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Archive for the ‘News’ Category

August 27th:

That’s a quote from Rounders (before they get beat up by a bunch of cops at a card game), and whenever I think of it in terms of the markets for the past week, I can’t help but laugh. There has been light volume on the major indexes, and people are either waiting for Hurricane Gustav to materialize, or for Fannie & Freddie to be nationalized. Also, Downgrade season for the banks seems to be over, so now when we get news of a management restructuring over at Fannie Mae, it calls for a celebration in after hours trading! (It’s not like this move matters…it doesn’t change the fact that they’re through as a private company).

Sorry for the lack of material lately, but the markets haven’t been as entertaining as things like this:

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There is an article in the Journal today, which at first glance didn’t seem so farfetched…

“A four-year college degree, seen for generations as a ticket to a better life, is no longer enough to guarantee a steadily rising paycheck.

Just ask Bea Dewing. After she earned a bachelor’s degree — her second — in computer science from Maryland’s Frostburg State University in 1986, she enjoyed almost unbroken advances in wages, eventually earning $89,000 a year as a data modeler for Sprint Corp. in Lawrence, Kan. Then, in 2002, Sprint laid her off.”

However the opening of this article is just completely absurd. First of all, this author talks about “Frostburg State” like I should have heard of it. Secondly, if you decide to read the rest of this horrendous article, you’ll see he makes no reference to the fact that 2002 was one of the most severe years of the tech bubble recession, which subsequently bottomed in 2003. On top of that, this individual was let go by Sprint of all places, a company which witnessed its stock price go from a high of $80 a share to $7.25 in a little over 2 years (guess when that price bottom occurred?) Finally, are we supposed to trust that this “Bea Dewing” was at all competent at her job? Maybe Sprint, a dying cell phone company, figured this person was overpaid for her skill set…

The crux of it all is that what happened to this woman is not out of the ordinary, which is why it contributes very little to the bottom line of this article; this is an exhibit of the principle of cyclical unemployment, which is a natural part of the business cycle, especially in a recession.

When I saw this headline, I was hopeful that the author would comment more about how the average median American salary hasn’t come close to shadowing the rate of inflation in this country (even with a college degree), and less on this woman, who monopolizes the article. *Perhaps this is why we as a country have become so dependent on credit and borrowing against our houses to create imaginary wealth*

What I found to be most entertaining about this article, was the thought of how much this type of authorship would really piss off my Economics professor from last year (Please chime in if I’m wrong, Casey). He used to write an excellent blog, and he once wrote about how a college education is an investment in your own human capital, in addition to your future earnings potential. He was considering the value of college education in the context of student loans, and his post is way better than this b.s. article in the Journal. I insist you read it, as its very informative.

To be somewhat even keeled, this article was at least in the “Personal Journal” section, which is supposed to be a section of lighter reading. I do, however have to question this article’s agenda…maybe this guy “Greg Ip” has 3 young kids he will eventually have to send through college, and is trying to spark lower college tuition costs.

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Barry Ritholtz from the bigpicture got this before me…

Ron Paul brings up some very viable concerns about our dollar policy, particularly about the variance between Paulson’s remarks about our currency while he is in America, versus those he makes when he visits China. He also points out that increased regulation coupled with low interest rates has not worked in the past…Very educational.

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“They must not fail,” McCain said during a campaign stop in Belleville, Michigan, today. Fannie Mae and Freddie Mac “are vital to Americans’ ability to own their own homes,”

– Bloomberg

Thanks John, for that very thought provoking bit of information…I guess the fact that you’ve acknowledged the financial crisis is a quantum leap from your continual gibberish about the war though. God knows you’ll need Mitt Romney as your vice president if that’s the most you can say about America’s current economic condition, especially if Barack Obama elects New York Mayor Bloomberg as his running mate. (That may be wishful thinking on my part, but I don’t know of another potential candidate who is more qualified in making decisions regarding our economy).

The markets, in addition to the current craziness, should get even more interesting once the election season comes around. While I think the financial issues will temper by November, the most obvious vulnerability lies within the national defense sector (Lockheed-Martin, L-3 Communications) because should Obama emerge as the favorite, he would end the war in Iraq (or so he says).

I will delve further into these issues in a later post, I’m getting a little busy.

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Finally some mercy in the hard/soft commodity market:

  • BRENT CRUDE FUTR:     $141.50     -2.02% 11:10 AM
  • NATURAL GAS FUTR:     $13.03       4.05% 11:10 AM
  • CORN FUTURE:               $747.00     -3.86% 11:25 AM
  • SOY BEAN FUTURE:        $1561.00    -4.29% 11:29 AM
  • WHEAT FUTRURE:           $836.00      -5.77% 11:30AM

A couple of factors have spurred the pullback today, including some profit taking following speculation that Iran is going to be attacked. I think the true fundamentals lie in this exerpt:

The fewest Americans in three years likely traveled over the July 4th weekend as record gasoline prices and a slowing economy forced consumers to curtail spending, according to AAA, the largest U.S. motoring group. The number of people taking trips of at least 50 miles (80 kilometers) from home over the holiday weekend will fall 1.3 percent to 40.5 million, AAA said.

Things may come back to reality for a while now that the United States is exhibiting stagnating demand, and China should have a let down in demand once the Olympics begin…I realize I continue to stress this point, but if there is anything that can alter a country’s short term demand, it is the Olympics. Whether its cleaning algae, or restricting traffic to curb pollution, they have devoted a tremendous amount of energy and resources in preparation for this event…The place is a complete disaster:

“About 10,000 people are scooping algae out of the sea at the eastern city of Qingdao, while officials in Inner Mongolia are preparing to fight off a plague of locusts that may arrive in the capital city during the Olympics”.

………

“The city has spent 120 billion yuan ($17 billion) on measures to improve air quality and will take half the cars off its roads and halt construction from July 20 in a bid to reduce the threat to athletes from competing in smog”.

………

“Security is among the top concerns for China and, according to officials, is the main reason why the organizing committee’s budget rose 25 percent to $2 billion”.

We’ll have to wait and see…In the meantime, I cannot imagine a long term allocation of capital to these kinds of expenses.

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I try to stay as far out of political journalism as possible, because everything seems to boil down to subjective oppinions which have little substance. This article on Bloomberg is a prime example:

Higher taxes for hedge-fund managers and oil companies will not cover anticipated Obama tax cuts for the poor and middle- class, universal health care and aid to the depressed residential real estate market, said Gross, a long-time Republican.

Democrats, historically speaking, are ones who emphasize budget surpluses…

Bill Clinton may have made several questionable calls in his presidency, but he was smart enough to surround himself with the people who knew fiscal policy. Barack Obama, if only because of his age alone, should not be someone who believes he can execute on every issue that faces the US, and as a result, will likely do the same as Clinton. There is already speculation that he will bring Bob Rubin back as Secretary of the Treasury, which in my oppion, would be a monumental upgrade over Hank Paulson.

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This is some market, but as Warren Buffet says, “when everyone gets scared, I get greedy.”

That is not to say that this downturn is over, but something tells me we will have a relief rally next week. Just a hunch, but it will be the end of a REALLY bad month (down 8.5%), it’s a short trading week before America’s holiday celebrating our independence, a light earnings week, and the market has responded to every bottom of this year with a rally.

That said, Bloomberg pointed out an interesting statistic today:

The Chicago Board Options Exchange Volatility Index, or VIX, rose 13 percent to 23.93 yesterday, leaving it 26 percent below the 2008 high. The Dow is poised for the worst June since the Great Depression after record oil prices and credit-market writedowns sent the average to its biggest drop in three weeks.

The VIX is a gage for the market’s volatility, and we have not had that much of it relative to prior short-term bottoms. I am not enough of a statistician to interpret what that means for today’s market but Cramer came out with a surprisingly good insight:

The negativity coming into today’s session is as thick as I can recall nearing most short-term bottoms. The issue is there is not enough fearout there. Despite the consensus, which obviously creates a need for lower prices before it is worth buying, there isn’t a big spike in the VIX, there isn’t a gap down, or a crescendo of selling. There isn’t even any volume. So while the bearishness is real thick, the selling isn’t. (Bloomberghad an excellent piece on this yesterday, noting how much lower the VIX was than at other bottoms.)

There sure is a lot of gloom and doom out there.

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