Misery Economic Theater 2011

[Christenson]

Originally Posted by fivemack

<snip>
But hindsight is an unrealistically good investment measure, and the problem is that the world, rather than just Japan, is entering a zero-return state. And diversifying outside the world is quite difficult.

Of course hindsight is too good an investment strategy to be true....and in this case, since I can't find a stock market on Mars, the strategy *really* doesn't work. Suppose I had had to keep my money in Japan, what would have been best? (Or, for that matter, suppose we are talking Weimar, Germany...these politicos are just nutty enough) [proving Godwin's Law].

[fivemack]

I think the problem with answering your question is that thirty-year-old financial data is weird and specialist and generally confined to people who think they could make money out of it and are therefore prepared to pay for it; I can't even find what would be the least much that would do, a list of market caps of the largest Japanese companies of 1990. I wouldn't be surprised if Toyota and Nikon had grown since then, but nor would I be surprised if they had shrunk.

I have written to the Japanese embassy in London, but I doubt I'll get anything useful.

In early Weimar the issue was hyperinflation, and the strategy that worked best was basically day-trading; turn money into shares in companies that sold basic commodities which people would keep buying even as their money inflated away. But hyperinflation really isn't a worry at the moment. Later on, the very best investment was convincing your second cousin in New York to claim to be your first cousin and sponsor you to get to America - but again, in a world-scale low-growth environment, there's no very useful equivalent to New York.

The Economist's Big Mac index suggests that there are few substantially-undervalued currencies at the moment, though that Brazil, Argentina, Sweden and Switzerland are significantly overvalued.

[Fusion_power]

We have a series of misleading economic factors playing into the market. There is an ongoing sense that Italy and Spain will eventually have to bite the bullet and request an ECB bailout. Greece is still widely believed to be on the verge of default. This will continue to spin like an out of balance wheel until something happens to tip the cart. The problem is that the market is so jittery that just about anything could trigger a mass sell off of Euro denominated securities, especially bank oriented securities.

Obama has proposed a sweeping stimulus program entirely funded by raising taxes. I'm pretty much ok with the tax increases given where they will fall, but don't expect any stimulus effort to be effective other than in the short term. For this reason, I object to his plan. I would rather see more effort made toward opening up manufacturing capacity, especially entrepreneurial, since it gives the maximum economic benefit. No amount of stimulus will be effective until the U.S. economic house is in better order.

Buffet's purchase of Bank Of America preferred stock may stabilize the stock for a time, but the underlying risk associated with mortgage based securities is just too high to justify any ownership at this time. I think this may even wind up being one of Warren's rare missteps. Not necessarily a loss, but given the situation, not something he will make money on either.

The current market reminds me of 1987..... sans a fundamentally sound economy.

DarJones

[ewmayer]

Remember Monday`s late-afternoon market-levitating "China to bail out Europe" rumor-rally? Predictably, it was a all a bunch of (strategically timed and 'leaked') hooey:

China Premier Wen Jiabao Dampens Speculation on China Saving Europe with Statement "Debt-Laden Economies Must First Put Their Own Houses in Order"

Oh wait, just as I was typing the above I saw that the same rumor is back on:

China Storms Back To Put Things Back In Order, Says Willing To Buy Debt Of Crisis Nations

Oh wait, Chinese Premier Wen Jiabao made statements nixing the "we pay top Yuan for PIIGS paper" rumors. "We need a new rumor!", cry the markets. Oh wait, here`s one - let`s just re-float some BS about the dead-on-arrival "Eurobonds" bailout scheme.

Party like it`s 1929...or 1987...or 1999...or 2008. "Greecefire is contained", risk-on, build your financial house out of BRICs, said the 3 little PIIGS.

On a humorous note, TheOatmeal.com explains the credit-based economy.

[Edit: The one about english vs metric units is pretty funny, too.]

[Christenson]

All my machining is in thousandths; I can't do science except in metric....

OK, this is becoming like predicting finding the next mersenne prime....it's coming, it's coming, now WHEN?

[ewmayer]

Originally Posted by ewmayer

Amid all the market turmoil, the NYT has this hopeful article, which could be retitled: "Don`t worry about your retirement nest egg having lost 20% of its value - you stand to save a few dollars a week at the gas pump!":

Their Stock Portfolios May Be Bleeding, but Consumers Get a Break on Gas Prices: Hidden in the market’s fear dynamic is that oil prices have dropped precipitously. But whether consumers and businesses will spend that freed-up cash is a question mark.

My Comment: So far, gas at my trusty local Valero station is down a massive - brace yourself - $0.04 in the past month, roughly 1%. And you said oil was down how much?

Well, that hoped-for drop in gas prices spectacularly failed to materialize - Quite the opposite, in fact {But hope springs eternal - this article again has an oh-so-optimistic tone]:

Gas prices leveling off after latest jump, may even drop a bit

Bay Area drivers who fumed at the gas pump over the past month as prices jumped 12 cents higher and teetered on the $4 mark can mellow out a little bit: The price spikes have leveled off for now.

And prices may start to go down.

"In the next few weeks, we'll be going to the winter blend of gas and that typically means prices come down a little bit," said Matt Skryja, AAA Northern California spokesman.

The state average for a gallon of regular, unleaded gasoline is $3.95, up 17 cents since last month's AAA report on Aug. 9. That's 93 cents higher than California's average price this date last year, Skryja said.
...
There are a lot of things going on when it comes to oil and gas," Skryja said. "The big question is why the big jump in California? In many metro areas, there were double-digit increases."

More demand for gas around Labor Day weekend, the traditional end of summer for many families who head to the lake or the mountains one last time, and "some refinery" issues are behind the recent jump in prices, Skryja said.

My Comment: The article does not delve into the huge divergence between oil and gasoline prices over the past few months. Suuuuuuuuuuuuuure there are "a lot of things going on when it comes to oil and gas" ... not including "price gouging", apparently. Never that...

-----------------------

Mish presents some options for the fate of the Eurozone, including the interesting one of the fiscally stronger countries such as Germany and the Netherlands leaving the Euro:

Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied)

This is why I think [former head of the Federation of German Industries Hans-Olaf] Henkel’s proposal makes sense. Rather than have Spain leave the euro, Germany can leave the euro. The new German currency would automatically appreciate and the euro would depreciate, but without the terrible debt dynamics, the adjustment in the currency value would be much closer to the theoretically correct adjustment. The relative adjustment would probably be in the 20% range rather than in the 50% range.

Of course German banks would still have a problem. Their deposits would be in the form of the new German currency, and a lot of their loans – all those to Spain, for example – would be in the depreciating euro, and so they would take large losses. But at least the losses will be less – and more importantly the process will be more orderly – than if Spain simply leaves the euro and defaults.

One way or the other Germany is going to take a pretty big hit. It is a complete waste of time trying to figure out how to avoid it. It would be far more constructive to resolve the problem as quickly as possible in as orderly a manner as possible, and as any good Minskyite would tell you, that means we have to pay special attention to the balance sheet dynamics. That’s why I think Henkel’s proposal is an interesting one.

Of course the really interesting thing about Henkel’s proposal (at least to me) is to figure out what decision France would make if something like this happened. If France remained within the euro (i.e. “peripheral” Europe in Henkel’s scenario), the possibility of a United States of Europe would be forever dashed, but it would almost certainly be replaced with a two-entity Europe – the United States of Germany and the United States of France, or perhaps, for those who like 19th Century monetary history, the new Zollverein and the new Latin Union.

Some Democrats Are Balking at Obama’s Jobs Bill: President Obama anticipated Republican resistance to his jobs program, but he is now meeting increasing pushback from his own party. Many Congressional Democrats, smarting from the fallout over the 2009 stimulus bill, say there is little chance they will be able to support the bill as a single entity, citing an array of elements they cannot abide.

“I think the American people are very skeptical of big pieces of legislation,” Senator Bob Casey, a Democrat from Pennsylvania, said in an interview Wednesday, joining a growing chorus of Democrats who prefer an à la carte version of the bill despite White House resistance to that approach. “For that reason alone I think we should break it up.”

Senator Harry Reid of Nevada, the majority leader, has said he will put the bill on the legislative calendar but has declined to say when. He almost certainly will push the bill — which Mr. Obama urged Congress to pass “right now!” — until after his chamber’s recess at the end of the month; Mr. Reid has set votes on disaster aid, extensions for the Federal Aviation Administration and a short-term spending plan ahead of the jobs bill.

Republicans have focused their attack on the tax increases that would help pay for the spending components of the bill. But Democrats, as is their wont, are divided over their objections, which stem from Mr. Obama’s sinking popularity in polls, parochial concerns and the party’s chronic inability to unite around a legislative initiative, even in the face of Republican opposition.

Some are unhappy about the specific types of companies, particularly the oil industry, that would lose tax benefits. “I have said for months that I am not supporting a repeal of tax cuts for the oil industry unless there are other industries that contribute,” said Senator Mary L. Landrieu of Louisiana.

My Comment: See, it`s not about jobs for Americans or party loyalty - It`s (as always) about goodies for one`s major campaign contributors.


Book Details Dissension in Obama Economic Team: A new book claims that President Obama’s response to the economic crisis was hampered by a White House economic staff plagued by internal rivalries, a domineering chief adviser and a Treasury secretary who dragged his feet on enforcing decisions with which he disagreed.

The book, by Ron Suskind, a former Wall Street Journal reporter, quotes White House documents that say Mr. Obama’s decisions were routinely “re-litigated” by the chairman of the National Economic Council, Lawrence H. Summers. Some decisions, including one to overhaul the debt-ridden Citibank, were carried out sluggishly or not at all by a resistant Treasury secretary, Timothy F. Geithner, according to the book.

Mr. Suskind quotes from two memos for the president in which Pete Rouse, a senior White House aide, wrote, “There is deep dissatisfaction within the economic team with what is perceived as Larry’s imperious and heavy-handed direction of the economic policy process.”

A copy of the book, “Confidence Men: Wall Street, Washington, and the Education of a President,” published by HarperCollins, was obtained by The New York Times before it officially goes on sale on Tuesday. The White House declined to comment on Mr. Suskind’s account, which he said was based on interviews with more than 200 people, including the president.

The book offers a portrait of a White House operating under intense pressure as it dealt with a cascade of crises, from insolvent banks to collapsing carmakers. And it details the rivalries among figures around the president, including Mr. Summers; Mr. Geithner; the former chief of staff, Rahm Emanuel; and the budget director, Peter R. Orszag.

In this rough-and-tumble environment, the book reports, female staff members often felt bruised. At a dinner with Mr. Obama in November 2009, several top female aides — including Anita Dunn, who was the communications director, and Christina Romer, the chairwoman of the Council of Economic Advisers — told the president about being talked over in meetings by male colleagues or cut out altogether.
...
In the book, Mr. Geithner denies that he obstructed any presidential directive. A senior Treasury official said a government restructuring of Citibank would have occurred only if the Treasury had been left with a significant ownership stake in the bank after it emerged from a financial stress test.

My Comment: Right: Geithner never "obstructed" any presidential directives...he simply ignored the ones he disagreed with.

[ewmayer]

Netflix Strategy Prompts Backlash

Netflix, the company that changed the way tens of millions of people watch films and TV shows, is quickly discovering that there’s a
downside to having cultivated such a passionate fan base.

All those customers who appreciate low prices, innovative products and rapid customer service? When they feel slighted, they can sign out just as fast as they signed up.

On Monday many Netflix customers derided the company’s plan — announced unexpectedly late on Sunday night — to split into two separate businesses, one for Internet streaming and one for DVDs by mail. They mocked the new name of the DVD company, Qwikster, and predicted its demise. And they wondered why Netflix’s chief executive, Reed Hastings, http://blog.netflix.com/2011/09/explanation-and-some-reflections.html]was apologizing for “arrogance” — but not for disrupting a service that they adore.

“I have a feeling the apologies are just beginning,” said Mike Gordon, the chief executive of Group Gordon, a corporate and crisis public relations firm in New York. “They’re catching customers off-guard by making huge changes and not providing a lot of explanation for them. It’s been handled poorly.”

My Comment: "Qwikster"? Are you effing kidding me?? I couldn`t come up with a more phony sarcastic imitation of a "WayKewl" name for a Streaming-pile-of-crap web service if you asked me to. (Ha, maybe they'll end up getting sued by Nestle over their use of a name that sounds too close to that chocolate-milk-bunny-mascot stuff). NFLX (or was that "QWIX"?) stock nosedived 25% last week, got pummeled again today, has given up a full year`s worth of straight-up-ramp-job gains. As for the CEO "eating humble pie", well, read on:

The separation announcement was the latest in a series of back-to-back blows for Netflix, which rolled out an unpopular new pricing scheme earlier in the summer, apparently causing about a million of its 25 million customers in the United States to cancel the service. It was as if Netflix had fumbled the process then and could not figure out how to recover.

The company’s stock, which tumbled more than 25 percent last week after revising upward its expected number of subscriber defections, dropped another 4 percent on Monday.

In a letter posted on the Netflix Web site late Sunday night, Mr. Hastings apologized for the way he handled recent changes in pricing and subscription services. “I messed up,” Mr. Hastings said. “I owe everyone an explanation.”

My Comment: "But instead of explaining anything, allow me to compound my recent mis-steps with a horribly misguided attempt at rebranding."

Recent Netflix insider stock transactions (click the link to see the full list, of which I reproduce just the tip if the iceberg) tell a distinctly one-sided tale:

[R.D. Silverman]

Originally Posted by ewmayer;

Recent Netflix insider stock transactions (click the link to see the full list, of which I reproduce just the tip if the iceberg) tell a distinctly one-sided tale:

As I have said before: We should pass a law that ALL compensation at
a publicly traded company should be via salary. No stock grants, no
stock options, nothing. And a bound should be placed on all salaries:
The maximum should be no more than (say) 40x the median.

[ewmayer]

Mish has a story roundup on what appears to be an accelerating bank run in Europe:

Lloyd’s of London Pulls Euro Bank Deposits; Siemens Pulls €500 Million from French Bank

-----------------------------

S.E.C. Hid Its Lawyer’s Madoff Ties: A conflict-of-interest case involving David M. Becker, the former general counsel of the Securities and Exchange Commission, is being referred to the Department of Justice for a possible criminal investigation.

After Bernard L. Madoff’s giant Ponzi scheme was revealed, the Securities and Exchange Commission went to great lengths to make sure that none of its employees working on the case posed a conflict of interest, barring anyone who had accepted gifts or attended a Madoff wedding.

But as a new report made clear on Tuesday, one top official received a pass: David M. Becker, the S.E.C.’s general counsel, who went on to recommend how the scheme’s victims would be compensated, despite his family’s $2 million inheritance from a Madoff account.

Mr. Becker’s actions were referred by H. David Kotz, the inspector general of the S.E.C., to the Justice Department, on the advice of the Office of Government Ethics, which oversees the ethics of the executive branch of government.

The report by Mr. Kotz provides fresh details about the weakness of the agency’s ethics office and reveals that none of its commissioners, except for Mary L. Schapiro, its chairwoman, had been advised of Mr. Becker’s conflict.

It says Ms. Schapiro agreed with a decision to keep Mr. Becker from testifying before Congress, where he would have disclosed his financial interest in the Madoff account.
...
Mr. Becker’s lawyer, William R. Baker III, said in a statement that the report confirmed that Mr. Becker had notified seven senior S.E.C. officials about his late mother’s Madoff account, including Ms. Schapiro and the agency’s designated ethics officer.

“The inspector general concluded that ‘none of these individuals recognized a conflict or took any action to suggest that Becker consider recusing himself from the Madoff liquidation,’“ wrote Mr. Baker, a lawyer at Latham & Watkins who worked at the S.E.C. for 15 years, working alongside Mr. Becker at times.

My Comment: Got that? None of the seven senior S.E.C. officials informed about what was obviously, massively, flagrantly a conflict of interest "recognized" it as such. This would a "shock and surprise" story if it weren`t so incredibly obvious that the SEC, except for the occasional "big show" prosecution (latest installment of that was the Galleon hedge-fund case), is there to serve and protect its Wall Street masters. And it neatly parallels the Madoff scandal itself, where credible evidence had been forwarded to the agency for years which, had it been followed up on by even a semi-competent investigator, would have quickly revealed what was obviously, massively, flagrantly a huge Ponzi scheme. But, again S.E.C. officials "didn't recognize" an issue worth following up on.

And speaking of Ponzi schemes, this next one is Internet-Poker-related:

Poker Web Site Cheated Users, U.S. Suit Says: Federal prosecutors who blocked three poker sites in April said Full Tilt Poker had been improperly paying out money from customer accounts to the company’s owners.

The millions of people who signed up for a Web site called Full Tilt Poker knew they were there to gamble. But it turns out they were taking on far more risk than they realized, even when they had no chips on the virtual table.

That is the essence of a civil complaint that federal prosecutors filed on Tuesday. It asserts that players around the world entrusted Full Tilt with $390 million in gambling money, and that the company promised to keep those funds in secure accounts. In reality, prosecutors found, the money wasn’t there; instead, much of it had been transferred to the owners and management of Full Tilt, some of whom were themselves among the most prominent and popular poker players in the world.

“Full Tilt was not a legitimate poker company but a global Ponzi scheme,” said Preet S. Bharara, the United States attorney for the Southern District of New York in Manhattan, whose office filed the complaint on Tuesday.

My Comment: George, you`ve been a staunch advocate of Internet poker ... ever do business with this outfit?

[R.D. Silverman]

Originally Posted by ewmayer

And speaking of Ponzi schemes, this next one is Internet-Poker-related:

Poker Web Site Cheated Users, U.S. Suit Says: Federal prosecutors who blocked three poker sites in April said Full Tilt Poker had been improperly paying out money from customer accounts to the company’s owners.

My Comment: George, you`ve been a staunch advocate of Internet poker ... ever do business with this outfit?

I've seen their ads on TV.

[Prime95]

Originally Posted by ewmayer

George, you`ve been a staunch advocate of Internet poker ... ever do business with this outfit?

I'm a staunch advocate of the government not telling me how to run my private life.

I stand to lose $250 of "entertainment money". This points out the need to regulate rather than ban online gambling. It would create U.S. jobs, protect consumers from shady operators, and generate tax revenues. Its a win-win-win.