Archive for September, 2011

  • Morning News: September 9, 2011
    , September 9th, 2011 at 4:16 am

    Ghost of Lehman Haunts G-7 Amid Debt Crisis

    Europe’s Markets Trade Lower

    Europe Pushing Greece To Cut Deficit By Further 0.7% Of GDP -Source

    China Inflation Moderated in August

    Fed Chief Describes Consumers as Too Bleak

    US Jobs Plan: Barack Obama Unveils $450 Billion Package

    Settlement Said to Be Near for Fannie and Freddie

    Deutsche Telekom, AT&T at Odds Over Deal

    Tullow, Shell Discovery Opens New French Guiana Oil Play

    Bank of America Cutbacks May Hit 40,000

    Who to Run Yahoo? Strong Candidates Abound, But First — a Vision, Please

    Wal-Mart to Bring Back Layaway for Holidays

    Judge Widens Antitrust Suit Against Private Equity Firms

    Jeff Miller: Obama on Jobs

    Phil Pearlman: Some Quick Comments on Yahoo! and How I am Playing It Here

    Joshua Brown: The Latest Scam – $100 Trade Confirmation Fees

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  • Ben Bernanke the Comedian
    , September 8th, 2011 at 6:18 pm

    (H/T: Courtney Comstock)

  • Bernanke Speaks in Minneapolis
    , September 8th, 2011 at 1:52 pm

    As I’ve said before, Bernanke speaks pretty clearly. Here’s a key part of his talk:

    Why has this recovery been so slow and erratic? Historically, recessions have tended to sow the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand. As the business cycle bottoms out and confidence returns, this pent-up demand, often augmented by the effects of stimulative monetary and fiscal policies, is met through increased production and hiring. Increased production in turn boosts business revenues and increased hiring raises household incomes–providing further impetus to business and household spending. Improving income prospects and balance sheets also make households and businesses more creditworthy, and financial institutions become more willing to lend. Normally, these developments create a virtuous circle of rising incomes and profits, more-supportive financial and credit conditions, and lower uncertainty, allowing the process of recovery to develop momentum.

    These restorative forces are at work today, and they will continue to promote recovery over time. Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis. These two features of the downturn, individually and in combination, have acted to slow the natural recovery process.

    Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time–with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines–the rate of new home construction has remained at less than one-third of its pre-crisis peak. Depressed construction also has hurt providers of a wide range of goods and services related to housing and homebuilding, such as the household appliance and home furnishing industries. Moreover, even as tight credit for builders and potential homebuyers has been one of the factors restraining the housing recovery, the weak housing market has in turn adversely affected financial markets and the flow of credit. For example, the sharp declines in house prices in some areas have left many homeowners “underwater” on their mortgages, creating financial hardship for households and, through their effects on rates of mortgage delinquency and default, stress for financial institutions as well.

    As I noted, the financial crisis of 2008 and 2009 played a central role in sparking the global recession. A great deal has been and continues to be done to address the causes and effects of the crisis, including extensive financial reforms. However, although banking and financial conditions in the United States have improved significantly since the depths of the crisis, financial stress continues to be a significant drag on the recovery, both here and abroad. This drag has become particularly evident in recent months, as bouts of sharp volatility and risk aversion in markets have reemerged in reaction to concerns about European sovereign debts and related strains as well as developments associated with the U.S. fiscal situation, including last month’s downgrade of the U.S. long-term credit rating by one of the major ratings agencies and the recent controversy surrounding the raising of the U.S. federal debt ceiling. It is difficult to judge how much these events and the associated financial volatility have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence, and that they pose ongoing risks to growth.

    While the weakness of the housing sector and continued financial volatility are two key reasons for the frustratingly slow pace of the recovery, other factors also may restrain growth in coming quarters. For example, state and local governments continue to tighten their belts by cutting spending and reducing payrolls in the face of ongoing budgetary pressures, and federal fiscal stimulus is being withdrawn. There is ample room for debate about the appropriate size and role for the government in the longer term, but–in the absence of adequate demand from the private sector–a substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring.

    The prospect of an increasing fiscal drag on the economy in the face of an already sluggish recovery highlights one of the many difficult tradeoffs currently faced by fiscal policymakers. As I have emphasized on previous occasions, without significant policy changes to address the increasing fiscal burdens that will be associated with the aging of the population and the ongoing rise in health-care costs, the finances of the federal government will spiral out of control in coming decades, risking severe economic and financial damage. But, while prompt and decisive action to put the federal government’s finances on a sustainable trajectory is urgently needed, fiscal policymakers should not, as a consequence, disregard the fragility of the economic recovery. Fortunately, the two goals–achieving fiscal sustainability, which is the result of responsible policies set in place for the longer term, and avoiding creation of fiscal headwinds for the recovery–are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the long term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.

  • The Stock Market Since 9/11
    , September 8th, 2011 at 1:21 pm

    This Sunday will mark the tenth anniversary of 9/11. The stock market shut down for four-straight days, and once we reopened, stocks plunged lower. In fact, markets didn’t reach their bottom for another 18 months.

    It’s important to remember that even though most large-caps haven’t done that well over the last ten years, many small-caps have thrived which underscores my point of the importance of good stock-picking.

    Here’s a look at the total return of the Wilshire 5000 compared with the total return of the Wilshire 4500 (which is the first index sans the S&P 500).

    Since September 10, 2001, the Wilshire 5000 has gained 46.88% while the Wilshire 4500 has gained 105%.58. It was a bumpy road but the people who told investors not to panic after 9/11 were eventually proven right.

    David Berman adds:

    Although stocks suffered a lot when the market reopened in 2001, the really big moves in the market over the past 10 years have had nothing to do with the attacks.

    The financial crisis (the Lehman Brothers collapse on Sept. 15, 2008 seems like an important date to keep in mind; the third anniversary is approaching), deep recession and subsequent recovery with the extraordinary help from central banks seem like far more important factors on stock returns.

  • Bartz: Yahoo “f—ed me over”
    , September 8th, 2011 at 11:20 am

    Wow. Yahoo‘s ($YHOO) former CEO Carol Bartz has let loose in an interview with Fortune:

    FORTUNE — Here is what Carol Bartz thinks of the Yahoo (YHOO) board that fired her: “These people fucked me over,” she says, in her first interview since her dismissal from the CEO role late Tuesday.

    Last evening, barely 24 hours after Yahoo chairman Roy Bostock called Bartz on her cell phone to tell her the news, she called from her Silicon Valley home (“There are reporters at the gate…a lot of them.”) to tell Fortune, exclusively, how the ax came down.

    On Tuesday, Bartz was in New York, to speak at Citigroup’s (C) technology conference the next day, when she was supposed to call Bostock at 6 p.m. “I called him at 6:06,” she recalls. When he got on the line, she says, he started reading a lawyer’s prepared statement to dismiss her.

    “I said, ‘Roy, I think that’s a script,'” adding, “‘Why don’t you have the balls to tell me yourself?'”

    When Bostock finished reading, Bartz didn’t argue—”I got it. I got it,” she told the Yahoo chairman. “I thought you were classier,” she added.

    Recruited in January 2009 after successfully building Autodesk (ADSK), Bartz never was the turnaround chief that the Yahoo board had wanted. Though she slashed costs and improved profit margins, she failed to improve revenue growth at a critical time when Yahoo has lost eyeballs and ad dollars to Google (GOOG) and Facebook. “They want revenue growth,” says Bartz about the Yahoo board, “even though they were told that we would not have revenue growth until 2012.”

    As Bartz sees it, Yahoo’s search partnership with Microsoft (MSFT)—a deal she negotiated two years ago to offload costs—has Yahoo paying Microsoft 12% of its search revenue and limits current growth but will help the company long-term. She attributes the directors’ impatience to the criticism they faced when they turned down a lucrative deal to sell Yahoo to Microsoft in 2007, before she arrived. “The board was so spooked by being cast as the worst board in the country,” Bartz says. “Now they’re trying to show that they’re not the doofuses that they are.” (Bostock, who is vice chairman of Delta Air Lines (DAL) and on Morgan Stanley’s (MS) board as well as Yahoo’s, declined to comment.)

    After Tuesday’s call from Bostock, Bartz says, she had two hours to let Yahoo know whether she would resign or allow the board to fire her. She called her husband, Bill, her three children–a son and two daughters—and her longtime assistant, Judy Flores. Learning that Yahoo’s lawyers had gone to the St. Regis hotel to hand her papers, she ditched that hotel and booked herself into another. “Am I stupid?!” she asks, making clear that she took her career crisis into her own hands.

    It was that evening when she pulled out her iPad and wrote an email to Yahoo’s 14,000 employees:

    To all,

    I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s Chairman of the Board. It has been my pleasure to work with all of you and I wish you only the best going forward.

    Carol

    What does Bartz think of her successor, Tim Morse? “He’s a great guy,” she says. Morse was chief financial officer under Bartz, and now he is interim chief of a company whose stock has risen 6% since he replaced her. Asked whom she thinks the board might appoint long-term, she replies, “They should bring me in. I knew what to do.”

    Sometimes it’s difficult to know when Bartz is being serious. As I prod her to tell me what she might do next, I mention her age, 63—”fuck you, yeah,” she replies. And when I ask her if she’s on any other public company boards besides Cisco (CSCO), where she is lead independent director, she says, “I’m on Yahoo’s board.” She tells me that she plans to remain a Yahoo director—which might be unlikely since she has now called her fellow directors “doofuses.”

    “I want to make sure that the employees don’t believe that I’ve abandoned them. I would never abandon them,” Bartz says. Besides, she adds, “I have way too many purple clothes.”

    She’s referring to the color of Yahoo’s logo. “I wish the Yahoo people the best,” she adds, “because it’s a fantastic franchise.”

  • RIP: Keith Tantlinger
    , September 8th, 2011 at 10:02 am

    Keith Tantlinger died recently at the age of 92. Don’t worry if you’ve never heard of him; you’re not alone. But his invention (or innovation, really) changed the world.

    Nearly six decades ago, Keith W. Tantlinger built a box — or, more accurately, the corners of a box. It was a seemingly small invention, but a vital one: it set in motion a chain of events that changed the way people buy and sell things, transformed the means by which nations do business and ultimately gave rise to the present-day global economy.

    Mr. Tantlinger’s box, large, heavy and metal, is known as the shipping container. Though he did not invent it (such containers had been in use at least since the 19th century to haul heavy cargo like coal), he is widely credited with having created, in the 1950s, the first commercially viable modern one.

    The crucial refinements he made — including a corner mechanism that locks containers together — allowed them to be hefted by crane, stacked high in ships and transferred from shipboard to trucks and trains far more easily, and cheaply, than ever before.

    Thus, without ever intending to, Mr. Tantlinger, an engineer who died at 92 on Aug. 27 and who had long worked out of the limelight, helped bring about the vast web of international trade that is a fact of 21st-century life. More than any other innovation, the modern shipping container — by turns venerated and castigated — is now acknowledged to have been the spark that touched off globalization.

  • Markets Nervous Ahead of Obama’s Speech
    , September 8th, 2011 at 9:28 am

    Yesterday was an excellent day for the stock market. However, given the recent volatility trend and trading range, we may give it back very soon. What I’m waiting for is a catalyst that will push the market out of its 1,120-1,230 trading pattern. President Obama’s jobs speech may help, but the market doesn’t seem to fare well whenever a government official speaks.

    The markets were a little surprised this morning when the jobless claims number rose by 2,000 to 414,000 last week. The Street was expecting 405,000. The other big news was that the OECD cut its economic growth forecast for the U.S. economy for the third quarter to 1.1% and 0.4% for the fourth quarter.

    I want to reiterate my point that the evidence of a Double Dip recession is far from conclusive. For example, Tuesday’s ISM Services index came in at 53.3 which was an increase over July and it was higher than Wall Street’s forecast. Also, the July trade deficit shrank by 13.1% to 44.8 billion. Exports rose 3.6% to $178 billion which is the highest ever.

  • Morning News: September 8, 2011
    , September 8th, 2011 at 4:56 am

    Berlusconi Austerity Plan Passes Senate

    ECB to Signal Change in Policy Tack

    Trichet May Choose Liquidity Over ECB Rate Cut

    BOE May Mull More Stimulus on Market Strains

    Lagarde Uses IMF Role to Seek End to Debt Haggling

    Fitch Warns of Downgrades for China, Japan

    Japanese Government Bonds Inch Down on Treasuries; 5-yr Sale Draws Moderate Demand

    Crude Oil Declines From 5-Week High as Libyans Discuss Output, Storm Spins

    Rising Fears of Recession

    Some Hedge Funds, to Stay Nimble, Reject New Investors

    Moynihan Tries to Keep Bank of America Intact

    Best Buy Selling Other Online Retailers’ Products Via Its Site

    Blunt E-Mail Raises Issues Over Firing at Yahoo

    Papermaker Owned by Cerberus Files for Bankruptcy

    U.S. Slips to Fifth Place On Competitiveness List

    Stone Street: Hurricane Irene v. New Jersey: The Aftermath (Site Visit)

    James Altucher: How To Be The Smartest Person On The Planet

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  • Gold and Gibson’s Paradox
    , September 7th, 2011 at 12:08 pm

    When I wrote about my gold model last year, I discussed Gibson’s Paradox and a paper from 1988 by Larry Summers and Robert Barsky. My model is largely based on the ideas from that paper.

    Strangely enough, that paper is getting some attention today. Paul Krugman writes about gold prices on his blog today. At the end of the post, Larry Summers alerts him to the 1988 paper. Tyler Cowen also highlights the paper.

  • Icahn Not Giving Up on Clorox
    , September 7th, 2011 at 11:11 am

    If nothing else, Carl Icahn is entertaining. When we last caught up with the billionaire, he was trying to take over Clorox ($CLX). Actually, that’s not quite correct. Icahn was bidding for Clorox is an attempt to get someone else to take it over. I’m not exactly sure how that makes sense but hey, it’s his money.

    First, Icahn offered $76.50 per share which the board shot down. He then came back with $80 per share which the board also shot down.

    The market never took Icahn’s bid very seriously although the stock did break above $74 per share. I wrote, “If I were a CLX shareholder, I’d get out of the stock right now.” I can claim I got that one was right as the market quickly soured on CLX. But August 18th, it dropped as low as $63.56 per share which was lower than where it was before Icahn made his first offer.

    Last week, Icahn said that if no one is willing to buy Clorox for $78 per share, he’ll buy the thing himself and break it up. Once again, the board showed no interest. The stock got up to $72 very briefly but it couldn’t hold on. The market clearly doesn’t take Icahn’s bids very seriously.

    My view is that Clorox is basically a $60 stock, plus or minus a few dollars. I’d only be interested in it if the market price fell close to $50, Other than that, you’re wasting your time with it. Let Icahn waste his money on this.