Sometimes you wake up (late), wondering things, like why people of deliberate insobriety want to chat you up on Phoenix buses, or why you've not heard a peep from your sister since she found romance on Eharmony, or why the woman you are deeply attracted to asks you questions like, "Do you think people think I am a whore?" And in the early morning that is much too much. You lay there on your cot looking out the window, marveling that it has been raining all night, a true raririty in the desert where two minutes of rain sends the local weathermen into end of the world overdrive, and all you want is more rest.
And after a hard day at work, you return home, stopping at the local supermarket for turkey salad, whole wheat bread, two sugar cookies, cranberry juice, and a Wall Street Journal.
Once home, you sit for a moment thinking about your more settled friends, with their jobs and kids and homes and sense of purpose. You think back for a moment about your dad, who died when you were still young enough to take his advice and follow his footsteps into the financial sector in Manhattan.
But you can't feel too bad, because on the other side of the world, maybe in Kenya, you might be coming home thinking "Mmmm tonight's a cous cous night", only to find that your neighbor Ikthabo (who you even loaned your big screen door screen to one day) is standing with a machete to kill you because you either did or did not support the current president. Darn it all, and you thought international diplomat of mystery Kofi Annan would straighten everything out in no time.
You pop open the Wall Street Journal and, oh no, not again. Not another hedge fund trying to push some company (the NY Times) into doing something against its own will. But yes. It's Harbinger Capital Partners, pens and power in hand, who want the newspaper to better allocate its capital. Morgan Stanley tried the same and failed.
Which kind of reminds you of the minds over at Cerberus, who imagined they could take Chrysler off the German's feeble hands, being firm believers in their own capabilities and wisdom much in the same way that a certain Eddie Lampert over at another hedge fund imagined he could take a mediocre Sears and a mediocre Kmart and create something other than mediocre squared.
Since Harbinger's vision is so large, it cannot be contained by merely inserting it into The New York Times. It is after Media General at the same time. Media General remains less diplomatic than the owners of the large NY paper. The Wall Street Journal quotes the head of Media General who says, "...most investors who aren't happy sell their stock and go on."
Which, when you think about it, is how things should be.
Or, you should own it. Don't tinker. Own it. Indeed, this election will probably be won by those who say they will own the problem and not tinker around the edges, as Republicans are wont to do.
But what the hedge funds and certain investors are trying to do is gain authority, and the rewards that come with it, on the cheap. You have to admire Marshall Martin's bluntness. Not that it's good for a stock to languish for lack of vision. Companies do need to reinvent their own houses, but the way you do that is not by letting a traveling homebuilder come and reroof your house on the quick.
The article had a nice little graphic that showed the downward sloping stock prices of the media companies in question, though it might have been helpful to actually show the performance of those braying loudly to be experts.
Everything is down now and reality is not exactly being reflected in our stock market: a market which remains relatively levitated. One can imagine Bernanke sitting in his Fed chambers, using every ounce of his Fed powers to keep things afloat, and he is starting to sweat. His mind is not a sumo wrestler, able to throw the economy down with a shove of monetary belly. He wonders also if he is too easy with credit, and too open to people who might just be using him for gain. He has seen the pimp hand, and it's not his own hand resting on his hairy thigh.
On Wednesday he will make his move and cut rates, probably, and then what? Markets will ride upwards for a nice little bounce and things being as they are (with nearly every major issue unresolved), the people, who are the market, will get jittery, and sell. Unless this time it is different and what looks so bad in real life is not really an East coast downpour, but a gentle Arizona drizzle.
You pick up your turkey sandwich, and a piece of pickle, and eat, then lie down to rest... again.
Monday, January 28, 2008
Sunday, January 20, 2008
Mediocracy, Cousin of Thainocracy, Joins Merrill
Thain cuts an impressive figure. Every time I see his pixelated image in the Wall Street Journal, and read his bold and firm pronouncments, I say to myself, "He is just the man to take Merrill to a new level of consistent mediocrity".
Of course the thundering herd of brokers are probably pleased now that Merrill is refocused toward wealth management and not subject to the complex witchery of some bond trading desk back East (you know, where Jews and New Yorkers and evil people live).
It seems everyone is quite in love with Thain, the former head of the New York Stock Exchange who has stepped in as head of Merrill Lynch to right all the wrongs. If former head Stanley O'Neal produced some $22 billion of profits from 2002-2006, only to see it all get blown away in one quarter of 2007, as the N.Y. Times points out, Thain is not wasting any time in distancing Merrill from its previous perverted self.
Now I tend to view Stan's attempts to broaden Merrill's money making methods as quite practical, even noble. Aspiring to be like Goldman is not a bad thing. In fact I think all the wrong lessons are being learned by firms across the board, but especially at Merrill.
Blow ups happen. What do they call them now? Black Swan events, or unexpected rarities. For a Wall Street firm, unexpected events should be a given. You should surely expect that somewhere in the world some government may devalue something or some mortgage broker is greasing some home deal. That stuff happened, happens, and will continue to happen. Same disaster, different face. In the past it was hedge fund Long Term Capital Management getting caught by Russia devaluations. In the recent past it was mortgage backed security holders being caught with with assets backed by little more than NO DOCUMENTATION. During other periods it has been tulips or Japanese real estate.
In this particular difficult period firms across the board got caught flatfooted, and only Goldman's management was consistently monitoring their book. Notice that Goldman did not say, "Hot fudge, we better get out of this trading business and shift toward money management." They know what works and how to monitor risk.
If we are to fault former Merrill management, it is a rather normative fault in that they made the same errors in judgement that other firms made. The mistake was not, in fact, their trying to be like Goldman or taking on trading risk or dealing in CDO's and mortgage backed instruments. The error was in not monitoring the risk and being proactive.
Along comes Thain. Tall and confident looking. It's almost Valentines Day and a perfect moment for people to swoon and get moony-eyed. He sounds good. The name itself has aires of Britain and money. Thain might come in and decide that bonuses will be paid out 60% in stock, but that's okay because Thain is a fix it guy, and confident, and flies out to Arizona to let the asset manager types know that, "You are somebody." He inspires the type of confidence that let's you know that you will never be at the back of the pack again.
Of course, given the direction he is pointing Merrill, they might never be at the front of the pack either. Merrill will be comfortably stable and predictable. That is not a bad thing. We cannot all be at the top. Every child is not smart, every woman is not beautiful, every firm cannot be Goldman.
Who am I to critique Thain's rush to move Merrill to the same types of businesses and conservatism that every other collapse avoiding firm is rushing toward. Thus as the herd moves toward collective rentrenchment, that leaves greater opportunties for firms like Goldman.
Thain would be worth his press if he were to say, "We, like everyone, messed up in this one area of risk oversight. We are fixing that, and will continue to fire in all business areas". Now that would have been a pronouncement worthy of confidence that Thain puts out.
Alas the world (that being Merrill Land) is held by Thain in the palm of his derriere. There is Thain sitting atop the Merrill egg, keeping it warm and cozy. Will he know when to stand up, let it hatch and breath?
Of course the thundering herd of brokers are probably pleased now that Merrill is refocused toward wealth management and not subject to the complex witchery of some bond trading desk back East (you know, where Jews and New Yorkers and evil people live).
It seems everyone is quite in love with Thain, the former head of the New York Stock Exchange who has stepped in as head of Merrill Lynch to right all the wrongs. If former head Stanley O'Neal produced some $22 billion of profits from 2002-2006, only to see it all get blown away in one quarter of 2007, as the N.Y. Times points out, Thain is not wasting any time in distancing Merrill from its previous perverted self.
Now I tend to view Stan's attempts to broaden Merrill's money making methods as quite practical, even noble. Aspiring to be like Goldman is not a bad thing. In fact I think all the wrong lessons are being learned by firms across the board, but especially at Merrill.
Blow ups happen. What do they call them now? Black Swan events, or unexpected rarities. For a Wall Street firm, unexpected events should be a given. You should surely expect that somewhere in the world some government may devalue something or some mortgage broker is greasing some home deal. That stuff happened, happens, and will continue to happen. Same disaster, different face. In the past it was hedge fund Long Term Capital Management getting caught by Russia devaluations. In the recent past it was mortgage backed security holders being caught with with assets backed by little more than NO DOCUMENTATION. During other periods it has been tulips or Japanese real estate.
In this particular difficult period firms across the board got caught flatfooted, and only Goldman's management was consistently monitoring their book. Notice that Goldman did not say, "Hot fudge, we better get out of this trading business and shift toward money management." They know what works and how to monitor risk.
If we are to fault former Merrill management, it is a rather normative fault in that they made the same errors in judgement that other firms made. The mistake was not, in fact, their trying to be like Goldman or taking on trading risk or dealing in CDO's and mortgage backed instruments. The error was in not monitoring the risk and being proactive.
Along comes Thain. Tall and confident looking. It's almost Valentines Day and a perfect moment for people to swoon and get moony-eyed. He sounds good. The name itself has aires of Britain and money. Thain might come in and decide that bonuses will be paid out 60% in stock, but that's okay because Thain is a fix it guy, and confident, and flies out to Arizona to let the asset manager types know that, "You are somebody." He inspires the type of confidence that let's you know that you will never be at the back of the pack again.
Of course, given the direction he is pointing Merrill, they might never be at the front of the pack either. Merrill will be comfortably stable and predictable. That is not a bad thing. We cannot all be at the top. Every child is not smart, every woman is not beautiful, every firm cannot be Goldman.
Who am I to critique Thain's rush to move Merrill to the same types of businesses and conservatism that every other collapse avoiding firm is rushing toward. Thus as the herd moves toward collective rentrenchment, that leaves greater opportunties for firms like Goldman.
Thain would be worth his press if he were to say, "We, like everyone, messed up in this one area of risk oversight. We are fixing that, and will continue to fire in all business areas". Now that would have been a pronouncement worthy of confidence that Thain puts out.
Alas the world (that being Merrill Land) is held by Thain in the palm of his derriere. There is Thain sitting atop the Merrill egg, keeping it warm and cozy. Will he know when to stand up, let it hatch and breath?
Saturday, January 12, 2008
2008 Fate
And here it is. A new year in name only, but leaving us exactly where we were at the end of last year, sitting on the edge of financial meltdown and trying to calculate who out there is hiding the largest losses and whether a good portion of America will be homeless, jobless, or at minimum, not buying so much at the local mall.
The governments (and their sovereign funds) are working hard to provide liquidity into the system to keep things afloat, and this altruistic bent has apparently trickled down into the minds of those running Bank of America, deciding last week to toss a lifeline to Countrywide via a $4 billion bailout. One can make arguments for and against this transaction, but one can also assume that Americans will always opt for living in a house rather than a cardboard box, so going in this direction makes sense if you are BofA and can dominate the market.
As the Fed considers its next rate cut (the mechanics of how much, not if), there is probably but one question that most investors or speculators should be asking and that is whether the financial and housing sectors have hit bottom.
The difficult thing to do now when things are erratic is to take one's hard earned cash and load up on the stocks of banks and brokerage firms. My guess is as good as anyone's and working at a call center does not afford me great wisdom. It seems like excesses are being rung out at a rather incremental pace, and with no drop in the availability of low cost cash from federal sources.
The problem of a government sponsored high liquidity environment combined with the general greed of certain homebuyers, mortgage brokers, and investment banks is not resolved by maintaining the incentive (low rates) that encouraged the bad lending practices in the first place. It is imperative that lending laws reflect necessary changes too or the take the money and be foolish environment will continue. You don't do breast reconstruction surgery on one breast and call it a done deal, and the government is playing the one eyed reconstructionist.
Barring surprises, I am willing to bet that a Democrat will win the November election.
I am also willing to bet that the winning Democrat, either Obama or Hillary, will be trying hard to 1) actually deliver on massive healthcare reform and 2) prove that electing Democrats is good for the financial/fiscal health of the nation. That desire to please the base (with health care reform) and confound the naysayers (by reviving a fallen economy), will probably deliver a great boost to the average citizen's mental comfort zone.
Republicans and various other conservative types will howl about the dangers of placing healthcare in the hands of the government, but enough people seem turned off to the idea of just tinkering around the edges of healthcare reform and fundamentally changing nothing.
While not being overly enthusiastic about expanding the role of government in life, I am also not reality challenged enough to believe that the private sector provides the ultimate example of expertise (in anything) over the years: savings and loan, dot.com, LTCM, airline industry, auto industry, mortgage lending, and so on.
When that Democrat that I probably won't be voting for (but will welcome anyway) gets elected, and if he succeeds at bringing some level of simplicity, order, and cost reduction to the healthcare process, millions of citizens will have a level of daily psychological comfort that they don't know they need. (But I know they need it, so don't quibble).
That will bode well for the economy, when it happens. And before that happens, financial and housing stocks will recover.
One caveat is the impact of the current crisis on state budgets. The pain from budget reductions may roll out slowly like a cancer, so we are unlikely to see any improvement any time soon.
The governments (and their sovereign funds) are working hard to provide liquidity into the system to keep things afloat, and this altruistic bent has apparently trickled down into the minds of those running Bank of America, deciding last week to toss a lifeline to Countrywide via a $4 billion bailout. One can make arguments for and against this transaction, but one can also assume that Americans will always opt for living in a house rather than a cardboard box, so going in this direction makes sense if you are BofA and can dominate the market.
As the Fed considers its next rate cut (the mechanics of how much, not if), there is probably but one question that most investors or speculators should be asking and that is whether the financial and housing sectors have hit bottom.
The difficult thing to do now when things are erratic is to take one's hard earned cash and load up on the stocks of banks and brokerage firms. My guess is as good as anyone's and working at a call center does not afford me great wisdom. It seems like excesses are being rung out at a rather incremental pace, and with no drop in the availability of low cost cash from federal sources.
The problem of a government sponsored high liquidity environment combined with the general greed of certain homebuyers, mortgage brokers, and investment banks is not resolved by maintaining the incentive (low rates) that encouraged the bad lending practices in the first place. It is imperative that lending laws reflect necessary changes too or the take the money and be foolish environment will continue. You don't do breast reconstruction surgery on one breast and call it a done deal, and the government is playing the one eyed reconstructionist.
Barring surprises, I am willing to bet that a Democrat will win the November election.
I am also willing to bet that the winning Democrat, either Obama or Hillary, will be trying hard to 1) actually deliver on massive healthcare reform and 2) prove that electing Democrats is good for the financial/fiscal health of the nation. That desire to please the base (with health care reform) and confound the naysayers (by reviving a fallen economy), will probably deliver a great boost to the average citizen's mental comfort zone.
Republicans and various other conservative types will howl about the dangers of placing healthcare in the hands of the government, but enough people seem turned off to the idea of just tinkering around the edges of healthcare reform and fundamentally changing nothing.
While not being overly enthusiastic about expanding the role of government in life, I am also not reality challenged enough to believe that the private sector provides the ultimate example of expertise (in anything) over the years: savings and loan, dot.com, LTCM, airline industry, auto industry, mortgage lending, and so on.
When that Democrat that I probably won't be voting for (but will welcome anyway) gets elected, and if he succeeds at bringing some level of simplicity, order, and cost reduction to the healthcare process, millions of citizens will have a level of daily psychological comfort that they don't know they need. (But I know they need it, so don't quibble).
That will bode well for the economy, when it happens. And before that happens, financial and housing stocks will recover.
One caveat is the impact of the current crisis on state budgets. The pain from budget reductions may roll out slowly like a cancer, so we are unlikely to see any improvement any time soon.
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