Evening Edition

This is terrible. Wall Street bonuses are to go down 50% this year to the lowest level since, dear Lord say it isn't so, 2002. What will they do, oh what will they do. I am not meaning to sound cold here, but I am looking to emphasize the headine that Bloomberg chose for this article, i.e. noting the bonus reduction versus the job loss. I personally am amazed that Wall Street is having any bonus this year. I mean the markets are down a tad, don't you think?

The true meat of the article is that Wall Street expects to lose 170,000 jobs between July 2008 and December 2010. Last I checked, losing your job is a bit more depressing than having your bonus cut in half, but the headline news is still the bonus problem. Nitpicking I know, but tell that to the 170,000.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMPdmak0IjJQ&refer=home

30,000 Jobs Here, 30,000 There - Could Add Up

Bank of America has announced it plans to lay off between 30,000 and 35,000 employees over the next three years. Not a big surprise given the Merrill merger, the economy and the doo doo they have on their books. Good news is that it is smaller than the 52,000 announced by Citigroup. Expect more of same from their brethren.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aswiJZGC2Ca8&refer=home

Bad - It is very, very bad

If the auto industry does not get a bail, watch out. I continue to think that some Senators are playing hardball to get a better deal but wholly intend to give them some relief. There are hundreds of thousands and, with the knock on effect, perhaps even millions of jobs affected if the auto industry is allowed to fold. At a minimum, the government needs to either craft a non-bankruptcy bankruptcy or allow them to go into Chapter 11 with the goverment planning on providing the DIP financing. The companies are not about to get debtor in possession financing otherwise, so this would seem to be the minimum the government can do. This is a much better use of money than all the dollars they have thrown at the financial industry, yet it is really being dragged out.

Now you may start thinking that Ford, or perhaps moreso Toyota or other foreign car companies are a good bet if GM and Chrysler have to fold because some big competitors are gone. I am not saying no, but here are some other things to consider:

1. If the car companies are on the edge of the bankruptcy, their parts suppliers might just be there too. If they are there, the last thing they need is a couple of months of receivables tied up in auto company bankruptcies. I suspect some of these companies also supply other car manufacturers, so a bankruptcy by a parts manufacturer could disrupt a lot of car manufacturers.
2. Those parts manufacturers not taken down by a GM and/or Chrysler bankruptcy may well insist on payment up front instead of after the fact from the remaining manufacturers. That certainly puts a crimp in the remaining car manufacturer's finances if it happens.
3. Seriously I had a three, but while I wrote one and two I forgot three. It is really good and when I remember what it is I will be sure to let you know. Getting old is no fun - or at least not as much fun.

http://www.nakedcapitalism.com/2008/12/auto-rescue-bill-lacks-votes-to-pass.html

http://www.nakedcapitalism.com/2008/12/gm-hires-advisors-to-prepare-for.html

Admit Your Mistakes

I noted earlier today that gas prices are likely to go higher soon, in part because crude oil is up 16% this week. Well, this week's spike may lead to a temporary spike in gas prices, but I was thinking more long term. I gave one reason for my expectation, the OPEC meeting where they are expected to announce production cuts.

There are other reasons for an anticipated increase. For example, Russia, another leading oil producer, is considering joining OPEC, which may further coordinate supply quotas. Also, OPEC announced that their production was, for a change, in line with their existing quotas. The news that they were actually living within their quotas (most of them cheat) may have been taken as good news for those looking for higher oil prices, but, seriously, did they have any choice? I doubt that they decided to all of a sudden abide by their quotas. My suspicion is that they could not sell any more oil and had no choice other than to stay in quotas. Still, I expected earlier today that anitipated production cuts by OPEC would increase price. It pays to see the data.

I must recant my prediction as the data that I am now seeing tells me otherwise. I am a big fan of certain individuals and their opinions but I am even a bigger fan of facts, otherwise known as data. For example, adjustable rate mortgages (ARMs) are resetting a lot this quarter and that will continue at a high rate next year (Calculated Risks has nice charts showing this). Now 30 year fixed mortgage rates are down a lot so you might not think the resets will not be that bad, but a lot of ARMs are tied to the LIBOR and that is still fairly high. Translation, a boat load of loans will reset at higher rates next year barring a miracle and that will likely lead to another wave of foreclosures - barring a miracle. This is a fact worth knowing (and one key fact in my expectations). I like data. Reversion to mean is another data point (in various environments) that I like.

So getting some data on oil supply, demand and the like, is fantastic. And this has led to my mea culpa. The future is never certain, but from what I am reading here, in the medium term oil prices will stay low and perhaps go down further. For us, that is a good thing at least (at the most) in the medium term. Sure, I would like cheap gas for the rest of my life, but in time cheap oil will lead to distress in the Middle East, Russia, Venezuela and elsewhere. Some of these countries do not have very good crude and they cannot economically sell what they have at today's prices. They will eventually get desperate if oil prices stay where they are, and at least one of them has nuclear arms. So maybe - just maybe - we need to have oil prices go up a bit for global security/serenity. We too often forget the big picture and focus too narrowly. We are on a global stage and need to consider global impacts. Cheap oil is good and bad, just depends on your perspective.

http://www.platts.com/weblog/oilblog/2008/12/one_economists_dire_prediction_1.html?S=printer&

Folks, I have to end the night noting how incredible this day has been for me. First, last night Michael Panzner, a mentor of mine, quoted me on his blog and then today, Seeking Apha, another site I frequent, asked me to be a contributor to their site. These I consider honors from those I respect. Thanks for the support. But before I sleep, let me repeat my current motto - Hunker Down! The worst is yet to come. I truly mean that.