Grindstone Financial

2010-07-29T09:57:00.002-04:00

Initial unemployment claims were roughly inline and the four week moving average dipped a bit, but if you take a step back to see the forest for the trees you realize that job losses remain at a very elevated level and are not signalling any meaningful improvement in the job market at this time. However, Hal9000 only cares that this number was slightly better than expectations so the markets are UP, UP and AWAY (however, they seem to be pulling back a bit at the moment).

There was a fairly interesting consumer survey that was published today that seems to point to June as a turning point for the consumer.

"One of three respondents in a recent survey said they would spend less on consumer goods over the next 90 days than they said they would in June. The drop was 6 percentage points to 32%. Those who said they planned to spend more in the next 90 days declined to 30% to 38%, an especially sharp fall-off in such a short time.

Vacation, consumer electronics, restaurants, and durable goods will all be effected, a sign of how broad-based the pullback is. Plans to shop Best Buy in the next 90 days dropped to a 17-month low. Intentions to shop Amazon.com (NASDAQ: AMZN) also fell sharply."

These surveys can be flawed but the degree of the pullback is worth noting. If these trends gain steam into the Fall it could make things very challenging for incumbents: Do we authorize another stimulus to prop up the economy and risk voter backlash at spending money we don't have OR do we let the economy waffle back and forth on life support and hope that voters recognize our new tight fisted budgeting?

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I don't want to open up a can of worms with the Climate Change Denier crowd but consider this stat from NASA.

"2010 is on course to be the planet’s hottest year since records started in 1880. The current top 10, in descending order, are: 2005, 2007, 2009, 1998, 2002, 2003, 2006, 2004, 2001 and 2008."

The key point there is that we are talking about GLOBAL temperatures. We are often caught up in US weather patterns but places like India, Australia, Russia, China have been stuck in major heatwaves for the better part of the past decade. I think you can debate the causes of this change in temperature - man made or natural phenomena - but you can't deny the data that shows the past 10 years have been the hottest on the planet in the past 130 (I'm the first to admit 130 years is a ridiculously short time period when we're talking about historical temperatures, but it's all we have to work with).

However, given the inability of anyone to predict the temperature at my house with any degree of accuracy maybe we should take all of this data with a grain of salt (yesterday's OPPRESSIVE heat that was supposed to reach almost 90? Yeah, I never hit 79 degrees on my properly shaded thermometer).

But remember, it snowed twice in NYC last year so clearly the planet is not warming :)

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Great. Here's another reason that I'll never be able to move the family to Costa Rica. FLYING MANTA'S....

Apparently the photographer caught them breaking the surface and soon they were jumping out of the water up to 9 feet in the air!

Cheers!

If you needed any further evidence that the stock market has become a parody of its glorious past

2010-07-27T22:50:00.004-04:00

The cast of Jersey Shore opens the NYSE...

Who needs stocks anyway when you can just hit the local yard sale market? From here on out, I'm following this guy's investment advice.... Spent forty five dollars on negatives at a yard sale that may be worth up to TWO HUNDRED MILLION!

We may need hire him to run the US Treasury in a few years.

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Just in case your yard sale finds tend toward the trash end of the trash to treasure spectrum Walgreen's has come to the rescue with a new line of $3 wines that according to this writer is "fantastic".

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Cheers!

New Home Sales RECORD!!!

2010-07-26T11:39:00.002-04:00

If you've been reading along you know that there is going to be a catch with any headline like that one. Yes, new home sales in June did technically increase by greatest amount from the previous month ever. Here's the catch - actually there are two problems with this data -

1) June 2010 was actually the lowest number of June new home sales EVER. If you ignore all of the month to month data and consider that June is the peak of the summer sales season this number is a disaster. With all of the tax credits, etc., it's not hard to believe that June was a record month, but it is surprising that the record set was for the worst June since data was collected.

2) The revisions to previous month's data makes this month's "gain" worthless. In May the government reported new home sales had occurred at a 300k annualized rate. Now they've said "Ooopsie" and sales really occurred at a 267k which is the lowest number ever recorded. This coupled with ANOTHER downward revision of the April data more than offsets any perceived benefit from June's data.

However, the computers don't care about shades of grey they see things in red and green and today it's all green.

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I don't tend to place a great deal of weight on the many regional manufacturing reports but the trend across all of the reports has turned decidedly negative.

"The general business activity index fell sharply to –21, its lowest level since July 2009. Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June. The company outlook index also fell to a 12-month low, as only 13 percent of manufacturers said their outlook had improved over the previous month, compared with 24 percent who said it had worsened."

This fits with the trend I'm seeing across many industries. Business activity is worsening but firms remain profitable as they cut costs.

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Cheers!

Rainy day reading....

2010-07-19T23:46:00.004-04:00

Wow - tons of new info out over the past 4 days.

* The political tug of war over the extension of unemployment benefits appears to be over.

* Consumer Confidence data last week was scary bad. I'm not sure what to make of it - maybe it's a combination of factors (BP, weak job market, a stock market that is now flat for 10 months) but this number was historically bad. For some context:

"You have to go back to the aftermath of the Lehman collapse in October 2008 and before that in September 2005 after Katrina. The decline we saw, believe it or not, was nearly as big as the plunge we saw right after 9/11.

Let’s talk about what is normal and what is not. What is normal is that at this stage of the cycle, a year into a supposed recovery, the UofM sentiment index is sitting at 89.3. In recessions, the index averages out to be 73.8, and in expansions, it is usually already sitting at 90.9, on average. Today we sit at 66.5." Or maybe it's just that the cast of Jersey Shore has been making the rounds on the talk show circuit and everyone is really terrified by the next generation.

* Builder confidence hit its lowest level since April of 2009. Any reading below 50 indicates a poor market for home builders. July's number was 14! If this wasn't an election year, I'd expect a series of tax credits to start working their way through Congress again.

* Chocolate market goes crazy - this is really an interesting read for the heavy finance freaks out there but someone in Europe either has a massive sweet tooth or the urge to bankrupt someone.

According to zerohedge "The WSJ reports ten brokers (mainly BNP Paribas) took possession of more than 240,000 tons of cocoa, valued at as much as $1 billion, leaving just 6,710 tons available for purchase. The Telegraph adds some further color: "The cocoa beans, which are sitting in warehouses either in The Netherlands, Hamburg, or closer to home in London, Liverpool or Humberside is equivalent to the entire supply of the commodity in Europe, and would fill more than five Titanics. They are worth £658 million."

Anyone short European Cocoa is looking for a new job today.
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More data on China's empty cities. For a place with 1.3 billion there seems to be tons of available space.

"an economist at the Chinese Academy of Social Sciences noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country!"

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Booming business of the day: Sign makers telling us about all of the cool new projects funded via the stimulus.

"On the road leading to Dulles Airport outside Washington, DC there's a 10' x 11' road sign touting a runway improvement project funded by the federal stimulus. The project cost nearly $15 million and has created 17 jobs, according to recovery.gov.

However, there's another number that caught the eye of ABC News: $10,000. That's how much money the Washington Airports Authority tells ABC News it spent to make and install the sign – a single sign – announcing that the project is "Funded by The American Reinvestment and Recovery Act" and is "Putting America Back to Work." The money for the sign was taken out of the budget for the runway improvement project.

ABC News has reached out to a number of states about spending on stimulus signs and learned the state of Illinois has spent $650,000 on about 950 signs."

On a related subject, does anyone have any info on the bridge replacement project going on in Cape Vincent on Rt. 4? It seems like an obscure back country road with more cows than houses, but there were 2 large cranes and probably a crew of 10 working there last week when I was detoured while biking to the Cape.

Fact of the day: A decade ago China consumed 1/2 as much energy as the US. This year, they consumed 4% more than us. Stunning.

Bonus Fact of the day: Almost a quarter of students in two- and four-year colleges in New York now take remedial classes.

Cheers!

Tuesday Funnies

2010-07-19T23:16:00.004-04:00

Because sometimes it just isn't classy to chug straight from the bottle....

"Holds a FULL BOTTLE of wine!"

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Those of you complaining about our recent "heat wave" where daily temps in NNY exceeded historical norms by... gasp! 7% last week be thankful you're not in Phoenix.

Good news - it's "only" going to be 105-108 this week.

Bad news - the nightly lows will fall back to a chilly 95 degrees.

If we cut off power to Phoenix air conditioners the population would fall to 132 people.

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I always consult QVC before making any major health and beauty choices so I really appreciate their latest research.

"Women are at their attractive peak when they are 31-that's the precise age when, according to a survey, they are considered most beautiful. The poll of 2,000 men and women, commissioned by the shopping channel QVC to celebrate its Beauty Month, found that females in their early thirties are seen as more attractive than younger girls as they are more confident and stylish."

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Sean Penn is on Charlie Rose and if you get past all of the sound bites and political rhetoric you have to appreciate his passion for saving Haiti.

It's worthwhile to look for his interview online after it is posted.

Cheers!

Random College Articles

2010-07-13T23:11:00.003-04:00

There were a series of college articles that appeared in a variety of publications last week that caught my eye.

1 - Share of College Spending on Recreation is Rising

American colleges are spending a declining share of their budgets on instruction and more on administration and recreational facilities for students, according to a study of college costs released Friday.

“This is the country-clubization of the American university,” said Richard K. Vedder, a professor at Ohio University who studies the economics of higher education. “A lot of it is for great athletic centers and spectacular student union buildings. In the zeal to get students, they are going after them on the basis of recreational amenities.”

2 - Could story #1 be the cause of #2? What happened to studying?

They come with polished resumes and perfect SAT scores. Their grades are often impeccable. Some elite universities will deny thousands of high school seniors with 4.0 grade point averages in search of an elusive quality that one provost called “intellectual vitality.” The perception is that today’s over-achieving, college-driven kids have it — whatever it is. They’re not just groomed; they’re ready. There’s just one problem.

Once on campus, the students aren’t studying.

It is a fundamental part of college education: the idea that young people don’t just learn from lectures, but on their own, holed up in the library with books and, perhaps, a trusty yellow highlighter. But new research, conducted by two California economics professors, shows that over the past five decades, the number of hours that the average college student studies each week has been steadily dropping. According to time-use surveys analyzed by professors Philip Babcock, at the University of California Santa Barbara, and Mindy Marks, at the University of California Riverside, the average student at a four-year college in 1961 studied about 24 hours a week. Today’s average student hits the books for just 14 hours.

The decline, Babcock and Marks found, infects students of all demographics. No matter the student’s major, gender, or race, no matter the size of the school or the quality of the
SAT scores of the people enrolled there, the results are the same: Students of all ability levels are studying less.

“It’s not just limited to bad schools,” Babcock said. “We’re seeing it at liberal arts colleges, doctoral research colleges, masters colleges. Every different type, every different size. It’s just across the spectrum. It’s very robust. This is just a huge change in every category.”

3 - To Stop Cheats, Colleges Learn their trickery

However, I'm not sure colleges were aware that kids would be ready and willing to do stuff like this....

This image isn't very clear on the blog, but the idea is that if you have a color scanner you could scan a coke label and then change all of the info on the label from an ingredients list to a series of formulas for your Calc II class. Crazy stuff.

It's all good at Alcoa....or is it?

2010-07-13T22:59:00.002-04:00

Well, the market suddenly thinks everything is peachy at Alcoa rallying sharply on the heels of Alcoa's better than expected results - although it's worth noting that by the end of the day and the market had resumed it's silicon-based upward march Alcoa had been left in the dust up just a dime on the day. Alcoa's analyst played one of the old school analyst games and hoping no one would notice. Over the past couple of months, they've slowly lowered their expectations for earnings. When Alcoa manages to surpass these lowered expectations, it's time to pop a bottle of Dom and celebrate the return of the recovery!! Only not everyone is reading from the same script and a number of analysts keep cutting their Alcoa estimates as pricing pressures mount in the aluminum market.

Intel has also provided a further boost to Asian markets tonight. So until further notice it seems as though the machines have determined that if they just keep oscillating the market up and down 6 percent every 3 weeks they can buy up all the luxury yachts being auctioned in Miami by the end of the year.

Cheers.

Everything is better after 3pm...

2010-07-08T23:18:00.003-04:00

As has been the case over the past year the market was relatively flat again today until those clever investors decided that they just had to buy stocks in the last 24 minutes of the day. I've given up trying to understand the rationale - as have most traders - and just decided to go with the flow. Stocks have added about 4 percent in the last 2 days on no news and virtually no volume. Maybe they should leave the rookies in charge all of the time.

The best images on the web today:

1. This is a map showing state obesity rates in 1991 vs. 2007-2009. It is truly startling that our fittest state today - Colorado with an obesity rate of around 19% - would have been the heaviest state in the US in 1991. That's a staggering change and there is plenty of blame to go around - cable TV, the Internet, the industrial food complex, etc. In the current map, states in orange have obesity rates over 30%. What is going on from WV to OK?

I find this snarky poster poking fun at Apple to be very clever. "Hey, our phone isn't broken, your hand doesn't work right. Guess what? Yeah, there's an app for that. The iHand."

Cheers!

The heat is on...

2010-07-07T08:12:00.004-04:00

Well, yesterday's rally withered in the East Coast heat wave and Europe looks pretty weak this morning. Again trading should be light as the big boys head up to Nantucket for the week.

Trending news...

* The June ISM Non-manufacturing index was at 53.8%, down from 55.4% in May - and below expectations of 55. The employment index showed contraction in June at 49.7%.

* The credit default market is heating up again and European countries seem to be on the menu again.

* Lots of signals that the economy is slowing. The great question before us is - will we have another round of stimulus to save the day or have the politicians lost their appetite for stimulus plans?

* Further evidence that the stock market is no longer a viable investment tool for most - "An analysis by Abel-Noser indicates that the US stock market has now become a concentrated pool in which the top 99 stocks account for 50.09% of total domestic trading volume. In June, the top 20 stocks accounted for 28.94%". That is an insane amount of trading volume in a small number of stocks.

* Great article on what Apple really thinks of their customers. "Angry customers have been told that buying a rubber bumper at a cost of around £25 will cure the problem. This weekend it emerged that Apple staff have been instructed not to provide these bumpers even though the problem stems from a design fault. In a leaked memo, helpline staff for AppleCare have been told: "We ARE NOT appeasing customers with free bumpers – DON'T promise a free bumper to customers."

* Mortgage applications dipped again last week, while refinancings picked up.

Go enjoy the heat today.

******* The market caught wind of a rumor that the European stress tests of Greek bonds was going to require a fairly modest mid-teen haircut and that sent the markets spiraling higher. By markets, I really mean the 20 or stocks that compose the bulk of trading, but that's another story. This might start shaking some of the bulls back into the market if we approach 10k again.

******* Wow, earlier in the week I said we might see crazy trading with the rookies in charge. That was fairly evident today as the robots and freshly minted grads from Princeton all jumped back into Citibank with both hands. The question remains - is this the start of something greater?

Rally mode

2010-07-06T08:21:00.002-04:00

Apparently, a few fireworks calmed everyone around the world and global markets are spiking today. There should be few traders on the desk this week so that can lead to light volume and weird swings in the market.

Stay cool.

Two reasons to be happy you are not in China...

2010-07-05T22:40:00.005-04:00

1) No matter how hot it gets in NNY our pools are NEVER this crowded.....

2) The housing market in China seems to be hitting some potholes. China's growth has been more than just a housing story but the potential impact of a housing slowdown and the hit to their banks is something to watch. If they have to fund a bank bailout that would leave far less money to lend us to fund our deficits. Then the fun really begins....

“You’re starting to see that collapse in property and it’s going to hit the banking system,” [Kenneth Rogoff, Harvard University professor and former chief economist of the IMF] said today [in an interview with Bloomberg Television in Hong Kong]."

However, I'd note that about the only person less connected to accurate market data than an economist would be a former economist now teaching at Harvard.

3) I think this is a pretty cool piece of tech that we should be putting in all our high schools. Basically, it's a 3-d printer that creates plastic mock-ups based on your designs. They cost about $1,000 today but if HP or Canon buy this company, it could be a $200 printer in a few years.

Get out there and enjoy the heat!!

Monthly jobs report

2010-07-02T08:09:00.003-04:00

Estimates are all over the map for this month's report due to a couple of factors:

When are the census jobs unwinding and what will be the plug.... I mean birth/death adjustment be.

The non-census jobs number should be between 100k-150k+ but the headline number will probably be negative. However, estimates have been falling all week and the whisper numbers are very, very low so unless this is a disastrous report expect the market to breathe a sigh of relief and perk up a bit today.

We'll know more at 8:30....

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Update: The headline number was a loss of 125k jobs but 225 of those job losses were due to expiring Census jobs. Private employment was said to have edged up about 83k - almost exactly in line with expectations.

The good:
The total # of private sector jobs added should keep the market satisfied today.

The bad:
Avg workweek FELL by 0.1 hour to 34.1 hours.
The manufacturing workweek for all employees decreased by 0.5 hour to 40.0 hours.
Avg hourly earnings FELL 2 cents, or 0.1 percent, to $22.53 in June.
The Birth/Death adjustment was a goofy +147k jobs - I had estimated 151k in my private model. I should apply for a job at the BLS.

If this were a non-holiday weekend, I'd say people might get concerned by the underlying weakness of the report, but with the rookies running the show today everyone should be ok with the fact that the report wasn't a disaster.

Cheers!

Can we all just go home for the long weekend?

2010-07-01T11:05:00.004-04:00

Things are getting pretty testy in the market right now. The market broke 1040 yesterday and a second close below 1040 could really open up the floodgates. The powers that be are trying to bring the market back over 1040 by the close. The next real stopping points for the stock market on a technical basis if it doesn't rally today are much, much lower.

I'll caution that tomorrow's jobs report will largely influence the action and it will be another weird census influence report. Also, note that the rookies will be running the show tomorrow which could add to the volatility (this is one of the little known secrets of Wall Street that every Friday in the summer the person in control of market isn't a seasoned vet but rather some kid that was playing lacrosse at Princeton at this time last year).

The employment situation has been troubling for the past 2 years, but Congress finally turning off the unemployment benefit spigot things might get really ugly in the a hurry.

Sorry for the limited updates, but this market is a trader's dream right now.

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Interesting reads from yesterday:

1) It's not much to look at but this building is pretty cool. Tesco - a British version of Target - offers this 500 sq ft, 5 room, DIY building for just $15k.

"With five rooms, a storage loft, a deck terrace and double glazing this is a brilliant addition to our range and could be anything from an office or a gym to a lounging area."

2) Mortgage applications hit lowest level since 1996! Again, we pulled forward demand with the tax credit and right now we're in the post-tax credit vacuum. Refinance applications were up as the 10 yr note continues to plummet.

3) GM's sales were up 10% in June. On the surface this looks good, but remember a year ago we were still in the midst of the recession and GM was in bankruptcy so a 10% increase actually may be viewed as disappointing. I think GM has also increased it's reliance on Fleet sales - I'll follow up when I know more.

4) NYS looking to cook the golden goose for supper - NY May Tax Out-of-State Hedge Fund Managers.

"Recession-hit New York could raise an extra $50 million a year by collecting income taxes from people who work for hedge funds in the state but live elsewhere, according to a legislative plan to raise revenue.

The new plan would tax so-called carried interest.

A spokesman for Democratic Assembly Speaker Sheldon Silver said by telephone on Monday
that it means hedge fund managers would be treated the same way as other commuters.

Congress also has considered taxing carried interest -- profits gleaned by managing assets -- at ordinary income rates -- much to the dismay of hedge fund and private equity titans."

Again, I think carried interest should be taxed as ordinary income but if NYS moves unilaterally on this issue watch commercial property spring up in Greenwich, CT and Short Hills, NJ. These hedge fund and private equity guys don't love the idea of commuting in NYC and if NJ and CT are willing to court them with the promise of lower taxes watch them stay closer to home.

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Update: the market has been almost straight up since my original post. I guess no one wants to the leave the rookies on the hook over the long weekend in case the computers go nuts with 2 down days and the S&P under 1040. Remember we only care about flash crashes, flash melt-ups are perfectly fine :)

Later....

That was the recovery?

2010-06-29T22:19:00.002-04:00

There seems to be a growing body of evidence that the second quarter may mark the peak of the stimulus driven "recovery". The combination of stimulus funds running out, tax credits expiring, no more extensions of unemployment benefits, state financial troubles, plunging consumer confidence, Krugman throwing in the towel, endless wars (the military build up off the coast of Iran should have us all filling our extra gas cans), etc, etc, gives me pause when looking at our economic situation.

The trading in the market remains the exclusive domain of the technicians. Four weeks ago, those in the know said this market is simple - buy the S&P500 at 1040 and sell it at 1120. On June 8th the market flirted with 1040 before running straight to 1130 over the next two weeks. A week later the market closed at 1041 (many thanks to the silicon based traders that goosed the market in the last 10 minutes to prevent a close below 1040 which would have made the computers go haywire in the AM). So while you were bombarded by Drudge's flashing red screens about the plunging market, keep in mind that while the its down 11% this quarter the active trader could be up 15% or more without using any leverage. That's good for Ferrari dealers in Greenwich and Realtors selling large islands on the St. Lawrence River but not so much for the buy and hold crowd.

Many of the better technicians seem to be jumping off this 1040-1120 train because the moving averages have been crossed. It's silly tea leaf reading in my opinion but this is what is impacting your retirement funds so it's best to be aware of what's coming.

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ABC's "This Week" runs a week 30 second blurb highlighting the ultimate sacrifice made by our servicemen and women overseas in the past week. This week's numbers really jumped off the screen when I saw them - 16 soldiers lost in the past week. Consider that 17 sailors were lost in the bombing of the USS Cole. According to the Washington Post, total fatalities now stand at 5,521 for the 2 wars.

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Piggybacking on an idea I saw on another website today - What's the best book you've read this year? Offer up your nominee in the comments.

Don't practice your backstroke here....

2010-06-28T23:02:00.002-04:00

Apparently this a pool on top of a Casino in Singapore. That's a pretty sick pool.

Maybe New York should have been called New Greece

2010-06-28T22:24:00.002-04:00

One of the problems with the credit default swap market is that it provides real time data on the market's opinion of the creditworthiness of an entity.

Well, if that's the case, things are looking a little bleak here in NYS. Despite hints that progress was being made on finalizing a state budget the cost of credit protection for NYS has jumped about 20% in the last week. This is roughly the same jump seen in states like CA, NJ and IL over the same period. Also, consider that the cost of credit protection for NYS is now higher than Spain's and roughly the same as Portugal or Croatia.

I noticed that our sewer district is considering expanding their service to include another 500 homes at a cost of about $12 million. Knowing a little bit about the area to be served I'd guess no more than 1/3rd of those homes are year-round residents so the real cost is about $12 million to serve 167 homes. I'm in favor of preserving the environment and protecting our river, but at some point you have to weigh the costs versus any perceived benefits. Separately, I'm always amazed by local officials that point to grants and rural development funds as sources to pay for projects like this. Where does that money come from? First National Unicorns, Inc. or from Federal Tax Receipts collected from me???

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Weird news of the day.....

1) Sometimes when you buy an American Flag for a dollar, you get a flag that is worth about a dollar. In related news apparently China thinks we have 61 states. That might explain why they keep buying our bonds -- they think we own Canada, Mexico and all of Central America.

2) Apple says it's sold 1.7 mil iPhone 4's. According to my sources at least 13 completed calls were successfully made over the weekend with the phones :)

3) If you needed another reason to hate Verizon please consider this story: A marine is killed in action in Afghanistan. His widow moves home to be closer to her family. Verizon coverage is terrible in her hometown so she calls to cancel her service. Verizon says sure -- That will be $350 for the early termination fee. Update: They've apparently waived the fee, but it took lots of bad publicity on the web before they stepped up.

Cheers!

Financial Reform?

2010-06-27T22:49:00.002-04:00

It seems fairly grim to consider the implications of Sen. Byrd's failing health on the financial reform legislation so I'll leave that to others.

However, there have been some pretty good breakdowns of the "reform" that was passed and the fact that it actually reforms very little. This grading of the bill was put together by The Big Picture blog....

TOO BIG TO FAIL: Grade: F
The new regulation does not directly address either the repeal of Glass Steagall or TBTF. The crisis legacy is a financial services sector that is highly concentrated with dramatically reduced competition. The six largest financial firms — combined assets: $9.4 trillion — will still dominate the industry. Too-Big-to-Fail remains the law of the land.

MORTGAGE UNDERWRITING STANDARDS: Grade A
Establishes new minimum underwriting standards for mortgages. No more no doc, NINJA, or Liar loans. Lenders must verify income, credit history and job status. Would ban payments to brokers for steering borrowers to high-priced loans. Of all the regulatory changes passed today, this seems to be the only one that, if in place a decade ago, would have prevented (or at least dramatically reduced) the crisis.

NEW REGULATORY AUTHORITY: Grade: C+
Gives federal regulators new authority to seize and break up large troubled financial firms without taxpayer bailouts; creates a sector rescue fund from banks with > $50B in assets. The time to assess this fee is before a crisis, not after — when banks need every penny of capital.

LEVERAGE: Grade: F
Inexplicably, all of the new regulations fail to reduce leverage rules today .

FINANCIAL STABILITY COUNCIL: Grade: B-
10-member Financial Stability Oversight Council to address system-wide risks to stability, with the power to break up financial firms. Oh, and about that leverage thingie? Directs them to look into it.

CREDIT RATING AGENCIES: Grade: F
Sets up a quasi-government entity to address conflicts of interest. Allow investors to sue credit-rating agencies. Establishes new SEC oversight office. Retains Oligopoly; Fails to open ratings to more competition. Considering that the ratings agencies were the prime enablers of the crisis, this failure is shameful.

DERIVATIVES: Grade B+
Moves most derivatives to exchanges, routed through clearinghouses,e etc. Customized swaps remain OTC, but have reporting requirements. New capital, margin, reporting, record-keeping and business conduct rules for firms that deal in derivatives. Failed to overturn CFMA.

VOLCKER RULE: Grade A-
Curbs propriety trading by FDIC insured depository institution. Would not have prevented this crisis, but addresses the moral hazard of banks in the future due to the bailout.

I'd note that I disagree with this assessment. I believe that FDIC insured institutions will just move their prop trading desks to joint ventures or subsidiaries and hold a minority stake in those businesses.

CORPORATE PAY: Grade F
Give shareholders a non-binding vote on executive pay. No clawback provisions. Does not address imposing liability on management for excess risk taking, corporate collapse or taxpayers bailouts.

FEDERAL PRE-EMPTION OF STATE BANKING RULES: Grade C+
Overturns OCC tool John Dugan Federal pre-emption of state regulations. states to impose their own stricter consumer protection laws on national banks. National banks can seek, and will likely receive exemptions from state laws, undercutting this entire law.

DEPOSIT INSURANCE: Grade B-
Permanently increases FDIC for banks, thrifts and credit unions to $250,000. Fly in the ointment: Congress failed to fund this, although the FDIC will be covered by taxpayers if and when they run out of cash . . .

This is funny - increase the insurance coverage, but without funding it just means that we are on the hook for failed banks.

CONSUMER AGENCY: Grade D+
The new Consumer Financial Protection Bureau is a half decent idea, but the exemption for Auto Dealers — the typical family’s 2nd biggest purchase is a car — is unconscionable. Putting the agency inside the Federal Reserve is beyond idiotic.

Overall, this is a political showpiece rather than a piece of effective legislation. Wash, rinse, repeat.

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We'll get another BLS report on Friday. The current consensus is around one hundred and fifty thousand jobs added in June ex-Census jobs. We'll see how the number bounces around during the week.

How many people will line up for the iBrick?

2010-06-24T22:51:00.003-04:00

I've always wondered if there was threshold of pain for Apple zealo... I mean customers. Perhaps the latest iphone that has millions lining up around the globe might just test their patience. Apparently, the phone either drops calls or loses coverage when held a certain way. You can resolve the issue by installing what is basically a large rubber band around your latest high-tech gizmo, but I think that might turn off more than a few fanboys.

Apple has done nothing but crush everyone's expectations for the past 7 years we'll see if they can keep their mojo.

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A couple of surprisingly positive data points:

1) Hotel occupancy increased 5.8 percent to 66.7 percent. The average daily rate rose 1.1 percent to US$98.03 and revenue per available room rose 7.0 percent to US$65.36.

Business travel seems to be accounting for the bulk of this pick up, but I'm not sure how long it will last.

2) This isn't truly a positive, but 30 yr mortgage rates hit a record low of 4.69% this week. This is a positive for the 12 people left in the US looking to buy a house with a traditional mortgage. In fact, it reflects the weaker global economy which increases demand for treasury bonds which pushes up their price and lowers the yield on t-notes.

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I'll let you try to filter out the garbage from the truth coming out of the Gulf region but things seem to be getting materially worse. The only good news seems to be that the relief well is running ahead of schedule.

Cheers!

Mandatory viewing for everyone

2010-06-23T22:26:00.002-04:00

Okay so we all know that every magazine uses Photoshop to touch up their models but this seems a bit extreme. Kids are under immense pressure to live up to the images they see in magazines, but they should realize that most of these images are about as real as an Avatar character.

The more you watch the before and after the more things you'll notice - the magic second arm,
the incredible shrinking forearm, etc.

The irony of the magazine running an article titled "Skinny Pills: Yes they work!" is a bit over the top. If you don't see the gif below in your email - visit www.grindstonefinancial.com to see the before and after Faith Hill.

2010-06-23T09:31:00.002-04:00

You have to be a Family Guy fan to appreciate this picture but it made me laugh. FWIW I'll say US 2 - Algeria 1

* Mortgage applications tumble - The purchase index has collapsed following the expiration of the tax credit suggesting home sales will fall sharply too. This is the lowest level for 4-week average of the purchase index since February 1997.

* US architectural billings dip again and are still contracting. It's worth noting that the Northeast commercial sector was above 50 indicating expansion.

* The Baltic Dry Index hasn't been in the headlines much since 2008 (it is a measure of the cost of shipping and a general indicator of the health of global trade). The index soared back to over 4500 in 2009 as China ramped up steel production and stocked up on oil, but it's fallen about 20% this week and is approaching levels last seen in the fall of 2009. If it breaks down a bit further it could get people worried about global trade.

Cheers!

Law school grade inflation

2010-06-23T09:16:00.003-04:00

Perhaps fearful of the prospect of being sued by a bunch of out of work law students that owe $120k in student loan debts, law schools have apparently decided it's easier to just tack a few extra grade points onto a students GPA than to actually go through the effort of training a competent workforce.

"One day next month every student at Loyola Law School Los Angeles will awake to a higher grade point average.

But it’s not because they are all working harder.

The school is retroactively inflating its grades, tacking on 0.333 to every grade recorded in the last few years. The goal is to make its students look more attractive in a competitive job market.

In the last two years, at least 10 law schools have deliberately changed their grading systems to make them more lenient. These include law schools like New York University and Georgetown, as well as Golden Gate University and Tulane University, which just announced the change this month. Some recruiters at law firms keep track of these changes and consider them when interviewing, and some do not.

Law schools seem to view higher grades as one way to rescue their students from the tough economic climate — and perhaps more to the point, to protect their own reputations and rankings."

Huh? Well, that's the new American work ethic - try hard and if it doesn't work out, well, you get an A, and you get an A and you get an A....

This reminds me of a history exam of a local student that someone shared with me. The student had missed 6 out of 35 questions. Not great, but it works out to roughly and 83%. Imagine my surprise when I saw the final score totaled as 108%. A variety of bonus questions and "neatness" kickers bumped the grade over 100% for work that was barely a B. I used to think that we were doing our kids a disservice by creating unrealistic expectations of continued grade inflation in college. Apparently, I was wrong - it's grade inflation for everyone!

Cheers!

Here we go again?

2010-06-22T22:26:00.002-04:00

The market has been bouncing around a bit as of late but many of the horoscope readers --- I mean technical traders had drawn a line in the sand with the S&P500 at 1103. Once that number was breached the markets hit an air pocket and fell sharply. Hal9000 is running things still and we're just along for the ride.

The markets were shaken by the sharp dip in housing sales which fell 2% in May. To be clear this number was terrible, but the National Assoc. of Realtors saw it slightly differently "May Shows a Continued Strong Pace for Existing-Home Sales". The dip in May is clearly do the hangover from the tax credit expiration (remember what happened to car sales for a few months after the cash for clunkers deal expired) but the greater question will be what does it mean if sales are slowing going into the historically strong Spring/Summer selling season?

If sales continue to dip we could be talking about a double dip in housing before the end of the year.

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Coming to a city near you - All employees outsourced to India and China!!!
Okay, that's a bit of a stretch but this city is taking the first baby steps in that direction.

"The city of Maywood will lay off all city employees and begin contracting police services with the Los Angeles County Sheriff's Department effective July 1, officials said.

In addition to contracting with the Sheriff's Department, the Maywood City Council voted unanimously Monday night to lay off an estimated 100 employees and contract with neighboring Bell, which will handle other city services such as finance, records management, parks and recreation, street maintenance and others. Maywood will be billed about $50,833 monthly, which officials said will save $164,375 annually.

"We will become 100% a contracted city," said Angela Spaccia, Maywood's interim city manager."

Interesting turn of events...

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FYI - if you're flying a Boeing 767 in the next few days... The FAA seems pretty concerned about some cracks forming around the engines.

"Structural cracks discovered recently on at least two American Airlines Boeing 767 jetliners, including one jet that air-safety regulators believe easily could have lost an engine, are prompting concerns that some of the problems may turn out to be more widespread.

Over the past two weeks, American, with oversight from the Federal Aviation Administration, has checked the bulk of its wide-body 767 fleet to look for possible cracks in critical components that attach engines to the wings. On Monday, the FAA said problems were found on three planes."

Boeing is disputing the findings on one of the planes, but if it's 2 out of 56 planes or 3 out of 56 those are not odds that I like playing. Boeing has sold almost 1,000 767's since 1982 so there's a good chance that if you're getting on a plane tonight it could be a 767.

On that happy note have a cocktail, sit back and enjoy the flight!

The double down now has some competition...

2010-06-22T08:59:00.003-04:00

Why have just another artery clogging burger with a plain old bun, when you could be enjoying two grilled cheese sandwiches enveloping your burger? I present the new Friendly's Grilled Cheese Burgermelt.

From the Friendly's website:

1500 Calories
870 Fat Calories
79g Total Fat
38g Saturated Fat
180g Cholesterol
2090mg Sodium
101g Carbs
9g Dietary Fiber
4g Sugar
54g Protein

The day is coming when food like this is going to be hit with a 100% tax surcharge.

I will note however that I have a real affinity for grilled cheese sandwiches and in a moment of weakness at 2am after a night out with the boys I could definitely see my younger self ordering 2 of these with a side of cheese fries :)

Cheers!

Yuan theoretical revaluation gets the markets going

2010-06-21T09:29:00.002-04:00

I think we need to be careful what we wish for. If the Yuan was fully revalued it would certainly help to level the playing field in global manufacturing, but there is an outside risk that 10 years from now the Yuan could become the world's reserve currency replacing the USD. That would not be a good thing for any of us...

Right now I think the talk of revaluation is mostly just talk but it has given the markets a nice shot in the arm so it will be off to the races in the AM.

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I read a quote this morning that should worry anyone in the once great Empire State -

"State economies are plunging, and are $200 billion underwater, this will lead to 2 million in state-level layoffs leading to a low-end impact; raising taxes at state level will impact the top-end."

I've said before that my concern for the North Country is that we have hitched our wagon to the gov't gravy train. Think of the proportion of NNY residents that work for some form of state, federal or local government - it's staggeringly high relative to other parts of the US. From prisons, to schools, to Ft. Drum and everything in between we could be facing some very lean times in NNY if politicians get fiscal religion.

I tend to be a fence sitter on this issue - not all government spending is bad or excessive and cutting too sharply will almost certain send us into a deep double dip recession, but the current budgetary path is unsustainable in states like NY.

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The next time your local realtor shows you a lovely 20 x 20 "island" in the might St. Lawrence priced at the low, low price of just $329k maybe you can remind them of options like this property in Illinois - $179k for 43 acre island.

If it wasn't in Illinois, I'd scoop that puppy up.

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Finally, if you don't think the oil spill is impacting tourism consider this - I'm a notorious cheapskate so I view the spill as my way to take a cheap vacation. I looked online last night and I can book a room at a 5 star (a true 5 star that rhymes with Fritz-Barlton) beachfront resort on the Gulf Coast for $150/night. Now this is normally their slow season, but when it's cheaper to stay in the nicest hotel west of Miami (that normally books for $299-$499/night) for less than the cost of a night at the Days Inn in Syracuse then you might have a problem with your tourism industry.

Cheers!

PS - As the school year draws to a close expect light posting over the summer as I put my kids through the rigors of "Dad's school".

Weekend wrap up

2010-06-20T22:16:00.002-04:00

I'm certain BP is trying to write the PR handbook on what not to do after an oil spill. After delaying measuring the oil leak flow for 2 months they've now said the worst case scenario is up to 20 times worse than their original estimates. Also, as the winds start to move the slick toward the Florida Panhandle their CEO is watching his $700k 52 ft sailboat race over the weekend? The big BP news this week will likely be -- Can they sell enough debt to stay afloat? This tug of war will continue throughout the week.

* This is a pretty good discussion on the economics of shale gas extraction. With natural gas plentiful and cheap, the rush to drill seems a little out of whack. I really can't see anyone in NYS allowing this to move forward because of the potential risk to the NYC watershed, but our state government doesn't inspire a great deal of confidence lately.

* Russia to scrap capital gains tax - In an economic textbook this seems like a good idea, but the corruption in Russia will still keep the largest investors from migrating to Russia.

* This is a crazy long video - something like 12 minutes - but it shows every nuclear test conducted on the globe from 1945-1998. All of that residual radioactivity might explain why you have a sudden urge to give away your money when you visit Las Vegas. The other shocking thing in this video is the insane number of tests the French have conducted over the years.

On a hopefully unrelated note, a bunch of the fringe military monitoring websites reported over the weekend that "12 American warships, among which one aircraft carrier, as well as one Israeli corvette, and possibly a submarine, have crossed the Suez Canal on their way to the Red Sea." The reportedly disrupted traffic through the canal for some time.

Cheers!