Sense on Cents

“The Greatest Generation”

Posted by Larry Doyle on November 14th, 2008 7:45 AM |

I commend HRC for providing some real leadership at this point in time. There is no doubt that our country is screaming for real leadership. From Washington to Wall St. to Main St. our citizens are looking for people and programs that will look forward and take the vital and necessary steps to change our national mindset. Do you get the sense that perhaps some supporters of BO are getting a little nervous and now realize that he is a very high risk President-elect?

HRC’s stimulus proposal addresses a number of fronts (expanding unemployment insurance, addressing Medicaid, funding infrastructure projects and clean energy, modify mortgages) which will need focus from Congress to create a demonstrative impact on our economy. Some of the programs will clearly be impactful while others may have unintended negative consequences. We will have to take some prudent but necessary risks to achieve positive results.

The TARP bailout/rescue plan proposed to date has not inspired confidence nor generated any real impact for three reasons:

1. the banks have such sizable embedded losses that the funds already injected are being and will be used to recapitalize the balance sheets …

2. investors have little to no appetite to purchase loans currently on the banks’ books which were not properly underwritten and will likely continue to suffer an ever increasing level of delinquencies and defaults …

3. little to no demand for funds due to the fact that most individuals and institutions are looking to decrease their debt service not increase it …

As a result our economy spirals downward. HRC’s plan addresses some of our most serious needs. I commend her. Read the rest »

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Economic/Market Highlights 11/12/08

Posted by Larry Doyle on November 13th, 2008 1:31 PM |

Markets trade down another 5% and close within spitting distance of October’s closing lows seen on Oct 10. I remain decidedly negative on the market and the economy despite every effort made by global governments. In fact, the pace of the economic slowdown is quickening. It’s all about delevering and liquidity.

We have much to address, so let’s get after it.

Retail….
1. Best Buy comments that they see a “seismic slowdown” in 4th quarter projected sales. Expect to see significant sales and price cuts on electronics going into the holiday season.

2. Survey of credit card holders indicates the following: 53% have more debt than they are comfortable handling. Of that group 73% indicate that they will likely spend less this holiday season….lots of regifting….

Economy
1. Julian Robertson, one of the most highly regarded money managers of the last 40 yrs, indicates that “we have not seen the capitulation in our economy and that the foreseeable future will be a long, tough period for the American people. He also offered that Nancy Pelosi wants to throw money down the toilet to save the automotive industry. (more on this later)

2. Moody’s ratings expects defaults on distressed debt situations to almost quadruple in the next year to north of 10%. This expected level of defaults is why high yield debt is trading near a 20% yield level. Lots of RISK! Companies will be severely challenged to refinance their debt.

3. Jamie Dimon, CEO of JP Morgan, indicates that the economic recession will be worse than the credit crisis.

Auto Situation
1. Pelosi, Frank, Obama and team clearly want to see a bailout for the automotive industry with GWB’s signature. The package being discussed is $25bln but with no specifics highlighted as of yet. Expect hearings next week in Washington on this issue. From the standpoint that Uncle Sam has already committed north of a trillion dollars to the financial system, a 25bln capital injection is a drop in the bucket but it goes a lot deeper than that. First off, the cash burn rate for the Big 3 at the anemic pace of auto sales is currently 5+bln per month, so 25bln gets us to next March. Big deal.

IMO, I would not give this industry $20 without an agreement to restructure. Read the rest »

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The Wall St. Model is Broken . . . and Won’t Soon be Fixed!!

Posted by Larry Doyle on November 12th, 2008 12:15 PM |

Despite billions and now trillions of dollars in capital injections and equity investments made by our government, private equity, and sovereign wealth funds, our economic turmoil is a long way from being over. I do find it interesting that despite numerous Wall Street titans having indicated to us at different points over the last year that we were in the 7th inning of this fiasco, now a recurring theme is that we should not expect any real economic recovery until 2010. Actually, maybe we were in the 7th inning but it was the 7th inning of the first game of a 4 game series.

Well, if we want to figure out where and when we are moving forward, I think it would be beneficial to know from where and when we came.

For those over 50 years of age, perhaps you remember when mortgage money dried up. Perhaps you also recall the days of putting down 20% before you even thought of buying a home. In any event, the growth of the secondary mortgage market in the mid 1980s was a result of some very sharp financial minds on Wall St. who engineered a product called a Collateralized Mortgage Obligation (CMO). Read the rest »

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Economic/Market Highlights 11/10/08

Posted by Larry Doyle on November 11th, 2008 2:30 PM |

I will admit that, given the current dynamics at work in the economy and the markets, I have become somewhat numbed as to the magnitude of some of the developments. Many of the highlights that I will offer from yesterday’s news would be enormous stories in and of themselves. Taken collectively, they do become overwhelming if we let them.

The markets are down 5-6% on the month. Given the stream of negative news, one might think that the market could be even lower. The fact that markets aren’t even lower is testament to the trillions of dollars that have been put to work by governments around the world.

Let’s review the major stories of November 10, 2008:

1. China implemented a $563bln economic stimulus plan primarily to further develop infrastructure in the country. That figure represents 1/5th of their total GDP. I was surprised to hear that, but it also indicates to me how much growth potential that country possesses. This package had an immediate impact on our equity markets this morning when our markets were up 3%. This package also supported commodities, especially copper which bounced about 5% on the day. Aside from infrastructure, China directed this stimulus package to an area that was badly damaged in a recent earthquake. Last but not least, China offered “tax deductions” on the purchase of certain hard assets. (Are you listening, Barack??)

This stimulus package though indicates to me that it is not likely that many of our domestic companies will likely be receiving capital injections from sovereign wealth funds. With oil at $60, oil producing countries (such as Dubai) may need to support the real estate developers and exporters in their own countries.

2. Fannie Mae reported a loss of $29bln (I’m not going to say earnings when companies lose money) which equates to $12.96 a share vs an expected loss of $1.40 a share. (How can Wall St. analysts maintain credibility when they miss a call by almost 1000%?).

It is amazing how Fannie can rack up losses like this when their own incentive bonuses are not on the line and when collectively Uncle Sam owns them. Aside from this loss, Fannie did announce that they expect losses to continue and to increase into 2009. This to me means they see foreclosures increasing over the next 6 months. More than likely Fannie will have a negative net worth by the end of 2008 requiring an increased capital injection by the U.S. taxpayer. Where does it end!!

Again, this model is broken. The American consumer who is able to get a mortgage is being subsidized at the expense of the taxpayers. Let the private market set the mortgage rates and if the housing market re-prices, so be it. Enough socialized housing finance. Read the rest »

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Review of Employment Report and Markets 11/7/08

Posted by Larry Doyle on November 7th, 2008 4:50 PM |

The highly anticipated October employment report came in as follows:

unemployment rate	6.5% up from 6.1%
non-farm payrolls	-240k jobs vs consensus estimate of -200k
September revision	a loss of 284k jobs from initial estimate of 159k!
Labor costs	+3.5% year over year

Jobs were lost in virtually every sector: manufacturing, construction, and especially the service sector, which had been the sector that provided job strength over the last few years.

In summary, there is nothing to like about this report and it is likely to get worse. Estimates on unemployment rate range from 7% to 9% by the middle of 2009.

Read more here on how the “Economy Sheds Jobs.”

Goldman Sachs, which had the most accurate call on the employment report, is now calling for a -3.5% GDP for 4th qtr 2008 and a -2% for 1st qtr 2009. Read the rest »

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Economic/Market Review 11/6/08

Posted by Larry Doyle on November 6th, 2008 9:00 PM |

****I hope that people can access this article which will appear in tomorrow’s WSJ. This piece gives a great recap of the very painful delevering (unwinding investments made with borrowed funds) for Citadel, one of the higher profile hedge funds in the business. — Wall Street Journal

Markets are down another 4-5% on the day and app 10% for the month. Today’s highlights (or lowlights…) being….

1. Goldman Sachs announces that they expect a loss of 300,000 jobs in tomorrow’s employment reports from Dept of Labor. Consensus estimate is that the economy lost 200-250,000 jobs. Markets are very nervous that this number will be even worse but regardless the overall rate is headed well north of 7%…

2. Cisco announced after yesterday’s market close that they had their first revenue decline in 5 years…

3. Blackstone (one of the largest private equity funds in the business) is down app 15% on negative earnings report and negative outlook…

4. Now for the good news…Wal-Mart has positive earnings and outlook for holiday season…this is a recession play …

Read the rest »

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Economic/Market Highlights 11/5….Biggest Post Election Slump in History!!

Posted by Larry Doyle on November 6th, 2008 7:00 AM |

Today’s 5-6% market selloff is the biggest post-election slump in history. If you think the markets aren’t nervous enough already, the prospects of a Democratic Congress and White House added fuel to the fire.

I fully appreciate that the campaign and election captivated our hearts and minds and souls over the last days, weeks, and months. To that end I refrained recently from regular economic/market posts so as not to distract from the main focus. Against that backdrop, though, we all have bills to pay so back to work we go.

Our economy remains mired in a slump that I expect to only get worse over the next few quarters.

–Jamie Dimon, the CEO of JP Morgan cautioned employees in Hong Kong that he does not foresee an economic recovery until 2010. JPM is currently the strongest banking institution in our country and has business in virtually every sector of commercial and investment banking. Dimon is sending a message to not only employees but even moreso to shareholders as to what he expects. We should all heed what he says.

–Dallas Fed governor said that he does not expect to see a positive GDP report until 2010. Read the rest »

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What Does Barack Know That 375 Leading Economists Don’t??

Posted by Larry Doyle on November 1st, 2008 8:00 PM |

While there are a host of topics that deserve and have received significant attention in this election cycle, there is little doubt that the focus on our current economic condition and our future economic path is the issue that will carry the day and determine our next President-elect.

Regrettable or not, our political system promotes a level of confusion through misinformaton and disinformation. Where does one turn for solid advice and insight? Well, when we’re sick we’d all want access to and advice from the best doctors. When we have a legal issue, we’d all want access to and advice from the best lawyers. When we want the best education for our children, we’d all want access to and advice from the best teachers and professors. When we need spiritual guidance, we’d all want access to and advice from the best ministers. When we need input on what is going on in our business and economy, we’d all want access to and advice from the top economists. Well, guess what…..we do have that access!!!!!

ECONOMISTS FOR McCAIN IS AN INDEPENDENT, VOLUNTARY ASSOCIATION FOR ECONOMISTS WHO SUPPORT SENATOR JOHN McCAIN’S PLAN FOR AMERICA. IT IS NOT AN OFFICIAL ARM OF THE JOHN McCAIN 2008 CAMPAIGN. ECONOMISTS FOR McCAIN ACCEPTS NO FEES, DUES, DONATIONS, OR CONTRIBUTIONS.

WOW!! A forum that addresses the economic issues confronting our country and our world that is not biased or corrupted by money. Yes….do you feel better already?? I thought so.

Read the rest »

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McCain/Palin’s Economic Stimulus Plan

Posted by Larry Doyle on October 23rd, 2008 9:05 AM |

This post is written in response to the October 21st statement issued by the McCain/Palin campaign:

STATEMENT FROM SENATOR MCCAIN AND
GOVERNOR PALIN ON AN ECONOMIC STIMULUS

“We are deeply concerned about our nation’s economic outlook and will support measures that improve the outlook for American families. This economic crisis has its roots in the housing market and the most effective stimulus will be to reverse the cycle of foreclosure, neighborhood blight, and falling housing values. The American Homeownership Resurgence Plan is the best kind of stimulus.

“The Democrat-controlled Congress will likely propose additional measures. We do not believe that a national crisis should be taken as a license for wasteful spending or earmarked projects. Each new proposal must pass on the grounds that it is timely, effective in supporting business sales and job creation, and consistent with long-term fiscal discipline.

“In the past, raising taxes and cutting off international trade have only served to make hard economic times worse. We oppose harmful attempts to just ‘spread the wealth.’ Our job-creating economic plan is the best path for the economy and includes the types of policies that the Congress should consider.”

Prior to addressing the prospects of another economic stimulus plan, let’s review some of the steps that the Fed and Treasury have taken over the course of the last month: Read the rest »

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“Give a Man a Fish, Feed Him for a Day . . .

Posted by Larry Doyle on October 21st, 2008 7:00 AM |

. . . TEACH A MAN TO FISH, FEED HIM FOR A LIFETIME!”

While there are so many issues being debated during this election, it seems clear to me that the relative merits of our current tax system as highlighted by “that one’s” interaction with “Joe the Plumber” will carry the day.

Amidst all the rhetoric and spin that is giving me a headache, I thought it may be helpful for all of us to take a deep breath and merely “review” some data so that we can make as informed and thoughtful a decision as possible.

Let’s lay out some data that I collected from a variety of reputable sources (Kiplingers, U.S. Census Bureau, WSJ) and then go from there. To be fair, the numbers are taken from the last few years but for our argument here, the big picture will be very much in focus.

BREAKDOWN OF INCOME AND TAXES PAID BY CATEGORY Read the rest »

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