as other laws requiring a minimum usage of more expensive 'alternative' energy will increase costs further. All of these initiatives, as well as the health care 'reforms' I wrote about a few days ago will guarentee higher unmployment and lower real income for Americans.

Initial/Continuing Jobless Claims Up

An economic recovery by year-end is wishful thinking. Clearly, the current 'bubble' is consumer confidence.

Wednesday, June 24, 2009

Mad Hatter Strikes Again

...and by 'Mad Hatter' I'm referring to Rep. Barney Frank. Bound to repeat history from which he has not learned, Frank has asked Fannie & Freddie to relax their lending practices.
In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac is due to implement similar policies next month, the paper said.

In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.

The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos, the paper added. In an interview with the paper, Weiner said the rules have "had a real chill on the ability to get these condos sold," at a time when prices of condos have fallen enough to attract potential buyers.

If the condos aren't selling, then the price hasn't fallen enough and/or people don't have the means or desire to purchase them. Relaxing lending standards would be an act of sheer lunacy.
Both Fannie and Freddie are preparing a response to the lawmakers, according to the paper.

I eagerly await their $0.02.

Sunday, June 21, 2009

Expecting Record Bonuses at Goldman

The Observer observes:
Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment.

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Ok, so a "A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring." How will politicians spin this, I wonder:

Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system. Vince Cable, the Liberal Democrat treasury spokesman, said: "The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system. Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash."

No, Mr. Cable, the Federal Reserve created the culture of excessive leverage. Without all of the cheap money provided by the Fed, no such excessive leverage could have existed!

"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

You can't blame Goldman Sachs for taking advantage of our Government's asinine monetary policies. But that is exactly what will happen, you can bet on it -- stay tuned for updates.

Horror Health Care Bill Drafted

Slashdot summarizes:
House Democrats on Friday answered President Obama's call for a sweeping overhaul of the health care system by putting forward a 852-page draft bill that would require all Americans to obtain health insurance, force employers to provide benefits or help pay for them, and create a new public insurance program to compete with private insurers.
Passage of this legistlation will result in a double-edged sword against American jobs. Not only will the cost per employee rise, leaving less money to expand business and hire more workers, it will, at best, put downward pressure on salaries, and, at worst, provide an incentive for moving jobs abroad. And that's the 'good news'.

Arguably more damaging would be an establishment of a public insurance program. A government-run program will slowly kill private insurance companies, since a government insurer can offer significanly cheaper rates than private insurers (think Fannie Mae & Freddie Mac), even while operating at a loss (tax to make up the difference). Naturally, with cheaper rates, the government plan will grow as it takes business away from private insurers. On a longer time horizon, this will be bad news for doctors when the government-run monopoly, not the free market, will start enforcing more rules, regulations, and price controls.

In the end, we'll be left with a decrease in American jobs and/or salaries, higher taxes, and a hobbled medical environment where doctors will be forced to work more for less --and that's just from the highlights. We'll learn more as this legistlation evolves.

For those of you interested in probing further, here's a full length PDF of the Bill.

Saturday, June 20, 2009

Healthcare Woes: Two Wrongs Don't Make Right

If I wanted to view something utterly absurd, I would've patroned the movie "Land of the Lost." Instead, I got the same fill of lunacy from the following paragraph from a story ran by Forbes 'Obama's Doctor Knocks ObamaCare':

What should the president be focused on? Scheiner thinks that a good health reform would be "Medicare for all," a single-payer system where the government would cover everyone and pay for it by cutting out waste in the system. "A neurosurgeon gets paid $20,000 for cutting into the neck of my patient. Have him get paid $1 million a year instead of $2 million or $3 million. He won't starve," Scheiner says.
Let me get this straight, the advised 'solution' to overpriced healthcare is Medicare for all?! Leaving the 'cutting of waste' in the hands of beaurocrats is a recipe for disaster. If you want a quick example of the quality and inefficiency of Government-run services, take a look at the DMV and the Post Office.

Government intervention in health care can only have 3 possible outcomes: 1) Higher Cost 2) Lower Quality 3) Higher Cost & Lower Quality.

Friday, June 19, 2009

Reverse Engineering Economics of Music Industry

A recent ruling in Minnesota awarded the plaintiffs (record companies) a payout of $80,000 per song.
The recording industry has blamed online piracy for declines in music sales claiming it has lost billions of dollars through illegal file-sharing.
Here's a novel idea: Let's pretend that the internet existed before music. If record companies attempted to sell/distribute music into the digital marketplace that was as we know it now, it would have been a joke to think that large premiums can be charged for something that can be so easily distributed.

Piracy has always existed, and will exist. But you cannot blame piracy as the sole reason behind the decline in music sales. Newspapers are facing even larger margin reductions, and it has nothing to do with piracy. The source for their woes is the same; when something of comparable value, or even greater value, can be acquired for less (less time, less money, less hassle), then there's no doubt that a company will face declining sales.

Apple's iTunes is the perfect example of being able to monetize an old business model. While the true costs of violating intellectual poperties may never be known, what is known is that Record Companies should be more focused on pushing products and services that are naturally competitive in the marketplace -- something they have neglected to do so for years.

Thursday, June 11, 2009

Administration Seeks To Rein Private Sector Pay

The Obama administration says executive compensation must be better managed to prevent the sort of risk-taking that jeopardizes the economy.
Excessive Risk means potential for both excess profits AND excess losses. If our government wasn't in the business of bailing out failed companies, then the consequences of those excessive risks (financial ruin) would mitigate future risk taking.

Bailing out excessive risk takers will simply promote such risk taking on the basis that the government will make whole any losses you are to sustain for taking said risk.

Even more egregious is the fact that the excessive risk taking, which most banks engaged in, was encouraged by the government with all of the 'free' money given to banks via low interest rates. Such excessive risk taking could not have happened without the government's encouragement to take those risks in the first place!