Thursday, 19 March 2009

Fundamental Analyst Moves to Wordpress

Hi all, I finally forked out and got my own domain and hosting service. Thus I have relocated this blog to Wordpress. Below is a screen shot of the new site, please click here to go directly to

I've slacked off on the posting in recent months as I tried to learn more about building websites. After building half a site I realized that I didn't need an entire site with multiple pages, just a more flexible and attractive (hopefully) blog and an idea about how to draw more visitors to get more discussion going in the comments.

Anyway, please take a visit and let me know what you think. All prior posts and comments have been copied over to the new blog. Put comments on the new blog if possible but if not here is fine. Comments, criticism, praise, nude pictures (women only) are all welcome.

Wednesday, 18 March 2009

The Age of Hubris Comes to a Head

Despite collapsing earnings, shattered stock prices, ousted CEO’s, bankruptcies and quasi bankruptcies in the case of Citigroup, Bank of America and AIG, the hubris and arrogance of former financial masters of the universe continues.

As if Merrill Lynch rushing through bonuses before announcing massive losses was not enough, AIG has just upped the ante in the sheer arrogance stakes by taking US taxpayer money and paying bonuses to the very people who blew the place up. Not only that, it seems that some so-called retention bonuses are being paid to employees that are being dismissed, from the NYT:

Mr. Cuomo did not name the bonus recipients, but the numbers are eye-popping, given A.I.G.’s fragile state. The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses of $1 million to $2 million, Mr. Cuomo said. Eleven of those who received “retention” bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said.

How’s that for hubris? Retention bonuses for people who weren’t retained. There goes the argument that you need to pay people bonuses to keep them. However it appears that AIG may have gone too far with this latest tactic. Outrage is being expressed by every politician up to and including the President. Public outrage is reaching a crescendo and to make matters worse, every time AIG makes a statement they just incite more loathing.

Take for example the latest justification for paying derivatives traders bonuses. “It’s in their contracts and the contracts cannot be reneged upon”, “if the American government starts interfering with contracts and changing the rule of law, the U.S. will be no better than a banana republic.” But hold on, isn’t the US government, aka U.S taxpayers, the majority shareholder?

Consider what would have happened if the government had not bailed out AIG . They would have gone into bankruptcy and then all contracts could be legally modified or completely voided. But for some reason we must obey the rule of law because the company whilst for all intents and purposes is insolvent, is not officially in the hands of receivers. Was it not Adam Smith who opined that an economic system that is allowed to operate without a moral foundation would soon lead to an amoral, if not immoral, society?

But why so much outrage over $165 million in bonus payments when we also now know that approximately $49.5 billion of taxpayer money was used to make counter-parties whole to CDS contracts written by AIG? From the

AIG paid out $22.4bn of collateral related to credit default swaps, $27.1bn to help cancel swaps and another $43.7bn to satisfy the obligations of its securities lending operation. The payments were made between September 16 and the end of last year.

Goldman Sachs, which has also accepted US government support, received payments worth $12.9bn. Three European banks – France’s Société Générale, Germany’s Deutsche Bank and the UK’s Barclays – were paid the next-largest amounts. SocGen received $11.9bn; Deutsche $11.8bn; and Barclays $7.9bn.

Can anyone really register surprise that Henry Goldman Paulson was in charge as Goldman Sachs became the biggest beneficiary of public funds injected into AIG? Tim Geithner is not without blood on his hands in all this either and if the policy of privatizing the profits and socializing the losses is to change, Geithner needs to go, simple as that.

Scandals such as Enron and Worldcom pale in comparison to the magnitude of what is currently unfolding. Whilst it is now obvious to all and sundry that the global financial complex grew too large and powerful, it is not yet obvious the extent to which public outrage will compel lawmakers to act.

It is no longer useful to talk about lack of transparency or poor risk management. From Countrywide to Bear Stearns, Lehman, Merrill Lynch, Citigroup, Fannie and Freddie and AIG there has been lies, obfuscation and outright fraud. The age of hubris cannot come to a close until the executives of financial institutions are held accountable for their actions. It remains to be seen whether the level of public outrage is sufficient and the political will exists to make that happen.

Tuesday, 17 March 2009

Toughest Times Ahead Says CBA's Norris

Addressing the American Chamber of Commerce in a function today, CBA's Chief Executive Floyd Norris has this to say:

"There's no doubt that the toughest period in the Australian economy still lies ahead of us," Mr Norris told an American Chamber of Commerce in Australia function on Tuesday.

Norris also went on to say that he couldn't rule out a cut in the final dividend for this year. after ANZ and more recently NAB have said they will cut dividends by about 25%.

Amongst other things, Norris said that funding costs remain high and thus further interest rate cuts could not be guaranteed to be fully passed on to customers. In addition CBA was seeing a uptick in delinquent loans but that it was not yet significant.

There's not much in Norris' comments that should be surprising to anyone with their finger on the pulse. Rudd's handout programs will do little more than cushion a deteriorating economy. As the government digests that reality in the second half of this calendar year, the will be calls for Rudd stimulus mark before the year is out.

Also out today, the RBA released the minutes of their March meeting laying out their reasons for leaving interest rates unchanged. As usual I don't recommend you read the minutes unless you want to go to sleep so here is crux of it.

The question for policy was whether further stimulus should be added at this meeting, or whether, having reduced rates at each meeting since September, the Board should pause for a further evaluation of the situation. Members could see reasonable cases for both courses of action.

On balance, they judged that, having made a major change to monetary policy over the preceding several meetings in anticipation of weak economic conditions, the best course for this meeting was to leave the cash rate unchanged. Members believed this would leave adequate flexibility for policy at future meetings.

Clearly the RBA is leaving the door open, my expectation continues to be that the RBA will cut to at least 2% before we reach a cycle trough. The one bright spot the RBA mentioned and which has been reinforced by the data in recent months is housing activity, especially in the First Home Buyers segment.

In recent months there has been a bump in the dollar amount of lending finance for new and established dwellings whilst finance for investment properties has fallen back to levels last seen in November 2002. The RBA commented that:

In a sign of increased demand for housing, patterns of housing finance indicated an increase in housing loan approvals of about 10 per cent over the past few months, partly spurred by the increased incentives for first home buyers to enter the market. However, credit growth had remained low as borrowers had evidently taken advantage of the extra cash flows created by lower lending interest rates to increase debt repayments.

Further signs of an increased level of activity in the secondary housing market were significant rises in auction clearance rates in both Sydney and Melbourne in February, and a component of the Westpac-Melbourne Institute consumer sentiment survey indicated that current conditions were conducive to buying a dwelling.

Increasingly we hear calls from those in the real estate industry that home buyers should get in now while interest rates are near historic lows, clearly some are listening to that call. However I can't help think that some buyers are being sold a lemon.

I continue to believe that the housing industry is only being propped up by the FHB grant and handouts from the Rudd the redistributor. It will be interesting to see if the increase in the FHB grant is extended beyond June and to what extent the Housing market can continue to hold up. I get the feeling there will be more than a few cases of buyers remorse in the next 12 months or so.

Saturday, 14 March 2009

Major US Banks Are Profitable....... Oh Puhlease!

Putting aside the media's facile obsession with explaining every tick of the tape with an event, lest''s examine the supposed reason for the beginning of this rally. The idea that Citi was profitable in the first two months of 2009.

The argument goes that writeoffs are non-cash and therefore don't affect cashflow or profitability. That's great if you ignore the balance sheet. Remember write-offs are euphemisms for mistakes and in this case it is the reversal of falsely booked profits in prior years.

Write-offs are taken through the P&L and then written off against equity in the balance sheet and if a company has no equity it's out of business, especially if it is a bank that has to maintain a certain level of equity. Where would Citi be if it didn't get $45 billion of equity injections and $300 billion of assets guaranteed by the government.

As for excluding credit losses that argument is even more ridiculous, a bank is in the business of extending credit and thus credit losses are part of the business, how can you possibly exclude them? That's like saying GM is profitable if you exclude what it costs to make cars.

Anyway Krudlow the Clown and his clueless minions Jerry the echo Bowyer and Dick Bove bought into the whole scenario. Luckily Joe B was there to tell them what morons they are. Remember that Dick Bove was the same guy that said a year ago to buy Citigroup at $30, that they didn't need to cut their dividend and that the credit crunch was over! This guy is a bank analyst and yet he clearly doesn't know how banks work. Watch this incredible display below:

Market Rally Continues
Market Rally Continues

ps. I said something else in that post a year ago and that is that I watch too much CNBC, some habits are hard to break.

Cramer vs Stewart Showdown

The much awaited showdown between Jim Cramer and Jon Stewart aired on the Daily show on Thursday night. I thought that Jon Stewart might make it lighthearted and go easy on Cramer but thankfully he did not. In fact quite the opposite.

I think it is fair to say that there has been a growing divide between main street and Wall Street. There is a growing revulsion for those that made millions, walked away when the music stopped and left the taxpayer on the hook. Jon Stewart hit that chord beautifully on Thursday night.

The only thing I will say is that was disappointing is that not more light was made of the lack of accountability of more of the hosts. For example that complete and utter moron Dennis Kneale, who should be gagged and thrown in the East River, Michelle Caruso Cabrerra who like Kneale has an opinion on everything and knows nothing but most importantly Larry Kudlow, or is that Kuntlow?

Not only is Krudlow the Clown a right wing nutjob but he has been completely and utterly wrong on everything for the last 2 years. 18 months ago Krudlow would arrogantly deride anyone with a bearish opinion backed up by his trio of idiots, Don Luskin, Brian Wesbury and Jerry Bowyer all who have been completely discredited but who interestingly continue to get invited back on the show whilst people like Mike Panzner and Barry Ritholtz who got it right, haven't been seen for the best part of a year. Anyway that's my rant over, enjoy the videos.

Part I

Part II

Part III

Thursday, 12 March 2009

Full-time Jobs Getting Harder To Find For Aussies

Australian employment rose by a tepid 1,200 jobs in February but as always a grain of salt needs to be taken with these numbers in light of the sampling error that states the real number could lie with 60,000 either side of the actual number reported. of the actual number reported.

However the real story is the growing divergence between full-time and part-time employment. full-time employment decreased by -53,800 the biggest decline since November 1991, whilst part-time employment increased by 55,600.

Year over year full-time employment is now down -0.5% whilst part-time employment is up 3.6%. The chart above shows that in previous recessions and downturns there is a wide divergence between full and part time employment. This is obviously not a good trend if full-time jobs are being replaced by part-time jobs.

The unemployment rose to a 3 year high of 5.2% largely due to some 48,000 new entrants entering the workforce although it needs to be remembered the Australian economy needs to create 15 - 20k jobs per month just to keep up with the growth in the labour force and prevent the unemployment rate from rising.

Large drops in full-time employment is obviously not a good sign and serves to reinforce the more leading indicators of employment from the ANZ job ad series and the DEEWR Monthly Leading Indicator of Employment as well as the AIG industry surveys that have shown employment contracting for months.

From the abs data, the number of people employed in the Australian economy peaked in October, that is probably as good a time as any to date the start of the current recession from. The Australian unemployment rate looks set to blow through 7% by the end of the year and punch through 8% sometime in 2010. Where it peaks depends a lot on policy responses by governments both overseas and domestically.

However that is not to suggest that the government can prevent unemployment from rising significantly with any old fiscal response, such as throwing money at people so they can go a buy a flat screen TV for their 2nd bathroom.

Jim Cramer vs Jon Stewart Continues

NBC are pulling out all the stops having Jim Cramer go on 2 shows on the NBC network to help salvage his reputation. Anyone with a brain can see through the pathetic PR exercise. NBC doesn't seem to realize that the more they go on about it the worse they make it.

On the Daily Show on Tuesday, Jon Stewart pointed out how ridiculous the shills at NBC and Cramer look. The thing I took away from the clip was the look on Cramer's face, the guy is obviously really suffering, and I don't feel one ounce of sympathy for the fraud.

Here is Cramer's denfense, absolutely pathetic the guy is a complete charlatan,and the dozy bitch that often appears with him on CNBC Erin Burnett is not much better.