Market Update – March 11, 2010

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When you email me…I really enjoy all of the emails that you send with comments.  Please realize that I read them all.  But, I can’t respond to them.  Jenny suggested that in the future I should include a mailbag section in the blog every so often.  I may do that in the future.  I’m going to have to let a little time pass so that I can tell Jenny that it was my idea.




Friday’s blog (tomorrow)…I’m going to be writing about an important idea – the impact of debt on GDP growth.




Today, I have two items for you. First, I’ve simply listed some interesting stats / numbers that I saw this week.  Second, you will find a blog that I wrote for the school to support our upcoming Alumni Business Conference.  I encourage you to read that portion (even if you have no interest in the Conference).  When I submitted it, I wondered if I would get censored by my own school…but I didn’t.




Now, on to some stats that I’ve come across this week…




Budget Problems

The huge deficit. Through February, the US deficit is $651.6 billion.  The deficit is 10.5% higher than last year (at this time).  February’s deficit ($221 billion) was the larget monthly deficit ever.  (I remember when that was our annual deficit!)  This was the 17^th consecutive month of deficit.

LA could use some help. Los Angeles is asking the government to help them borrow $9 billion to speed construction of 12 new mass-transit rail lines.

Illinois needs a lot of help. Illinois’ Governor said that state income taxes must increase 1%.  Otherwise, payments to public schools will fall 17%.  The state faces a $13 billion deficit for the next year.  Even with the tax increase, there will be a $4.7 billion deficit.

Employment

Unemployment has peaked? One economist said that we’ve never seen unemployment drop .4% and then go on and hit new highs.  In other words, he argued that since unemployment has come down from 10.1% to 9.7%, unemployment has peaked.

Forecasts for a big jobs report in a few weeks. Some economists are predicting that the March employment report (which we will get in early April) could be a one time blip on the positive side (in the range of +300K jobs).

Municipalities can’t hire. State and local governments are the biggest employer in the US (15X as many employees as Wal-Mart).  But, state tax revenue dropped 11% for the year that ended in September.  So, don’t expect hiring.

We’re going to solve the unemployment problem by hiring every American to count every other American. In Texas, the Census is still looking for 25,000 applicants from “hard-to-count” communities.  These are populations with language or cultural barriers.  They expect to have a total of 100K workers in Texas at the peak.

No summer jobs. In 2000, 45% of 16 – 19 year-olds had summer jobs.  That number is expected to be 28.5% this year.




Credit Markets

Big debt issuance. In 2010, US companies have already issued $195.2 billion of debt.  Last year, companies had issued $166.8 billion by this point.

Narrow spreads – it’s all backed by the US government. Spreads between Fannie and Freddie bonds and Treasuries narrowed to the smallest spread ever (61 bps).

Credit default swaps. There is approximately $25 trillion of credit default swap exposure outstanding.  There is approximately $80 trillion of debt outstanding in the world.

Greece is paying more than they expected. Greece is paying 6.25% on its recently issued debt.  If rates remain at that level, Greece will pay approximately $1 billion more in interest than expected.




China

China property bubble. China’s property prices are 10.7% higher than a year ago.  Their CPI is 2.7% higher.  Sales of residential properties have increased 37% in the first two months, but that is less than the 50% rate of last year.

China trying to slow speculation. In China, buyers must now put 40% down on second homes.  First time buyers must put 30% down.

China is an export machine. China’s February exports increased 45.7% YOY.  Imports grew 44.7%.




Random

Fewer VC firms. The number of active venture-capital firms was 1,023 in 2005.  It has dropped to 794 at the end of 2009.  I would like to see more stats on this…it wouldn’t surprise me to just see that the existing firms are bigger.

Fraud alert!!! There are 5MM households behind on their mortgage payments.  The government has a new plan where lenders must accept short sales (based on real estate agents information on the minimum acceptable level!!!).  The government will pay people $1,500 to walk away from their homes and will give $1000 to the lender.  Get ready to hear stories about insane amounts of fraud in the next year.

I think politicians should have to register with the police; I’d want to know if one was moving into my neighborhood. I hadn’t kept up with the Eric Massa story.  Apparently, he resigned from Congress.  He was accused of sexual harassment – groping some of his staffers.  At one point, he said he tickled one of his male aides until he couldn’t breathe.  Now that I know that’s not allowed, I will also stop tickling my male students.




PART 2: My Blog Supporting the Alumni Business Conference

http://blogs.mccombs.utexas.edu/alumni-news/2010/03/09/a-message-from-mr-manners/

A Message From Mr. Manners

Well, another year has passed and it’s time for the 5th Annual Alumni Business Conference.  As you will see when you arrive, Jim Nolen and I still look marvelous. I don’t know how we do it. (As my wife said to me recently, “you look the same as you looked in college; and that explains why you didn’t get married until you were in your 30s.’)

I want to tell you a little bit about what I’m going to speak about this year. In 2007, I taught you how you too could make money in real estate with no money down. In 2008, I showed you how to get rich by investing in Lehman Brothers. My March 2009 tip was to buy Greece. So I understand that there are a few of you who might not be able to afford this year’s seminar.  But for those of you who didn’t take that advice (or even better, did opposite), I think we’ve got a really useful lecture for you.

I decided that I’ve already made you enough money in past years. I’ve also come to realize that not all of our attendees care about money. So, I’m going to teach you about something that will allow everyone to succeed: manners.

Most importantly, there are going to be important, practical takeaways.  You’re going to leave my session being able to:

1. Look a banker in the eye and appear sincere when you say, “you deserve your bonus; I’m happy you got it. And for what it’s worth, I was shocked that the AOL / Time Warner deal didn’t work out.”
2. Have a smile on your face when you tell your friends at Goldman, “you really do do God’s work. How can I join the Church of the Rich?”
3. Learn how to outsource, so that you can take certain burdens off of your spouse (special guest speaker: Tiger Woods).
4. Politely make your point to family and co-workers who are self-centered and can’t balance their checkbooks by smiling and referring to them as “Congressmen.”
5. Smile without laughing when young people say that they plan to rely on Social Security.

Normally, you’d pay hundreds of dollars for lessons like this. But, we’re offering all of this for much less.  Before I tell you the price, I’m going to throw in one added extra. As an educator, I’m going to show you how I completely eliminated that college tuition liability that was destroying my personal balance sheet. As a result, while many of you foolishly set aside hard-earned money each month saving for your kids’ education and living with less luxury than you deserve, I am able to spend everything I make.

How do I do it, you ask? Once a week, sometimes twice if I feel like it, I let my kids know that they’re really not college material. I point out mistakes they’ve made and things that they don’t know. When my children ask where I work, I tell them “at a University, but you don’t need to worry about that; it’s only for smart kids.” It really only takes about six weeks (on average) for kids to lose their confidence. You’ll start to see results in even less time. (My kids stopped making eye contact after about three weeks.)

Look, I’ve probably just saved you hundreds of thousands of dollars. The least you can do at this point is write a small check to the Business School and pick up a few more tips like this. Practical education my friends…that’s what it’s all about.

I hope to see you on March 25th and 26th at the Alumni Business Conference. It only costs $130 and we’ll have lots of fun. My actual topic will be “You Can’t Handle the Truth!”
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