Carrie Underwood - Sweet Child of Mine

Some fun on the weekend for any of you fellow children of the 80s (or early 90s). Never thought this song could be pulled off by a female or in fact anyone not named Axl but this is quite the performance. Especially considering this is live and not in studio. For those who don't know Carrie Underwood won American Idol a few years ago. Band sounds pretty good too.

Finally Some Mainstream Reporters are Figuring Out the "Spin" from Government

It is encouraging to finally see the first reports coming out where people are not just taking the government numbers in spoon fed style and insisting everything is just dandy - although this AP reporter specializes in economics so obviously she is an outlier of high intelligence (as all those with economics backgrounds are) *cough*

Next week, we have our lovely government inflation statistics and I am now praying for these numbers to begin showing deflation, in the face of $125 oil and food prices off the chart, so we can show what a joke they have become. I am mulling creating a section of the blog just devoted to the putrid reports just so I don't have to repeat myself every 30 days when these same reports come out and I need to explain to the new readers why these are so darn wrong. Only when these reports so outrageously differ from reality will people finally acknowledge how the "fine tuning" over the years has created an entire tapestry of ... well... deceit. Sorry to say it. If you keep telling the sheep everything is ok, the sheep will continue for years believing it I suppose. [May 1: Is it an Official Recession? NY Post Says it Should Be] Remember, if the government agency that created Gross Domestic Product used the 4% inflation rate that another government agency creates - we would of had negative GDP. But instead they came up with their own number....2.6% inflation so *POOF* we have positive growth last quarter. Of course 4% is a hoax in itself, but 2.6% is a super hoax - but it makes the numbers work and keeps us out of recession... so its the "plug and play" number.

I seriously am at the point where I hope as more workers simply give up (and hence are no longer counted as unemployed) our unemployment rate drops to 3%, our inflation numbers start showing negative returns (indicating deflation) and our "retail" sales take off, indicating inflation booming which we can spin as "the consumer is back". And we can hear the political spin of "why is everyone feeling so insecure when the numbers clearly indicate the economy is booming". Only when it reaches that extreme, will anyone in power really be questioned on the constant modifications to data over the years, to make the numbers always look better than they should.

• The unemployment rate drops. Productivity grows. The trade deficit shrinks. Sounds great, right? Not so fast. Some seemingly good economic numbers can be something of a mirage masking weaknesses in the national economy.
• Let's take the unemployment rate, which dipped to 5 percent in April, from 5.1 percent in March. A closer look reveals that the decline in unemployment is not as good as it looks at first blush. The drop came as the number of people holding part-time jobs for economic reasons swelled to 5.2 million in April, up sharply from 4.4 million a year earlier.
• The dip in the unemployment rate also occurred as employers cut jobs for the fourth month in a row, pushing up total losses beyond the quarter-million mark -- to 260,000. Wages barely grew and workers' hours were trimmed.

My take on the "unemployment" and "underemployment" rates are here [Apr 2: The Underemployment Rate is Rising] in which I outline the "reality". If the government were keeping statistics now as they used to the pure unemployment rate would be around 13% (great chart that shows this in that blog entry). And that does not count all the people who are underemployed - working part time because they cannot find full time work. Yet we are told 5% (and dropping for god sakes). Last our 2 centers of job creation are simply our government continuing to build jobs constantly (and who pays for that?) and the already obese healthcare system (and who pays for that?) This is the bain of a service economy when most sectors that produce goods that the rest of the world would like have been stripped from the country.

• U.S. productivity -- an important ingredient to the country's long-term vitality -- grew solidly in the first three months of this year. That efficiency gain, however, came at the expense of workers. "Productivity gains were due primarily to declines in hours worked," the Labor Department's Bureau of Labor Statistics explained. Those hours fell at a 1.8 percent pace, the biggest drop in five years. Employers also shed workers in the first quarter. Thus, companies were able to produce more with fewer workers, and that boosted productivity, the amount an employee produces for every hour of work.
• "American workers, you just got to love them," said Joel Naroff, president of Naroff Economic Advisers. "They just seem to produce more and more and more. That was the case in the first quarter of the year as fewer workers working fewer hours managed to produce more," he said.

I didn't write about this in the blog, because frankly I am just tired of the spin each time one of these economic reports comes out - I will agree though this is GREAT for corporations and Wall Street. Terrible for Main Street. It is essentially what the auto industry has been going through for over half a decade. Cut jobs, push the work from the cut jobs onto the remaining workers and boom "increasing productivity"... surely there was (and is) fat across corporate America and the first low hanging fruit are probably viable cuts, but when you do this for years on end - you cut into the bone. And a workforce that cannot complain or fight back because they know finding a new job without taking a steep cut is difficult, and there are plenty of unemployed out there waiting to take your place. But I digress, 7 people today are doing the work of 10 people four years ago - productivity is up - rejoice.

• Let's take a closer look at the nation's trade deficit. It shrank to $58.2 billion in March as the United States' appetite for imports fell faster than foreign demand for U.S. exports. However, demand for foreign-made autos, furniture, toys, clothing and other goods also waned, underscoring the strains faced by U.S. consumers.
• In the first quarter of this year, consumer spending increased at the slowest pace -- a mere 1 percent growth rate -- since the last recession in 2001. Consumer spending accounts for the single-biggest chunk of U.S. economic activity.
• When exports and business' inventories are removed and imports are added in, economic activity actually contracted at a 0.4 percent pace in the first quarter.

Now in a healthy economy, I (and many) would rejoice in a dwindling trade deficit - meaning we are exporting more (and bringing in money) and importing less (and sending out less money). But we don't want to see this happening due to destruction of US consumer consumption. And that's what happened this time around, as we discussed here [May 9: March Trade Deficit Reflects 2 Bad Trends]

• In another anomaly, consumer borrowing rose in March at the fastest clip in four months. It sounded like people were back in a buying groove, with credit card charges especially heavy. But building up the credit charge balances is another form of debt.
• Economists said people don't have a choice because their paychecks aren't going as far and they can't tap into their homes, as they did during the housing boom, for ready sources of cash.

We discussed this almost verbatim in this entry [May 7: Roundup for the Day]

• When you look closely, "you do see some dark economic clouds in the silver linings," said Mark Zandi, chief economist at Moody's Economy.com. "The darkness is much greater than any sunshine."

The spin will continue; the sheep will continue to be led astray. We'll keep reporting the reality, if for nothing else other than educational purposes. Hopefully more news organizations figure it out - it seems the press might be the only check on the spin-meisters. In a predominantly financially illiterate society, the press might be the best weapon we have (and if that is the case - pray for us...yikes)

Bookkeeping: 'Rising Tide' Performance Week 40

Week 40 performance of the mutual fund

Comments: We began "our" 4th quarter in rip roaring fashion. While the market stagnated in a quiet week, most of our positions did quite well - and unlike the past 2 weeks when the "early cycle recovery" stocks jumped upward on an "imminent recovery, strong dollar" thesis, thereby hurting our short positions, we actually made money on that side of the ledger this week. Topped off by a very good run in coal to begin the week and a lot of smaller names finishing off huge 5-6 week runs, we were able to make some serious hay this week.

As for the market, technically - the indexes did not really go anywhere but we just continue our sector rotation, back to the themes that have been working for much of the past year. We remain range bound between roughly S&P level 1430 on the top, and 1370 on the bottom. We've been here now for over 3 weeks, so until we make a climatic move either up or down through one of these levels we are turning to a more neutral stance. The news flow continues to be awful but until the market acknowledges the reality on the ground, we can't turn into full bore bears. Where we are now is just what I call a "white noise" area - neither here nor there. Maybe $140 oil might make this market care about the reality on the ground - I don't know.



I spent most of this week raising cash after entering the week with a 3.3% position; and selling off a portion of a host of our winners. In a non mutual fund environment I'd probably be in a much higher cash position as I believe risks remain high here. Again it's very reminiscent to September/October 2007 when we rallied off the first Fed discount rate cut (parallel to Bear Stearns bailout) where we rallied hard for 5-6 weeks and then began to tail off ... almost identical set up right now. We'll see what happens; predicting the future of the overall market is a fool's game so we'll take it day by day. But just about every position I favor has made a huge run in the past month and a half, and the risk/reward no longer is in our favor in terms of adding new monies to these positions. Digestion of superior gains is now needed. We made a lot of transactions early in the week (mostly sales) as we cashed in winners, and built up cash reserves. The rest of the week was relatively quiet.

The S&P 500 lost 1.8% this week, and the Russell 1000 lost 1.5% ; Rising Tide Growth Fund generated a +3.1% return, so we had a very positive week, creating positive return on both absolute and relative basis. I expect to give some of this back next week since the gap versus the indexes was so huge.

I'll have an update next week on our progress towards fund pledges - we've had a huge month thus far - thank you!

Price of Rising Tide Growth: $12.084
Lifetime Performance to date (vs Aug 3, 2007): +20.84%

Comparable S&P 500: 1,388.3 (-5.25%)
Comparable Russell 1000: 759.2 (-4.65%)

Fund return vs S&P 500: +26.09%
Fund return vs Russell 1000: +25.49%

Last week's results here.

Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of April 2008.

Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2

To see why I use the 5 day weighted average of the first 5 trading days to smooth out the volatility of the indexes as the fund launched, see here.

Please click here: fund performance for previous updates

It Pays to be a Firefighter in Vallejo, CA

First let me preface this entire entry by saying, I don't bemoan the type of work firefighters or police officers do - along with coal miners these are among the toughest jobs in America. That said, I wrote a piece on the bankruptcy in Vallejo [May 7: Vallejo California Votes for Bankruptcy]; Mish over at Mish's Global Economic Trend blog followed up Thursday with a look at the salaries of public workers in the city. He took a look at all the workers who made more than $100K - there were 292 city workers (I don't know out of how many) - but this is only a town of 100K people. Not New York City.

Below are charts of the $200-$299K and $180-$199K ranges. Dominated by firefighters (and some policemen). Again, I have no bones with these people being compensated for tough work but when private industry is being battered by falling wages, and low(er) paying jobs - how can our tax dollars continue to pay such wages? As I wrote in my earlier piece

What I've been amazed to watch locally is how local governments (in a 1 state recession we've had for about 4 years now) won't cut jobs or benefits (for themselves) while private enterprise is cutting jobs, benefits, wages left and right. I guess they will hold on - until they go BK. But we need to either see very sizeable tax increases and/or job cuts/services lost to pay for our excesses of the housing bubble.

Unfortunately this has to change in a downwardly mobile country such as ours; a country full of new Walmart shoppers. [Dec 26: Target Shoppers Turning into Walmart Shoppers] It is not fair for the private sector to take such hits, while public sector employees make wages completely out of whack with where they would be in "free markets"; and subsidized by those working in the private market. It sounds cruel but this is our reality - "shared sacrifice" is a necessity.

Friday Stories Part II

We discussed this on the natural gas side Wednesday [May 7: Roundup for the Day]

And don't look now, but in a World of Shortages even natural gas could be causing us some issues NEXT winter says Goldman Sachs. (remember, global competition for resources - if we won't pay, someone else i.e. a government with cash - will)

But don't look now, it's going to hit whether your utility uses coal or natural gas... this is sort of like investing in oil stocks 3-4 years ago - to offset the prices your paying in real life, you need to make money on the stocks in your investments... I think there is going to be serious sticker shock next winter; and if you think this next winter will be bad just wait for the one after that - the increased costs will take time to filter through the system. As I say almost daily - the real inflation hitting this country is going to shock people - especially those who dictate our national policies on fictional government reports. We are going to see some major upheavel as people become very angry as things they consider necessities begin to get out of reach for those on the lower end and consume a much larger % of income on the middle end USAToday: Coal Price Hikes Boost Electric Rates, More Pain Coming

• Consumers struggling with high gas prices, rising food costs and falling home values have something new to worry about: Sharply rising electricity rates due to a surge in coal prices over the past year.
• There is an abundance of coal in the United States, but like other commodities its price is increasingly dependent on events elsewhere in the world. Snowstorms this winter cut coal production in China and heavy rain flooded mines in Australia — the world's largest coal exporter. Meanwhile, demand for coal to generate electricity and make steel is rising almost everywhere, especially in fast-growing China and India.
• Central Appalachian coal, a benchmark grade that's widely used by power plants, has jumped from around $40 a ton in early 2007 to almost $90 a ton now. Coal from the Powder River Basin in Wyoming and Montana, which has about three-quarters the heat content of Central Appalachian coal, jumped from less than $10 a ton to almost $15 a ton over the same time period. Utilities must burn more Powder River Basin coal to generate an equivalent amount of energy, and it must travel east by rail, which adds significantly to its final cost. Utilities such as American Electric Power, for instance, mostly burn Appalachian coal in their eastern plants, but rely on cheaper Powder River Basin coal in the west.
• American Electric is able to limit its rate increase in West Virginia to 15% — even though coal prices have doubled recently — because, like most other utilities, it buys coal via a portfolio of hundreds of contracts that let it lock in prices. But as contracts expire, they must then be re-negotiated at rising rates. (so unless we have a dramatic drop in coal prices, we are only passing along a fraction of the coal price increases at this time - let's see how government steps into the "free market" and tells utilities they cannot raise prices to 'market levels' - I'm sure that will come in "free market" America)
  
• That's bad news for consumers like Rodrigo Goines, 36, a disabled Lexington, Ky., resident whose government assistance checks barely cover his meager living expenses now. "I'm not going to be able to afford it," Goines said. "If they keep raising these rates, I'm gonna be in trouble." (this will be a growing refrain)

USAToday: Gas Prices Rattle Americans

• Record high gas prices are prompting Americans to drive less for the first time in nearly three decades, squeezing family budgets and causing major shifts in driving habits, federal data and a USA TODAY/Gallup Poll show.
• ...most Americans say they are cutting back on other household spending, seriously considering buying more fuel-efficient cars and consolidating their daily errands to save fuel.
• February was the fourth consecutive month in which miles driven in the USA fell, an analysis of Federal Highway Administration data show. There hasn't been a similar decline since 1979, when shortages created long lines at pumps. (this is "demand destruction") The decline, while small, is significant because the U.S. population and number of households, drivers and vehicles grow by 1% to 2% a year.
• Half of households with incomes below $20,000 say they face severe hardships because of soaring gas prices. Three-fourths of households making $75,000 or more also are changing how they use their cars.
• Dawn Morris, a consultant in Dover, Del., is blunt about how gas prices are affecting her family. "It's killing us," she says. She and her husband often stay home on weekends, and when she balances her checkbook, "every third line it says gas: $20, $30, $50."

It's so bad, Americans are even abandoning SUVs! Perish the thought!

• High fuel prices are causing the value of used SUVs to plummet, often below what's listed in the buying guides many shoppers use to negotiate with dealers.

Ok enough about energy inflation... let's move on to food inflation... woo-hoo. NYTimes: High Prices for Staple Foods Dip, but Volatile Markets Remain. Again, keep in mind as we think of people in many developing countries ... food makes up 60-70% of their expenditures - so think of your mortgage/rent... double its cost to you each month and that is what % they spend on food. Now assume your rent/mortgage has doubled in the past 12-18 months. Now panic. That's the equivalent to what is happening to the world's poor...

• After months of startling increases, the prices of rice, wheat, soybeans and several other foods have come down recently, a development that could ease some of the panic in global food markets.
• Prices remain volatile and remarkably high by historical standards, and few agricultural experts expect the days of inexpensive food to return soon. There is no sign of a drop steep enough to make food affordable again for the hundreds of millions of people in poor countries who are struggling to maintain adequate diets.
• The spot price of rice from Thailand has dropped by close to 20 percent in the last two weeks after nearly tripling in the first four months of this year.
• Many retailers and wholesalers around the world had not yet passed the full extent of this spring’s price increases along to consumers.
• Rice is perhaps the world’s most politically fragile crop. Nearly half the world’s population depends on it as a staple food. An even higher proportion of the world’s poor people depend on it, as imported rice has displaced local crops in cities across Africa and the Caribbean over the last decade, even as the crop retained its primacy in Asia.
• The spot price of a heavily traded good grade of rice exported by Thailand peaked at $1,100 a ton in late April, with a few purchases at even higher prices by buyers demanding huge quantities. But traders said Thursday that the going price was $880 to $920 a ton, although buyers of large quantities could still expect to pay more. The latest rice prices are still far above the price of $385 a ton prevailing in mid-January. (again, imagine the impact of your mortgage/rent x 2 - going up by this amount from January to today; we only spent 10%ish of our income on food here in the States)
  

Last, let's move on to some interesting stories in the the world of real estate

First, in the residential real estate market my chain event prediction from last summer of "subprime to Alt A to prime" is now appearing to be hitting the prime mortgage borrowers. Remember, everyone was placing the blame on those "darn subprime borrowers" and once we fixed them - all the housing problems would go away. It sounds ludicrous now but that was the "wisdom" spoken to us last summer. (by the same folks saying "no recession folks, just move along - booming in 6 months") Instead I was saying subprime is the symptom of a larger disease - just the tip of the iceberg. [Feb 14: NYTimes: Mortgage Crisis Spreads Past Subprime Loans] Here is the beginning of what is underneath the water's surface: USAToday: Mortgage Crisis Seeps to Prime Loans

• The first concrete evidence that delinquencies on mortgage bills have spread well beyond those with subpar credit shows that even prime borrowers have increasingly fallen behind on their house payments. The figures remain relatively small so far. But if they rise further, delinquencies on prime loans — given only to those with good credit — could prolong the housing crisis.
• About 2.3% of prime loans were 60 days' past due in February, the highest level in at least a decade, according to data from FirstAmerican CoreLogic LoanPerformance. That's up from 1.4% a year ago.
• "We're seeing the prime area coming under pressure, with delinquencies moving up," Bethune says. "We're in uncharted territory, and it's definitely been affecting the prime market, although it's still not anywhere as severe as in the subprime market."

3 Stories that may or may not interest you but I found a bit fascinating

1. I'm always amazed at how people who take outsized risks in finance get 2nd and 3rd chances to squander their investors money. I guess it's cool to do in real estate as well in NYC - the WSJ has a story about a big time real estate developer who went bust 16 years ago; and now he is repeating his act in Vegas. Maybe he'll get another chance in a few years - because he can chalk it up to a "once in a lifetime dislocation in markets" - just like failed hedge fund managers do (after pocketing millions of money of course) Here is an exact quote from the story that sums up all the "dumb money" in this country chasing the same people who keep getting this money for some reason In an interview earlier this year, Mr. Eichner said he was a victim of the credit crisis, and that banks eventually would lend to him again. "It's probably pretty safe to say that somewhere in 2009 or 2010, Bruce Eichner will surface with another one, something," he says. "There's zero that will stick to my shoes." - and that folks pretty much sums up the world of the rich and infamous.
2. All 3 major candidates rode the real estate boom, along with you - curious to see all the real estate these 3 folks own? The WSJ has an overview (hint, the McCains own at least 7 properties - I really need to marry a beer distributor - if any are reading please email me) And we wonder why Huckabee was the only Republican who was talking about the tough economy in the primary.
3. You thought private equity guys were out there doing deals with corporations? building, fixing, and then selling businesses? Nah...that's so 1990s. This new era of private equity guys goes and buys rent controlled NY apartments, harasses the current tenants to the point they leave, at which point the private equity firm can jack up the rent to the new market price and BINGO - cash flow spigot flows. See, who said private equity was dead?
   

• Some residents and tenant advocates say that they began seeing what they consider a pattern of harassment of low-income tenants this year and suspect that it is a result of the new owners’ business models. Tenants have been sued repeatedly for unpaid rent that has already been received by the landlords; they have been sent false notices of rent bills, lease terminations and nonrenewals; and they have been accused of illegal sublets.
• Nevertheless, tenants must answer the notices in court, but many have responded by moving out, court documents indicate. When they vacate the apartments, the owners can increase the rents substantially.

You just have to love how big money works in this country :) The little guy continues to get smashed. If it's not gas prices, or food prices, its ornery private equity guys using questionable/illlegal (I assume sending false notices of rent bills is not kosher?) to try to make some quick bucks so they can join the McCains and buy that 6th house. BooYah! (tm) Did I mention the 15% tax rates these guys get for such work? Nice!

March Trade Deficit Reflects 2 Bad Trends

The one saving grace of this economy has been exports - the "weak dollar" friends love to point to exports even though they make up a minority of our economy nowadays (versus say the 1970s). Today's Trade Deficit numbers reflect 2 troubling trends - one expected (lower imports) and one not so much (lower exports).

We can understand the lower imports - as the dollar weakens it makes our goods cheaper for the rest of the world but it makes goods more expensive for our own citizenry. Combine that with all the ills facing the populace and you can see demand destruction (price points reaching levels where demand drops) happening. On the other hand, the reduction in exports strikes me as troubling - I am not sure what to pin it on... my first thought is weakness is now finally spreading globally, especially Western Europe. To be fair, the exports are coming of an all time high last month. We'll see next month if this is a new trend, or a blip. Now Wall Street might not care about the consumers here in the US, but if our exporters start having trouble - then they are going to have to take notice of that (some day).

Conclusion: Thankfully this shall all pass in (say it with me) "6 months" and things will be booming by year end. The recession that never happened, will be over. Even though it never started. Book it Dan-o.

• The U.S. trade deficit narrowed sharply in March as demand for imports fell by the largest amount since the last recession was ending.
• The smaller deficit reflected spreading weakness in the U.S. economy, which cut demand for imports by 2.9 percent, the largest one-month decline since December 2001, one month after the last recession ended.
• The decline, which pushed imports down to $206.7 billion, was led by a 5.9 percent decrease in America's foreign oil bill. The amount of petroleum fell as the average price for crude oil jumped to an all-time high. Imports of autos and a wide variety of other consumer goods from furniture to toys and clothing also fell, reflecting the hard economic times facing U.S. consumers.
• Exports, which have been one of the few strong points in this period of weakness, suffered a setback in March, falling to $148.5 billion, still the second highest level on record but down 1.7 percent from the all-time high set in February. Sales of commercial airliners, cars, computers and machinery were all down.
• The politically sensitive deficit with China dropped by 12.4 percent to $16.1 billion, the smallest level in two years, as U.S. exports to China climbed to the second highest level on record, led by sales of medical testing equipment and computer chips. At the same time, imports of Chinese products dropped sharply, reflecting lower demand for cloths, textiles and toys.

LDK Solar (LDK) Founder Starts Thin Film Company - Competition for First Solar (FSLR)?

Intriguing news! Details still appear sketchy but this young gun CEO seems like one of those guys you really want to hitch your wagon too based on where he has been, so early in life. I'd like to see details of the technology before commenting further.. and I'd like to note this news has nothing to do with LDK Solar itself... it's just the same founder. Just in case Best Solar IPOs in the US I better start watching it; it will be interesting to hear how far along they are and what First Solar (FSLR) management thinks of this (they do have a huge head start)...

That said, all these huge initiatives plays into my thesis that we are going to have a major industry shakeout and (shorter term) gluts somewhere in the 2010-2012 time frame. [Jan 3: The Long Term in Solar] Anytime Abu Dhabi jumps on the train with their unlimited pocketbook...

• The LDK Investor Group says Best Solar, a thin-film startup founded by LDK CEO Xiaofeng Peng, placed the $1.9 billion order that Applied Materials reported to the U.S. Securities and Exchange Commission in March.
• Rumors about Applied Materials’ (NSDQ: AMAT) mystery customer have been flying ever since the company reported a $1.9 billion sales agreement “with a privately held corporation based outside the United States” in March.
• Some industry insiders thought the purchaser was Masdar, Abu Dhabi’s alternative-energy company, which later that month announced it would build $1.2 billion worth of concentrating solar projects in the south of Spain. Others guessed it was Moser Baer, which in February had said it would pump $1.5 billion into thin-film solar, and still others thought it was Chinese solar-wafer manufacturer LDK Solar (NYSE: LDK).
• Best Solar is an independent company that is unrelated to LDK -- other than sharing a founder -- and that aims to become the world’s largest supplier of thin-film solar panels, according to the report. “I’m sure this is correct,” said Telenius, who wouldn’t disclose his source but said it was “a direct source” and that the information was confirmed by “lots” of other unnamed sources.
• Jesse Pichel, an analyst at Piper Jaffray, said he believes the report is correct, based on his own information. The theory also fits in with LDK’s