Grindstone Financial

Impacts of the Facebook IPO

2012-02-02T22:04:00.000-05:00

Tomorrow we'll get distracted by the jobs report for about 13 seconds before the financial media return to talking Facebook 24/7.

So, what will be the impacts of the Facebook IPO?

1) Facebook should get a nice little bump in advertising because of the increase publicity. Many advertisers small and large may have avoided this platform because they were uncomfortable with the concept. I expect a big increase in users around all of the IPO publicity and a correlating increase in advertisers.

A small note on Facebook's value proposition. I read a review today of someone that ran an ad campaign with Facebook. They didn't spend huge money (probably $100) but it was their contention that only 1 out of every 10,000 people that saw their ad clicked on it and these were highly targeted ads served by zip codes. He also contended that because most of the people that clicked through were only on the site for 1 - 2 seconds it seemed plausible that most of the Facebook click thrus were slips of the mouse. It's food for thought.

2) The coming bubble in angel investing. EVERY one of these new Facebook millionaire's or billionaires has 3/4ths of a foot out of the door. The second they can get liquid many of these people will "retire" to their new jobs looking to fund the next Facebook, Twitter or Google.

Along those lines today I love this quote from a respected investor "Congrats to everyone on the Facebook IPO filing but really I find Facebook is an IQ reducer".

3) I'm not trying to be secretive but I think I have an idea that could revolutionize an industry and resurrect the US in one fell swoop. Facebook Millionaires feel free to fund me at will :)

Cheers!

Stop me if you've heard this one before...

2012-02-01T07:59:00.003-05:00

For about the 1800th time we have rumor that a deal on Greece is imminent and that rumor is spiking global markets - particularly in Europe which are up 1-2%. I half believe the theory that the market doesn't want a deal on Greece because it goes up 2% on every rumor and only falls 0.5% when reality hits. Wash, rinse and repeat and stocks can continue to climb higher without a shred of real news.

Again, this could also be a resurgence of the best trade in 2011 which was to buy on the last day of the month and sell on the first day of the next. You'd only have been in the market for a handful of days but you would have outperformed by a huge margin in 2011 if you followed that model. Traders are creatures of habit and if 2/1/11 was a big up day they expect 2/1/12 to be a big up day regardless of what is or isn't happening in the world.

I sense that things are getting increasingly difficult for businesses around the globe but that fact is simply not showing up in the equity markets. It has a very early 2008 feel - the market is overbought and we're heading into a Presidential election with hopes that we've turned a corner. Many market indicators would seem to say we have not, but that won't matter today. All we'll be talking about is Facebook's IPO.

Cheers.

GDP thoughts

2012-01-30T22:52:00.000-05:00

Sorry about the delay in getting around to this discussion. On Friday the fourth qtr GDP came out and missed expectations by a wide margin. However, after looking at the data it appears the actual results were worse than the headline would suggest. Of the 2.8% increase in GDP fully 1.9% of that was due to inventory increases. As businesses eventually start to drawdown this inventory in Q1 it will act as a drag on Q1 output.

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Beware what you tweet!

"US special agents monitoring Twitter spotted Leigh Van Bryan's messages weeks before he left for a holiday in Los Angeles with pal Emily Bunting.

Leigh, who also quipped about "digging up Marilyn Monroe" on Twitter, said they were treated like terrorists on arrival at a Los Angeles International Airport. The pair were held by armed guards and quizzed for five hours before being handcuffed, put in a van with illegal immigrants and locked up overnight."

Cheers!

Here comes the Facebook IPO

2012-01-29T21:16:00.002-05:00

What a great business - get your users to generate all of the content, sell pointless ads to Fortune 500 execs desperate to prove they are hip by using "social advertising" and PROFIT!!

I'm thinking of forming a new competitor to the NFL. We'll get guys all over the US to post their flag football games on youtube (FREE CONTENT) then we'll get them to watch each others games (USERS), then we'll sell ads to hip beer companies like Bud (Fortune 500 suckers!) and we'll PROFIT! This is obviously a joke, but that is in effect the facebook business model.

I've always been a facebook skeptic and I'm even more so now. The demo keeps trending away from high value individuals (25-45 yr olds) and toward the old and the young. Yes, lots of people are on there all day but eventually advertisers are going to figure out that there is a reason they are on Facebook all day.

This IPO was supposed to happen in May but has been rushed to get out in Jan/February. Why? I think they see the 3 year trendline and they want to be public before the trends become apparent to everyone else.

The bigger question is why are they going public at all? Companies go public to raise money to expand their business. Facebook might throw off a billion $ of free cash this year, so clearly cash isn't the issue. The second reason companies go public is so insiders can cash out. I'd guess that's what is going on here.

It's also interesting that Facebook is working closely with Morgan Stanley and their vast retail customer base (read: dumb money). This will be the biggest tech IPO in years and it will make a few people unbelievably wealthy but I'm happy to sit this one out.

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The crawling WEATHER ADVISORY is one of my pet peeves. Not only because it seems like we get an advisory every time a snowflake falls north of Westchester but because they are so vague. As a refresher not all weather advisories are created equal.

Winter weather advisory -- When winter weather is occurring, imminent, and is an inconvenience.

Winter storm watch -- A significant winter weather event is expected.

Winter storm warning -- A significant winter storm or hazardous winter weather is occurring, imminent, or likely, and is a threat to life and property.

FYI - ADVISORY (just watch yourself) and WARNING (make sure the generator has gas).

Cheers!

The Race for NY-23: Redefining the 1%

2012-01-27T10:07:00.000-05:00

****WARNING: I'll be talking politics here so feel free to click away if you're afraid getting soiled by association. :) Full disclosure: I've know Mr. Doheny since our days competing on the baseball fields in Alex Bay.

Capital Tonight posted Mr. Doheny's - the presumed Republican candidate in NY-23 - fundraising totals for Q4 and they were very impressive. Just over $306k in the last 3 months. However, I think it could best be used as a real estate shopping guide. If you want to know where the swankiest towns on the east coast are just look at this contribution list - Armonk, Rye, Chappaqua, Scarsdale, Larchmont, Bernardsville, NJ, Ridgewood, NJ, Greenwich, CT, New Canaan, CT, and of course NY, NY. If you're thinking of relocating from upstate NY you'd be lucky to end up in one of these towns.

Well, that's okay you say, that's the nature of the political beast. You have to raise money whenever and where ever you can. True, but in my 5 minute review of the forms I only found 2 contributions that would be classified as coming from NY-23. There were two contributions totaling $5,500 from individuals in Watertown (there was one contribution from East Syracuse but I believe that's outside of NY-23). Maybe I missed something and if I did I'll be happy to correct it - you can see the full report here.

So doing the math $5,500/$306,000 = 1.8% of Mr. Doheny's fundraising came from local supporters while the remaining 98.2% came from individuals in TX, NJ, NYC, CT, Long Island and Westchester. So that's the definition of 1% in NY-23 - the % of people that can contribute to a political campaign.

I'll do the same analysis of Congressman Owens fundraising when he releases his information and I imagine the numbers will be similar.

A critical component of campaign finance reform that I'd like to see would be a limitation to contributing only within your voting district (after we fix Citizens United). Oh, and can we stop double dipping? It's clear that many individuals are contributing in the name of their spouse and/or children to avoid the limitations on campaign contributions.

I dream of the day when someone launches a campaign to run as independent for the Broke Party.

Their platform will be -"I won't spend $1 on this campaign. No advertising, no fundraising, no buses, no flyers. Every day I'll host a skype conference call where we discuss the issues. I'll do it from home so I don't incur any travel costs."

Someone running like that would probably poll around 20% in NY-23. :)

The Romney tax debate is all wrong

2012-01-26T22:18:00.000-05:00

I'm amazed that EVERYONE is missing the real story with the Romney 14% tax rate story. Here's the deal - we structure our tax code to encourage investment. Invest over a long enough time and you are rewarded by paying a lower rate. Since the bulk of Romney's income comes from investments he gets the benefit of that lower rate.

However, this is where it gets interesting. There has been a long debate over whether people like Gov. Romney who are not the actual investors but rather the managers of the investmens, should have their money taxed like that of the investors.

Consider this hypothetical example... Let's say Sane Capital decides to raise a new buyout fund. They raise $98 from wealthy investors and kick in $2 to act as the general partner.

Sane Capital then buys company ABC, strips out inefficiencies, turns a profit and sells ABC to another competitor three years later for $200. Sane Capital repays their investors their capital of $100 and a hurdle rate return (call it $15 for this example). Now we're left with roughly $85 of "long-term gain". The typical Private equity firm gets 20% of the profits, so in this case $68 would go to the investors and $17 would go to Sane Capital.

The great debate is: should that $17 gain on the Sane Capital $2 investment be taxed as "long-term gain" or "operating income" because their operations (fixing the business) is what generated the income? I'm not a tax expert and I don't play one on TV but every Private Equity guy I've ever talked to agrees that this is really OPERATING INCOME (meaning they should be taxed at normal income tax rates) but they aren't in any rush to change the tax laws.

I know most eyes glazed over when I started talking investments and tax policy but hopefully I added a little color to the tax debate surrounding Gov. Romney's tax returns. It's not about the 14%, but rather is the income a gain or income from operating the business?

Cheers!

Developing story - re: NYS tax receipts

2012-01-17T09:55:00.001-05:00

This news is just out today but the Wall Street Journal is reporting that "that Morgan Stanley will cap cash bonuses at $125,000 and "will defer the portion of any bonus past $125,000 until December 2012 and December 2013".

Now for mere mortals a bonus of $125,000 pre-tax would seem like a gift from above, but for the Wall Street crowd $70k after tax is barely going to cover the down payment on their new Lamborghini Gallardo. The deferred comp will still be nice for these heavy hitters but here are the potential fallouts that I see....

* Many of these people that are capable of making $1 - $5 million/year will start to flood the hedge fund industry. This means many people that formerly worked in Manhattan will be moving their $5 million salaries and their associated spending to hedge funds around the US - CT, CA, etc. This will have a negative long-term impact on state revenues in NY State.

* The timing of this news has to be making some people really sweat in Governor Cuomo's office. The Governor is set to release his budget today and that is premised on certain assumptions for Wall Street salaries/bonuses and their associated taxes. However, if all of Wall Street decides to follow this model of capping cash payouts NY State could be in a world of hurt in 2012 as revenues start to dry up.

* Finally, the reduction of tax revenues at the Federal level could have a huge impact on the 2012 Presidential race. The initial expansion of the Federal debt ceiling was designed to get the country through to January or February 2013. However, revenues have been a bit behind expectations and spending has been a bit above projections. Right now the best guess is that we'll be bumping up against the debt ceiling in late November 2013 or December 2013. However, if Wall Street cash bonuses are limited there is a chance we could hit the debt ceiling in October. If that were to happen imagine the chaos that would create in the late stages of the Presidential campaign.

Cheers!

Gas consumption...

2012-01-17T09:18:00.000-05:00

I knew that $3.25 - $3.75/gallon gas was going to have an impact on consumption but I'm surprised to see the final year-end numbers dipped so dramatically.

Some of the decline could be explained by increased fuel efficiency but a a drop this steep must be tied to a slowdown in the economy.

The 99% and the 0.000001%

2012-01-13T09:26:00.002-05:00

If you ever wondered why it's so hard for the 99% to find entry level employment in the US maybe it's a case of the "inmate took my job".

I still had this antiquated view of prison work programs of where prisoners were stamping out license plates. My how times have changed....

"The federal government calls it "the best-kept secret in outsourcing" — providing inmates to staff call centers and other services in both the private and public sectors.

The U.S. government, through a 75-year-old program called Federal Prison Industries, makes about $750 million a year providing prison labor, federal records show.

Inmates provide private call center service, including data review and sales lead generation, for "some of the top companies in America" under a federal mandate to help companies repatriate jobs they have outsourced overseas.

When New York residents call the Department of Motor Vehicles, for example, they might get an inmate at Greene Correctional Institution in Coxsackie, near Albany, or at Bedford Hills Correctional Facility for Women near White Plains."

I think there is a good deal of merit in training people to have marketable skills that they can use after they pay their debt to society. However, I struggle with a couple of ideas here:

* Private companies can utilize this prison labor at significantly lower rates than they might otherwise have to pay a traditional employee.

* The government is in effect subsidizing these businesses by offering below market labor.

If the prisoners (or the state) were paid an equal wage to that of a traditional employee than I think you could argue that this is a win/win but when some prisoners are being paid $0.50/hour I think the market is thrown out of whack. What do you think?

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When I first read this story, I thought it had to be a joke especially in an era of smartphones, twitter, etc.

Apparently, one company has figured out that not all wealthy people are very bright and to capitalize on this phenomenon they introduced the Black Astrum line of business cards. These hand crafted, diamond encrusted business cards are available only to the special few that are "invited" to pay roughly $1,500 PER BUSINESS CARD!! Want to get a set of 100 to impress your friends and family? That will be the cost of a starter home. For that price I think you'd better make sure your phone number and email doesn't change very often.

Ah, life is good for the 0.000001%.

I think I'll stick with Vistaprint for all my business card needs :)

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Cheers!

Just when you thought it was safe to go back in a Lincoln...

2012-01-13T08:55:00.001-05:00

I've actually heard some decent reviews of the new Lincoln MKZ concept car (even though it looks like the son of an Infinite G35 and that wretched Honda CrossTour) but you know someone is going to have a rough day in the office today after they debuted this car in Detroit yesterday.

"Something seems to have gone awry with the showcar's electronics as it sat on the show floor. At some point, thin puffs of smoke began wafting from the driver's side door panel. No actual flames were spotted or damage reported, but something tells us someone is going to have some explaining to do."

You can see the video here, which is worth its weight in gold as the Ford exec starts scrolling through his iPhone looking for "what to do when the car that is supposed to save our brand catches on fire". :)

Hotel in two weeks?

2012-01-09T10:14:00.001-05:00

Okay, so there is no doubt that building this hotel took weeks or months of prep work but watch this video and try hard not to be amazed at the speed with which things get done in China.

The prefab sections come completely wired, plumbed, sheetrocked and tiled. All of the interior components of a section - interior studs, sheetrock, etc, - are shipped on the same platform so when a section is lifted into place all of the interior components are there as well. This really speeds up construction because you aren't spending days on site lifting interior components up into an existing frame.

The implications of this on the global market are significant. What happens when they export this technology and you can buy a prefab hotel online for $19,999 via paypal? What does that do to global real estate values? How about pricing pressures on the global construction industry? As someone pointed out construction is one of the last industries not to be outsourced in the US. Check back with us in 2025.

Cheers!

Holiday Potpourri

2011-12-19T09:47:00.001-05:00

As I've stated repeatedly, I try to avoid political discussions like the plague, but yesterday's end of the Iraq War brought to mind many questions that I thought might be worth reviewing in a non-political way.

1) In 2000 (prior to entering 2 wars) the US Defense budget was $387 billion. In 2012, when we should only be fighting one "war" as we chase 5 bad guys around a wasteland in Asia our Defense budget will be $662 billion. If we could somehow turn a switch and ratchet back our defense spending to just the obscenely high levels of 2000 then we could save over $275 billion per year that could pay down debt, cut taxes, build infrastructure or basically pay for every full-time college student's tuition in the US. I know that's wishful thinking but what is the Holiday season without a little fantasy :)

2) As I read another story about our withdrawal from Iraq (side note: can we please make an effort to pronounce the name of their country correctly? It is NOT eye-rack) I wondered how well we know the country that we've been at war with for the past 9 years. As we were departing the country yesterday the country's prime minister, a Shiite, had the country's vice-president, a Sunni, detained at the airport. If you had to guess what percentage of the population in Iraq is represented by Sunnis, Shiites and Kurds what would you say?

If you guessed 52% for the Shiites, 28% for the Sunnis and 20% for the Kurds give yourself a gold star (these are all rough estimates). The point is that during out time in Iraq the Shiites and Sunnis have appeared to be working toward the same goal - namely getting us out of there. However, now that we are gone there is a real risk that the Shiites will decide they'd like to run the show as they are a majority. Oh, and that real big country to the east of Iraq that seems to want to stir trouble --- roughly 90% of their population is Shiite.

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Here's another step forward in the future of higher education - "On Monday, MIT is announcing that for the first time it will offer credentials — under the name "MITx" — to students who complete the online version of certain courses, starting with a pilot program this spring." This is one of the two models of higher education emerging over the next twenty years. Gone are the days of sending Johnny off to some campus in the rolling hills of Vermont. The college experience of the future is going to be online, rigorous and target specific career opportunities.

Stanford opened up a course earlier this year for free and the response has been overwhelming. The professors have said that the quality of work they are receiving from the online students is on par with what they are getting from their Stanford students.

I even downloaded one of their courses on App development and watched the lectures while working out in the gym. It's pretty impressive stuff.

"MITx" as a non-profit entity established inside the university that will offer an "MIT-sanctioned certificate" for completing various courses or, perhaps eventually, whole course sequences — though MIT emphasized full degrees will not be in the offing.

How exactly will it work? On a conference call Friday, university officials were short on many details — how many courses would eventually be offered, how much it would cost, even the name of the first course for the experiment in spring.

They did say they would focus, at least initially, on science and engineering, where assessment is fairly objective and easily scaled up. Users might include a high school senior who wants to take an early freshman class at MIT, or college students at overseas universities where a particular course isn't offered.

One day I'll let the cat out of the bag with regard to my other vision for the future of higher education but I think there is a business model there that could be worth some coin so I'm going to refrain from giving that one away for free :)

Low volume grind

2011-12-13T23:14:00.001-05:00

Markets have been spinning their wheels this week in the wake of the "big bailout" last week. A bunch of factors are probably contributing to the current malaise.

1) Confidence is fading fast that this deal can ever receive full acceptance in the EU.

2) The uncertainty has really caused a spike in the US dollar relative to Euro and other currencies.

This last point is particularly important to watch. It now takes just $1.30 to buy 1 Euro which is the best exchange for the dollar in nearly a year. The dollar has only been stronger on 2 occasions in the past 3 years. This will mean lower gas/oil prices as the dollar strengthens (yeah!) but it could make it more difficult for US companies looking to sell in Europe (see Intel's comments yesterday about European demand falling off a cliff in the past few weeks).

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Photo of the day:

This is the view from inside a "fake" Disneyland style resort that was being built in China about ten years ago when construction suddenly stopped.

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Chart of the day:

While you'll hear lots of breathless debate over taxes in the coming year note this chart which shows the top US tax bracket over the past 30 years and the actual effective tax rate paid by the highest 1% of earners.

Note that while the top statutory rate bounces around the effective rate has remained fairly stable. The 1% should thank their friendly neighborhood tax professional for achieving this lofty goal :)

When a bad deal is better than no deal

2011-12-09T10:19:00.001-05:00

European leaders seemed to have cobbled together some outline of a plan but the wording remains very loose. In general, this seems like another attempt to kick the can further down the road and we will be discussing the same issue - European debt levels - over and over again in 2012.

The markets seem to like it (but oddly it's just Europe and N. America - the rest of the world was fairly weak on this news), but I sense it's just a relief rally at the prospect of not having to watch N. Sarkozy on TV 25 times a day.

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This is the most amazing/scary stat I've seen in some time - From 1990 to 2000 there were 29 market trading days where at least 400 of the 500 stocks in the S&P 500 moved in the same direction. This means that on roughly 1% of the trading days or 3 times a year you would get a day where every stock moved in unison.

Since, July of this year there have been 34 such days!! On 30% of the trading days since July stocks have moved has one unit either up or down.

It's hard to call this a trend, but I think it is a trend and I'll extrapolate it bit further to show how it may impact you. NY State has benefited for an extended period by being the financial capital of the world. Everyone has to have an office in NY in order to gain edge, meet clients, etc, etc. Well, in an increasingly automated world, where stocks trade less and less on their individual merits and more and more on what's happening to the "market" there will be less of a need to operate in NY. I don't have to meet with the CEO of GE if I can just gauge the direction of the market and trade accordingly. This offers a great deal of career flexibility to people like myself but it also means that that the best days of Wall Street are in the rear view mirror.

So what, you might be saying? Well, it's worth noting that Wall Street activities account for roughly 20% of NYS tax revenues. As Wall Street shrinks it will have a direct impact on NY State budgets, schools, government employees, etc.

It's too early to confirm that this what is happening but let's look back 5 years from now and if NYC starts to get a Detroit feel, we'll remember when it started.

Cheers!.

If we can't have snocones the terrorists have won

2011-12-08T08:44:00.001-05:00

#Facepalm - So to say the government wastes money from time to time is like saying water is wet. However, even for a jaded person like myself this story from Michigan was a bit "chilling".

"The West Michigan Shoreline Regional Development Commission, which manages homeland security operations along the western Michigan shoreline, recently gave snow cone machines costing $11,700 to 13 counties under its jurisdiction."

However, before you lose all faith in government take heart in knowing that "one county's request for a popcorn machine "was denied." YES!! USA! USA!

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I haven't revisited the SNAP or food stamp numbers in awhile because frankly there has been no change in their trajectory which has been straight up. If, as we are told, the recession ended 2 years ago we should see some leveling off of the food stamp participation but in fact in continues to spike higher.

This bolsters the argument that I make that we are in fact dealing with 2 increasingly separate economies. We have a US corporate economy that emerged from the recession in 2009 and is slowly trying to recover lost ground. We also have a US consumer economy that is still reeling and I believe is still mired in a recession. When you factor in the shifting job landscape in America where we are losing high end jobs at Citibank -4500 announced yesterday - and AstraZeneca - 1500 announced yesterday - and replacing them with retail and food service jobs you get a chart that looks like this....

What's interesting to note is that even in the middle of the housing bubble (2002-2007) food stamp usage was growing and nearing record levels. I suspect that some of the increased usage can be attributed to the fact that we switched to electronic benefits which has removed some of the stigma associated with Food Stamps.

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The rumors out of Europe will drive the market today. I'll wait to comment until we hear something official but my best guess is that the leaders will all say the right things on Friday. However, actually cobbling together this coalition seems to be increasingly unlikely and I expect we could get some fairly nasty surprises next week. However, I'd be happy to be wrong on this one :)

Ah, Politicians...

2011-12-06T22:52:00.001-05:00

So @NYgovcuomo announced the best of all worlds today - no increase in taxes and a magic $1.9 billion in extra revenue!!! Yippee!!!

Well, here's where you have to step back and ask how can tax rates go down and revenues go up? Well, it's a little slight of hand: take the truth, sprinkle in some favorable facts and withhold other information that you'd rather people ignore and you get the desired result :)

The NYS budget was built on the following premise for next year - that the millionaire's tax would expire. The expiration of this tax would have cost the state some $5 billion in potential tax revenues as state income tax rates would have rolled back to pre-millionaire tax levels.

The proposed deal will allow income rates in NY to drop for all taxpayers (this is the truth) from the elevated levels during the period when the millionaire's tax was in place. However, if you compare next year's proposed rates to the rates that would be in place if the Governor did nothing, the rates are going UP for many taxpayers.

So, it really depends on your point of view: is the compromise a $1.9 billion tax hike on the wealthy or is it a $3 billion tax cut for the wealthy?

Consider this example based on rates proposed - a NYS resident making $40,000 will pay $160 less in NYS taxes next yr (compared to 2011 rates) while someone making $1.95 million will pay $41,000 less in NYS taxes next yr.

Again, the spin from the Governor has been that people making $2 million + will pay more in taxes but that's not the complete truth. Those taxpayers will pay more in 2012 than they would have if the millionaire's tax expired as expected, however, they will still pay less in total taxes in 2012 than they do in 2011. A taxpayer earning $10,000,000 in 2011 would have a NYS tax bill of $897,000 and, all other things equal, their tax bill will fall to $882,000 in 2012. However, the Governor claims that he's HIKING TAXES on these people (despite the facts) because their tax bill could have plummeted as the millionaire's tax expired in 2012.

Is your head spinning yet? Welcome to the world of politics.

Cheers!

To paraphrase Crocodile Dundee

2011-12-05T09:57:00.001-05:00

That's not a bug...

THAT.........is a bug.

The Chan's mega-stick from Borneo or if weight is more your game...

the Goliath beetle weighing in at 45 grams and nearly 5 inches long.

Sleep tight and don't let the Goliath beetle in your house.

Facts of the day

2011-12-05T09:43:00.001-05:00

The US has roughly the same number of kids pursuing "Parks, Recreation, Leisure and Fitness" undergrad degrees (2%) as we do taking Computer Science (2.37%).

Perhaps equally disturbing: We have more Psychology majors (5.9%) than Engineering (4.3%) and Math (1%) combined.

:(

Groundhog Day!

2011-12-05T09:23:00.001-05:00

* For an update on the world's biggest bugs (#weta) see my next post....

Well, here we go again. I often wonder if reporters just like having the same story to report every day because they are allowed to cut and paste 90% of an article. This week it will be all about Europe again as a series of meetings leads up to the big 12/9 get together.

* Today's headline: "Leaders Piece Together an Effort to Keep the Euro Intact", sounds an awful lot like the stories from 10/5, 10/12, 10/19, 10/26, etc, etc. We'll look to hear something from a German/French meeting today as they try to align their positions in front of Friday's meeting.

* Italy looks like they will announce some austerity measures including tax increase, pension reductions and spending cuts. This will likely go over as well as Hawaiian pizza in Rome.

* How is this for ironic? China may channel part of its huge pool of foreign-exchange reserves into investment in U.S. infrastructure, including rail and transportation networks. “China is unwilling to take on too much U.S. government debt. We are willing to turn that money into investment.”

So our country to too broke to invest in roads, bridges and rails but China can take all of your Black Friday dollars and use them to fix up America. I get the sense that they would consider this not as a form of new investment but as a way of protecting the investments they've already made. Interesting nonetheless.

Quote of the weekend: "We have markets in which the various vested interests are almost completely aligned, we have a brand new Coalition of The Willing which involves the vast majority of investors, governments, Central Banks and regulatory bodies the world over and, amongst that coalition, we have a common willingness to turn a blind eye to the realities facing the world; namely, too much debt and too few ways to pay it off."

Cheers!

Unemployment fell?

2011-12-02T09:18:00.001-05:00

Well, as you know the devil is always in the details and there are plenty of issues to look at in this month's jobs data.

** First, could Google or Facebook or Twitter lend the government some servers? The Bureau of Labor Statistics publishes their monthly jobs report on the first Friday of every month and every month their website goes down for extended periods of time as every analyst from London to Singapore tries to pour through the data. Bear with me, much of the info I have rec'd so far is second hand.

Again, the headline that every news outlet seems to be running with is: "JOBLESS RATE FALLS TO 8.6%". While this is in fact true, it's more a function of math than of an improving jobs outlook.

The unemployment rate is a fairly complex calculation but for our purposes let's say simplify it. Imagine a country with 100 people and 10 of them our out of work. In this simple example our unemployment rate is 10/100 = or 10%. Now, imagine that 5 of the unemployed just get tired of looking for work so they are no longer classified as "unemployed" or part of the the labor pool. This means they vanish from the calculation and next month you have 5 unemployed / 95 people in the labor force = 5.3% unemployment !!! Hurray, we're all saved!

Of course, those 5 people still don't have jobs, but why muddy the waters with facts.

So now, let's come back to the real world. In the US, last month the civilian labor force fell by 315k people that disappeared - basically they stopped looking. Removing them from both the numerator and denominator of the unemployment calculation drove the steep drop in unemployment. Eventually, people will figure this out but it may take a day or so.

Our total labor force participation dipped back to 64% which is dismal and the average term for the long-term unemployed is now 40 weeks.

The market seems to be happy with this data but I'm not sold on it.

Picture of the week

2011-12-02T09:11:00.001-05:00

I know a certain member of my family that might never sleep again after seeing this photo of a Giant Weta from Little Barrier Island off the coast of New Zealand.

Well, for all of our issues in the US at least we don't have those things crawling around :)

Just your run of the mill 7% jump in 3 days...

2011-11-30T22:37:00.001-05:00

This morning I had a sense that something could be coming. I didn't know what but there was plenty of chatter around the intertubes that something was in the works. Well, this morning stocks were doused in fuel and lit aflame on news that the Fed was joining forces with the ECB, the Bank of Canada, the Bank of Switzerland, etc to manage the currency markets. The goal seems to be to strengthen the Euro, and weaken the $.

There are many different takes on this action but the consensus seems to be that this will buy Europe some time but it doesn't change the fundamental debt situation for Europe. There was a fairly strong rumor that a major European bank almost pulled a Lehman last night (possibly French?) but they were potentially saved at the last moment. Perhaps the most interesting bit of information was that the Fed actually voted on this plan on Monday. So while the major news channels reported that stocks surged on Monday because of some vague shopping traffic stats perhaps someone leaked information regarding this vote to a few key players? That's a little tinfoil hat for my taste but the move has been so violent that it feels like something was off.

The best rally in years, follows the worst Thanksgiving week for stocks in 80 years, which followed the best October in years, which.....well, you get the point. Healthy markets don't act like this...

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Cheers!

Talk about timing

2011-11-30T09:13:00.001-05:00

So earlier this morning I said it looked like Europe was broken again but we could see another Mother of all bailouts proposed at any time.

Well, about 15 minutes later the Fed basically announced that they are willing to bailout the world and stock markets have rocketed higher as a result (Europe is up 3-4% as I write this). I'm oversimplifying the situation but you get the point.

In essence, this latest effort is designed to weaken the US dollar relative to the Euro. They'll say that they have other motives, but at it's core this is a currency move. The problem with this is that most people think the Euro needs to move much lower (not higher as the central banks are moving it now) in order to stabilize the Eurozone.

So, in the interim this means more of the same for those of us in the US - weaker $ = higher commodity prices (stocks are up, oil is over $101).

Remember when the Fed just dealt with inflation and employment? Yeah, neither do I. I think they've become addicted to seeing green on their Bloomberg terminals.

Cheers!

Wash, Rinse, Repeat

2011-11-30T07:44:00.001-05:00

We continue to oscillate between Europe is saved and Europe is broke. Today feels like a Europe is broken day after details started to emerge around their latest funding efforts. I'm not convinced anything will change in the near-term but I've been surprised by monster bailouts in the past so we'll see if the pattern changes.

What is particularly disconcerting is the impact that all of these sovereign debt issues are having on real companies. From yesterday's Washington Post "there are signs that manufacturing in Europe is imploding — new industrial orders plunged 6.4 percent in September — and it’s unlikely that the U.S. can escape the downward drag." This dovetails with reports from Germany, France and Spain that seem to indicate businesses are really tightening their belts.

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S&P cut the ratings on 37 banks last night after applying new ratings criteria to the banks. This has cast a pretty dark cloud over an already weak sector. Take note of Bank of America which is now struggling to keep it's head above $5 a share. The current price is roughly 15% below where the Warren Buffett made his latest investment which is interesting to watch.

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Another interesting data point came from Corning which indicated that while consumers still seem to be buying LCDs the price points have fallen so far it's increasingly difficult to make money. Thus, their customers are cutting back on glass orders which led Corning to idle ~25% of total capacity.

And people wonder why the economy is sluggish. You can't have $200 LCDs AND jobs --- you get to have one or the other :(

Cheers!

Did I miss anything last week?

2011-11-27T22:13:00.001-05:00

Well, it was just the worst Thanksgiving week for markets in 80 years but all is forgiven now because...stop me if you've heard this one before "Hopes that European Leaders will do more to stop the debt crisis."

There's no real new plan, it's just hopes that Europe will get it's act together. I'm in the camp that says Europe has crossed their event horizon and it's just a matter of time until we see some more real fireworks.

There were plenty of stories on the madness that was Black Friday. The ESTIMATES indicate that this was the biggest Black Friday since 2008 to which I'll say 2 things:

1) These estimates are based on foot traffic not transactions (in the next few day's you'll hear better estimates from Visa or Mastercard which should be more accurate).

2) The last time Black Friday peaked was in 2008 at the HEIGHT of the economic crisis so US consumers tend to be pretty terrible indicators of the health of the economy.

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Just in case you were starting to develop a soft spot in your heart for the big banks consider this story from Bloomberg that highlights how little the US public and Congress knew about the bailouts in 2008. I'm sure the next time around they'll tell us the whole truth....

"The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he“wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed“one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day."

A smart politician (is that an oxymoron?) could utilize news like this to work toward unifying the tea party and occupy movements.

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FACT OF THE DAY: Apple's new $1 Billion data facility in Maiden, NC will have just 50 full-time employees. To get those 50 jobs local authorities cut Apple's property tax bill by 50% and personal income tax bill by 85%.