Sense on Cents

“We’re Going to Have to Pay . . .”

Posted by Larry Doyle on January 22nd, 2009 1:02 PM |

MARKET UPDATE** Equity markets broadly speaking are down between 3-4% led down by banks and insurance companies. Bonds are not providing a safe haven as across most sectors of the bond market are down anywhere from .25-1%. We are not surprized by the downward move in the equity markets nor in the government bond sector. We discuss in depth in this piece the global demand for funding driving interest rates …UP!

MARKET NEWS: Senators Schumer and Shelby are proposing $110 million in increased funding for staff at SEC and FBI to oversee fraud on Wall Street especially given the unregulated hedge fund industry. We have highlighted that one of the investors in the hedge fund industry and the fund of funds industry is FINRA, the largest non-governmental regulatory authority for financial services business.

John Thain resigns from Bank of America. Culture clash amidst massive losses will get you every time.

Microsoft announces 5000 layoffs.

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In the midst of an interview, Alice Rivlin — former head of the OMB (Office of Management and Budget) under President Clinton — was asked about the prospects for the ballooning deficit. She responded that unless we are somehow able to control the deficit, “We’re going to have to pay much higher interest rates and face a rapid fall in the dollar.” I concur.

I do not want to throw cold water on a day when we had a 4% upward move in the equity market, but we need to take a step back and assess the market and economy from a wide angle as we try to make sense of it all. To that end, allow me to provide year-to-date changes across sectors with some general commentary as well.

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Will Be Held to Account

Posted by Larry Doyle on January 21st, 2009 8:25 AM |

All eyes were fixed on Washington on Tuesday. Prior to addressing dramatic developments in the world of finance, I would like to make a brief comment about the inauguration of Barack Obama from a historical perspective. I am proud to be an American and revel in seeing the smooth transfer of power. I think back to the stories my Dad shared with me as to how Irish politicians in Boston gained power. In the late 1800s, many job listings in Boston, and I assume other cities as well, included the letters NINA. “No Irish need apply” branded my ancestors as second class citizens. My Irish forefathers had a burning desire to move out of the ghetto. That desire was aided by the general ascent of the Irish to political power in Boston.

While I certainly do not agree with President Obama on a wide array of issues, I do hope President Obama’s ascendancy to the highest office in the land inspires current and future generations of African Americans and others who may have felt disenfranchised. For our country and all her citizens, I wish him well as he undertakes his role.

In the course of his speech this afternoon, President Obama remarked, “those of us who manage the public’s dollars will be held to account–to spend wisely, reform bad habits, and do our business in the light of day–because only then can we restore the vital trust between a people and their government.” I am going to take him up on this.

As I heard this remark, I thought of my desire to pursue further questioning of proposed SEC chair Mary Schapiro. Rest assured, we will push on for the simple reason that our democracy deserves no less. I hope everybody who reads our work will join our efforts and, as necessary, will write or forward material to your respective representatives in Washington. Read the rest »

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Let’s Really Question Ms. Schapiro….

Posted by Larry Doyle on January 16th, 2009 2:54 PM |

maryschapiro188 In light of the disaster that is Wall Street, I do not know if I am simply dumbfounded or merely dismayed by the softball questioning of prospective SEC chairwoman Mary Schapiro yesterday.

With the dissolution of the investment banking model, the massive injections of government capital, and potential indictments of major Wall Street icons in the offing, I looked forward to some very juicy testimony. The results were beyond disappointing. The public deserves so much better.

Mary Schapiro may end up being the best SEC commissioner ever, but let’s make her earn a few stripes before anointing her. It’s not as if there isn’t enough material. Let me provide a little background before I propose my line of questioning for Ms. Schapiro.

FINRA, the Financial Industry Regulatory Authority, was formed as a result of the merger between the regulatory arms of the NYSE and NASD. While there is another securities industry watchdog, SIFMA (Securities Industry and Financial Markets Association), that body is more a trade association or good cop.

FINRA is supposed to be the real watchdog or the bad cop. Read the rest »

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“Spanning the Globe….”

Posted by Larry Doyle on January 15th, 2009 4:50 PM |

I have great recollections of my youth. Growing up in the ’60s and ’70s as one of eight children, seven boys, we had to figure out how to entertain ourselves. Street hockey was great fun. Double features at the cinema were always a hit. Sneaking into Boston College sporting events provided a real thrill. We would not miss “Wide World of Sports” on Saturday afternoons. I can still hear the opening, “Spanning the globe …..” The world back then seemed very large, especially in the eyes of a 12 year old.

Fast forward to today and the world has gotten very small and intricately connected. Information moves rapidly. Cable provides instant access. The internet is amazing. While the advancements in technology are unbelievable, at times I yearn for the simple values and relationships of my youth. Time marches on and change is constant.

Let’s take a break from the focus on our domestic banking crisis and our own struggling economy and “span the globe” ourselves. The issues we face here in the United States are very much impacting the global economy and global politics.

The United States consumer has become the driving force in world trade. As we tighten our belts, it is not difficult to understand that economies around the world will also be impacted. Read the rest »

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When Big Ben Speaks….

Posted by Larry Doyle on January 14th, 2009 9:40 PM |

Against the backdrop of the frozen tundra, numerous members of the storied Pittsburgh Steelers franchise have reached

Chairman of Federal Reserve, Ben Bernanke

legendary status. Included in this family are such greats as Jack Lambert, Mean Joe Greene, Terry Bradshaw, Rocky Bleier, Franco Harris, John Stallworth, Lynn Swann, Chuck Noll, and the longtime owner Art Rooney. For lovers of the NFL, these men are true giants. The current Steelers franchise is led by budding legend and All-Pro quarterback Ben Roethlisberger. When “Big Ben” leads, Pittsburgh follows. You can discuss this “Big Ben” tonight and every Wednesday night at 9PM on “No Topic Taboo . . . Everything Else with Jay.”

With all due respect to Mr. Roethlisberger, though, there are two other “Big Bens” that crossed paths just yesterday and hold much greater sway and impact in world affairs. I speak of Ben Bernanke and the famous London clock tower.

While the NFL is a great diversion, we ultimately return to the real world and need to deal with the realities it presents. Fed chairman, “Big Ben” Bernanke, presented chilling testimony yesterday in the shadows of the famous clock tower at the London School of Economics.

Understand that every message delivered by a Fed chairman is very carefully scripted. In years past, the Fed was much less transparent than it is today. That said, the Fed chairman speaks carefully so as not to unsettle markets but also to provide an outline as to future policy. In so doing, the general public is often hard pressed to decipher what he is saying and what it means. The general media typically does not capture the nuances and subtleties offered by the Fed. To that end, our work here at No Quarter looks to fill that void.

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Got Insurance? 529 Plans? Financial Aid? Read On . . .

Posted by Larry Doyle on January 13th, 2009 5:10 PM |

At the request of numerous readers, I am offering a transcript review of my interview this past Sunday evening with insurance and financial planning expert, Sean D’Arcy. Additionally, if you’d like to listen to this interview in its entirety, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar. Archived programs are also available as a podcast from iTunes.

As a disclaimer, the opinions offered are Sean’s alone. The transcription is mine. I have no vested financial interest in Sean’s business or any of the views or companies mentioned. The purpose of providing this recap is strictly as a public service. To the extent that you find this material beneficial, my mission is accomplished. If you find this material helpful, please forward it along. If we grow our audience in the process that would be great!

Sean is a self-employed independent insurance and financial planning executive. He is a graduate of Columbia ’81.

LD: Sean, can you address how the insurance industry is regulated?
SD: The insurance industry is regulated by 50 separate state insurance offices. Each of those offices is responsible for the oversight of insurance business done within their state. Some states are very disciplined in this process, for example New York has very strong oversight. Other states are clearly lacking in the professional expertise to properly oversee insurance business within their state. Each state insurance commissioner is appointed by the respective governors. Each state insurance office is funded by a tax on the premiums written in that state. For example, New York imposes a 4% tax on each policy written in the state. An emergency fund is also put in place to address potential funding problems with individual companies.

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Market Musings on a Monday

Posted by Larry Doyle on January 12th, 2009 10:05 PM |

With so many cross-currents in our economy and markets, it is little wonder that people feel overwhelmed and disoriented. The powers-that-be in Washington are in a period of transition with plenty of backroom dealing going on from both a political and economic standpoint. The financial markets remain challenged from a liquidity and valuation standpoint. Against these backdrops, I hope readers are becoming more comfortable with my analysis of the economy, the markets, and the world of finance at large. Let’s dive into the issues and topics I find most compelling.

Earnings and Outlooks

On the equity front, the bottom line — that being earnings — is ultimately what drives prices. Time and time again we will hear analysts and money managers “talk their positions.” These individuals are either blinded by the big picture or talking the party line. In our piece on January 8th, “Time, Why You Punish Me?” I stated that “earnings expectations truly concern me.”

Fast forward to today and we see that Citigroup is leaking information into the market that their Q4 2008 earnings will be significantly worse than expected. Initially, Citi’s Q4 2008 earnings (why do we still use that term? They have not made money in so long. Wouldn’t it be better to merely call them losses and save ourselves the headache?) were expected to be -$4 billion. Citi is now leaking to the market that earnings will more likely be -$6 billion and that is only because they are recognizing a gain of $4 billion on the sale of a German retail banking business. Thus, ex that sale, Citi had a $10 billion operating loss for the Q4 2008.

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Review of Unemployment Report Jan 9, 2009

Posted by Larry Doyle on January 9th, 2009 10:04 AM |

***Meredith Whitney is indicating that despite the fact that banks raised $805 billion in capital in 2008 and had $125 billion injected via the TARP, the banking system will need to raise more capital in 2009. This is a clear signal that losses have not yet been recognized along with the likelihood that new losses are being incurred. A regional investment bank, Friedman Billings, believes the banking system needs $1.2 trillion in FRESH capital.

***It’s purely my speculation, but I would be willing to bet funds from “How Bernie ‘Madoff’ with $50 Billion” may have actually been directed to other hedge funds. If that is, in fact, the case the Ponzi scheme that started at Madoff may in turn spread. The fact that so many funds “put up the gates” which prevented investors from withdrawing funds is a very telling indication that this may have occurred. Some funds may have very legitimately utilized that approach and some may have not.

The widely anticipated employment report was released this morning at 8:30AM. Let’s dive right into the numbers and then decipher them:

Unemployment Rate: increased from 6.7% to 7.2% versus a consensus estimate increase to 7%. One must understand, though, that the actual unemployment rate ONLY tracks people out of work who are looking for work. If we were to incorporate discouraged workers, those out of work who have given up looking, then one of every ten workers in our country are currently unemployed. With a total workforce of approximately 175 million people and projections that the unemployment rate will move up another 1-3%, our economy is likely to lose another 3 million jobs!!

Non-Farm Payroll: (for those who do not traditionally track these stats, the NFP tracks the actual number of jobs gained or lost in the economy): for the month of December 2008, the economy lost 524k jobs versus consensus estimate of 525k. One may think the soothsayers had it right with their estimated call. However, both October’s and November’s NFP numbers were revised downward by 103k and 51k respectively. Thus, over the last three months of 2008 the U.S economy lost a total of 1.431 million jobs!!!

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“Time, Why You Punish Me?”

Posted by Larry Doyle on January 8th, 2009 2:22 PM |

I have tried to highlight that markets correct by price and time. While the National Bureau of Economic Research (NBER) has pinpointed that our current recession started in December 2007, the downturn clearly accelerated after the failure of Lehman Bros. in mid-September. You do not need me to remind you that our equity markets were down 35-40% last year.

Against that backdrop, the question on everybody’s mind is how quickly can the incoming Obama administration turn the economy around. A question I receive from friends and former colleagues is “how long” will this last. Wall Street insiders are in the business of selling products so throughout 2008, and from what I see so far in 2009, they are hedging on what I believe will be an extended downturn.

I am an optimist by nature and not one to promote a doom and gloom scenario, but let’s look at the cards that are already on the table and review past recessions that were financially driven rather than manufacturing driven. Let’s also look at forecasted earnings and what they portend for our equity markets.

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Economic/Market Highlights 1/5/09 . . . “Bad and Getting Worse”

Posted by Larry Doyle on January 6th, 2009 10:00 AM |

On the first real day of business after the holidays, I will tip my hat to PEBO and his economic team. Obama opened his press briefing this morning with his take that the economy is “bad and getting worse.” In deft fashion, he then caught almost everybody off guard by leading his proposed economic stimulus plan with focus on a significant level of tax cuts and tax credits. In my opinion, this was a very, very strong first move. Well done, Barack!!

The general outline of these cuts and credits include:

1. tax cuts for those paying taxes or with an earned-income credit. Likely for families earning up to 200k, although that is not yet defined.

2. businesses can retroactively reduce tax bills going back 5 years by writing off losses from 2008 and 2009.

3. offer tax credits to entice firms to plow money back into new investments.

4. provide a one year tax credit for companies that make new hires or forego layoffs.

5. increase write-offs for a wide array of expenditures for small business.

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