Tuesday, September 30, 2008

The 4 most dangerous lines in the English Language:

The 4 most dangerous lines in the English Language:


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Democrates Fail to Pass Bailout!

Never was there a day when it became so obvious that there is simply a lack of leadership in Washington ,folks the House of Representatives is majority rule ,the Republicans members didn’t need to show up the Democrats have enough of a majority to pass anything they want ! The fact is that Democrats failed to get there own members to support the bailout bill, END of story! It wasn’t even close .

Thursday, September 25, 2008

So is Wall Street broken? : Part 2 the unwinding of Glass Siegel

So is Wall Street broken?

Recent events have seen the unwinding of the Glass Siegel Act and the reemergence of a pre Glass Siegel banking structure where Investment and Commercial Banking are once again under one roof. I don’t understand the argument that deregulation and the move away from Glass Siegel restrictions was the cause of the current financial crisis. If anything the clinging to the obsolete notion of Glass Siegel premeditated the demise of many of today’s financial institutions. Glass Siegel only worked because investment banks were run primarily as partnerships and the risk to your own capital put constraints on leverage and speculation. The demise of the old partnership style investment bank lead to spending of the publics money has led too more leverage and more risk taken. After all Europe had no Glass Siegel and their banks ,and investment houses have faired much better than their American counter parts in the current environment. The joint structure of investment banking and commercial banking together makes capital far cheaper than the highly leveraged investment banking model, but I suspect less profitable. It’s rather strange to be criticizing the demise of Glass Siegel while the current solutions all involve undoing all the separations between commercial and investment banking.

This cleansing process signals the end of the Bear Market that has engulfed US Equity markets since March of 2000. Firms that are not accountable and transparent will be put down. While the free market seems to be taking the hit for poor judgment and a lack of oversight. This should come as no surprise given the very people looking to expand government power by trying to clean up this mess are the very people that created this mess to begin with. Let’s all face it, its not like all the rules were not already on the books such as Sarbanes Oxley but apparently large political donors were granted exemptions.

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Wednesday, September 24, 2008

Only Six US corporations hold a AAA credit rating from S&P

Currently, only Six US corporations hold a AAA credit rating from S&P - Automatic Data Processing (ADP), Exxon Mobil (XOM), General Electric(GE), Johnson & Johnson(JNJ), Pfizer Inc(PFE) and Microsoft(MSFT)- carry a 'AAA' rating.

XOM BRIEF: For the six months ended 30 June 2008, Exxon Mobil Corporation's revenues rose 37% to $254.93B. Net income rose 16% to $22.57B. Revenues reflect an increase in Upstream Non-U.S. revenues and upstream U.S revenues. Net income was partially offset by an increase in crude oil & product purchases, higher production & manufacturing expenses, a rise in depreciation & depletion, increased sales based taxes and higher other taxes & duties

ADP BRIEF: For the fiscal year ended 30 June 2008, Automatic Data Processing, Inc.'s revenues rose 13% to $8.78B. Net income from continuing operations rose 14% to $1.16B. Revenues reflect an increase in income from Employer Services segment, higher income from PEO Services segment and increased income from Dealer Services segment. Net income also reflects a decrease in interest expense and the presence of gain on sale of buildings.

GE BRIEF: For the six months ended 30 June 2008, General Electric Company's revenues rose 9% to $89.16B. Net income from cont. ops. fell 7% to $9.76B. Revenues reflect an increase in income from Infrastructure, Commercial Finance, Industrial, NBC Universal and GE Money segments due to organic growth. Net income was offset by increased cost of sales, higher interest & other finance charges and increase provision for losses on financing receivables

JNJ BRIEF: For the six months ended 29 June 2008, Johnson & Johnson's revenues rose 8% to $32.64B. Net income rose increased 22% to $6.93B. Revenues reflect higher turnover as a result of increased earnings from Consumer segment and increased Medical devices & Diagnostics segment sales. Net income also reflects higher operating margins due to cost reduction in administrative expenses and the presence of in-process research & development expense.

PFE BRIEF: For the six months ended 29 June 2008, Pfizer Inc.'s revenues increased 2% to $23.98B. Net income from continuing operations increased 18% to $5.55B. Revenues reflect increased income from Pharmaceutical and Animal Health segments. Net income also reflects decreased research & development expenses, lower restructuring charges & acquisition related costs and decreased amortization of intangibles assets

MSFT BRIEF: For the fiscal year ended 30 June 2008, Microsoft Corporation's revenues increased 18% to $60.42B. Net income increased 26% to $17.68B. Revenues reflect an increase in income from Client segment due to growth in licensing of Windows Vista, higher OEM revenues driven by growth in OEM license units and increased OEM premium mix reflecting strong demand for Windows Vista Home Premium. Net income also reflects improved operating margins

* market guide

Tuesday, September 23, 2008

Is Wall Street Broken Part One : Put some clothes on those “Naked Shorts”

The shorts got hammered by government edict banning shorting financials. These types of moves have historically only given markets a short term boosts followed by prolonged periods of decline. The 1930 showed markets don’t respond well to irrational government interference and these actions often have the unintended consequences of lessening confidence.

Shorting is as necessary for the proper functioning of markets as going long. By banning shorting you are once again simply rewarding more bad corporate and regulatory behavior. I do think however the ability to do “naked shorts” should be significantly curtailed except for market makers and floor brokers who need to use this activity to insure orderly markets. The reason ‘naked shorts” should be eliminated is the simply logic that the action of shorting a stock you have not borrowed seems to alter the capital structure of the target company, making shorting a self fulfilling prophecy.

In order to restore confidence in US equity markets US regulators should 1) restore the “uptick rule” 2) eliminate “naked shorts” and 3) Immediately restore market players ability to legitimately short any and all equities.

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Wednesday, September 17, 2008

too big to fail? Or perhaps a better question is, has there become a total abdication of accountability?

So how big is too big to fail? Or perhaps a better question is, has there become a total abdication of accountability? For some time it has appeared that regulators were more interested in protecting vested interests in the industry than joe average investor. The answer to everything has been to blame the lowly retail stock broker for everything up to the imminent demise of western civilization.
But the facts seem to suggest otherwise. Your broker at the end of the day for better or worse is the only person beside yourself that is responsible for what goes on in your account. Basically he or she has to pick up the phone.

Account representatives are held accountable thru two major rules 1) know your customer and 2) suitability. It is amazing that you and your broker are the only ones held to these standards. Yes firms have supervisory responsibilities but lets face it in the era of Sarbanes Oxley they seem to be falling far short .Basically applying different standards to large political contributors such as Fannie Mae and Freddie Mac .Given Sarbanes Oxley and industry grips about implementation costs It is incomprehensible that large firms like Lehman Brothers can have such opaque balance sheets.

The main focus of every investor right now should be financial transparency and again accountability. Over times firms that come clean and stay clean will be rewarded and like or not you may want to start with your local broker who is already sticking his neck out

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Tuesday, September 16, 2008

blame it on the 1970's

Seems to be a crisis of leadership …my theory is simple; almost no one who came of age in the 1970’s has good leadership quality’s ,everyone of that decade was brought up as an anti American socialist and cry baby thus the current crisis and the move toward government running everyone’s life. Good thing the 1980’s can do generation is right around the corner!

Lehman didn’t come clean got caught lying while Merrill fussed up and made the best out of a bad situation. It’s a long story staring bad government, stupid politics, weak management and an inability of any of the players to grasp the magnitude of the situation.

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Monday, September 15, 2008

A crisis of confidence but no panic yet

A crisis of confidence but no panic yet, fasten your seat belts folks looks like there is a lot more to come. The lack of capitulation leads most seasoned market observers to feel there is more to come. This crisis that is so drastically reshaping Wall Street seems anything but over.

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Wednesday, September 10, 2008

Lipstick on a pig or Commodity bust ?

The last several weeks of trading has seen the continued decline of the price of commodities and the decoupling of the relationship between the declines of oil prices leading too rallies in US equities. There are four main reasons for the price decline; 1) the dollar has begun to rally, as US interest rates stabilize and other global economies follow the US into a slow down. 2) Commodities are priced in dollars and a stronger dollar has brought down those prices by firming up the profits of the sellers of these commodities 3) the entire commodity market has had a significant deleveraging due to rule changes in margin requirements and 4) the US seems to be on point to make the first major change in energy policy since the 1970’s featuring a shift in focus from conservation to expansion of energy resources

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Monday, September 08, 2008

What a difference a day makes?

What a difference a day makes? A FED bailout tosses Freddie and Fannie shareholders under the bus. While investors ask is it really over? Is this a fundamental turning point for the financials? It is certainly a boost short term for both bond and stock markets. But weather a government bail out fixes the fundamental problems of the current banking crisis, remains to be seen. For decades Fannie and Freddie provided liquidity to the US mortgage market allowing “Joe 6 pack “to take out a 30 mortgage. In recent years however both Fannie and Freddie have strayed from their original purpose according to some critics growing far to large in scope and following the industry decline in lending standards . Many including the former chair of the FED Alan Greenspan warned the Freddie and Fannie should be rained in and in time pose a significant liability to the treasury, well that day is upon us. And once again let me repeat that a government bailout of Fannie and Freddie is NO bailout for shareholders.

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Tuesday, September 02, 2008

McCain Victory will lead to lower Commodity and Energy prices

As a McCain victory in November looks more and more likely and with it a significant overdue change in US energy policy and strategy, energy prices and commodities will continue to decline on the hope of new found opportunities in exploration.
The McCain policy of increasing capacity flies in the face of the last 40years of US energy policy of conservation and waiting for a miracle magic resource the takes away nothing and adds something. Like so many of these fantasy no cost to you ,no money down ideas it has lead to a dangerous dependence on importing foreign oil as a political tool in lieu of foreign aid . Yes there are many alternatives such as nuclear, natural gas and coal but expansion of use of these resources has also been stifled by 40 years of the “fossil fuels are evil lobby”.

Senator McCain’s recent performance and political mastery of appointment of Alaska’s Governor Sarah Palin puts him in the driver seat for this November’s election. Go ahead let the opposition attack “motherhood” and focus on family matters all they want, it is simply a non starter with the American public and will do even more damage to the wood be McGovern –ites.

This blogger for one would like to say good riddance to the policy of energy constriction and the whole 1970’s mentality and thinks the time may be right for change .Recent weakness in commodity prices maybe confirming a McCain Victory will lead to lower Commodity and Energy prices

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