Saturday, January 31, 2009

Weekend Reading

People always email me "where do you get your ideas from"? Basically, I am an information junkie. I try to read as much as possible, from as many sources as possible. Some I agree with, some I do not - but I try to assimilate it, mix it, think about it... think about it more... and then come up with my short and long term views. I try to post (regurgitate) some of the most pertinent stories on the blog, but frankly probably 90% of it what I'm reading never makes it back here as I am trying to not make the site overwhelming. Anything more than 6 to 8 posts a day I think is too much, and even with that I am trying to segregate some of the "stock trades" information out from the main body of the blog - still working on that.

We have a hodge podge of readers with different interests - some are economic focused, some are general market focused, some are specific stock focused, and some are trading focused. Of course some people float in between multiple of those categories.

Something I used to do in parts of 2008 was lists of stories that might be of interest to readers that were (mostly) lengthier in nature. Go forward I am going to make a list for weekend reading on things I have been filtering through during the previous week through various news sources or other blogs. A lot of this stuff is what I bookmark during the week to "get back to later" or consider "adding to the blog" but never get around to it. I think *during* the week I keep readers busy enough - so we'll limit it just to once a week during "downtime".

p.s. breaking news - you cannot even rest on weekends in this day and age. Obama says he will be giving 4% fixed mortgage rates to "ANY" credit worthy human being. Rejoice! I say we should be paying people 4% a year for the pleasure to own a home... because owning a home is a God given right. And our federal government pockets are limitless... see how it works? your children, grandchildren, and great grandchildren subsidize the newly formed home owners of today.


Bloomberg: Stiglitz Criticizes Bad Bank Plan as Swapping "Cash for Trash" (Stiglitz is one of my favorites - speaks his mind, and I agree with most of what he says. Just add him to the growing chorus)

Nobel laureate Joseph Stiglitz said any decision by President Barack Obama to establish a so-called bad bank to rid financial companies of toxic assets risks swelling the national debt. That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said in a panel discussion at the World Economic Forum in Davos, Switzerland today. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.

Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers picking up the bill for years of excess lending by banks. It would also deprive the government of money that would have been better spent shoring up Social Security, he said.


Vanity Fair: Fannie Mae's Last Stand

Many believe the government-backed mortgage giants known as Fannie Mae and Freddie Mac were major culprits in the economic meltdown. But, for decades, Fannie Mae had been under siege from powerful enemies, who resented its privileged status, its hard-driving C.E.O.’s, and its huge profits. Surveying Fannie’s deeply dysfunctional relationships with Congress, the White House, and Wall Street, the author tells of the long, vicious war—involving most of Washington’s top players—that helped propel one of the world’s most successful companies off a cliff.

New York Magazine: Stock Surfing the Tsunami (i.e. the life of a daytrader in this crazy market)

Ordinary investors may flee the market’s dizzying ups and downs, but Peter Milman and his kind hang on tight while riding the giant waves of uncertainty. There’s nothing more exhilarating than to catch the perfect surge.


Paul Kedrosky: Walmart & Target are like the Ebola Virus - quite awesome visual graphic reprentations of their spread across the U.S. year after year.

************************************ The Future of Housing - Think Small

“The very future of how real estate is bought, sold, and financed is under tremendous pressure,” says veteran Florida real estate economist Lewis Goodkin. “There’s no question that the years ahead will be sharply different from years past.”

One of the biggest questions swirling in property circles these days is how a reeling real estate industry will reshape and redefine itself for the future. Few signs of a quick reversal of fortune exist, but a closer look at the future of the industry reveals important trends and, surprisingly, reasons for optimism.


UK Times Online: The 10 People Most Responsible for the Recession

The global financial crisis has evolved into a worldwide recession of epic proportions. Analysts fear the sudden slump which has followed the credit crunch could even rival the Great Depression of the early 1930s and lead to global stagnation. But who is responsible?


Fortune: New York - the Next Housing Bust?

The Masters of the Universe have been dethroned. Now the question is just how much Wall Street's meltdown is going to hurt the city of New York and, by extension, its high-priced housing market. Even in a city where $20 million townhouse listings don't raise an eyebrow, signs of trouble abound. Fourth quarter 2008 sales volume was down a whopping 40% from 2007 according to New York brokerage the Corcoran Group.


The Atlantic: The State Competition for Federal Funds

As the stimulus made its way through the House this week, there was a great deal of talk about the infrastructure component. "Shovel ready" infrastructure spending is supposed to hit a very sweet spot, letting us spend large amounts of money on things that will boost economic growth when we finally emerge from the recession.

At least as currently proposed, the states face some very rough ground and two enormous hurdles. First, they have to get their projects to the contract obligation stage within the very limited amounts of time allowed. Then they have to get over the second hurdle of project completion within a similarly limited time frame. They only get federal funds for a project if they successfully jump both hurdles--but both jumps have to be made with considerable government process baggage weighing down the competitors.


Reuters: General Mills Says More People are Eating at Home

General Mills Inc and other food makers are benefiting from a sharp rise in home cooking in the United States and to a lesser extent in Western Europe, the head of the U.S. company said on Saturday. "We are seeing some very interesting changes in consumer behavior as we plunge deeper into the recession," Chairman and Chief Executive Ken Powell told a panel at the annual meeting of the World Economic Forum.

Two or three years ago, around half of the $1 trillion spent by Americans each year on food went into the tills of restaurants and fast-food outlets. But the fashion for eating away from home -- a strongly growing feature of the U.S. marketplace for the past 35 years -- has now been thrown into reverse. "What we see now, over the last year and a half, is a very, very significant change in the direction of that trend," Powell said.


Vanity Fair: The Year of Investing Dangerously

After eight long years of the Bush administration, it appears that we as a nation have lost any sense of shame—shame in the fact that our actions (the Iraq invasion, pathological deregulation) and inactions (Katrina) have consequences and that they have not been owned up to.

With the federal government now on the hook for what appears to be trillions of dollars in bailout money to U.S. financial institutions that have all but crippled the global economy, dollar amounts have become so abstract that no figure seems real anymore. When the 513-page draft report on the rebuilding effort in Iraq circulated in December, its description of a $117 billion failure barely registered in the public consciousness.

The absence of shame (and its corollary, accountability) appears to be a uniquely American problem. After the Zurich-based investment bank UBS announced huge first-quarter losses last year, its chairman and four members of its board of directors tendered their resignations. The top three executives at France’s Caisse d’Epargne stepped down last year in the wake of steep losses. And the head of the Royal Bank of Scotland offered his resignation when its losses caused its stock to decline by 91 percent since 2007. Nowhere in all the malfeasance on Wall Street this past year has the senior officer of a major bank publicly accepted responsibility for his actions and tendered his resignation.


WSJ: 2009 was Worst January in Dow's 113 Year History. Only 2 stocks were up: International Business Machines (IBM) and Kraft (KFT)


WSJ: Two Californian Towns Bail Out Local Auto Dealerships (this was my point in some of my late 2008 postings about "just let the auto companies die" - the boomerang effects in terms of countless jobs dependent on auto industry are not taken into account. That said I've called for a massive hemorrhage of auto dealers in 2009 - "right sizing")

Detroit's troubles are forcing some communities to attempt an auto bailout of their own: propping up their local car dealerships. Two California towns, hoping to preserve jobs and tax revenue, are bailing out local car dealers that are struggling to stay afloat amid tight credit markets and plunging demand for new vehicles. Car dealerships in these towns have been the economic engine of local government as well as pillars of the community, sponsoring everything from Little Leagues to rodeos.


WSJ: Nationalism and Protectionism Continue to Accelerate Across the Globe; including the U.S. (another of our long held predictions now is coming to fruition - protectionism and social acrimony) also UKTimes Online: Dawn of New Age of Industrial Unrest and NYT: British Unions Stage Walkouts Over Use of Foreign Workers

A "Buy American" drive in the U.S., spreading protests against foreign workers in Britain and various countries' efforts to prop up their own beleaguered industries are fanning fears of a rise in economic nationalism that could deepen the global recession.

In Washington, President Barack Obama faces an early test as international concern mounts over moves in Congress to bar foreign suppliers from winning business on most projects funded by a new economic-stimulus package.

In the U.K., Prime Minister Gordon Brown confronted a different test, as hundreds of workers at oil refineries and power plants walked off the job as part of spreading protests in the industry against the use of foreign labor. That's a new phenomenon for the formerly booming country, known for being open to foreign businesses and workers. Meanwhile in Spain, the government is offering immigrants money to return home, while France has introduced stimulus measures that would route many government-sponsored projects to French companies.


NYT: Lawyers facing backlash against billable hours as economy weakens

Lawyers are having trouble defending the most basic yardstick of the legal business — the billable hour. Clients have complained for years that the practice of billing for each hour worked can encourage law firms to prolong a client’s problem rather than solve it. But the rough economic climate is making clients more demanding, leading many law firms to rethink their business model.

“This is the time to get rid of the billable hour,” said Evan R. Chesler, presiding partner at Cravath, Swaine & Moore in New York, one of a number of large firms whose most senior lawyers bill more than $800 an hour.

The system of billing by the hour has been firmly in place since the 1960s; keeping track of time spent provided a rationale for the amount charged. In earlier, perhaps more trusting times, firms stated a price “for services rendered,” without explanation. But one has only to eavesdrop on a table of law associates comparing their workloads to get a sense of how entrenched the billable hour is, creating a pecking order among lawyers, identifying the best as the busiest and the most costly.


Well not all lawyers - Bloomberg reports that bankruptcy lawyers are hot. So hot in fact one is charging $1150 an hour. Or $18.50 a minute. I am sure the creditors are happy with that - remember, no matter what happens; the lawyers will win. There is a reason 80% of the world's attorneys live in the U.S. See, in our service economy we need to push execessive compensation somewhere... I mean if the best and brightest cannot flock to Wall Street, we need a new place to stuff 'em! Engineering? Sciences? Math? Nah - litigation.

Lawyers at Kirkland & Ellis LLP, home to former Whitewater prosecutor Ken Starr, are asking as much as $1,110 an hour for bankruptcy work while creditors are recovering less of their loans through company restructurings.

Professionals’ fees in bankruptcy cases are growing at four times the rate of inflation, estimated Lynn LoPucki, a professor of bankruptcy law at the University of California, Los Angeles. “As the economy gets worse, the bankruptcy lawyers are charging more,” LoPucki said. “It seems that each month one sets a new record for hourly billing rates. $1,110 is, to my knowledge, a record for the debtor’s bankruptcy counsel.”


We'll finish it off with a series of stories that was a hot topic late in the week after Obama's infamous "it's shameful" and "outrageous" comments. We love to talk about the "Heads We Win, Tails We Win" culture of Wall Street (and in fact just about all CEO) compensation and our completely broken corporate governance system. CNBC already has called it "the class war on the rich"! I assume the past decade where wealth concentration hit its highest in upper 1% since 1920s and median wages stagnated was the "class war on the middle"?
  1. NYT: It's Theirs and They're Not Apologizing
  2. WSJ: On Street, New Reality of Pay Sets In
  3. NYT: Getting Theirs Cuts Both Ways on Wall Street
  4. NYT: It's Not the Bonus Money, It's the Principle
Something seems amiss here....

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