Category Archives: Commentary

Barry, It’s All About The Narrative

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Barry Ritholz asks why doesn’t anyone know what a profit is in relation to the government bailouts.

Why doesn’t anyone understand what a profit is? It is the total revenue minus the total costs. Which is why this FT headline is our second dumb headline of the day:

US Treasury’s bail-out profits top $10bn

“The US government has made more than $10bn so far on banks’ repayments of bail-out funds, according to a new analysis that suggests taxpayers might turn a profit on the unprecedented help extended to the financial sector during the crisis . . .”

No, they have not made $10 billion dollars. As the article later states, “Treasury still expects to lose $117bn on the entire Tarp Programme, which includes investments in the car industry and AIG, the insurer.”

Barry Barry Barry. I love the rhetorical question. They call it a profit because other wise people might see the hundreds in billions of dollars that are lost forever and may decide that the current occupant of the white house hasn’t done anything other than make this recession worse by it’s profligate spending.

Excuse me. Congress’ profligate spending.

Regardless, the narrative is that the bailouts and all the spending at all level of the government is needed because they know better than you do. If you start to question the bailout, why, you might even start to question other things and we can’t have that. Just read the legacy media and do as your told and things will be fine.

How Is The Fed Going To Know A Bubble?

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So the Fed has spoken. They know their low rates aren’t good but hey, don’t worry, they’ll be able to spot any bubbles and do something about it.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, for a second straight meeting was the sole member to oppose keeping that pledge. Analysts saw Hoenig as concerned that holding rates too low for too long could feed some new speculative bubble in assets such as stocks or commodities.

Fed members noted the importance of closely monitoring financial markets and institutions to help detect risks at an early stage. They cited, in particular, the need to monitor asset prices and loan levels.

Information collected by Fed staff hasn’t revealed significant threats in the financial markets or widespread high-risk-taking, the minutes concluded. Still, Fed officials said they would be on the watch for any such threats.

Does anyone at the Fed remember Alan Greenspan and his Irrational Exuberance speech? That was in 1996. I vividly remember the Fed stepping in an stopping the Tech Market bubble from happening. Oh wait. That never happened. The head of the Fed even said it was a bubble and they did nothing.

Housing market anyone? Anyone not believe that 2005 – 2008 wasn’t a housing bubble? The Fed controls interest rates and yet they too could not see that bubble happen.

The Fed has missed two of the largest bubbles of all time, which happened right under their noses. But now, this time’s different? Sorry, homey don’t play that game. I remember the tech bubble. They all said this time was different. It wasn’t. And this won’t be either.

Look Honey, Short Sellers Aren’t Evil After All

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In an article sure to not surprise the short sellers of the world, the NY Times shows the research that proves short sellers aren’t evil and actually know a thing or two about investing, which is how they make their money. And not “taking” down companies or manipulating the markets for the hell of it as people like Patrick Byrne want people to believe.

These concerns are largely unfounded, however, according to the new study, titled “How Are Shorts Informed? Short Sellers, News and Information Processing.” Its authors are Joseph E. Engelberg and Adam V. Reed, both finance professors at the University of North Carolina at Chapel Hill, and Matthew C. Ringgenberg, a Ph.D. student there. The study has been circulating since January as an academic working paper.

Their work suggests that the average short-seller has done well through astute research and analysis, not market manipulation.

The researchers analyzed a database containing all short sales involving stocks listed on the New York Stock Exchange from January 2005 to July 2007. The database showed the exact time and price at which each short sale was executed. That enabled the researchers to compare the timing of short sales with the publication of news articles about the companies whose stocks had been sold short.

It’s a good story. It shows that short sellers tend to, you know, actually research the companies that they short sell. They have a good idea of their targets and know what they’re doing.

Now that we have some proof that short selling isn’t evil, I won’t hold my breath waiting for the SEC to retract it’s short selling regulations. They get way too much cash from BOA and Goldman for that ever to happen.

The Return Of The Bond Vigilantes?

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There was a short story earlier in the week on Yahoo! that mentioned the bond auctions earlier in the week did not go over well with the buying professionals. It seems things did not go better on Thursdays auction.

The FT has a story and it seems, regardless of Helicopter Ben’s announcement, that higher rates may indeed be on the way.

For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent.

That is a huge jump in rates in one week. That sort of move makes people wonder what’s going on in the market.

“The environment for debt auctions has turned negative,” says Rick Klingman, managing director at BNP Paribas. “Long-term rates are rising and it is no coincidence that this has occurred after the passage of healthcare reform and the end of Fed buy-backs.”

It does seem fairly coincidental that the health care bill passes and then for the first time in almost a year the Treasury auctions do not do well. And if they continue to not do well, then we really will see higher rates. I see there’s some more auctions coming up this week, so we should have more of an idea of how the market is behaving.

One never knows about the market. This could have been a one week hangover due to the health care vote. But, if we see continued weakness for Treasuries and a piling into the TIPS then we can safely say that inflation is here, regardless of what the Fed says.

Gotta Get Me A Government Contract

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No seriously. How do these people justify the amounts they are pulling down?

The city is paying some 230 “consultants” an average salary of $400,000 a year for a computer project that is seven years behind schedule and vastly over budget.

Eleven CityTime consultants rake in more than $600,000 annually, with three of them making as much as $676,000, city records obtained under a Freedom of Information request show.

The 40 highest-paid people on the project bill taxpayers at least $500,000 a year. These enormous salaries are coming out of a $139 million extension to the CityTime contract that began July 1 and runs to Sept. 30.

Sounds like the New York version of the big dig.

And the damned project doesn’t even work. They should be ashamed. How hard is it to create a time entry system for city employees?

Pssst… Wanna Buy Some Detroit Junk?

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Get this, the city of Detroit is trying to sell some bonds. I know, who isn’t. But here’s the kicker.

The city, which warned investors in its preliminary official statement of the possibility of filing for Chapter 9 bankruptcy protection, provided a June 30, 2008, financial statement, its most recent, to investors. A fiscal 2009 report is expected to be complete by May 31, said city spokesman

Because as we all know, nothing big has happened in the Detroit area in the past couple of years, right?

You’ve got to have your head on backwards to participate in this. I mean, this is madness. The city’s on the brink of bankruptcy and people are buying the bonds with no financials. Risk management anyone? I guess no one’s learned anything from the past couple of years.

How Not To Respond To A New Law

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I realize that the airline industry is a difficult industry. But I have to believe that the following is a truly bad way to respond to a new law.

Several airlines, including Fort Worth-based American and Houston-based Continental, say they will cancel flights rather than risk paying stiff penalties for delaying passengers on the runway.

Continental’s CEO told investors Tuesday that the airline will opt to cancel flights rather than chance being fined.

And the genius behind this is due to the following law.

Under new federal guidelines that take effect next month, airlines can be fined up to $27,500 per passenger if a plane is stuck on the tarmac for longer than three hours.

Mind you, the law, that shouldn’t have to been passed to begin with is purely and solely due to the incomptence and stupidity of the same airlines. It’s nice to see them double down on stupidity.

Remember a few years ago when people were being stuck on the tarmac for 6 or 8 hours due to issues. The correct and humane way of dealing with those situations would have been to bring people back to the gate. But being completely and utterly incompetent, the airlines decided to keep people on the plane and make them suffer.

Needless to say their stupidity backfired and cause the law to come into effect. Think of the big picture here. The airlines, had a situation and they responded poorly to it. They repeatedly responded poorly to it and to the detriment of their customers. Instead of, you know, working to do right by their customers, they acted like asses. And now? They’re going to act like even bigger asses. Is it no wonder that people hate airlines and flying?

Trade War With Brazil?

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I’ve not been keeping up with the BRIC’s, since the PIIGS have come home to roost. 😉 The FT has the story that there’s a serious chance of a trade war with Brazil over some big commodities and it’ll be interesting to see how this plays out.

Brazil moved on Monday to raise tariffs on a wide range of American goods, potentially igniting a trade war with the US over cotton subsidies after eight years of litigation at the World Trade Organisation.

The decision takes effect next month, starting a 30-day period during which US and Brazilian officials will attempt to negotiate a solution to the dispute.

The articles mentions that Brazil sued the US in the WTO over cotton subsidies and the US lost. Yet another angle with the government trying to take over many different industries.

Trade wars are bad in the best of times. To have one break out in a global decline is an exceptionally bad time. It will be interesting to see whether it comes to pass and how badly this will affect the US. Since the US is really in a bind at the moment, it would be better if the administration would act like an adult and fix the damned subsidies but I won’t hold my breath. May be yet another reason to think the BRIC’s may continue to do well against the dollar?

Let’s Tax Microsoft For Buggy Code?

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Just when I thought Microsoft couldn’t put out any more stupid ideas, this piece of genius comes along.

A top Microsoft executive on Tuesday suggested a broad Internet tax to help defray the costs associated with computer security breaches and vast Internet attacks, according to reports.

Speaking at a security conference in San Francisco, Microsoft Vice President for Trustworthy Computing Scott Charney pitched the Web usage fee as one way to subsidize efforts to combat emerging cyber threats — a costly venture, he said, but one that had vast community benefits.

“You could say it’s a public safety issue and do it with general taxation,” Charney noted.

Since, Microsoft’s software is the primary vector for most of the attacks that go on and since it is their crappy code that causes all this, I propose we tax the hell out of Microsoft to fix the mess they created.

As they’ve proven beyond a shadow of a doubt that they are either incapable or incompetent at writing secure code, and since this is a public safety issue, we should most definitely tax Microsoft the company to the tune of at least $10 billion to clean up their mess.

Any other bright ideas Microsoft?