Weekend Reading – Always in Progress!

Well that was a fun week and I'm off today, but as things catch my eye I'll throw them up and it's nice to have a fresh place for discussions anyway.

I'm trying to get a handle on the overall market conditions as I'm trying to figure out how to get our two new virtual portfolios off on the right foot.  So far, it seems like no one has any idea what to think and there are very compelling bull and bear arguements.  None of this changes my overall thoughts that we would bottom out in Q1 and make new highs in Q3, except that I originally thought we would consolidate between 13,000 and 13,000 with perhaps a spike as low as 11,500 but 12,500 forming a very solid floor.  You may think I'm not far off but I'm off on the very dangerous side and what I thought would be a floor is acting like a ceiling so my confidence is getting shaken as well.

If we can't get over 12,700 and restablish 12,500 as a firm floor (preferably 12,700 though), then we are going to have a really rough spring and we'll have to be thrilled to get to 13,500 in the summer.  It all comes down to oil, do we spend, globally $30 x 100M gallons a day on something we burn or do we spend it on consumer goods?  That's the Trillion dollar question on the difference between $60 a gallon and $90 a gallon, which brings me to my first weekend article.

Floyd Norris, in the Times, follows up on what Barry and I have been saying this week about retail sales and has this neat, but scary chart that clearly shows how food and energy are sucking the life out of the economy:

The worst thing about this chart is that the last time Bush gave money away (his election rebates) was followed THE WORST dip in retail spending, and food and energy were considerably cheaper then!  Remember these are year/year changes, not just the fixed price, so when energy starts at 100 in 1997 and stays flat through '99 that's still $100, but then it's $108 in 2000 after an 8% change and $112 in 2001 after a 4% gain and then $108 again after a 4% drop in 2002 after which it's all uphill as the Fed pumped money right out of our treasury and into the hands of "those who would use that money to do us harm."  With subsequent increases of 8%, 4%, 8%, 8%, 4% and now 12% (at this pace this year), that $108 is up to $164.  What kind of screwed up policies do we have here?!?

MBIA ripped Bill Ackman a new one with their open letter to the NY Superintendent of Insurance and others:

"Mr. Ackman has been consistent in his suggestion that his estimates of loss are more accurate than the company’s. He alleged, in his 2002 attack on the company, that our virtual portfolio subject to FAS 133 would have $2 — $3 billion of losses. That virtual portfolio, which has largely amortized or been prepaid at this time, experienced no loss. We don’t believe there’s any basis for giving his current estimates any more credibility than those from 6 years ago."

They make a lot of good points in their letter and I'm leaning towards MBIA's point of view (as well as Wharbug's, who are backing their refinancing) that this is a lot of overblown crap stirred up by Hyenas like Ackman who have taken what for years had been a rock steady, dividend paying stock and turned it into a momentum trading vehicle that they seek to control with propoganda attacks, manipulating the media for their own benefit.

Public corporations have to take great care before making a statement and have to be fairly certain of any numbers they release.  The Bill Ackman's of the world can go on CNBC any time they pick up the phone and make outrageous statements like "MBIA is facing $15Bn in losses" or "Steve Jobs is going to jail for backdating options" and THEY DON'T EVEN GET A SLAP ON THE WRIST!  This is why regulation, as annoying as it can be, is good for the markets.  With trading houses like GS keeping over 60% of the profits they make for themselves, not even investors (outside ones) can reap the rewards by going along for the ride as the "laissez-faire" crowd would have you believe when they say things like "if you think it's fixed, then just invest in the brokers."

Speaking of investing, the Homebuilder Lobby just stopped investing in Congresspeople by cutting off campaign contributions as they are as disgusted as I am by the misuse of $168Bn of our tax dollars when we have serious problems to address.  "Lobbies like to pretend that congressional action and their donations aren't tied, " said Melanie Sloan of Citizens for Responsibility and Ethics in Washington. "But the home builders just confirmed that they are."  Ethics lawyers routinely warn interest groups to avoid saying or implying that the money they provide to candidates compensates them for taking a position on a particular piece of legislation. Such quid pro quos could be considered illegal gratuities or bribes.

Of course a bribe is all this "stimulus package" really boils down to, it's "Hey, we just gave you $600 so don't hate us for being what Rolling Stone called in October of 2006, THE WORST CONGRESS EVER."  I am hoping this was the last, desperate act of a dying administration and their congressional cronies as does, apparantly, Mayor Bloomberg, who says: "The federal government's rebate checks are like giving a drink to an alcoholic…  The nation "has a balance sheet that's starting to look more and more like a third-world country."

The mayor last month said the economic stimulus package was shortsighted, and presented his own views on where the federal government should be focusing its attention. Specifically, he said the government should adopt a capital budget to oversee long-term infrastructure spending, instead of the current year-to-year spending.   It should also offer financial counseling, modified loans, and in some cases, subsidized loans to homeowners who find themselves unable to afford their mortgages.  He says that the government should also think differently about immigration, and that bringing more workers in rather than keeping them out is the key to long term economic stability.

Zaius Nation, a good blog based on the title alone, has a nice chart for our ongoing debate about Bush's amazing (the nicest adjective I could think of in the spirit of being objective) handling of the budget deficit and his legacy in general:

Meanwhile, those godless communists in China have got their economy firing to the point where they may be able to shrug off a US recession as retail sales in China are up 20% since last year, which was up 15% from the year before, which was up 13% from the prior year…  As told by The Economist:  "It is certainly true that China's current-account surplus rose to a record 10% of its GDP last year, which means that it produced a lot more than it consumed and so relied on foreigners to buy the excess. But it is the change in a country's trade surplus, not its absolute size, which matters for GDP growth. The increase in net exports (exports minus imports) has never been the main source of China's growth. It contributed two to three percentage points to annual GDP growth between 2005 and 2007, whereas domestic demand (consumption and investment) added eight to nine percentage points."

More later…