Sense on Cents

No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Allan Dodds Frank

Posted by Larry Doyle on October 24th, 2009 3:08 PM |

UPDATE: This episode of NQR’s Sense on Cents with Larry Doyle has concluded. You can listen to a recording of the episode in its entirety by clicking the play button on the audio player provided below. Once the audio begins, you can advance or rewind to any portion of the episode by clicking at any point along the play bar.

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Follow the money.

Despite what analysts and pundits may say, if you want to get to the root of an issue, there is one simple rule…follow the money. In taking that track, more truth and transparency will be revealed than we might ever imagine. To that end, No Quarter Radio’s Sense on Cents with Larry Doyle welcomes Allan Dodds Frank who perhaps more than any other investigative reporter and journalist has been ‘following the money’ for the last 40 years. Who is Allan Dodds Frank? He is currently the President of the Overseas Press Club of America and has been on the cutting edge of almost every major financial scandal of our lifetime.

Allan Dodds Frank is a contributor to The Daily Beast, the website founded by Tina Brown. He has been a television correspondent for ABC News, CNN and Bloomberg. Frank has been an Overseas Press Club member since 1985, most recently served as second vice president and previously OPC treasurer, governor, chairman of the OPC Awards Committee and President of the Overseas Press Club Foundation, where he serves on the board and executive committee.

Developing the OPC as one of the leading forums and meeting places for journalists continues to be his top priority. He would like to expand the OPC’s reach among younger journalists, especially those committed to international reporting. He also strongly supports the OPC’s embrace of the Internet as a way to enrich and enhance its role in defending reporters and freedom of the press.

His career includes reporting for the Anchorage Daily News, The Washington Star, Forbes, ABC News, CNN and Bloomberg. His specialties include reporting on complex white-collar crime and terrorism. Among his awards: the Gerald Loeb Award for the best Financial Reporting on television and Emmys for reporting on the financing of terrorism and for exposing the degree to which presidential candidate Ross Perot relied on taxpayer funding to build an airport in Fort Worth, Texas. Frank also has won newspaper guild and Alaska Press Club awards for outstanding reporting at The Washington Star and the Anchorage Daily News.

What drives the men who engage in financial frauds? Where does the money come from that funds international terrorism? How has Washington fought these crimes? How has Washington facilitated these crimes? How has white collar crime grown over the years? What has changed? What remains the same?

Please join me on BlogTalkRadio this Sunday evening October 25th at 8pm EDT as we address these questions and so much more with the Emmy-award winning investigative reporter and journalist Allan Dodds Frank.

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October 24, 2009: Month to Date Market Review

Posted by Larry Doyle on October 24th, 2009 7:32 AM |

Did the market merely take a breather this week or is the ‘little engine that could’ getting tired? Are we distinguishing the winners from the laggards? Are the cracks in our economic foundation repairing or are some just too large to hold back the flow of red ink, i.e. embedded losses? Perhaps we are experiencing all of the above as we continue our journey along the new and varied trails of our economy. Let’s review the major economic statistics for the week, along with the month to date returns across a wide array of market segments.

I thank you for reading my work, and now let’s collectively ‘navigate the economic landscape,’ the mission of Sense on Cents. If you have any questions, please do not hesitate to ask.

ECONOMIC DATA

I largely discount positive news on the housing front as I view them largely manipulated by Uncle Sam while delinquencies, defaults, and foreclosures move ever higher. This may be an oversight on my part, but so be it.

Aside from that, I believe the most meaningful news this week was the GDP report from the UK. Please see my Friday morning commentary highlighting how the UK remains mired in recession.

Let’s move along to market performance. The figures I provide are the weekly close and the month-to-date returns on a percentage basis:

U.S. DOLLAR

$/Yen: 92.08 versus 89.68, +2.7%
Euro/Dollar: 1.500 versus 1.4635, +2.5%
U.S. Dollar Index: 75.44 versus 76.72, -1.7%

Commentary: the overall U.S. Dollar Index declined marginally this week. The dollar has improved versus the Japanese yen, but remains decidedly weak versus the Euro. The U.S. Dollar Index did break below 75.00 at one point early Friday. The correlation between the U.S. Dollar Index and the equity markets remains quite high. Both markets ended the week close to unchanged. Have too many people bought equities and commodities while having sold the U.S. greenback? I have been asking that question for the last month so no reason to stop now. The biggest impact of the weak dollar is seen in the commodity markets and long term interest rates. Commodities continue to trade with a firm tone while interest rates move higher.

I reiterate my comment from previous weeks: while I think Washington is not disappointed in a relatively weak dollar, although they should be (“Dollar Devaluation Is a Dangerous Game”), other countries are not overly keen about further dollar weakness. Why? A weak dollar puts those countries in a marginally less competitive position in international trade. On this topic, please read “Brazil Wants A ‘Real’ity Check.”

COMMODITIES

Oil: $79.65/barrel versus $70.39, +13.1% REMAINS VERY FIRM
Gold: $1055/oz. versus $1008.2, +4.6%
DJ-UBS Commodity Index: 137.32 versus 127.683, +7.5%

Commentary: I repeat from last week, unless you grow your own crops or have your own source of energy, you should expect to get increasingly squeezed as prices at the supermarket and gas station are likely to head higher. While Washington will not address this development, these price moves are directly correlated with Washington’s weak dollar policy. The banks and others able to borrow cheap money for trading and investing benefit from the weak dollar. American consumers and savers get stuck with the bill.

The Baltic Dry Index once again moved higher and got back above the 3000 level. Is the improvement in the non-Japan Asian economic bloc for real? Certainly the economies in Europe and North American remain decidedly challenged.

I continue to believe these commodity tea leaves are an indication of inflationary expectations in these ‘inputs,’ while we encounter deflationary pressures in wages and real estate. Read the rest »

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Barrons, New York Times, and Sense on Cents All Request Transparency From FINRA

Posted by Larry Doyle on October 23rd, 2009 1:19 PM |

The drive for transparency in our financial regulatory system is gaining momentum. How so?

The complaint brought on behalf of Standard Investment Chartered v FINRA, NYSE Group, Mary Schapiro et al is receiving increased interest. As well it should. Why? As I have always maintained, for confidence to return to our markets and economy, it is imperative that we have transparency in our financial regulators and regulation.

In regard to this case, I wrote a Letter to Judge Jed Rakoff in re: Benchmark and Standard Investment Chartered v. FINRA on Thursday October 15th. I wrote:

. . . having attended the hearing in your chambers on October 6^th on the above referenced case (I was the only member of the public or the press in attendance), I would request that you release unredacted documents pertaining to these complaints. The release of those unredacted documents would be of real public service. That service entails the ongoing public cry for real transparency in our financial industry at this time. That cry for so many of our citizens seems to go unheeded all too often. I could share dozens of comments left at my site echoing that cry.

I truly believe if a real measure of confidence in our markets and our economy is to return, it must be based on true transparency and integrity. While I have written extensively on the lack of transparency and integrity in our country, I don’t pretend to think that my site will change the landscape on this front immediately. That said, I am never discouraged to continue digging deeper, writing more, and asking the hard questions. On this front, I sincerely hope the adjudication of this case will highlight these qualities for all to see.

Barrons actually beat me to the punch and had requested a release of the same unredacted documents in a communication sent to Judge Rakoff on October 5th. Those interested in Barron’s request written by Jim McTague, the Washington D.C. editor, can access it here.

Today I learn that The New York Times is making the same request of FINRA. Stephen Labaton, senior writer for The New York Times in Washington D. C., made his request of Judge Rakoff this past Wednesday, October 21st. Those interested in the NYT request can access it here.

The drive for transparency in our financial regulatory system continues. With Barrons and The New York Times on board, that drive is gaining steam.

The American public deserves nothing less than total transparency and integrity in its markets, regulations, and regulators.

Related Sense on Cents Commentary:

Nasdaq Sale: Why Would Schapiro and FINRA Execs Lie? (October 22, 2009)
Attorney Richard Greenfield Brands Mary Schapiro and FINRA Execs as “Liars” (October 19, 2009)

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All Is Quiet On the Freddie Mac Front

Posted by Larry Doyle on October 23rd, 2009 12:03 PM |

The twists and turns along the landscape of the Uncle Sam economy remain ever challenging. How so?

What is an investor to do if he desires to sue an entity that is now part of Uncle Sam’s portfolio? If that is not challenging enough, how does one proceed with the process of discovery if those who could and want to share information have a gag order imposed upon them? What is going on here? Welcome to the world of Freddie Mac investors circa 2009.

In the process of failing, did Freddie Mac’s management engage in illegal and fraudulent activities by misrepresenting the overall health of the company? Did they misrepresent the risks embedded in the portfolio? Many investors believe that to be the case and are considering bringing suit. Who possesses a lot of very useful information? Former employees. Not unlike former employees of many companies, Freddie Mac employees were required to sign departure agreements which compelled them to not share company information. If the employee does speak, he runs the risk of losing his severance. This experience is very common in corporate America. That said, Freddie Mac’s failure hardly represents corporate America. The New York Times addresses this legal and financial entanglement by writing, Freddie Mac’s Secrecy Pacts Face Court Test:

One year after the government took over and bailed out Freddie Mac, the giant mortgage finance company, federal regulators are blocking former employees from revealing information to investors who are suing the company for fraud, lawyers for shareholders say.

The Treasury has propped up Freddie Mac with more than $50 billion in taxpayer money since the company nearly collapsed more than a year ago, and officials warn that the company will probably need additional billions in the months ahead.

Federal prosecutors in Virginia and the Securities and Exchange Commission are already investigating whether the company misled investors about the risks it was taking with securities backed by subprime mortgages and no-document loans.

But in a battle that will surface on Friday in a federal courtroom in New York, the company and its primary government overseer, the Federal Housing Finance Agency, are trying to enforce secrecy agreements that scores of former employees signed as a condition for receiving severance payments when they left the company.

In their class-action lawsuit against Freddie Mac, three big union-based pension funds charge that Freddie Mac executives defrauded investors by concealing the company’s exposure to high-risk mortgages, its mounting losses and its inadequate capital position.

At the hearing on Friday, lawyers for shareholders will argue that Freddie Mac’s secrecy agreements amount to buying silence from willing witnesses who may have crucial information about what the company’s top executives knew at the time they were assuring investors that all was well. The lawyers will ask a judge to invalidate the restrictions, a move that Freddie Mac and federal regulators will say the court has no right to do.

“Federal dollars are being used to bribe people, to buy their silence,” said David George, a lawyer representing the pension funds in a class-action lawsuit.

Wow. Our country is sinking to new depths when we have an arm of the government openly working to prevent the truth from being revealed. To this point, the blockage of the truth would typically take place behind the scenes.

For those Freddie Mac employees who would like to share the truth as to what transpired, are they wondering ‘where did my country go?’

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United ‘Kingdom’ In Name Only

Posted by Larry Doyle on October 23rd, 2009 9:01 AM |

Are we witnessing the virtual fall of the United Kingdom? Reports this morning indicate the UK remains mired in recession. The UK GDP registered a very disappointing -.4%. Analysts expected the report to register a +.2% increase.

With the report, are we witnessing an acceleration in the demise of this ‘kingdom?’ I believe we are. The Wall Street Journal offers insights into the economy of this once proud and productive kingdom, in writing, The U.K’s Unbelievable Shrinking Economy:

A note from Goldman Sachs said it all. The U.K.’s latest gross domestic product data showing the economy shrunk by 0.4% in the third quarter and by 5.2% over the past year is “Unbelievable. Literally.”

This result wasn’t just wildly at odds with the Bank of England’s forecast for growth of 0.2% — also the consensus estimate in the markets — but is out of line with recent survey data showing a considerable pick-up in economic activity. These forecasts indicated growth of nearer 0.7% in the third quarter, according to Goldman Sachs.

If the official statistics are right, then the U.K. is in even more trouble than the market already thought. A sixth straight quarter of economic contraction would confirm this as the worst U.K. recession since World War II.

The reaction to this report was an immediate decline in the value of the British pound. Analysts project the British government will have to engage in further quantitative easing and fiscal stimulus. The money needed to support those government initiatives is money the U.K does not have.

The WSJ adds further:

With the latest government borrowing figures showing the Treasury is already on course to overshoot its £175 billion borrowing forecast this year, the biggest risk to the U.K. remains that the markets conclude its Triple-A rating is also literally unbelievable.

The U.K’s AAA-rating is nothing more than a joke at this point propagated by the rating agencies which have little credibility. I would venture that the UK has not been downgraded simply due to political pressures.

Long live the Queen, but given the current economic situation and projected ongoing fiscal deficits, the UK is a ‘kingdom’ in name only.

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The Wall Street Oligopoly Rails on Compensation Controls

Posted by Larry Doyle on October 22nd, 2009 3:48 PM |

Is there a hotter topic currently on Wall Street than compensation? I have to admit, I have a range of emotions on this issue.

I pride myself on being a proponent of free market capitalism. As such, while the government needs to be actively involved in regulating the marketplace, beyond that I would just as soon see Uncle Sam stay out of the way. One may think I would be vehemently against the Wall Street pay czar Ken Feinberg getting involved in compensation on Wall Street. The Wall Street Journal reports on the far-reaching net cast by Uncle Sam on this issue and writes, U.S. Unveils New Rules on Banker’s Pay. Rest assured, the crowd on Wall Street right now is seething. Let’s navigate.

As I think more and more on the compensation topic, I have come to the following conclusions: Read the rest »

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NASDAQ Sale: Why Would Schapiro and FINRA Execs Lie?

Posted by Larry Doyle on October 22nd, 2009 10:50 AM |

Writing about the integrity, or lack thereof, of a senior governmental official and other high ranking financial regulators is a serious topic. Given the seriousness of this topic, I do not treat it lightly. For newer readers here at Sense on Cents, I am referring to the commentary I wrote this past Monday entitled, Attorney Richard Greenfield Brands Mary Schapiro and FINRA Execs As “Liars.”

If in fact Ms. Schapiro and her FINRA colleagues lied, what was their motivation? We learn more about this amazing financial intrigue as on Tuesday a redacted version of a Second Amended Complaint brought on behalf of Standard Investment Chartered and all others similary situated v FINRA, NYSE Group, Mary L. Schapiro, Richard F. Brueckner, T. Grant Callery, Todd Diganci, and Howard M. Schloss was made public.

Recall that the core of this complaint is a charge made by plaintiffs against defendants regarding the inappropriate allocation of proceeds generated from the sale of the Nasdaq Stock Exchange. That sale generated approximately $1.5 billion. FINRA paid out $35k per firm to approximately 5100 member firms for a total of approximately $175 million.

Why would the defendants be motivated to withhold the balance or a large percentage of the balance of those funds from the member firms? Read the rest »

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UPDATE: Analyst Exposes Wells Fargo Balance Sheet Charade

Posted by Larry Doyle on October 22nd, 2009 6:01 AM |

UPDATE: Wells Fargo released their earnings yesterday, October 21st. The Wall Street Journal commented on Wells’ earnings by writing, Wells Fargo Leads Stocks Into The Red:

Wells Fargo led stocks lower after a bearish analyst note triggered a selloff that took down J.P. Morgan Chase and other financial shares.

The Dow Jones Industrial Average closed down 92.12 points, or 0.9%, to 9949.36, marking its second decline in a row. J.P. Morgan and Bank of America were two of its weaker components, losing $1.38, or 3%, to $44.65, and 50 cents, or 2.9%, to 16.51, respectively.

Stocks had spent much of Wednesday’s session in the green as Morgan Stanley and Yahoo posted third-quarter profits above Wall Street expectations. But the market turned deep into the red late as Rochdale Securities’ banking analyst Richard Bove cut his investment rating on Wells Fargo to “sell” from “neutral,” saying the quality of its earnings was “pretty poor.”

What did Bove see? Perhaps he was focused on much of what I had referenced and Michael Shulman had written about in September.

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My Original Post from September 30, 2009 Read the rest »

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David Einhorn Provides Sense on Cents

Posted by Larry Doyle on October 21st, 2009 11:52 AM |

David Einhorn of Greenlight Capital

In the midst of my ‘navigating the economic landscape,’ I thoroughly enjoy reading the work of intelligent people. While I certainly never agree with all that I read, intelligent people force me to think and review my own opinions and beliefs. That process is always healthy. I also enjoy sharing the insights and perspectives of these people with those who read Sense on Cents. High five to KD of 12th Street Capital for bringing just such an individual to my attention.

David Einhorn runs Greenlight Capital, an investment management firm. He recently delivered an address entitled “Liquor Before Beer…In the Clear.” For those interested in an overview of David’s thoughts, I will clip those points I found most informative. For those with a keen interest in the economy and markets, the linked nine page document is a ‘must read.’ I agree with David’s views and welcome highlighting some of his points. Here are excerpts from David Einhorn’s speech:

1. The lesson that I have learned is that it isn’t reasonable to be agnostic about the big picture. For years I had believed that I didn’t need to take a view on the market or the economy because I considered myself to be a “bottom up” investor. Having my eyes open to the big picture doesn’t mean abandoning stock picking, but it does mean managing the long-short exposure ratio more actively, worrying about what may be brewing in certain industries, and when appropriate, buying some just-in-case insurance for foreseeable macro risks even if they are hard to time.

2. As I see it, there are two basic problems in how we have designed our government. The first is that officials favor policies with short-term impact over those in our long-term interest because they need to be popular while they are in office and they want to be reelected. In recent times, opinion tracking polls, the immediate reactions of focus groups, the 24/7 news cycle, the constant campaign, and the moment-to-moment obsession with the Dow Jones Industrial Average have magnified the political pressures to favor short-term solutions.

3. The second weakness in our government is “concentrated benefit versus diffuse harm” also known as the problem of special interests. Decision makers help small groups who care about narrow issues and whose “special interests” invest substantial resources to be better heard through lobbying, public relations and campaign support. The special interests benefit while the associated costs and consequences are spread broadly through the rest of the population.

4. Americans understand that the Washington-Wall Street relationship has rewarded the least deserving people and institutions at the expense of the prudent.

5. The proper way to deal with too-big-to-fail, or too inter-connected to fail, is to make sure that no institution is too big or inter-connected to fail. The test ought to be that no institution should ever be of individual importance such that if we were faced with its demise the government would be forced to intervene. The real solution is to break up anything that fails that test. Read the rest »

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Brazil Wants ‘Real’ity Check

Posted by Larry Doyle on October 21st, 2009 9:04 AM |

Brazil is increasingly concerned by the flow of capital pouring into its economy. Why? Isn’t that a good thing? Well, when the money is ‘fast money’ (meaning largely speculative) and it drives a nation’s currency dramatically higher, it can have an extremely negative and potentially destabilizing impact on a nation’s trade flows, primarily its exports. Let’s navigate.

There is no doubt the global markets are being driven largely by the cheap funding that is emanating from the United States. The oft-repeated statement by Fed chair Ben Bernanke that he will leave the Fed Funds rate unchanged at 0-.25% for an extended period has provided real comfort to speculators, traders, and investors around the world. What are these market participants doing? Selling the U.S. greenback to purchase a variety of global risk based assets. While investors may like positive returns generated to date on their investments, rest assured foreign central bankers are significantly less enthused with the strengthening of their own currencies relative to the greenback. Why?

As I highlighted in my weekly recap, October 10, 2009: Month to date Market Review:

While I think Washington is not disappointed in a relatively weak dollar, although they should be (”Dollar Devaluation Is a Dangerous Game”), other countries are not overly keen about further dollar weakness. Why? A weak dollar puts those countries in a marginally less competitive position in international trade. ECB President Jean-Claude Trichet voiced his concerns on this topic. Rest assured, the Asian nations feel the same way although they are careful in their comments.

Let’s navigate south and visit Brazil. The Brazilian currency, the real (pronounced “ray-al”), has appreciated by approximately 36% against the greenback this year alone. The real has appreciated over 50% against the greenback from its lowest valuation a few years ago. While that appreciation is a positive for Brazilian consumers, it is a major headwind for Brazilian exporters. Read the rest »

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