Friday, May 16, 2008

Friday Readings

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Some items of interest

Americans seem to be finally educating themselves and want Paulson to do "something, anything" about the dollar, and the fact its stoking inflation. Inflation they see, feel, touch - but the government reports do not. Unfortunately the real culprits to the weak dollar require "solutions" that most Americans are not ready to face, such as actually living within our means as a nation and cutting back entitlements.
  • Americans want Treasury Secretary Henry Paulson to act to stop the dollar's decline, which has stoked the inflation eroding their household incomes.
  • A Bloomberg/Los Angeles Times poll found that 76 percent of Americans think the government should do something to halt the falling dollar. Among those with incomes of $100,000 or more, seven in 10 favored aiding the currency, putting pressure on Paulson, who's charged with setting the policy, to match his ``strong dollar'' rhetoric with action.
  • The U.S. currency has slumped 41 percent against the euro since 2002 and 13 percent in the past 12 months alone.
  • ``The long-term fundamentals of the U.S. economy will be reflected in our currency,'' Paulson said in Kansas City, Missouri, last week, responding to a question from the audience. (sadly that's the truth, and the market has spoken)
Let's see, countries who allowed the financiers of the globe to introduce their magic of "financial innovation" and stupid human tricks aka toxic mortgages are suffering across the globe - United States, England, Ireland, Spain.... while countries who stuck to traditional methodology aka "you want a house? No no no... you cannot have it for no money down and 1% interest rate for 2 years", seem to be doing fine - Germany, France, even with a terribly strong currency that is hurting their exports plus their worker friendly "socialist" backdrop. Ironic. Keep in mind, those tight fisted French and Germans still require crazy things like 20% down to buy a home. Nuts, I tell you.
  • Surprising even the most optimistic forecasters, the German economy grew 1.5 percent in the first quarter of this year, delivering its best performance in over a decade despite the global financial crisis and recessionary fears enveloping the United States.
  • The euro zone, where Germany accounts for a third of economic output among 15 members, grew 0.7 percent during the period, the statistics agency Eurostat reported Thursday. The region’s numbers, which represent quarter-on-quarter growth, also got a surprising lift from France, where the economy grew 0.6 percent in the first quarter.
  • However, economists said the numbers obscure severe slowdowns in Ireland and Spain, which have been battered by the global housing decline, and a probable recession in Italy. Growth in Spain and Ireland, which profited immensely from the global housing boom, was near zero in the first quarter, Eurostat said, reflecting stagnant or falling housing prices.
  • Still, the statistics appeared to validate the path of the European Central Bank, which has resisted cutting interest rates as the Federal Reserve has done in the United States. The European bank has repeatedly emphasized that inflation remains a threat while playing down the risks to growth posed by financial market distress since August.
But... but.... but... we NEED them to cut rates. Otherwise how will our dollar ever regain its stature above US Peso? Please cut your rates and subject your citizens to more inflation - please... we beg you.

Speaking of those damn socialists who have that silly thing called "regulation" that slows down greedy humans from feasting on the remains of their fellow man, the International Herald Tribune reports that EU Finance regulators want to (gasp) curb executive pay. The horror - I must avert my eyes. I mean if a CEO of a major US company was paid $3 million instead of $38 million (plus $22 million in restricted stock options, plus a relocation, plus corporate jet, plus taxes paid by corporation, plus cars, plus ....ok I digress) we all know what would happen. Every person in his organization would no longer function, and the company would be bankrupt within weeks! We must have more compensation because these few select men and women are the ONLY ones on the planet with the talent to run these companies!!! No person in middle management could do this job! Please write your Congressman and/or I urge a boycott of all European products so that we, together as Americans, can show our support for our embattled executives. Please will you help save a CEO's 14th home? I'll start rounding up the rock stars and R&B singers so we can do our version of Live Aid... you know "CEO Aid"....
  • Condemning excessive executive pay as "scandalous" and a "social scourge," European finance ministers pledged to keep boardroom remuneration in check by enhancing shareholder power or changing the tax laws.
  • "The excesses of captains of industry we have seen in several countries and sectors in the euro area are really scandalous and we continue to examine how something can be done in terms of professional ethics and taxation to combat these excesses," said Jean-Claude Juncker, the Eurogroup chairman.
  • Pay for chief executives in Europe is significantly lower than for their counterparts in the United States. (that's because Americans are clearly the only ones who can run a company well!! Sheesh, how obvious do I need to make it! The higher you are paid the smarter you are!! Right Bear Stearns? Merrill? Enron? Worldcom? Citigroup? Cmon readers, I urge you to fire yourselves so your company can shovel more money into the top 3 slots [your salary is a weight to the company that has better purposes, such as more CEO compensation]- that will show those Europeans and their silly egalitarian ways)
One of my favorite subjects, and something I've written about in the past - how there is almost never a "sell" rating on Wall Street, and the reasons behind it (you'd never want to peeve off a company another arm of your bank could do investment banking with i.e. more fees!), but the NYTimes has an interesting piece of how Merrill Lynch is going to require its analysts to say something bad about 1 out of every 5 stocks they cover. Hilarious. Want to know what % of all stocks are now rated sell? 5%. Yee haw! That means 95% are in great shape! Or you should at least hold them! No wonder Wall Street is such a happy place. Oh and after the last disaster of the late 90s when analysts used to issue BUY ratings than email their friends inside the bank what a disaster the company was (damn email trail), and new regulation came on due to that ridiculous situation... well 5% is an improvement. Back in "those good ole days" only 2% of stocks got a 'sell' rating. Again folks, Wall Street is really a used car sales lot with better suits and better college degrees. But in the end, its just a big sales job. Keep sending them your money....

But I do want to point out some interesting quotes from the story - how Wall Street has turned, even institutionally, to an environment that ONLY cares about short term results. And this is why "long term investing" is going the way of the do do bird - most high level compensation is based on 1 year time frames. So nothing else matters.... read on
  • Some analysts say the market does not value investment research about stocks as much as it used to because hedge funds and other investors are more focused on short-term results than they used to be.
  • There’s much more short-term orientation and more emphasis on quarterly earnings reports today,
  • “The real reason I got out of the business was the market doesn’t care about the future anymore,” he said. “If something isn’t going to occur in this calendar year when institutional investors get paid, it might as well be happening on Pluto.”
Speaking of which, the legend, the man, Ken Griffin from Citadel says many of our problems are caused by the youth - all these 20something traders who have little experience and whose idea of long term is a few minutes. Go Ken, tell 'em (of course Ken is 40, but at least he is a genius) as opposed to all those salesmen... err, very well versed traders who make 6-8 figures for selling the worst products to unsuspecting fools worldwide under the guise of "it's safe, just trust us". One day I'll be like Ken, talking to newspapers about how idiotic my brethren are; until then I blog in obscurity! Mad respect to a man who is inside the industry who actually speaks unpopular things.
  • Kenneth Griffin, who runs one of the biggest and most successful hedge fund firms, has a blunt assessment: "We, as an industry, dropped the ball."
  • The breakdown happened, Griffin contends, when big investment banks gambled away money and jobs during the late great credit boom. The bosses let all those young gung-ho traders take far too many risks and now everyone is paying the price.
  • But the answer is simple, in his view. The entire industry needs to overhaul its thinking and, believe it or not, perhaps even accept greater regulation. (the horror! Ken! Free markets solve everything!! Darn is everyone turning socialistic in this country!)
  • He is upset that the investment bank Bear Stearns ran aground. He is annoyed at the big-name chief executives who took too much risk and then watched as billions of dollars of value vanished from balance sheets. And he is particularly galled with regulators in Washington who have overseen what he calls "the great depression on Wall Street."
  • A problem, he says, is youth and inexperience - and that's coming from a former child prodigy. "Walk across any of the trading floors - they are full of 29-year-old kids," he said. "The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven't really seen that much. You have a real lack of wisdom." (Bravo. Bravo. Bravo.)
  • The problem is compounded further by weak government oversight, he said. "The unwillingness of the Federal Reserve and the SEC to require working capital" limits, he said, only exacerbates the risk-taking environment because the banks are playing the equivalent of no-limit poker. (Bravo. Bravo. Bravo.)
And to finish off on a fun note, I love Thin Mints but this is ridiculous! Impressive feat!

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