Nancy Grace? CBS Should Be Ashamed

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Now, on to what I read today…




1. Markets

Dow was up 24 points. The market was up almost 100 points intra-day.  There are several events this week, including a Fed meeting, the AIG hearings, the State of the Union address and the reconfirmation issue surrounding Bernanke.




The Bernanke count. Approximately 35 senators are committed to Bernanke and 17 are opposed.  Two-thirds of his supporters are Democrats.  In addition, Bernanke is going to be bashed at a Wednesday House hearing that addresses AIG.  Apparently, some Republicans are withholding their support because if they announce support, it will let the Democrats off easy – the Democrats can then vote against Bernanke.  God forbid anyone votes with their conscience.




Regional banks have been outperforming larger banks this year. Regional banks had underperformed in 2009 due to fears about commercial real estate.  (Regional banks have heavier exposure to commercial real estate.)  For the quarter ending January 25^th, the regional bank ETF gained 15%, while the broad financial ETF lost 5.6%.




Apple released good numbers. The company had $15.68 billion of revenue for the quarter and earnings of $3.38 billion.  Apple shipped 8.7 million i-phones – more than double a year earlier.  Apple sold 3.36 million Mac computers – up 33% from a year earlier.  They sold 21 million ipods, down 8%. Many people are excited about the upcoming announcement of the Apple tablet.




Greece is the word.  Greece sold $7 billion worth of bonds.  The premium was large – approximately 2.95% higher than German bonds.




Credit default swaps. Some countries are now seen as more risky than the companies that reside in the country.  The WSJ cited Spain’s debt as riskier than Spanish banks.  It’s somewhat surprising that this is not “arbitraged away.”




Sugar hit a 29 year high. Indonesia said that they would have a large production shortfall and China said that they need to increase output.  There was also lower output in Brazil and India.  In my house, this is probably going to hit us a lot harder than $147 oil.




2. Economy

Visions of Christmas future. Existing home sales dropped 16.7% in December to a 5.45 million annual rate.  This is the lowest rate since August.  The tax credit had been scheduled to end in November and this had an effect on bumping sales up.  The bottom line is that this reinforces everyone’s fear: that once the government subsidy is gone, we’re in a lot of trouble.  Add in the possibility of significantly higher mortgage rates (when the Fed’s $1.25 trillion MBS binge is done and when the Treasury issues another $1.5 trillion of debt) and we could be in huge trouble.  We have no idea what will happen.

The median price was up 4.9% from November (from $170K to $178.3K).  Higher end homes made up a larger percentage of sales.




An ugly employment story. A former Georgetown professor (Alfred Tella) says that to get unemployment back to 5% by 2015, we will have to find jobs for the 7.6MM people who have lost a job (since the recession started) plus the 3.3MM of “hidden unemployment.”  The hidden unemployment represents people who dropped out of the work force (which he thinks is understated in the government statistics).  In addition, we will have 1.5MM people join the workforce each year during this time.  In sum, he calculates that we will need to create 18MM jobs between now and 2015.  He says that this is high, but not unprecedented.  The bottom line is that if we have 4% growth (which would be high) and productivity gains of 2%, the numbers could work out.  But if growth is lower or productivity higher, the numbers might not work.




3. Budget

Budget cuts? The Administration is proposing a three-year freeze in spending that is unrelated to the military, veterans, homeland security, international affairs, Social Security and Medicare.  We would be freezing 17% of the budget.  The goal is to save $250 billion in the next ten years.  The bottom line is that this is a first step – but it’s a drop in the bucket.




You can’t be serious. The President is going to be announcing several ideas to help the middle class during his upcoming State of the Union address.  According to the WSJ (and the details of this could certainly change), one of the ideas is for debt forgiveness of student loans.  Remaining debt would be forgiven after ten years of payments for those in public service work and 20 years for others.  Here’s the bottom line: the debt doesn’t go away.  This money has been paid to the schools.  Someone is going to pay for it.  All you’re doing is shifting who pays for it from the person who got the education to the rest of us.  This is absurd.

Think of the odd incentives.  Students have an incentive to make minimum payments.  That’s awesome.  In addition, people have the incentive to get a government job.  Well, here’s a news flash…if you have a government job, you already won.  You probably have an absurd pension, you have government holidays and you don’t need to understand how to balance a budget.  Everything was already in your favor.




4. Bankers

Why do bankers make so much money? I think that this is a key issue in thinking about bonuses.  Roger Bootle suggests that there are three reasons (and I’m quoting from his recent editorial in the Telegraph):

1. they take inordinate risks which are not fully reflected in the calculation of profitability
2. because what they do is not properly competitive
3. because they take advantage of inside knowledge, stemming from their involvement in umpteen related financial activities

He argues that the President’s plan to separate the risky activities and to require more capital is a good thing.  He further states that M&A is notoriously uncompetitive and that you could argue that it does not create value.  Rather, it is mostly in the interest of the executives involved.




5. Random

I trust this guy. Neil Barofsky, the special inspector general for the $700 billion TARP is going to be investigating whether there was any misconduct in the disclosures about the deals to pay banks 100% on credit default swaps.  It seems relatively apparent from emails that are being released that NY Fed officials were trying to avoid disclosing the fact that banks (counterparties) were receiving 100 cents on the dollar as well as which banks were receiving these bailouts.




China strikes back. China has printed dozens of commentaries berating the US for Clinton’s comments about freedom of the internet.  Sounds like we struck a nerve!  While I clearly stand against the Chinese government, I actually think that it’s absurd that we’re fighting this fight.  We have plenty of rules in our media about vulgar language and nudity, etc.  I’m not sure that I see the sense in trying to control China’s laws on this.  I think that there are significantly more important issues involving basic human rights that are much more important and should be discussed.




Coincidence? Many homes in San Antonio are being evacuated because the ground is shifting and there are crevices up to 15 feet deep.  Lets face it…we all know who is on the other side of the world…China.  Um-hmm.




Oh Tiger. PGA tickets sales are down without Tiger on tour.  In addition, I’m forecasting that Trojan will miss earnings this quarter.




I know that I’m not the target audience, but…CBS is looking for shows to replace Oprah and apparently that are banking on Nancy Grace.  Unless the name of the show is, “Some Village Lost Its Idiot,” you’ve got to be kidding me.  Nancy Grace has been cited by courts for her misconduct as a prosecutor.  In addition, she has wrongly accused several people of crimes on television.  CBS should be ashamed of themselves for promoting trash like this.  At least everyone knew that Jerry Springer was a joke.  Some people don’t realize this about Nancy Grace.  (If you want to read about Nancy, read the 11^th Circuit opinion in Stephens v. Hall, where the court said that Nancy played fast and loose with her ethical duties.  This “win at all costs” mentality is what ruins our criminal court system.  She should be doing time herself.)
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