Monday, April 19, 2010

How Do I Say I'm Sorry?

Similarly to last week, I was so floored by one article (blog entry, in reality) that I have to rehash it here. No, I'm not being lazy. But it is well-known to my readers that I'm not against biting the hand that once fed me, especially when that hand belongs to the Captains of Cash (which is a lot nicer than some other names you and I could have devised).

In the blog entry, it examined some of the statements made by these Titans of Treasure in light of the housing crisis and provided their total compensation (salary, bonus, options, and retirement benefits) as a means to see how beneficial it is to be someone who feels "it is better to beg for forgiveness than to ask for permission."

So how much does an apology cost? USD$2.3 billion dollars.

Yes, that's billion with a "b."

Ideally, I'd like to figure out the total years these gentlemen worked collectively as the heads of their respective institutions to determine a cost per year, but a) it's Monday morning, b) I'm lazy, and c) when you're looking at a total figure that large, the cost per year really doesn't matter.

In honor of these Generals of Gravy, my favorite job to have is no longer a meteorologist, where you can be wrong 75% of the time and still receive a 6 figure salary. It is now a CEO of a financial services institution where I can be wrong 50% of the time (or at least wrong when I'm telling the public about my firm's record-breaking profits..."If this is wrong I don't wanna be right!") and make an 8 figure salary.

One of these days, I'll tell you why I think it was wrong to repeal Glass-Steagall (if you don't already understand the history behind it and its implications), and why I am ecstatic over the efforts of Senator Blanche Lincoln and (gasp!) President Obama to impose huge restrictions on the sale of complex financial instruments. The huge irony here is that I consider myself to be more Republican than Democrat, but my political leanings are most definitely trumped by my fiscal attitude, which has been conservative for quite some time.

Monday, April 12, 2010

More Ridiculousness on Wall St.

After writing last week's entry, I came across an article that described something that has been going on in the marble halls of Wall Street for some time: the run-up of oil prices not by supply and demand economics but by the commodity traders on The Street who, by the mere act of betting on the future price of oil, create a self-fulfilling prophecy. This activity is not new to those who have the power to change policy and regulate these types of activity, yet they do nothing about it. To quote one of the best parts of this article...

After peaking at nearly 9.8 million barrels a day in August 2007, demand for gasoline has fallen steadily to a low of 8.5 million barrels day in February 2010 — a drop of 13 percent. But in the past 12 months, pump prices have increased more than 50 percent and oil prices have more than doubled. “People are using oil as a store of value rather than as a commodity,” Beutel said. “It’s the investors who are buying.”

Reading that should have made your skin crawl, since it is counter to everything we know about price movements, i.e. if demand falls then so does the price. Yet those on The Street once again demonstrate that they don't give a damn about the effect they have on the economy if it means they can make a quick buck.

Do not get me wrong: I do not exonerate the oil companies of their part of this. They have just as much culpability as do the traders I am writing about. But allowing this speculative activity to continue is akin to simply writing the traders a blank check, since what they are doing amounts to printing money.

Here's a message to the U.S. Government: write them a blank check and put a halt to what is happening. The end result from their perspective is the same, but I won't have to cringe anymore when I pull up to the gas pump.

Monday, April 5, 2010

Recovery? Really really?

Let me state from the outset that I am not a professional in any of the following industries: economics, law, actuarial science, health / wellness, or making quilts out of belly button lint. (Okay, maybe that last one will never be an issue here but I wanted full transparency.)

When I normally sit down to write a blog entry, I scan through the previous weeks' tweets that I made to remind myself of the topics that I thought were important. (I originally stated that this was a secondary benefit to using Twitter, but that has since been promoted to the primary benefit.) But this week one article, entitled Stocks Soar, but Many Analysts Ask Why, stayed front and center with no tweeting required.

The basic premise of the article is (no surprise here) that the stock market has "happy ears" on in a big way. You all know what "happy ears" are: it's the way you perked up when you overheard your parents talking around mid-December about that Red Ryder Carbine Action Air Rifle you've had your eye on. You heard this and expected a big payout come Christmas morning only to find out that your parents were discussing how the neighbor's kid down the street got one and shot their eye out. That's similar to what the stock market is experiencing now. They see a generally upward trend in the DJIA and immediately claim a victory over the dark demons of the recent recession.

But hold on pardner! There are a few things that are worrisome.

The housing market. The housing market is far from strong at the moment. In fact, an article that I subsequently read indicated that the spread between seasonally adjusted and non-seasonally adjusted figures is widening, which indicates instability in the market. Worse, the general lack of reaction to the news that the U.S. Government will stop buying mortgage backed bonds seems to show that "complacency is seeping back into the financial system" (as stated by that article).

The employment "market." Unemployment still isn't down by any substantial amount. Granted, things aren't as bad as they were before but that's like saying the Ford F150 hole in the New Orleans dikes are now the size of a Honda Fit, i.e. they are still bad enough to warrant substantial concern. Looking at the monthly figures (rather than weekly, like you probably hear on the news), February had an increase in unemployment over January, and the same is true with March vs. February although the rate of loss continued to lessen.

This viewpoint is supported by ADP that reported on Wednesday that 23,000 jobs were lost in March when economists had predicted an increase of 40,000 jobs instead. (The difference between this and the Department of Labor report that was released on Friday is that the latter includes temporary jobs like census workers, etc. which really shouldn't be included.)

In spite of the fact that financial services professionals are exuberant about the market, I'll make the claim that these two 800 pound gorillas are quite evident by simply looking at the 52-week graph of the DJIA. Even though the value of the index has increased, the volume has been weak overall with only 27.5% of the previous 365 days exhibiting volume over 1 billion shares traded. (This may have been a great thing in the late 90's, but these days 1 billion shares really isn't anything worth writing home about.) The lack of volume is a strong indicator of a lack of momentum, price increases notwithstanding.

I hate to be the bearer of bad news, but if you aren't able to at least agree that I raise a valid point there are plenty of stock brokers ready to take their commissions from your trading accounts while you continue to buy stocks that you expect to appreciate. And if I am right, the commissions will only be adding insult to injury as the loss of principal accumulates.

But hey...I'm not an economist right?