An Alternative, Perhaps Better, Plan

I support this proposition by the author of SuddenDebt. At least someone is thinking outside the box - in a positive way. Give it some thought. We, the taxpayers, build things that need to be built for the public good and then we sell them, perhaps at a loss. Not a bad stimulus package. It focuses the money at productive endeavors.

http://suddendebt.blogspot.com/2009/01/heres-alternative.html

Disclosures: None

The Cram Down Plan

It looks like we may soon have legislation that allows bankruptcy judges to reduce principal amounts on mortgages. This type of cram down powers for bankruptcy judges are not especially unusual but to some are quite welcome in the residential mortgage arena. Yet perhaps not too welcome to banks. Good news, banks will perhaps be more willing to modify loans. Bad news, they may be less willing to give new ones. And by the way, a lot of the problem with loan modifications has not been banks but the securitization process. The entities servicing these loans have limited ability to modify loans as they are contractually controlled in what they can do, so the desired effect on loan mods may be elusive.

http://online.wsj.com/article/SB123309817136221693.html

Overall, however, this I view as a good thing, as does others.

http://www.calculatedriskblog.com/2009/01/house-panel-approves-cram-downs.html

The rest of the news is not particularly dismal or inspiring, but I do want to leave you with this nice chart on home prices. You decide if we are at a bottom yet:

The interesting thing for me is that I had this chart with a lot of others and I had a hard time finding it as they all seem to have this downward trajectory at the end, also known as cliff diving. It just blended in. I guess, not time just yet to get all warm and fuzzy.

Disclosures: None

I Am Not All Doom and Gloom

Well the market was up today. Three cheers for that!! Then again consumer confidence reached a new record low, go figure. My sense is that we are (finally) on a bit of an Obama bounce. Some companies are actually beating some very dismal expectations, so that is helping a bit too. And there continues to be some promising signs on credit easing a bit. These are all good things. Might I add that the market has some excellent valuations on excellent companies that are likely at or near some of the best valuations or our lifetimes. By many measures, this is the best investment opportunity of a generation, or very close to it.

Mind you, this is not to say all is honky dory. The economy faces some major risks ahead and the market could go down substantially from here, creating even better investment opportunities. Nonetheless, calling a bottom is like catching a falling knife. Predicting a bottom has bankrupt many an individual. If you have a long term horizon, as in ten years plus, then look at good companies that will survive, as in have plenty of capital to make it through, and decide upon an entry point soon. I am reading The Intelligent Investor by Benjamin Graham, one of the best investment minds of modern times. I expect he is about to pop out of his grave to do some investing, given the current environment. The market right now is a once-in-a-lifetime opportunity. Yes, I think, and am predicting, things to get worse from here, but hell, I could be wrong, and even if I am right it makes little difference if you have a long term horizon.

Don’t mistake my doom-and-gloom as a statement that stocks are poorly valued now. A further downturn is built into most stocks, and it would take a real meltdown (which I am worried about still) to make purchases of good companies a bad move if you have a long term horizon. I will continue to call it as I see it, but do not mistake my dour statements as being totally pessimistic. I am still afraid, but with so many good minds working to fix this mess, I have to have hope they will find a way to fix it and the market will have a nice recovery. Mind you, I do not see it going back to where it was at its peak or anywhere close, nor should it. That was a debt driven, unsustainable, peak.

Disclosures: None

Disgusting!!

This will be very short, but I saw this and it is incredibly disgusting. Citigroup just spent $50 million on a new corporate jet. That was our money and I expect heads to roll over this. We should all expect heads to roll. There is no sanity to this.

http://www.nakedcapitalism.com/2009/01/your-tax-dollars-at-work-citi-buys-new.html

Give Them Money And They Will Lend

Okay it is late and I am tired. The punch line is that the promised benefits of TARP were increased lending and, perhaps, lower rates. The proof is that the banks that got the most money are lending less, not more. I am not blaming them. They are in dire straights and doing what they should in their condition. I am blaming Paulson and the bunch for not putting conditions on the money infusions. You may be thinking Paulson is just stupid, but he is a former head of Goldman Sachs and from their perspective he is brilliant. I do think his best interests have always been his old friends at Wall Street. Meanwhile, those of us living or working on Main Street are continuing to be screwed. I have no respect for Paulson, and that is a vast understatement.

http://www.nakedcapitalism.com/2009/01/your-tax-dollars-at-work-citi-buys-new.html

Buy American!!

I have been reading a lot of "buy American" sentiment of late. My wife forwarded on to me an email outlinging how some American male, without a job, went through his day using foreign made products wondering all the while how he could lose his job. While there is a bit of truth in this, there is also truth in the fact that protectionism will lead us down a dangerous path. This happened big time in the Great Depression and we had, well, a Great Depression. It did not serve us well then, and it will not now. So talk of limiting infrastructure spending to use of American steel suppliers is a bit problematic. And the fact that it is getting some traction in Congress is even more worrying.

http://business.timesonline.co.uk/tol/business/industry_sectors/industrials/article5587443.ece

The U.S. needs to realize, as an initial matter, that such protectionist measures are smiting our trading partners, like China, who are buying our Treasuries and supporting our recovery. Intenational trade and supply and demand are truly capitalistic notions. Protectionist measures are anti-capitalistic. In either event, capitalistic or not, it is a terrible idea.

http://business.timesonline.co.uk/tol/business/industry_sectors/industrials/article5587443.ece

Watch Your Fannie

Fannie Mae is asking for $16 billion more in federal support, tapping into a fund of $200 billion set up for it and Freddie Mac. Compared to Freddie, that needed $35 billion, this looks good, but it is more than was expected. Taxpayers, keep those checkbooks open.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aInEyfSmcbQ8&refer=home

http://www.calculatedriskblog.com/2009/01/fannie-to-ask-for-up-to-16-billion.html

Disclosures: My sister works for Fannie Mae.

Profits Down 72% - Stock Price Up 7.2% - Nice Symmetry There

Only in this economy can a company report these dismal results and have a nice bounce. All this while it, American Express, is noting this is the "harshest operating environment in decades." Yes, it is better than the worst predictions. And American Express is cutting 7,000 jobs. Just one of many - and I mean many - job cuts annonced today.

http://www.bloomberg.com/apps/news?pid=20601110&sid=aveoSCEM48_I

CNN reports that over 70,000 job cuts were announced today, and those are just the ones that got some press. Just a staggering number. Let me put this into perspective. Obama has talked about his stimulus spending being aimed at creating three million jobs this year. At today's pace of layoffs, Obama's plan would only offset about six weeks of layoffs. But the good news is that I consider this to be largely a January issue.

It looks like a host of companies tried to hold on as best they could through the end of 2008 but they are now looking at their year end numbers and taking on some necessary painful cuts. Undoubtedly a necessary move, but never one a company wants to take. I say this from two perspectives. Perspective one is the people that are being let go. They will go through a good bit of pain and turmoil and no one wants to put any family through that. The other perspective is as a business that is shedding employees they undoubtedly spent some time, perhaps years, training. There are costs associated with letting them go and more costs in replacing them if the economy rebounds. Not a happy result for employer or employee.

http://money.cnn.com/2009/01/26/news/economy/job_cuts/?postversion=2009012613

And after all this cheery news, I am happy to report tha Asian markets are celebrating.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJMiYkzPS5Yk&refer=home

Part of their celebration is due to U.S. sales of existing homes climbing 6.5% last month. Now that is definitely cause for celebration. Yes, this ox(as in the year of) is raising his head. Though I must note that there is a slightly different, and more problematic, view of housing worth noting.

http://www.calculatedriskblog.com/2009/01/existing-home-sales-nsa.html

Oh, this really looks promising right now.

Disclosures: None.

Happy New Year!

I am about to join my wife and daughter for a Chinese new year "celebration," which consists this year of the three of us eating at a Chinese restaurant. Oh well, not too much to celebrate at the moment. Welcome, anyhow, to the year of the ox.

China Worries

Asia News is reporting that things in China are somewhat worse than the official numbers indicate. Some 670,000 small industries have shut down and 6.7 million "registered" workers have lost their jobs since the peak. Millions more of unregistered workers only add to that number. It is now forecast that China needs to somehow create 33 million jobs in 2009 to have stability, and this ain't going to happen. Accordingly, the state news agency, Xinhua, who you would not expect to overstate the problems, is expecting a "peak period of mass incidents," as in social protests, rioting and the like.

http://www.asianews.it/index.php?l=en&art=14157&size=A

China now has five months of a manufacturing contraction with no end in sight as its trading partners all are sucking wind themselves.

http://globaleconomicanalysis.blogspot.com/2009/01/us-manufacturing-orders-at-60-year-low.html

Hot money outflows from China only add to the problem. During 2007 and early 2008 hot money flowed into China on expectations that China might fare the storm better than other countries. Some of it was based on a decoupling theory, which is now wholly discredited. With China now also on the ropes, that hot money is flowing out just as fast.

http://mpettis.com/2009/01/monetary-conditions-might-exacerbate-the-chinese-adjustment/

All said-and-done, I do not expect many Chinese are going to like ox much after this year is over. I am pretty sure we in the U.S. won't either.

I will try to post more after dinner.

Disclosures: None