I Love Google

I am working on various methods to get the email service going.  If this reaches you via email, then some of my ideas are working.  If not, I may need to return to a mass email provider.  We’ll see.  Hopefully, these are just small “start-up” hiccups.

The emails didn’t go out for Weds – Friday. Friday’s is below. Wednesday’s (which had some important issues) and Thursday’s (which was short) are on the website.

I’m optimistic that I found a company to help me with these tech issues. We’ll see.

But please forward this to others who may be interested.   Instructions as to how to sign up are at the bottom of the page.

Now, on to what I’ve read:




1. Lets Start With Today’s China Bashing

I love Google. Google has found a lot of support in fighting back against the Chinese government.  Interestingly, there is some support from both the left and right.  Human rights groups support Google and more conservative entities such as the WSJ support Google.  Some critics are arguing that Google is only taking their stance against censorship and the cyber-attacks because they are second in the China market.  Personally, I don’t believe that – I think Google clearly wanted to be in this market.  But, Google has always argued that they do no evil and it became impossible to continue to allow Chinese censorship.  I find it amazing that we needed Google to bring these issues to light.  Anyone who reads any major newspaper has been aware of these issues for a long time.  The fact that we ignore them for money is a sad commentary.




Liu Xiaobo. If you want an example of censorship, look at what China has done with Liu Xiaobo.  He helped to organize the “Charter 08” petition that calls for outrageous things such as the open election of public officials, freedom of religion and expression, and the abolition of subversion laws.   He was recently sentenced to 11 years of imprisonment.  He is opposed to  China’s one-party rule.  I find it interesting that are we so clearly opposed to the taliban but not so clearly opposed to the Chinese government.  Ultimately, they are more similar than different.




You really have to love China’s judicial system. Xiaobo had been in prison for a year prior to his trial.  Then, his trial lasted two hours.  It was followed with an 11 page verdict.  He was sentenced on Christmas.  Some people believe that this was a message to foreigners, while others believe that it was done on Christmas to avoid publicity.




Made in China. An LA law firm with a major lawsuit against China has been the subject of a cyber attack that they say originated in China.




2. Now, on to the Bank Bashing

Banks on track for record bonuses. The WSJ calculates that banks are going to pay bonuses of $145 billion.  This would be an 18% increase from 2008 and a 6% increase over the record year of 2007.  The firms will be paying 32% of revenue.  (In 2008, they paid 40%.)




Obama formally announces bank tax. The President wants to recover $90 billion by taxing bank liabilities.  Industry officials warn that this could result in less lending.  So let me figure this one out…$90 billion over ten years will result in less lending, but $145 billion in bonuses is okay.




I’m really sick of the work “populist.” Any time there is an anti-bank perspective, it is referred to as populist.  The word is used as if a bunch of morons who know nothing about the world have some idiotic thought.  I’m not sure why it’s so naïve to feel like bankers caused a lot of these problems, they were bailed out and they shouldn’t be receiving $145 billion in bonuses.  How populist of me.




We’ve got a winner! The Chairman of the commission investigating the 2008 financial crisis (former California Treasurer Phil Angelides) indicated that he was going to find out what the FBI, Fed and Justice Department knew about subprime lending (and why they didn’t stop it).  He plans to call Bernanke and Greenspan and former SEC Chairmen Christopher Cox, William Donaldson and Arthur Levitt.   Eventually, we’ll probably find out some really bad stuff about Angelides, but who cares…he’s promising to give us some great entertainment until then.




They’re already turning on each other! Sheila Blair told the crisis committee that much of the crisis might have been avoided if the Fed hadn’t waited so long to regulate sub-prime lending.  She said that we just needed simple rules that required documentation of the ability to pay.

SEC Chairperson Schapiro said that the SEC is looking into the CDO creators (the investment banks).  In particular, they are investigating the CDOs which were created in late 2006 and early 2007.  Approximately 74% of the CDOs created in the second half of 2006 that were backed by mortgage backed securities have defaulted.  The number rises to 86% of those created in 2007.  My personal opinion is that it’s misguided to separate the actions during those 18 months.  I don’t believe that the underwriting standards decreased.  They were always bad.  It’s just that as we moved later into the housing cycle, these homebuyers were not saved by rising home prices.  In the past, we had securitized crappy loans, but homebuyers could exit the situation by selling their house (or refinancing).




3. Economic and Market News

Stocks rally. Stocks hit a 15-month high on Thursday.




Weaker December than we thought. Retail sales fell .3% in December from November.  This was a surprise, as we had been led to believe that Christmas sales were strong.  But, November sales were 1.8% higher than October.  In addition, while December sales were not as good as expected, they were 5.4% higher YOY.  A survey of retailers indicated sales were 2.9% higher in the five weeks which ended in early January (YOY).




Inventories building. Inventories are increasing as businesses get ready for recovery.  Inventories rose .4% in November.




Mediocre jobs report. Initial claims for jobless benefits increased 11,000 to 444,000.  The four-week moving average is at the lowest level since August 30, 2008.




Treasuries rallied. The weak economic data, accompanied by comments by Fed Governor Dudley that rates would stay very low for at least six more months, sent Treasury prices higher.  The ten-year Treasury increased in price, sending the yield down to 3.74%.




Ouch! Some option-ARM mortgage loans are tied to a variable rate called Cofi (the Weighted Average Cost of Funds index for the 11^th Fed’l Reserve District).  On New Year’s eve, this rate jumped up by two-thirds, causing some mortgage payments to increase by 9%.  The rate is calculated by measuring the interest expense that some western U.S. savings banks pay to borrow money.  The rate jumped when some banks were removed from the index due to mergers, etc. Most likely, Wachovia had been holding the rate down by borrowing money via the wholesale market.




Survey results. Economists put a 16% chance on another recession in 2010.  In addition, there is positive sentiment from large companies and negative sentiment from small companies.  This shows a difference in access to credit.




Don’t forget the big picture. Recovery from a financial crisis recession tends to be weaker than a normal recession.  Banks don’t lend.




China needs to slow their economy. Housing prices in China increased 7.8% YOY and 1.5% during December.  (Prices for houses without listening devices probably increased even more.)  This is a huge story that doesn’t get enough press.  China is going to need to slow their economy.  (If increasing rates doesn’t work, I’m confident that a little jail time for speculators should do the trick.)




4. Company News

Intel had a big quarter. Revenue increased 28% YOY.  Laptop demand drove chip sales.  In addition, server sales helped.  PC shipments grew 5.2% in 2009, including a 22.1% increase in Q4 (according to Gartner).




This sounds worse than what Coke Zero did to Coke. Starwood is suing Hilton, alleging that they stole 100,000 documents in order to compete with the “W” hotel chain.   Yesterday, they alleged that the top people at Hilton were aware of this theft.  Hilton is owned by Blackstone Group.




Life insurance firms will need $5 billion less. There is a new rule going into effect that says that the insurance companies no longer have to hold capital against the par value of the bond in certain cases.  If the bond has been written down, the insurance companies simply need to hold capital against the carrying value.  That makes sense to me.  If the insurer has already taken a loss, why should they have to reserve against that?­­




This also makes sense to me. Sears and Kmart are trying to sell on the web.  I think that this is genius.  That way, shoppers won’t have to step into the pit that they try to call a store.




5. Random

Interesting issue. Calpers (California Public Employees’ Retirement System) is looking into payments received by former employees / officials from money managers.  The money managers hired the former Calpers employees and directors to help them convince Calpers to invest with them.  Most money managers have marketing people.  But, is this fair to taxpayers?  Are money managers simply paying to be selected?  Is Calpers hiring the best money managers or simply those with the best relationships?




A real confidence builder. Yesterday, I spoke at a Continuing Legal Education seminar in Austin.  It was a big seminar (approximately 250 people) and as they introduced me, I walked to the front of the room.  A young woman stopped me in the aisle and said, “you were my finance professor.”  Then, she picked up all of her stuff and left.

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