Wednesday, December 30, 2009

AAPL overpriced again

Back at year-end 2007, I called a peak in AAPL when it hit $203 a share. It's been quite a roller coaster since then (down to $125 in spring 2008, rebounding to $190 in summer 2008, plunging to $78 early this year with the rest of the market) and is now around a 52 week high of $214. I believe it's peaked again.

Thursday, November 19, 2009

1 in 7 mortgages behind

Job losses caused more Americans to fall behind on their mortgage payments in the third quarter, leading to a record 14.41% of loans with at least one payment past due, the Mortgage Bankers Association's chief economist said on Thursday.

Thursday, November 12, 2009

Risk and Time (John Norstad)

A very well written article on the fallacy of time diversification (i.e., the claim often made by financial planners that risk decreases over a longer time horizon). In fact, risk INCREASES. Everyone should read this.

http://homepage.mac.com/j.norstad/finance/risk-and-time.html#fallacy

Monday, October 19, 2009

US in trouble?

For the first time since I made my first 403(b) investment allocation in 1992, I've rebalanced my portfolio with the specific intent of protecting myself against a fall in US assets, rather than just diversifying. One fifth of my 401(k) account is now in TIPS (although even there, I am afraid the US Treasury won't make good on those) and foreign stocks.

Sunday, October 18, 2009

Outright corruption at Moody's

http://www.mcclatchydc.com/politics/story/77244.html

Quote:
As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into a financial crisis.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk.

....

"The story at Moody's doesn't start in 2007; it starts in 2000," said Mark Froeba, a Harvard-educated lawyer and senior vice president who joined Moody's structured finance group in 1997. "This was a systematic and aggressive strategy to replace a culture that was very conservative, an accuracy-and-quality oriented (culture), a getting-the-rating-right kind of culture, with a culture that was supposed to be 'business-friendly,' but was consistently less likely to assign a rating that was tougher than our competitors," Froeba said.

After Froeba and others raised concerns that the methodology Moody's was using to rate investment offerings allowed the firm's profit interests to trump honest ratings, he and nine other outspoken critics in his group were "downsized" in December 2007.
[Thanks to MPC for the link]

Thursday, October 15, 2009

Thursday, September 17, 2009

The Great Courses: Economics

In order to try to make my daily commute a tad more pleasant, I just purchased an Economics course on CD from The Teaching Company. Heard the first lecture on the drive in today; sounds good so far.

Friday, July 31, 2009

Consumer debt is out of control

According to figures released by Equifax and reported by the WSJ, household liabilities in delinquency or default rose to $1.15 trillion in June representing 10% of liabilities, up from 9% in March and 8% in December 08. That is quite an alarming rate of increase!

Monday, June 01, 2009

GM Bankruptcy

GM filed for bankruptcy this morning. The reported total assets of $82.3 billion on a consolidated basis, with total debt of $172.8 billion. A member of the Dow 30 Industrial Average, GM will be replaced by Cisco Systems Inc.

Wednesday, May 06, 2009

Picking at the carcass?

Three WSJ stories:
Renault interested in Saturn
China's Geely Auto bidding for Saab
Fiat is stepping up plans to buy Opel

Tuesday, April 21, 2009

Opel likely to be sold with GM getting no cash

GM is getting ready to give up its controlling interest in Europe's Opel in return for a promise that the buyer would put equity into a new company formed to own the operations. The acquirer would be expected to pay at least $652 million for the automaker, but all of the money would be invested in Opel with GM getting none of it. [Source: Financial Times]

Sunday, April 19, 2009

Brother, can you spare $27?

In November 1996, I made an IRA contribution of $1100 and purchased shares in two mutual funds in the amounts of $600 and $500. Those shares with all earnings reinvested are today worth $591 and $482.

Sunday, April 12, 2009

1 in 9 homes empty ... NO, NOT REALLY

A widely disseminated story illustrates just how math-illiterate our reporters and editors are.

1 in 9 housing units vacant

The actual statistics (FROM THE SAME STORY) are...

Fourth-quarter 2008 vacancy rates for all types of housing:
Rental: 2008: 10.1%
Homeowner: 2008: 2.9%

First of all, this includes RENTALS. Secondly basic arithmetic would point out the fact that the real number would have to fall somewhere between 10.1% and 2.9%, which can't possibly be 1 out of 9. But in any event 1 in 34 is the true headline, but I guess that wouldn't have quite the same shock value. No wonder the press is dying.

Wednesday, April 08, 2009

Ten principles for a Black Swan-proof world (Nassim Nicholas Taleb)

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. It is the asymmetry of the bonus system that got us here.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products.

6. Do not give children sticks of dynamite, even if they come with a warning. Complex derivatives need to be banned because nobody understands them and few are rational enough to know it.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html?nclick_check=1

[Thanks to MPC for the link]

Muni Bonds May Face Downgrade

Moody's assigned a negative outlook to the creditworthiness of all local governments in the US, the first time it had ever issued such a blanket report on municipalities.

[Thanks to MPC for the link]

Tuesday, March 31, 2009

Macy's Loses $11.40 per share

Macy's revised its fiscal 2008 results to a net loss of $4.8 billion, or $11.40 a share, from a net income of $280 million, or 66 cents a share. The dramatic revision is due to a pre-tax goodwill charge of about $5.5 billion which it had previously detailed in its fourth-quarter earnings report. The department store company said the goodwill impairment estimate may be further adjusted in the first quarter. "The non-cash write-down of goodwill is expected to have no impact on the company's business, bank credit agreement or bond indentures. The primary causes for the goodwill impairments are the deterioration in the general economic environment and the resulting decline in the company's share price and market capitalization," Macy's said in a statement.

Thursday, March 26, 2009

Ticking Time Bomb

From today's WSJ: Commercial real-estate loans are going sour at an accelerating pace, threatening to cause tens of billions of dollars in losses to banks already hurt by the housing downturn. The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month, according to data provided to The Wall Street Journal by Deutsche Bank AG. While that's low compared with the home-mortgage delinquency rate, it's just short of the highest rate during the last downturn early this decade.

Monday, March 23, 2009

BE to sell off substantially all of its business

BearingPoint (the former KPMG Consulting), which had submitted its required quarterly financials late for six consecutive quarters and filed for Chapter 11 bankruptcy protection on February 18, 2009, announced that it reached an agreement to sell most of its Public Services practice to Deloitte. It also signed a non-binding letter of intent to sell most of its Commercial Services practice to PricewaterhouseCoopers. For those unfamiliar with BearingPoint's business, those are the two largest of the company's three operating units. Only global services remains, and it will probably be carved up between the Big Four.

Monday, March 16, 2009

Berkshire Hathaway and General Electric lose AAA ratings

Fitch lowered Berkshire's rating and S&P lowered GE's rating (which it had held since 1956!) last week. There are only four untainted AAA ratings left: ADP, Johnson & Johnson, ExxonMobil, and Microsoft. (Pfizer's rating is on review for possible downgrade due to borrowing related to its purchase of Wyeth).

I don't think "thriving" means what they think it means

More than 24 million Americans shifted in 2008 from lives that were "thriving" to ones that were "struggling," according to a massive study by Gallup and Healthways. At the start of 2008, as the recession was beginning, slightly more people were "thriving" than "struggling." By the end of the year, after an economic meltdown that began with the subprime mortgage crisis, Americans by an overwhelming 20 percentage points were "struggling" rather than "thriving," 58%-38%. The remaining 4% were "suffering," in more dire straits.

[Source: USA Today]

Friday, February 13, 2009

S&P heads to first quarter ever of negative earnings

As of today, 390 of the S&P's 500 companies have reported 4th quarter earnings and reported a collective loss - even excluding financials. "After the sixth quarter of negative growth, it will be the first quarter ever of negative earnings," said Howard Silverblatt, senior index analyst at Standard & Poor's. A sixth quarter of negative growth ties the prior record set from the 1Q1951 to 2Q1952. "And next quarter we're expected a new record of seven quarters of negative growth," Silverblatt said. S&P earnings-per-share are reported at a loss of $10.44 for the quarter. If financials were taken out of the equation, that EPS deficit would drop to $2.35. "The majority of it is financials, but the biggest issue to hit was ConocoPhillips. That one charge accounted for $3.66," said Silverblatt.

Friday, February 06, 2009

Subprime's plague infects "Alt-A" mortgages

Economic concerns are shifting as "Alt-A" mortgages sour at an alarming pace. While credit-rating agencies play catch-up to the dismal reality, bankers are realizing that more trouble may be on the horizon. With US unemployment heading toward 8%, even more loans, including prime-mortgage loans, are expected to go bad. (Source: The Economist)

Friday, January 23, 2009

Today's News

Bank of America

Shareholder Steven Sklar charged in a complaint in US federal court that Bank of America failed to disclose about $15.3 billion in losses by Merrill Lynch before shareholders voted to approve the acquisition of Merrill. The complaint states that Bank of America CEO Kenneth Lewis never revealed Merrill's problems "despite his knowledge of Merrill Lynch's staggering losses." [Source: Bloomberg]

Merrill Lynch paid out billions in employee bonuses a full month early, three days before its sale to Bank of America closed. At the time, Merrill's losses were piling up rapidly, and Bank of America CEO Kenneth Lewis asked the US government for money from TARP to help finance the acquisition. [Source: Financial Times]

Only three weeks after its acquisition of Merrill Lynch was officially completed, Bank of America ousted former Merrill CEO John Thain. [Source: International Herald Tribune]

Other Headlines

Microsoft's second-quarter profit declined to $4.17 billion, or 47 cents per share, down 11% from a year ago and missing Wall Street forecasts of 49 cents per share. The software firm blamed a weaker PC market and economic troubles for the result and also said it plans to cut 5,000 jobs during the next 18 months.

Northrop Grumman expects to record a loss when it releases its fourth quarter results. The defense contracting giant cited $3 billion to $3.4 billion for impairment of goodwill. The company expects 2008 earnings per share from continuing operations before the charge to meet the upper end of $5.20 per share for its forecast. Wall Street analysts expect earnings of $5.21 a share, according to a survey by FactSet Research.

Tuesday, January 20, 2009

Ugly day for financials

STT 14.89, -21.46, -59.0%
BAC 5.10, -2.07, -28.9%
WFC 14.23 -4.45 -23.8%
JPM 18.09 -4.73 -20.7%
C 2.80, -0.70, -20.0%

Wednesday, January 07, 2009

Jobs, Jobs, Jobs

They had been preparing us for over a week. Financial journalists kept telling us that when jobs data were released they could show that "as many as" 500,000 jobs were lost in December. Well, as scary as the "worst-case scenario" previews were, the actual number was much worse ... 693,000!