Greece: “The Country Sank the Banks”
Posted by Eddy Elfenbein on September 12th, 2010 at 4:09 pm

I strongly urge you to read Michael Lewis’ very long article in Vanity Fair on the massive disaster called the Greek economy. Here’s a sample:

Moody’s, the ratings agency, had just lowered Greece’s credit rating to the level that turned all Greek government bonds into junk—and so no longer eligible to be owned by many of the investors who currently owned them. The resulting dumping of Greek bonds onto the market was, in the short term, no big deal, because the International Monetary Fund and the European Central Bank had between them agreed to lend Greece—a nation of about 11 million people, or two million fewer than Greater Los Angeles—up to $145 billion. In the short term Greece had been removed from the free financial markets and become a ward of other states.
That was the good news. The long-term picture was far bleaker. In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions. Add it all up and you got about $1.2 trillion, or more than a quarter-million dollars for every working Greek. Against $1.2 trillion in debts, a $145 billion bailout was clearly more of a gesture than a solution. And those were just the official numbers; the truth is surely worse. “Our people went in and couldn’t believe what they found,” a senior I.M.F. official told me, not long after he’d returned from the I.M.F.’s first Greek mission. “The way they were keeping track of their finances—they knew how much they had agreed to spend, but no one was keeping track of what he had actually spent. It wasn’t even what you would call an emerging economy. It was a Third World country.”
As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.” The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland’s. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.
Where waste ends and theft begins almost doesn’t matter; the one masks and thus enables the other. It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed. People who go to public health clinics assume they will need to bribe doctors to actually take care of them. Government ministers who have spent their lives in public service emerge from office able to afford multi-million-dollar mansions and two or three country homes.
Oddly enough, the financiers in Greece remain more or less beyond reproach. They never ceased to be anything but sleepy old commercial bankers. Virtually alone among Europe’s bankers, they did not buy U.S. subprime-backed bonds, or leverage themselves to the hilt, or pay themselves huge sums of money. The biggest problem the banks had was that they had lent roughly 30 billion euros to the Greek government—where it was stolen or squandered. In Greece the banks didn’t sink the country. The country sank the banks.

Crossing Wall Street Nine Years Ago
Posted by Eddy Elfenbein on September 11th, 2010 at 1:39 pm

Happy Birthday, Maria
Posted by Eddy Elfenbein on September 11th, 2010 at 10:41 am

The Money Honey turns 43.

The Dow’s 1-for-11 Streak
Posted by Eddy Elfenbein on September 10th, 2010 at 11:41 am

I just looked at some recent data and found that ten of the last 11 stocks added to the Dow Jones Industrial Average have under-performed the index since their addition date.

Note that AT&T was added as SBC Communications.

Hurray for Spin-Offs
Posted by Eddy Elfenbein on September 10th, 2010 at 11:13 am

In general, I like spin-offs and hate mega-mergers: which leads me to smoking stocks and they’ve been smoking lately. Altria (MO) is at a 52-week high and it’s close to an all-time high.
The company spun-off Kraft (KFT) in 2007. Kraft was already publicly traded but MO decided to ditch its remaining 88% in the company. Then in 2008, MO spun-off Philip Morris (PM).
Here’s a look at how they’ve done:

Every stock has beaten the S&P 500 which is the gold line at the bottom. Kraft is the red line, Philip Morris is the blue and Altria is the black.
Mega-mergers sound great. They make a lot of news, but the results are usually pretty unimpressive. Spin-offs, however, can often be good places to find cheap stocks. I should add that after the spin-off, MO was kicked out of the Dow which is another index it has outperformed.

Stocks Aganst Bonds
Posted by Eddy Elfenbein on September 10th, 2010 at 10:10 am

Here’s an interesting chart. This shows how the S&P 500 ETF (SPY) has done compared with the Long-Term Treasury ETF (TLT). Since April, they’ve become almost mirror images of each other.

I ran the numbers and found that since April 21, the daily correlation between the two is -0.55. In other words, when stocks go up, long-term bonds go down. When bonds go down, long-term stocks go up. Now let’s place “generally” before those last two statements, but you get the idea.
What does it mean for the market? It’s hard to say. It usually means that capital is undecided. Money has a simple rule: It goes where it’s treated best. Right now, equity and debt are slugging it out.
The 10-year bond has been taking a hit recently but that’s hardly a shocker considering how low the yield went. On August 25, the intra-day yield dropped to just 2.42%. Think about that for a moment. At that rate, even after 10-years, you still won’t have made 25% on your dough. The yield has crept up and it just jumped above 2.8% today.
I’m happy to see the market go up, but we need to bear in mind that it’s only coming at the bond market’s expense. Personally, I can live with that. But if I had my preference, I’d like to see new money come in from commodities that would fuel both asset classes.

Morning News: September 10, 2010
Posted by Eddy Elfenbein on September 10th, 2010 at 9:41 am

FOREX-Dollar bounce loses steam, Swissie slides

Nokia Hires Microsoft’s Elop as CEO to Reverse Losses to Apple
China Posts $20 Billion Trade Surplus as U.S. Seeks Yuan Gains
Goolsbee to Lead Panel on Economy
Dubai World Close to Agreement on Debt

Ozawa win may push Bank of Japan to buy government bonds
Deutsche Bank Said to Weigh Share Sale of Up to $11.4 Billion
SEC Examines Funds of Hedge Funds

Oh Melissa
Posted by Eddy Elfenbein on September 9th, 2010 at 11:26 am

(HT: TBI)

Stick a Fork In Us, We’re Done
Posted by Eddy Elfenbein on September 9th, 2010 at 10:20 am

Today’s must-read item is “Paradise Lost: Why Fallen Markets Will Never Be the Same” by Ian Bremmer and Nouriel Roubini. Be warned: It checks in at over 4,000 words.
I’m generally pretty skeptical of these kinds of things, but I wanted to pass it your way. If I have any brilliant insights, I’ll add them later.
I’m afraid I’m not swayed by their argument: or rather, I supposed I’m relieved.
Update: Ok, I just finished the article. For one, the title seems to clash with the body. Far from telling us that markets will never be the same, they simply list many changes and problems in the world economy.
I also think they have a very “guys-in-suits-centric” view of the world. Just because the kind of folks invited to G-20 meetings disagree with one another or don’t have answers to the world’s problems doesn’t mean these problems are intractable. Nor does it even mean the problems will last.
The problem with this article is that it’s long on concepts and flushed out with strawmen, trendy buzzwords (nonpolar!) and the assumption that current trends will last: but it’s very short on support.
Felix Salmon has more.

Stocks Up on Jobless Claims
Posted by Eddy Elfenbein on September 9th, 2010 at 9:49 am

It doesn’t seem like Thursday. Such are the joys of holiday shortened weeks. The stock market is doing well so far this morning.
As I mentioned before, we seem to be stuck in a trading range. The S&P 500 has bobbed between 1020 and 1130 for over three months. Thanks to the last few days, plus today, we may soon challenge the upper end of that range. Let’s hope we do because nearly everything the market gained in July was taken away by August. I don’t want September to be another July (doesn’t that sound like the title of an old song?).
We can never know exactly why the market is up on a certain day, but the good news this morning is that there was a drop in jobless claims. First-time claims fell to 451,000 last week from a revised 478,000 a week earlier. The Street had been expecting claims to fall to 470,000.
Frankly, I don’t put a great deal of faith in jobless claims. This number comes out every Thursday and it contains a lot of what stats folks call “noise.” On top of that, nine states didn’t give numbers this week due to the Labor Day holiday. I think this is simply a case of the market wanting to rally and if that’s the excuse, so be it.
I see that all of our Buy List stocks are rallying (except NICK and MOG-A haven’t traded yet). AFLAC (AFL) has been as high as $51.27 and it’s close to making a four-month high.