Tuesday, September 30, 2008

Congress vs. Registered Voters

And I thought they were only looking out for their own interests (or maybe they misintepreted what those interests were):

Per ABC News:
With the administration and Congressional leaders saying they'll take up the issue again, 51 percent are confident the government's efforts ultimately will prevent the country's financial situation from getting worse. But nearly as many, 47 percent, lack that confidence. And a mere 6 percent are "very" confident of success.

Nonetheless, as noted, voters divide on the plan itself ¬– using up to $700 billion to shore up failing financial institutions – with 45 percent in favor, 47 percent opposed. (Contrary to the vote pattern in Congress, support is higher among Republicans, 55 percent, than Democrats, 42 percent.) Registered voters narrowly, by a 6-point margin, think the plan would have done too much to help financial institutions that got into trouble, and by much broader margins think it would have done too little to help the economy, and especially, to assist ordinary Americans.
What's important is that:
Eighty-eight percent in this ABC News/Washington Post poll, conducted Monday night, say they're concerned the action in Congress could worsen an economic downturn; 51 percent are "very" concerned about it.
Source: NY Times

You Are Not Alone!

Source Moneyweb

Case Schiller Price Index (July): Deflation Coming?

I previously detailed that CPI may overstate inflation for an individual who:

  • does not own a home
  • would like to own a home
  • will likely soon buy a home

as it does not include how "affordable" housing has become with the recent price collapse for non-homeowners (full details here).

The Case Shiller Price Index (CSPI) has turned positive year over year for the second month in a row with the spike in July's CPI offsetting further deterioration in the housing market, with the Composite 10 dropping over 17.5% year over year. If future CPI prints come down as a result of free-falling commodities, expect CSPI to turn very negative in the coming months.

In looking at the Composite 10's five year returns (annualized), even after the huge downturn in prices, returns over the most recent five year period are still positive at ~3.3% per year and indicates there may still be room for further deterioration.

Lets Hope for a Better Day...

Source: WSJ

"Armageddon" Trades Anyone?

In brainstorming good Armageddon Beta's (stocks that do well, should the civilization screech to a halt), I thought about what I would want and need when the financial world came to an end (maybe I watch too much CNBC, but when the bailout was voted down, they had some convincing arguments. For the record, I personally do think something is needed, actually badly needed, but did anyone really think politics work this smoothly one month before a presidential election?)

My first moves would be to build a bomb shelter, stock up on food (preferably canned), and buy some protection (I'd go with a Taser gun as I would prefer not to actually kill someone). Well, I personally can't think of any pure bomb shelter plays (although the housing index is up over the past three months), but over the past three months; Campbell Soup Co (which also happened to be the ONLY stock in the S&P 500 that was up yesterday) and Taser International are up 16% and 34% respectively. This compares very favorably to the S&P 500, which has struggled and is down 14% over that time frame.

So... question for everyone out there.... what are some other "Armageddon" Beta's?

Monday, September 29, 2008

Swing District Congressmen Doomed Bailout

The people have spoken, but how well they were heard was based on whether the listener was up for re-election. Per FiveThirtyEight.com:

This was predictable, I suppose, but it's remarkable to see how strong a relationship there is between today's failed vote on the bailout and the competitive nature of different House races.

Among 38 incumbent congressmen in races rated as "toss-up" or "lean" by Swing State Project, just 8 voted for the bailout as opposed to 30 against: a batting average of .211.

By comparison, the vote among congressmen who don't have as much to worry about was essentially even: 197 for, 198 against.

It Makes the Bailout Seem "Cheap"...

Source: Barron's

Again we ask... Where's The Stimulus?

The only areas in which the stimulus checks have had a positive impact to date are Personal Income (from the actual stimulus checks) and Savings. Consumption? Not so much.

Source: BEA

Calm Before the Storm...

Updated: With the Dow down an incredible 777 points, the title may seem a little odd (in fact it was the title prior to the market open). However, as we'll detail later in this post, 777 points may just be the tip of an iceberg.

While the failed bailout package did remove some of the stigma associated with selling securities to the taxpayer (bailed out companies would still have a tough time hiring new talent after they use the bailout, but it encouraged current management to do so) AND I was wrong that prices paid by the taxpayer would be remotely near intrinsic valuations - click here for more details, it did mention helping homeowners and perhaps the most important change, it included a clause that allowed the Fed to pay interest on reserves (which should open up the floodgates for further Fed liquidity - for the why, go here).

However, it did have many additional holes (per Professor Roubini via Naked Capitalism):

  1. The plan is inefficient (i.e., it doesn't discriminate between who ought to be saved or not, and in fact rewards those who created dud assets)
  2. It runs counter to the best models of how to deal with this sort of problem
  3. It does not punish current shareholders or management
In other words, we have not learned from policy mistakes made in the past as this bailout seems to help out those that are in the worst shape, the most. Per the NY Times:
The Asian crisis teaches us that it is imperative that U.S. policy makers tell us which financial institutions will survive; and which not. This could possibly involve blanket government guarantees to unfreeze money markets. Until this uncertainty is resolved, financial institutions will be reluctant to deal with each other.
In other words, it probably wouldn't have worked... (per Financial Ninja):
Out of 42 systematic banking crises across 37 countries, despite the implementation of a wide range of policies, all resulted in the re-allocation of wealth AWAY from taxpayers and towards debtors (banks). None avoided recessions and all recessions were SEVERE.
Source: Table 3 IMF Report (Table 3)

Gallup Poll: Obama Back in Charge... Thanks to Palin?

If you haven't seen Sarah Palin's response during her interview with Katie Couric to a question regarding the bailout, I think it's mandatory viewing (especially for those that believe in fiscal conservatism and have traditionally voted Republican).

While I tried to give her (and McCain for selecting Palin) the benefit of the doubt, I've given up and it looks like others have too...

Source: Gallup

Don't Trust the GDP Deflator? Don't Use It

The BEA reported a GDP deflator of 1.1% annualized in the second quarter, while the BLS reported CPI at 7.9% over that same time frame (I understand they are different calculations, but give me a break...) So I thought, ignore it...

The result is of course nominal GDP. In Q2, year over year nominal GDP came in at 2.4% down from 3.0% in Q1. As long as inflation is level (it wasn't), nominal GDP can be used to show growth on a relative basis. However, over the past few years inflation has been rising, thus the nominal GDP figure (although declining) has overstated growth on a relative basis.

Taking the nominal GDP figure and removing year over year CPI, we see a vastly different situation than what the BEA would have you believe. In fact we see a GDP less CPI print at a level (-2.5%) last seen during the recession of the early 1990's.

Sunday, September 28, 2008

No Response to a 25% Increase in Fed Liquidity

Ahead of an official bailout, from September 10th through September 24th, the Fed pumped ~$250 Billion of liquidity into the banking system through the Federal Reserve Bank "FRB" credit (the "FRB" credit is how much money the Fed has loaned to the banking system). The FRB credit spiked from $888 Billion to $1,135 Billion. This was an unprecented increase of more than 25% from levels in August and a month over month increase 5x larger than seen after 9/11.

Breaking this down further, we can see the majority of this increase has fallen into "Other Loans".

What are these other loans? According to the Federal Reserve, credit extension to AIG (September 18th), non-recourse loans to U.S. depository institutions and bank holding companies to finance their purchases of high-quality asset-backed commercial paper from money market mutual funds (September 19th), and credit extension to the U.S. and London based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against all types of collateral that may be pledged at the Federal Reserve's primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (September 21st).

Unfortunately, credit markets didn't respond, thus the need for additional Treasury balance sheet the bailout will provide. Per the WSJ:
“We have a complete disconnect between monetary policy, low interest rates, and low federal-funds rates and credit and banking conditions,” says Adolfo Laurenti, senior economist at Mesirow Financial in Chicago. “Even if fed rates are at 2% and they’re doing whatever possible to inject liquidity into the system, the transmission mechanism is clogged and you don’t see growth.”

That’s why the Fed has responded lately by going nuts. Helped by money it is borrowing from the U.S. Treasury, in the seven-day period ending Sept. 24, the Fed increased its own credit at its reserve banks by 18% to $1.134 trillion.

The Fed is using its funds to buy asset-backed commercial paper and others types of assets from the nation’s banks, who have remained frozen while money-market funds lose their value and investors retreat to the safety of Treasury notes.

Concentration Risk Among U.S. Deposits

With JP Morgan acquiring WaMu's deposit base, they rocketed above Citigroup as the biggest bank in terms of deposits. This increases concentration among the largest five deposit holders to a massive 45% by market share (assuming $7 Trillion in total deposits), but I'm not so convinced that bigger is better.

And further concentration is likely... per CNNMoney.com:

Wachovia is reportedly mulling a deal with another large bank, including Citigroup and Spain's Banco Santander, according to reports published Friday afternoon.
Should Citi and Wachovia merge, the big 3 (Citi, JP Morgan, and Bank of America) would combine for almost $3 Trillion in total U.S. deposits.

Just another data point as to why additional regulation and oversight is so important...

Source: Infectious Greed

Saturday, September 27, 2008

We Have a Bailout.... No More Fear

The Good (a deal was needed):

Top U.S. policy makers emerged from hours of tense negotiations with a clear message just after midnight Sunday morning: A deal to bailout U.S. financial markets has been agreed on and all that remains to be done is to commit the legislation to paper.
The Bad (playing on fear):
No matter how you feel about George Bush's credibility, it is unnerving to watch the president of the United States stare his country in the eye and declare that "we are in the middle of a serious financial crisis" and "our economy is in serious danger."
Hmmm.... we've seen that before (via The Daily Show):

I'll provide my thoughts on the final plan later...

Friday, September 26, 2008

EconomPics of the Week 9/26

Investment Banking Model is Dead
How Things Have Changed....
The Downfall of the Investment Banking Model
Pay for Performance?

Game Theory: Why the Bailout Won’t Work
When $25 Billion is Chump Change... Auto's Bailed Out
Is it Possible the Bailout Might be Profitable?
Bailouts + Packages: Twice the Size of the War on Iraq

U.S. Government
McDonalds More Credit-worthy than the U.S.?
China Central Bank Advisor: "Why are we piling up on IOU’s”...

Credit Markets
Two Year Swap Spreads State "WE WANT A BAIL OUT NO...
Berkshire Goldman Preferreds Yield over 17%
Anything Happen While I Was Gone?

Economic Data
Final GDP Print Down .5%, even with Puny 1.1% GDP ...
Late Leading Indicators (August)
Although Harder to File... Bankruptcies are on the Rise
Durable Goods Shipments... Move on... Nothing to See Here

Goldman Initiates the $7.5B "Buffett Bounce"
Is it Time to "Exchange" Your GS / MS Investment for CME?

Bush Approval Rating vs. S&P 500

McDonalds More Credit-worthy than the U.S.?

Final GDP Print Down .5%, even with Puny 1.1% GDP Deflator

As the world is ending (Nasdaq futures down ~50), we get a .5% reduced final GDP print (2.8% from 3.3%) that is hugely inflated by a tiny 1.1% increase in the GDP Price Index (details of why this overstates GDP here).

The "inflated" charts:

Game Theory: Why the Bailout Won’t Work

Lets assume for the time being that there are only two banks; Bank A and Bank B.

The media / political pundits would have you believe the likely outcome of the bailout is the top-left box in which both Bank A and B sell risk assets to the Treasury. In this case, the result is a more regulated banking industry, with imposed limits to salary, but importantly markets clear.

Click for larger table:

HOWEVER, it is in BOTH banks interest to deviate from that.

Why? Simple. If Bank A (or B) believe the other is selling their risk assets to the Treasury; they will each be better off holding on to theirs.

Why? If the other bank sells and they hold, markets will still clear (in theory) and the bank that holds onto their risk assets can sell at the new market prices. This results in increased market share as they:

*Can pay more for talent
*Are less regulated
*Don’t have the stigma of selling to the Treasury (think of what selling portrays to the market)

This is even worse in the “real world” as all banks have the incentive to wait for other banks to sell risk assets to the Treasury to clear markets.

The likely result? The bottom right box in which no bank sells voluntarily and markets remain frozen. While there were many problems with the initial plan, at least there was a 100% incentive to sell the assets.

Update: Thanks for the link Yves from Naked Capitalsim. Her take on my post:

Brilliant, except it assumes that assets sold to the Treasury will be lower than the prices they will later fetch. We think that's completely wrong; the intent is to overpay relative to current market prices, and with real estate and the economy headed south, these assets are certain to trade at even lower prices for a very long time. Plus banks will sell the stuff where they think Treasury is overpaying the most, and hang on to those assets that they think have the most upside. But more of this sort of reasoning is badly needed.
I get where she's coming from. My assumption above was that markets clear if the "other" bank were to sell to the Treasury eliminating the need for all banks to sell to the Treasury. For more on Yves opinion that this is in fact a capital injection (i.e. the Treasury plans to intentionally overpay, click here).

While I agree that the Treasury will pay above market prices, it is my opinion that market prices are artificially low due to many technical factors and a lack of global balance sheet for risk assets (i.e. everyone is selling, not buying). I feel expectations of 10-15% returns based on today's marks, even with very conservative assumptions, are reasonable.

In thinking more about it, they would NEED to pay more for them than currently marked. Unless a bank was insolvent, why would they clear assets yielding 10-15% to make room for new loans yielding 8%? (it also doesn't hurt that the Treasury just needs to beat their unbelievably cheap financing rate - currently under 4% for 10 year bonds).

That being said, I think there is still a huge incentive for each bank to wait for others to clear the market at these higher prices (and people tend to do what's best for themselves vs. shareholders). In addition, while this in theory could clear the frozen credit markets, I think any package of this size should also impact the housing problem, which this does not.

Thursday, September 25, 2008

Late Leading Indicators (August)

Lets take a look at last week's leading economic indicators in more detail (I was traveling / the world was imploding / you probably missed it).

From the Conference Board:

The leading index decreased again in August, the third decline in the index in the last four months, and it is 2.7 percent below its level one year ago. Building permits, the index of supplier deliveries and initial claims for unemployment insurance (inverted) made large negative contributions to the index this month, more than offsetting positive contributions from the interest rate spread and consumer expectations.

Looking longer term, it looks like the only areas of positive contribution over the previous 12 months were money supply (expect this to increase on a going forward basis) and interest rate spread (expect this to increase as well).

I do however, expect consumer expectations, which were positive the past few months, to snap back rather dramatically. And initial claims, new orders, and workweek? Not so much either...

When $25 Billion is Chump Change... Auto's Bailed Out

This slipped through late yesterday; per U.S. News:

With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend--separate from the controversial Wall Street bailout plan--includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers.

This next comment makes me want to throw up in my mouth:

"It seemed like a lot when we first started pushing this," says Democratic Sen. Debbie Stabenow of Michigan, one of the bill's sponsors. "Suddenly, it seems so small."

Note this is just "Part One" of a likely $50 Billion package (see my previous "Auto Bailout... What's Another $25 Billion" post for more).

Durable Goods Shipments... Move on... Nothing to See Here

Source: Census

China Central Bank Advisor: "Why are we piling up these IOUs if they may default?"

Naked Capitalism via Bloomberg:

It has been conventional wisdom that China, Japan, and other countries that run trade surpluses with the US, which means they fund our overconsumption by buying assets like US Treauries, would never restrict the flow of credit to us because it would lower their exports and hurt their growth. We've long been leery of the idea that unsustainable trends will have a life eternal, and Brad Setser has a simple reason why this process is self-limiting. Our foreign funding sources aren't just lending us money to buy their goods; they are also providing the funding for interest on the loans extended for past imports. At a certain point, the interest payments become so large relative to the value of the exports that the deal no longer makes sense.

The day of reckoning may be approaching well before Setser's tipping point. And the trigger is much simpler. We look like a lousy risk. The Freddie/Fannie conservatorship, the Lehman bankrutpcy, and the rescue of fallen Asian powerhouse AIG has, not surprisingly, lead to a reassessment of the US's creditworthiness
Just how large is Asian exposure?

Thus, the need for an agreement to prevent panic sales (I wonder if an Asian "T-Bill" bailout fund is next):

Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding...."We are in the same boat, we must cooperate," Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''

Yu said China is helping the U.S. ``in a very big way'' and added that it should get something in return.

Although Harder to File... Bankruptcies are on the Rise

President Bush stated the Bankruptcy Abuse Prevention and Consumer Protection Act (effective October 17, 2005):

Will also allow us to clamp down on bankruptcy mills that make their money by advising abusers on how to game the system.
Ahhh... the eternal hope of small government when things were going well. I guess levering a firm out the ass isn't "gaming" the system when former co-workers will bail you out, but I digress...

Among its many changes to consumer bankruptcy law, BAPCPA enacted a "means test", which was intended to make it more difficult for a significant number of financially distressed individual debtors whose debts are primarily consumer debts to qualify for relief under Chapter 7 of the Bankruptcy Code.

Well, at least when the consequences of our levered economy come crashing down, U.S. taxpayers that financed the bailout will have similar support... or not.

Wednesday, September 24, 2008

Two Year Swap Spreads State "WE WANT A BAIL OUT NOW"

Per Bloomberg:

The spread between the rate on a two-year interest-rate swap and Treasury yields surged to a record on concern that U.S. lawmakers may delay a Treasury department proposal to bailout the banking system.

The rate charged to exchange fixed for floating interest rate payments for two years above Treasury yields, dubbed the swap spread and viewed as a gauge of credit concerns, climbed to 166.38 basis points from 139.25 yesterday.

Berkshire Goldman Preferreds Yield over 17% at Initiation

Barry points out that Doug Kass thinks Berkshire's effective yield on the Goldman preferred's is ~17%. Here's the calculation to support that:

Berkshire Hathaway will receive warrants to buy $5 billion in common stock at a strike price of $115 a share, which can be used at any time in a five-year period.

Using the good old Black-Scholes model with the pre-"Buffett Bounce" $115 Stock Price, a $115 Strike, 5 Years to Expiration, and 40% Volatility (roughly the level it has been trading) we get an "option" value of $47.89 per share. Berkshire can buy $5 Billion of Goldman stock with these warrants, thus he owns 43,478,261 shares. This amounts to $2.082 Billion. Taking the $5 Billion Berkshire paid less the value of the warrants at initiation equals $2.917 Billion for the Preferreds.

Berkshire will receive $500 Million per Year, which divided by that $2.917 Billion = 17.14% Yield. If Goldman is willing to capitalize at this value, it makes me question how desperate they really are...

Pay for Performance?

Per Barry over at the Big Picture:

With Congress recognizing the public's dismay over this massive taxpayer giveaway, we are starting to see some serious questions about the folks who drove the financial ship of state aground.

Hence, its time to take a closer look at pay and severance packages for CEOs at investment houses, banks and mortgage lenders, who perversely stand to benefit from the public's largesse.
Here's a quick overview:

Is it Possible the Bailout Might be Profitable?

CRS Report via Zubin Jelveh's Odd Numbers:

Depending on the proceeds from the debt and equity considerations, the federal government may very well end up seeing a positive fiscal contribution from the recent interventions, as was the case in some of the past interventions summarized in the tables at the end of this report. The government may also suffer significant losses, as has also occurred in the past.
One thing is certain... uncertainty.

The Downfall of the Investment Banking Model

Niels Jensen and Jan Wilhelmsen, of Absolute Return Partners via Infectious Greed.

What is truly disgraceful is that investment banks could only manage returns on equity of 15-25% with a balance sheet that was often leveraged to the sky.
Using Lehman as an example, below is a quick and dirty explanation as to why investment banks were "only" able to achieve 15-25% return on equity and why it wasn't necessarily "disgraceful" (on an individual bank by bank basis), but rather a function of how these banks functioned in a framework that should not have been allowed. In fact, I argue that these aggressive return targets played an integral role in the downfall of the investment banking model.

Net Income:
While Lehman's net income did in fact rise dramatically from 2003-2007, it pales in comparison to what Lehman Brothers (and others) paid their employees. In 2007, Lehman paid their employees well in excess of $300,000 per year ON AVERAGE. To see how large this was in comparison to the net income of the firm, if salaries in 2007 were at 2003 levels per employee (still $260,000+), return on equity would have been 30% instead of the 20% level reported.

To pay for these increased salaries and still reach their 15-25% return on equity (from a growing equity base), Lehman increasingly turned to leverage (when a firm needs to return almost $4B rather than $2B to reach their target, strategies that previously would have been turned down, are now accepted. These lower returning strategies are then amplified through leverage).

As can be seen below, this is exactly what happened. From 2003-2007 average salaries skyrocketed as banks outbid one another for new talent (more projects requires more employees), leverage increased dramatically as Lehman's went from less than 24x to 31x (and remember this is more leverage off of a larger base number), all the while return on equity wasn't able to keep up with both the increase in salary or leverage.

So do I think 15-25% is "disgraceful"? On an individual bank by bank level, I don't think so. Lehman (and other banks) had to act in this manner to survive as ALL banks acted in this low-risk (for the most part it's not their money) / high-reward environment.

The thing I find "disgraceful" is that this was was allowed to happen, as it was never really beneficial for anyone besides the bankers and was in fact detrimental to our people, economy, and country.

Tuesday, September 23, 2008

Goldman Initiates the $7.5B "Buffett Bounce"

Per Bloomberg:

Goldman Chief Executive Officer Lloyd Blankfein is turning to Buffett, the billionaire investor and second-wealthiest American, to boost market confidence even though Goldman hasn't reported a quarterly loss since it went public in 1999. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears about firms that rely on bond markets for funding.

Expect the "Buffett Bounce" to fall flat. As reader Scott Frew astutely points out in a post by Yves over at Naked Capitalism regarding the $5 billion preferred portion of the capital raise:
$5 billion of 10% preferred--Goldie's been of late on a $7-8 billion annual net income run rate, so this dividend, which is paid in after-tax dollars, is a significant hit. The warrants are $10 in the money at the moment of the deal, $25 a share in the money not much later as the market reacted. This is not cheap capital for Goldman, to put it mildly.

Is it Time to "Exchange" Your GS / MS Investment for CME?

Per Smart Money:

Goldman Sachs and Morgan Stanley may intensify their use of exchange-traded derivatives to recapture leverage lost by their transformation into federally regulated banks, according to a sector analyst.
This has certainly been a benefit to CME Group shareholders, as the stock has returned a stellar 20% since the Fannie / Freddie Bailout, while Goldman and Morgan Stanley are down 30%+ each.

How Things Have Changed....


In the span of about a week, Raymond James leapt from being the fourth-largest investment banking operation to the largest in terms of market capitalization, even though at $4.58 billion, it is dwarfed by the former bulge-bracket firms that have now completed the 75-year-plus journey from commercial bank, to investment bank, to commercial bank again.

New to EconomPic Data? Check out our Greatest Pics

Monday, September 22, 2008

Bush Approval Rating vs. S&P 500

Bailouts + Packages: Twice the Size of the War on Terror

And this DOES NOT include the potential / likely costs of all the new lending facilities / conversion of Morgan Stanley or Goldman...
Sept. 17: AIG

Just how big is this? It's roughly 2x the size of spending to date on BOTH the Afghanistan and Iraq wars to date... Ladies and gentlemen. We have a new financial war in progress....

Cost of the Iraq / Afghanistan Wars to Date

Sunday, September 21, 2008

Anything Happen While I Was Gone?

Barry from The Big Picture jokes: "Hey, I took the week off -- what did I miss?"

Well, I am a fool who actually took the week off (in a part of the world with extremely limited Internet / Blackberry access). So what did I miss in poetic form? (note: this is coming directly from 18 hours of return travel so my sense of humor is somewhat completely out of whack)

  • Lehman failed, wasn't bailed
  • AIG is still alive, a taxpayer credit line of 85
  • Morgan Stanley + Wachovia Bank, makes no sense but encouraged by Hank
  • A bailout larger than the war with Iraq, a socialist government that has the rich man's back
Even with all this, Barry shows equity markets / interest rates barely budged week over week (EconomPic'd below)...

However, looking at the how the markets moved on a daily basis (credit markets shown below), one can see just how wild the ride was.

Tuesday, September 16, 2008

Vacation! "Greatest" Pics...

I'm finally on some much needed R&R, but first some EconomPic housekeeping....

First of all, it's very humbling to realize that this many people read my blog on a daily basis. I'm guessing it was the readers that motivated me to post 20+ entries per week. Exciting stuff, and very fun, but WAY too time consuming. Going forward, expect more from less (though knowing me that won't last long)...

Anyhow.... for those of you new to the site, take a look at some posts from the past...

June 2008
Why Not Deflation?
Do Oil Futures Impact the Cash Price? YES!!!
Low Supply of Oil: The Effect (not Cause) of Futures Prices

July 2008
Chicken or the Egg?
That 70's Show? PPI vs. CPI
Sell in May, Don't Go Completely Away...
Where's the Equity Premium?
Budget Deficit
Merrill Write-Downs to Date...
Rate Hikes / Cuts Haven't Impacted Inflation

August 2008
Merrill Lynch: 1/4 of All Historical Profits Gone
The FDIC Wants in on the Bailout Action...
Hardest Drinking U.S. Cities... and Housing?
Ener-GM Bail... I Mean Energy Bill
Not Too Fun(d), but Not Too Shabby

September 2008
Nominal vs. Real GDP: Why the GDP Deflator Overstates GDP
Income Growth / Equality by Presidential Party
Bonds Sure Look Cheap...
New "Bailout" Liabilities = Existing Publicity Traded U.S. Debt
I Thought it was Democrats that were "Big" Government

CPI August

Monday, September 15, 2008

Biller Miller Redux

We've already visited 'since inception performance' for legendary investor Bill Miller's Legg Mason Value Trust which shows underpeformance vs. the S&P 500. Now comes further questioning as to whether he should lose the "legendary" tag altogether following the funds large holding in Freddie Mac equity (apparently as much as 30mm more shares than we listed here).

From Joe Nocera at Executive Suite:

Back in 2001, when Bill Miller was viewed as one of the world’s greatest investors, I edited a story about him at Fortune magazine. Mr. Miller, of course, is the manager of the Legg Mason Value Trust mutual fund, whose claim to fame is that he beat the Standard & Poor’s 500-stock index for 15 straight years. (It was 10 straight when Fortune published its story.) In the last few years, however, his fund has stumbled badly. Indeed, there are those in the investment community who whisper that Mr. Miller was never really a truly great investor. Rather, he was akin to the guy who flips a coin and it comes up heads 15 straight times — a product, that is, of randomness rather than skill.

Source: Dealbook


That $1.7mm difference is almost as large as the gap we see between some of the richest and poorest markets in the world...

Source: Coldwell Bankers HT (Infectious Greed)

Friday, September 12, 2008

Econom-Pics of the Week (9-12-08)

Fannie / Freddie

Fannie / Freddie Portfolios: $250B by 2021

A Picture is Worth 1000 Words... Fannie MBS Edition


New "Bailout" Liabilities = Existing Publicity Traded US Debt

Fannie Spreads WAY In...

Cheaper Fannie Financing...

Top Five (Former) Equity Holders of Fannie / Freddie


Most Profitable Superhero Movie Franchises

Hollywood's Most Overpaid Movie Stars


One of these Investment Banks is not like the Other

Fuld Will be Just Fine...


S&P Earnings by Sector

Is the Plunge Protection Team Losing Power?

EconomPic Data

Household Debt

PPI August: Crude Down, Final Goods Flat

Wholesale Trade Sales (July)

Government / Politics

I Thought it was Democrats that were "Big" Government


Corporate / Mortgage Backed Security Spreads

Twenty Highest Paid Towns

Largest 20 Sovereign Wealth Funds

Most Profitable Superhero Movie Franchises

Interesting analysis regarding the most profitable 'Superhero' franchise of all time per Max-Bro.net:

Just how profitable are these superhero films for the Hollywood studios making them?

It’s easy to point to large numbers like the ones TDK generated, but then studios invest hundreds of millions of dollars into making these films. I performed some research into the matter and discovered some interesting finds. Below, in descending order, are the top ten most profitable superhero films starting from 1978 to the present day, with a big surprise at the end.

The most profitable Superhero? Those heroes in a halfshell...

Fuld Will be Just Fine...


Between 1993 and 2007, Mr. Fuld took home about $466 million in compensation, including base salary, bonuses, long-term incentive plan payouts and the value of stock options he exercised. That’s according to calculations from Equilar, an executive compensation research firm.

PPI August: Crude Down, Final Goods Flat