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HomeNo Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Bruce Judson, Sunday Night at 8pm ET
Posted by Larry Doyle on December 12th, 2009 4:30 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. In addition, all No Quarter Radio programming is available as a free podcast on iTunes. From the iTunes Store, type “NQR podcasts” in the search window.
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Bruce Judson
I have often written that the divide between Wall Street and Main Street has never been wider. All assertions to the contrary, the efforts in Washington have done little to narrow that divide and often have served to widen it even further.
What does the divide mean currently? What does it mean for our future? How can small businesses survive and prosper in this environment? How can middle income American families work their way through this current economic crisis? These questions have never been more meaningful and pressing in America than today.
Where can one go to gain wisdom and insight on these topics? You have come to the right place as No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Bruce Judson.
The author of the recently released sure to be huge hit, It Could Happen Here, addressing the topic of income inequality in America, Bruce Judson has a unique background and thus perspective on our current economic landscape. Bruce Judson is a successful author, entrepreneur, and Senior Faculty Fellow at the Yale School of Management. On top of all that success, Bruce deeply cares for our country and its future.
Please join me Sunday evening from 8-9pm for what will assuredly be a very engaging and riveting dialogue across a wide array of topics as we navigate the economic landscape here at Sense on Cents. As a reminder, all of my radio shows are archived and previous episodes can be listened to right here at Sense on Cents by clicking on the No Quarter Radio tab located under the page header. (FYI, I keep an audio player of my most recent episode in the right sidebar).
LD
December 12, 2009: Month to Date Market Review
Posted by Larry Doyle on December 12th, 2009 11:31 AM |
Is our economy stabilizing? Are the reports on retail sales and an improving trade deficit a harbinger of better times in 2010? While I am not going to indiscriminately pooh-pooh economic reports which may be overly sanguine, I am also not going to blindly buy into them either.
Prudence dictates we neither get overly ebullient nor despondent as we manage our finances and navigate the economic landscape. In that context, I will caution readers here at Sense on Cents that news deemed positive for the economy may very likely generate negative returns across a wide array of asset classes. Why is that?
The fuel that has been driving the markets all year is provided by the Fed and Treasury. That excess liquidity has served to punish the value of the greenback while supporting virtually all asset classes via the dollar carry trade. If the economy shows signs of stabilizing and the fuel source is restricted via a Fed-tightening of credit, the U.S. dollar should rise and hedge funds, speculators, and selected investors will be forced to exit positions across these asset classes.
We continued to see a semblance of this phenomena play out again this week. Will it continue? Watch the U.S. Dollar Index and expect that it will continue to be negatively correlated with the markets.
Let’s navigate. Prior to reviewing the month to date market returns, I’ll address economic data released this week.
ECONOMIC DATA
Trade Deficit: The Wall Street Journal provides great insight on the improvements in this report:
The latest international trade report shows exports continuing an uptrend, boosting U.S. manufacturing. Imports also rose, likely reflecting inventory rebuilding for autos and cautious hope about the consumer and business investment. The overall U.S. trade deficit narrowed to $32.9 billion from a revised $35.7 billion gap in September. The deficit was smaller than the market forecast for a $36.4 billion differential. Exports advanced 2.6 percent while imports gained 0.4 percent. The improvement in the trade deficit was primarily due to a narrowing in the petroleum deficit, which came in at $17.8 billion compared to a gap of $20.5 billion the previous month. The nonpetroleum gap shrank to $25.2 billion from $25.7 billion in September.
The other important economic report released this week focused on Retail Sales. The WSJ again provides solid insights:
The consumer decided to come off the sidelines and jump back into the economy, boosting November retail sales-and beyond just autos and gasoline. Overall retail sales in November posted a 1.3 percent spike after a revised 1.1 percent gain in October. November’s increase was well above the consensus estimate for a 0.9 percent increase. Excluding autos, sales gained 1.2 percent in the latest month after no change in October. The market consensus had expected a 0.5 percent gain in ex autos. Even excluding both autos and gasoline, November sales were up a healthy 0.6 percent, following a 0.1 percent uptick the month before.
Is this strength to be believed? Early signs of holiday sales were anything but positive. Were those reports erroneous or is this report overly massaged? We’ll be watching.
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: 
(more…)
Mortgage Cram-Downs Revisited
Posted by Larry Doyle on December 11th, 2009 2:03 PM |
Having broached the topic of mortgage cram-downs this morning, Bloomberg reports that an amendment adding this capability to pending legislation was voted down today. Mortgage ‘Cram-Down’ Bankruptcy Amendment Fails in U.S. House:
Republican lawmakers defeated a mortgage “cram-down” amendment that would have given federal judges the power to lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court.
The U.S. House of Representatives voted 241-188 today, stripping the amendment from a broader package of proposed laws to rein in excess on Wall Street. The cram-down provision was identical to legislation that passed the House in March and then failed in the Senate amid opposition from the banking industry.
This vote against mortgage cram-downs is the second time it has been struck down. As the dynamics within the mortgage crisis linger well into 2010, I fully expect this proposed piece of legislation will be back up in front of Congress again.
LD
UPDATE: Mortgage Modifications Leading to Mortgage Cram-Downs
Posted by Larry Doyle on December 11th, 2009 11:38 AM |
Despite overwhelming efforts on the part of Uncle Sam, the simple fact of the matter is the program to successfully and permanently modify mortgages has not gained truly meaningful traction. Public pressure on mortgage servicers specifically and the mortgage modification program at large have generated a slight, but hardly significant, increase in permanent modifications over the last month. Let’s review the statistics provided by Uncle Sam’s Making Home Affordable Program:
(more…)
What’s the Market Telling Us?
Posted by Larry Doyle on December 11th, 2009 9:38 AM |
In the face of generally positive economic news the last two days, (Retail Sales this morning rose 1.3% and the improving Trade Deficit), the price action in the market is very interesting. What is it telling us? Let’s navigate.
With the U.S. Dollar Index having firmed over the last week, money does not appear to be coming out of the equity markets. The major equity averages are up anywhere from .5 to 2.5% on the month. What market segments are feeling the bulk of the pain? Government bonds and commodities, primarily oil and gold.
Interest rates on U.S. government bonds have continued to move higher as Treasury supply this week has not been well received. With rates on 10yr U.S. Treasurys higher by .35% over the last ten days, it would appear that market participants continue to believe the Fed will be forced to raise rates or make other moves to lessen the support and stimulus provided to the economy.
If rates are to move higher, our dollar should find support . . . and it is, as the U.S. Dollar Index remains above the 76.00 level. While dollar strength had been a harbinger of general weakness across almost all risk-based asset classes, the commodity sector is bearing the brunt of the pain currently.
The DJ-UBS Commodity Index has declined by 2.5% on the month led lower primarily by oil (down approximately 10% on the month) and gold (down 4% on the month).
Add it all up and what does it mean? If our domestic economy is in fact stabilizing, then the public at large and investors will compel the Grand Old Man, that is Uncle Sam, to back away from continuing to provide stimulus. As that occurs, the market may begin to normalize to levels at which private investors care to put money to work. At this juncture, investors are saying interest rates are not attractive at current levels. As interest rates rise, that may actually temper an economic rebound, especially in housing.
So be it. It is not realistic for market participants “to have their cake and eat it too.”
LD
Jeff Immelt Has an Epiphany
Posted by Larry Doyle on December 10th, 2009 12:38 PM |
Jeff Immelt
Very interesting how corporate executives get a dose of religion when faced with an American public enraged by government bailouts, increased unemployment, and little credit.
Let’s start keeping a list of those in Washington, on Wall Street, and in the boardrooms who have these epiphanies. Will talk lead to action or are these individuals merely raising the pandering to another level?
A few weeks back in my post, “Chris Dodd Has an Epiphany,” I highlighted that Senator Chris Dodd had just such an epiphany. Today, the Financial Times highlights GE CEO Jeff Immelt’s epiphany and reports, GE Chief Attacks Executive ‘Greed,’:
Jeffrey Immelt, General Electric’s chief executive, said on Wednesday his generation of business leaders had succumbed to “meanness and greed” that had harmed the US economy and increased the gap between the rich and the poor.
Mr Immelt’s attack on his fellow corporate chiefs – made in a speech at the West Point military academy – is one of the strongest criticisms by a top executive of the compensation and business practices that prevailed before the financial crisis.
“We are at the end of a difficult generation of business leadership … tough-mindedness, a good trait, was replaced by meanness and greed, both terrible traits,” said Mr Immelt, who succeeded Jack Welch, one of the toughest leaders of his generation, at the helm of the US conglomerate. “Rewards became perverted. The richest people made the most mistakes with the least accountability.”
Several executives, especially in financial services, have apologised for their companies’ role in the crisis but Mr Immelt’s remarks went further, linking bad leadership to growing inequality.
“The bottom 25 per cent of the American population is poorer than they were 25 years ago. That is just wrong,” he said. “Ethically, leaders do share a common responsibility to narrow the gap between the weak and the strong.”
Is Immelt looking to be on the record on this topic in hopes of scoring points with the American public? Is this merely pandering? Or will Immelt follow this up with action?
Immelt has the bully pulpit? How exactly will he use it? While on one hand, I commend Immelt for raising the topic, talk is cheap if not followed up with action.
What plans will Immelt look to implement at GE? What conferences or symposiums will he host to keep this topic elevated?
Who will hold him and his corporate colleagues accountable?
LD
America Speaks, Will Wall Street and Washington Listen?
Posted by Larry Doyle on December 10th, 2009 9:38 AM |
In terms of favorability ratings, Congress has almost always occupied the lowest rung on the ladder. Not that Congress is improving much, but Wall Street executives are currently viewed with the greatest disdain, as highlighted in a recent Bloomberg poll contained in the article, Bankers Lose to Congressmen Among Americans Furious Over Pay. This article and accompanying poll are captivating in terms of capturing the pulse of the country across a wide array of issues.
Is America angry? You bet it is. America realizes that Wall Street ran roughshod over America with regulators either negligent or complicit in the process. Bloomberg offers:
Devin O’Leary, 41, a film critic from Albuquerque, New Mexico, welcomed tougher oversight. “They’ve had little control up to now and if you give a big corporation little control, they’re going to do everything they can get away with.”
Who will hold Wall Street and Washington accountable? America is speaking. Is anyone listening? Will America be heard?
This poll touches on a host of critically important topics including health care, the economy, Wall Street bonuses, President Obama, and more. America is pissed off, in general, and not optimistic about our future. Should we be surprised?
For those who would like to capture a sense of America’s anger, I strongly recommend reviewing the Bloomberg poll:
LD
SEC “Slap on the Wrist” Promoted Fraud
Posted by Larry Doyle on December 9th, 2009 3:06 PM |
When the punishment does not fit the crime, is there any surprise that crimes, frauds, and other unsavory behaviors will persist? Human nature and pervasive greed on Wall Street being what they are, the environment for fraud was a breeding ground.
Many thanks to a loyal reader for sharing a recent story which highlights this dynamic in a favorite topic here at Sense on Cents, auction-rate securities. McClatchy writes, For the Feds, Some Firms Are Too Big to Punish:
Then in 2006, the SEC cited Citigroup and other firms for improperly marketing “auction rate securities,” bonds issued by municipalities, student loan entities and corporations. The agency censured Citigroup and fined it $1.5 million, and Citigroup promised to clean up its sales practices. The SEC indicated that was good enough: In its attempt to deter more lawbreaking, the SEC declared, “this settlement is appropriate.” (more…)
Treasury Leaves TARP on the Field
Posted by Larry Doyle on December 9th, 2009 12:15 PM |
We learned all we need to know about the economy today. How so? The fact that Treasury Secretary Geithner has chosen to extend the TARP (Troubled Asset Relief Program) to October 2010 is a clear indication that our economy, primarily housing and employment, needs Uncle Sam’s support.
While Geithner couches this support in terms of “just in case,” we should not be so naive. The American Banker highlights this development in writing, Treasury Extends Tarp to 2010:
The Treasury Department announced Wednesday that it would extend the Troubled Asset Relief Program to Oct. 3, 2010.
In a letter to lawmakers, Treasury Secretary Tim Geithner cited improvements in the economy but said Tarp must be extended due to remaining challenges for homeowners and small businesses.
That’s right. The outlook for housing and jobs remains challenged, all assertions to the contrary aside.
“This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats,” Geithner wrote.
Unforeseen threats? Come on, Tim. Be straight with us. Try ongoing bank failures due to losses on loans. (more…)
British Taxman Whacks ‘The City’
Posted by Larry Doyle on December 9th, 2009 9:04 AM |
You’re a mean one, Mr. Grinch…!!
Are British bankers headed to the pub early today to drown their sorrows? Little doubt, as the Chancellor of the Exchequer Alistair Darling (British equivalent to Treasury Secretary Tim Geithner) announced that year-end bonus pools for British banks will be hit with a one-time, top line tax of 50%!! Ouch!!
Bloomberg provides a brief synopsis this morning in writing, Darling Levies 50% Tax on U.K. Bank Bonuses Above 25,000 Pounds:
Chancellor of the Exchequer Alistair Darling said he will impose a one-time 50 percent tax on banks for all bonus payments of more than 25,000 pounds ($41,000).
The tax, effective from today until April 5, will be levied as a surcharge on the employer. It will apply to all banks and building societies operating in the U.K., including subsidiaries of foreign banks.
The Treasury estimates the tax will raise about 500 million pounds and affect about 20,000 bankers.
What does this mean? Take 50% off the top line of the bonus pool and then distribute the balance. Those bonus proceeds are then subject to the U.K.’s current tax rates, the maximum of which is right now 40%.
Add it all up and the effective tax rate for the majority of the bankers impacted is between 65 and 70%!!
What does the crowd in Washington and on Wall Street think about that?
While I am not one for increasing taxes, the fact is the British banks and the U.S. banks were saved by the taxpayers. This tax is merely a return of some of the taxpayers’ money.
While the bankers will view Darling as Mr. Grinch, do you think the unemployed laborer in the U.K. or here in America has any real sympathy for those in the City or on Wall Street?
Would the crowd in Washington have the stones to impose a similar one-time hit on Wall Street?
LD
