Apologies All Around…

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If you’re an alumni of the McCombs MBA program, I’ll be doing a webinar on Tuesday at noon (CST).  I believe it’s free (it better be free…I’m not being paid).  You can find out about it here:

http://utmsb.convio.net/site/Calendar/659542804?view=Detail&id=108001




Now, on to what I read…




1. Markets

Roller coaster day. The market rose 10 points on Friday after being down 167 points.  The euro fell to $1.37, its lowest level since May.




Gold futures are selling for $1,052 an ounce, down 14% from its December high.




2. The Economy

Mixed jobs report. The unemployment rate fell from 10% to 9.7% in December.  This is based on a survey of households.

The survey of employers (called the payrolls survey) revealed that 20K jobs had been lost. Remember…we need to create 125K – 150K jobs per month just to satisfy the (normally) growing labor force.




Fewer part-time workers. The number of people working part-time even though they want full-time employment fell sharply.  This is consistent with people hiring their part-time workers.




China now accounts for more than 9% of global exports. A majority of China’s exports go to developing nations – and they really don’t like losing jobs to China.

China accounted for 19% of US imports for the first half of 2009, up from 16% in 2008.




Keep the spigot open. G-7 financial leaders promised to continue stimulus efforts.  European leaders promised to address the sovereign debt issues.

3. Greece

Hey fellas, I think I may have found the problem. Public wages and pension payments make up 51% of the Greek budget.

The NYT gave a couple of examples of the problem. The administrative staff of the Greek Parliament has increased from 700 to 1,500 in the past few years – with no increase in the number of members of Parliament.  Last year, 29,000 public-sector workers were hired to replace the 14,000 who retired.




Financing risk. The bad news is that Greece has to raise 53 billion euros this year.  The good news is that euros are worth a lot less than they were one month ago.

Who wants to loan money to a country that under-reported its deficit?




The EU is a strange set-up. The EU has centralized monetary policy but each nation controls (or doesn’t control) their own budget.




Will there be a bailout? The EU charter has a no-bailout clause.  The EU’s richest member is Germany – and they don’t want the responsibility of paying for Greece.




Why Greece matters. Greece might have fewer citizens than LA, but it’s a reminder of all of the public debt around the world.  There are fears of higher interest rates.  This is also a reminder that the huge government spending will eventually result in a slower economy.  One analyst said that people shouldn’t worry about a country that’s 2% of EU GDP; they should worry about California which is 10% of US GDP.




Fear about European banks. Investors are worried about European banks which have exposure to European sovereign debt.

The UK banks have big exposure to Ireland ($193B), as do German banks.  French banks have $78B of exposure to Ireland.

German banks have $240B of exposure to Spain.




Japan’s debt problem. Japan’s public debt is expected to hit $9.4 trillion, or 181 percent of its gross domestic product.  One thing that is a little different about Japan…virtually all of their debt is owned by Japanese citizens and institutions (including Japan’s pension fund).  This may make a run less likely.




4. The US Debt Problem

The United States of Greecerica. The Administration’s budget totals $3.8 trillion.  Approximately $1.4 trillion is domestic and military spending that result in appropriations (and can be controlled by the President and Congress).  The remainder is automatic spending for Medicare / Medicaid, Social Security and interest on our $12.4 trillion of debt.




Unbelievable. Apparently House Speaker Pelosi is opposed to the appointment of a commission to deal with the debt problem because she fears that it would result in cuts to Medicare and Social Security.  We have no hope.




Don’t worry about it! Geithner said that the US losing our AAA rating “will never happen to this country.”  He said that the best evidence of our strength is the fact that investors pile in the dollar and Treasuries whenever they’re scared.  The way I describe it is that the idea of the US losing its AAA rating is about as likely as Jenny finding a better guy than me.  Like that could happen…




5. Bonuses

Can he live on this? GS is paying Chairman and CEO Lloyd Blankfein a $9 million bonus for 2009.  This is being described as a sign of restraint.  (I wish someone would restrain me…)  He received $68.5 million in 2007 and nothing in 2008.  All of this will be paid in stock.




Some other bonus info. Jeffries CEO received $12 million.  JPM CEO Jamie Dimon will receive $17MM.  Again, no cash.  He received $28MM for 2007 and no bonus in 2008.




Not too popular. A survey asked Americans how much they trust bankers and other Wall Street leaders “to reduce the risk of the financial challenges the country is facing now.”  On a scale of 1 to 5, the rating was 1.7 (pretty close to “no trust at all”).  If it makes bankers feel any better, Jenny rated me a 1.3.




6. The SEC

Problems at the SEC. There have been a series of partisan 3-2 votes at the SEC (when the Commissioners vote).  Some accuse Mary Schapiro (SEC Chairman) of promoting a political agenda (e.g., disclosure on climate risk).  Go figure that a political appointee would be partisan.  Regardless of what she’s doing, I just remember her as the head of NASD Regulation and I’m in shock that she’s doing anything at all.  As long as she stays true to her roots and doesn’t protect investors, I’ll value her consistency.




Target this. The SEC is looking into “target date” funds where you pick the fund by your retirement year.  The idea that we all have the same needs for a particular target date is absurd.  It shows that mutual funds are marketing companies rather than fiduciaries.  With that said, I’m excited about my retirement in the year 2098.

In 2008, funds with a 2010 “target date” averaged losses of 25%.  Apparently, people retiring in two years needed a 25% loss to reach their goals.




7. Apologies

Toyota’s President offered a “heartfelt apology.” I wish I had a dollar for every time I tried that line with Jenny.  Of course, most of the time, it was dollar bills that got me into this trouble in the first place.  Apparently, he did not make a deep, long bow of contrition.  I’m going to try that next time I’m in trouble (which I have scheduled for Thursday night).

Toyota has recalled 10MM vehicles.




An apology that I hope I never have to make. South African President Jacob Zuma has apologized for fathering a child with a woman who was not one of his three wives.  Apparently, this story is a huge deal in South Africa.  People are really upset about this.  It’s really a shocking story…who would ever imagine that a guy with three wives wouldn’t be faithful?




8. Random

What does this say about the US? Obtaining the permits and approvals to build a mine in the US takes an average of seven years.  This is the longest wait time of anywhere in the world.  Other countries have laws as tough as ours, but we probably have more people that will fight you.




Sarah Palin said she would run for President if it was the best thing for our country.  It’s funny because I had just been saying to Jenny that I think what this country needs is someone who was elected to run Alaska and then quit.  (And before any of you right wing lunatics start emailing me, I’ve voted for both Democrats and Republicans.  But, there’s nothing, and I mean absolutely nothing, that would convince me to vote for Sarah Palin.)




Maybe renting can be better than owning? The Mortgage Bankers Association bought a ten story headquarters in 2007 for $79 million, financed it with a $75 million bank loan and sold it this week for $41.3 million.  I’m reminded of the “Real Men of Genius” commercials that Budweiser used to run.  It breaks my hear to see the Mortgage Bankers Association lose money.
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