Sense on Cents

IT’S EASY TO FIND FAULT…especially if you’re clueless!!

Posted by Larry Doyle on December 11th, 2008 10:10 AM |

Given the pressure applied by the general public on elected officials who passed the $700bln dollar TARP (Treasury Asset Repurchase Program) it is not surprising that those very elected officials are now openly critical of Treasury. Nothing like casting a few aspersions to keep the crowd back home somewhat at bay. This statement is not to say that Treasury has not fumbled in certain aspects of this program. That said, as I have tried to highlight, there are so many holes to fill that one single, albeit massive, “tourniquet” is not going to cover an entire body riddled with life threatening wounds.

Read how “Watchdogs Chide Treasury on Bailout“…

For Congress to think that the economy would see near “immediate” positive reaction to the injection of capital into the system is both naive and ignorant. I am going to guess that most Congressmen failed Economics 101.

IMO Treasury should not have played “whack a mole” but should have proactively highlighted the areas of need throughout the system. In properly managing expectations it is always better to be as comprehensive as possible and simultaneously “under-promise and over-deliver”. Paulson and Bernanke along with Paulson’s boy wonder, Neel Kashkari, have played way too much defense and not enough offense. The risk they ran in this regard, though, is that they may have “spooked” the markets and “scared” the public. Read the rest »

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What Has Meredith Whitney Got to Say?

Posted by Larry Doyle on December 11th, 2008 6:20 AM |

You have heard me sing the praises of those whom I consider to be some of the wisest minds in the financial markets. Included in this group are Nouriel Roubini, Laszlo Birinyi, Sheila Bair, and Meredith Whitney. It is not often that we have the opportunity to hear timely, insightful, and extensive analysis from these individuals. This morning we have one of those opportunities as Meredith Whitney, the TOP bank and financial services analyst on Wall St., is interviewed.

This attached video clip of her interview runs 12 minutes but it is extremely insightful on the current state and future outlook for the following:

1. Consumer Credit….it is going to get MUCH tighter, which is the very reason why we are STRONGLY encouraging people to pay down debt.

2. Outlook for large money center banks….”on life support for the next 18-36 months”

3. AIG….needs more money as they have incurred ANOTHER 10bln loss. Read the rest »

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Obama’s Economic Stimulus Plan: Big Dig Deja Vu??

Posted by Larry Doyle on December 7th, 2008 8:00 PM |

In the midst of the current economic turmoil, virtually every economist worth his salt can make valid cases for the necessity of both fiscal and monetary stimulus. I appreciate the use of PEBO’s use of the term “investment” rather than “spending” in proposing an economic stimulus program not seen in this country since the New Deal.

Read more here as to Obama’s Stimulus proposal, “Obama Outlines Stimulus Plan.”

I hope, though, that in proposing an “investment” program, that he is mindful of certain parameters that any qualified private or public investor would utilize prior to making his investment. What are those parameters?

1. With whom am I doing business?

2. As the investor (lender), what is the credit rating of the investment and of the borrower?

3. What is the “time to maturity” … that is when can I expect to generate a return on my investment dollars? Read the rest »

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Economic/Market Highlights 12/01-12/05/08: “Abbie Normal”

Posted by Larry Doyle on December 6th, 2008 8:20 PM |

Normal?? What’s that? Abnormal?? What’s that? Long term buyers? Who are they?? Isn’t the long term merely made up of a series of consecutive short terms? Oh, the headache of it all!!

Is this entire economic tsunami the equivalent of the scene in Frankenstein where the good doctor asks Igor what the name of the brain was that he implanted into the young monster. Igor responds that it’s Abbie Normal. In a similar regard, is the government intervention into our capitalist system a plan intended to heal the patient but resulting in the creation of a monster instead?

So much to address with so many issues and problems. Let me attempt to keep this relatively brief (I know…not my forte) with some outstanding links to pieces and stories on some of the higher profile stories of the day.

Our equity markets continue to gyrate within the same overall range as it looks for the next major piece of economic news, that is November’s unemployment report, to be released Friday morning at 8:30am. It is a foregone conclusion that the report is going to be ugly with expectations that the number of jobs lost in November exceeded 300k with the unemployment rate likely moving into the low 7% range. Anything better than those numbers will likely be discounted. We all know the rate is moving to at least 8%, perhaps 9% and hopefully not 10% or higher.

Read the rest »

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Market Highlights 12/1/08: “Space Mountain”

Posted by Larry Doyle on December 2nd, 2008 11:05 AM |

I was never one that “enjoyed” roller-coasters. In fact the last time I went on a roller-coaster at an amusement park I went on it strictly to “surprise” my son. On that ride I closed my eyes, held on for dear life and figured that within a few minutes, I’d be back on terra firma. If I did not make it, the premiums were all paid and the family would be just fine. If today’s roller-coaster were only that easy.

While I did not get overly ebullient about the 15% move upward in the equity markets from 11/21 through 11/28, I am not reading too much into today’s 8% selloff. The fact is we remain very much in a delevering process, will continue to see exceedingly weak economic reports, and are far too focused on what is coming out of Washington than what and how businesses are handling this downturn. I still believe that we will largely remain in a trading range of between 7000 and 7500 on the downside and 9500 on the upside. Overall trend lines remain negative. Be better sellers of rallies !!

In fact, please look at this graph of the price action for the Dow over the last decade. On 10/06/02 we had an an intraday low of 7177. The market got down to the low 7200- to 7500 range a few times before holding and moving higher. We have been down there once so far on 11/20th. I think it is an easy call to say that we will revisit at least once more if not a few times. Check it out…

A quick review of today’s “lowlights” and then some commentary. Read the rest »

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Economic/Market Highlights 11/22-11/29/08: “Whack a Mole”

Posted by Larry Doyle on November 30th, 2008 3:15 PM |

The domestic equity markets rebounded by 15% over the last week which is the single strongest week since the 1930s. With that rebound the markets still ended down app 5% for the month. Despite the enormous rebound, albeit on moderate volume and in a shortened week, the overall sentiment and fundamentals to the market remain decidedly negative.

The Dow has been in a range of 9600-7500 over the last 6 months so the rebound off the lows of 11/20 bring the market back slightly above the midpoint of this short-term range. I would counsel those who trade the market to trade it against those levels with an overall negative bias.

The rebound started with the announcement of Geithner as Treasury Secretary but then received another 1.1trillion reasons to move higher in the form of the rescue package thrown to Citigroup (300bln) and 800bln in the form of more rescue money for Freddie/Fannie, more purchases of debt issues by Freddie/Fannie and Federal Home Loan Banks, and funding for a facility to facilitate increased liquidity for consumer finance markets.

With those announcements, the equity markets continued to rally as did the U.S. government bond market, and the U.S. mortgage market (each of those debt markets rallied by app 40 to 50 basis points). The corporate credit markets, the high yield markets, and the municipal markets did not rally, however. Those markets remain largely frozen for entities looking to issue debt.

Read the rest »

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Economic/Market Highlights 11/21/08: V-O-L-A-T-I-L-I-T-Y !!

Posted by Larry Doyle on November 22nd, 2008 4:10 PM |

The fact that the equity markets totally reversed yesterday’s 5-6% selloff is not the biggest story of the day. In short, 400-500 point swings either way have become so normal as to not be a big deal. But they are a big deal and I will explain why shortly.

At 2:30pm the equity markets were basically unchanged. By 3:45pm the equity markets had rallied by 5-6% primarily on the announcement of Tim Geithner, NY Fed chair, as the nominee to be Treasury Secretary, while the other candidate for that role, Harvard professor and former Tsy Secretary for Bill Clinton, Larry Summers will be a senior White House economic advisor. Well done by Barack to get both on the team.

The markets respect Geithner and he will be easily approved. Summers would have faced some grilling for sexist comments he made while President of Harvard as well as the fact that he has already been Tsy Secy and it would have been viewed as “the more things change the more they stay the same”. Geithner obviously knows where all the bones are buried on Wall St. having worked very closely with Paulson over the entirety of this financial fiasco. The transition should be seamless. Geithner and Paulson have different styles but both are respected by Wall St. even if Paulson is not fully liked by Main St. The markets respect Geithner and this is obviously very important.

Read more here as to “Obama Likely to Pick Fed’s Geithner for Treasury.”

While Geithner and Summers are obviously highly respected they are not Houdini and they will not be able to singlehandedly turn our economy or markets around based on their name alone. Read the rest »

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Economic/Market Highlights 11/20/08: D-E-L-E-V-E-R-I-N-G !!

Posted by Larry Doyle on November 21st, 2008 7:55 AM |

There were major forced liquidations on the parts of hedge funds, asset managers, and insurance companies that went through the markets Thursday. Laszlo Birinyi, a noted market tactician whom I follow quite closely, indicated today that given the market price action that making investment decisions now is “strictly guesswork”.

Equity markets traded down another 5.5% to 6.5% Thursday with much of that selloff occurring in the last hour which is an indication that orders from asset managers and mutual funds built into the close. The delevering process (the selling of assets purchased with borrowed money) continues!! Volume on the NYSE was 8.8bln shares, 44% above average. Clearly a strong indication of massive liquidations. Oil and copper were down 6% and 4% respectively given continued expectations of economic weakness. When does OPEC come out and announce aggressive cuts in production?

Government bonds rallied by 30basis points in the 10yr (a huge move) in a “flight to safety” trade.

While the safest bonds rallied, bonds with a risk component (high grade corporates, mortgage-backed bonds, high yield) either did not move or in the case of high yield traded down in sync with equities. Read the rest »

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Economic/Market Highlights 11/19/08 . . . The Pain Increases!!

Posted by Larry Doyle on November 20th, 2008 7:10 AM |

***Citigroup is down another 25% in this morning’s trading as investors are concerned that embedded losses are deeper than previously thought….as the attached article highlights, “it makes us think the mark to market writeoffs are not over yet”.***

Read more as to how and why “Citi’s Slide Deepens….”

As my Dad used to say when the report cards came home, “Just give me the grades and save the sob story for your Mother!”

Dow	on the day	-5.1%
	month to date	-14.2%
	year to date	– 40%
S&P 500	on the day	-6.1%
	month to date	-16.7%
	year to date	-45.3%
Nasdaq	on the day	-6.5%
	month to date	-19.5%
	year to date	-49%
10yr U.S. Tsy	on the day 3.33%	down 20bps
	month to date	down 64bps
	year to date	down 70bps

With grades like these, my Dad would have clenched his teeth, furrowed his brow, and bit his tongue. My Mom would proceed to rip my head off. Truth be told, that tough love was just what I needed to increase my discipline.

While tough love needs to be more love than tough, the fact is that covering my own shortcomings in work and discipline solved NOTHING. Our “socialized housing finance system” and our effectively “socialized banking system” are finding the same outcomes. Ultimately the price must be paid much like the losses must be recognized.

Neither Paulson nor Congress nor anybody in Washington or Wall St will tell you that the system has trillions in embedded losses but they do and our markets know it and are showing it by their prices.
Read the rest »

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Economic/Market Highlights 11/17/08

Posted by Larry Doyle on November 17th, 2008 10:20 PM |

I am going to save all the readers here extensive verbiage so as not to be overly morose about the ongoing challenging economic environment. I will offer my thoughts and comments on a few of the higher profile stories as indicators of what is going on, broadly speaking.

1. G-20 Summit….I had high hopes that commitments to global coordinated tax cuts would emanate from this summit. Talk about a major “whiff” on behalf of the global leaders. All I see is that leaders expressed a “promise” to work together on the critical issues. Wow, how gracious of them. Over and above this promise, I sensed that global leaders want to wait until the Obama administration takes charge and work with them. Believe me, with all due respect to Barack and team, if anybody thinks they have a magic bullet and will “inspire” a heightened level of confidence in the markets and economy, well….don’t hold your breath.

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