Tuesday, December 30, 2008

GOING, Going, going - concern?

Going concern - "accountant speak" for assessing the present viability of a business undergoing a financial audit. Know where I'm going with this yet?

Now more than ever, governments at every level - federal, state, county and city are facing a looming reality - how will they get cash to pay for promised services and or benefits and interest on current indebtedness? Answer - from those who have it.
Where does said cash live? We may properly ask "And how do they (still) have it?"- it's what was f/k/a the "rainy day" fund - the prudent among us who saved rather than spent all their money.

The prudent who didn't leverage up far beyond the max on mortgages, credit cards, home equity lines of credit aka helocs, 125% mortgages, cash out mortgage refinancings to splurge on cars (more than 1 per person), 2nd and 3rd homes, condo flips, toys, more toys, vacations, rarely or never prepare a home cooked meal; tell me what it feels like to get whacked by that hockey stick; in a grotesque sadness the most prudent are paying and will continue to pay dearly for the most prurient!

UNTIL those who have it realize we are paying for a small percentage of the US adult population (known as cry babies) largely self inflicted, greedy decisions that turned out to be investment or borrowing mistakes and refuse to pay.
[If I buy a stock and it goes down and I hold out my hand and ask my fellow tax payers to bail me out is that fair? Is it more fair had I margined that stock position and pulled cash out of the account to take a trip or a cruise or bought a new car; of course not - yet that is precisely what some homeowners did - didn't they - why should you or I pay taxes and bail them out? Let them sell their toys and trip photos on ebay!]
Why not? what's the risk? Why not be a deadbeat and wait to get a government handout?
Or just wait until the retailer files for Bk and your store debt is washed out in the rinse cycle of reorganization.

Why pay any bills in full and on time anymore - it pays to be a cry baby deadbeat doesn't it?
Or is it me? Even bona fide tax debts can be settled for pennies on the dollar - why should or would anyone EVER PAY FULL FREIGHT FOR ANYTHING EVER AGAIN???
Is it any wonder why many things in America(n) have been devalued and are / will be at a contunued discount, looking ourselves in the mirror - is it because we have enabled the discounts? Someone please...

Monday, December 29, 2008

Rose Bowl - sponsored by Citi (er..US Taxpayer)

Is Citi; the veritable one and the same "too big to fail" financial institution; the exceedingly lucky recipient of $150 billion in US Taxpayer assets SPONSORING THE ROSE BOWL?

I'd be curious to learn of the list of invitees, junkets, corporate boxes, booths and swag we - the US taxpayer may be paying for.

Just a simple question; as to the prudence in expending same.
Perhaps the taxpayer's employees (Congress and or the GAO) may inquire on our behalf - although I'm afraid that sports fans may need to stay tuned in for a long time before we get an answer much less repayment; in the meantime enjoy the game!

Wednesday, December 10, 2008

Reality vs Hope & Denial

US Money Market rates may soon reach negative returns; Stock market investors (Dow 30 near 8800) are priced at a trailing PE (stock price divided by stock earnings) of ~13 to 15x 2008 reported earnings; 15x earnings is arguably the long term historical norm.

Another, Different and CRUCIAL View is in comparing the "P/E’s".
The “PE” of money markets are about 100x (100 divided by the current near 1% US Treasury bill yield); 10 year bonds are approaching 40x. (100 divided by 2.7%).
Stock investors are pricing the equities market at 25 to 30x or more based upon declining expected 2009 earnings.

The critical difference:
Money markets instruments guarantee return OF principal;
Stock investors hope for a return ON principal.

Who’s right, if either?
IMHO, neither is right – it’s about signals – and the Money Market investors are by definition more careful; yet both asset classes are overpriced at least by historical measures.  
Perhaps are MM investors factoring in some other variable which stock investors are not? Therein lies the value of being more careful, with an eye towards conservation of principal – DEFLATION is being baked into the MM rates; a reflection of the realities befalling Main St.

Job Losses are REALITY
Every job cut is an amputation from the body; the US consumer juggernaut of yore which used to make up well over two thirds of US GDP.  Jobs and more importantly workers do not magically reinvent themselves overnight; they retrench, spend less (not more) and save for tougher times ahead; worse often wind up not paying their debts (mortgages, credit cards, cars, toys,  gambling)  save booze, smokes or smokes and booze; whatever the need for the preferred fix du jour.

Risk transfer provides another view – the exchange of a day’s labor for a paycheck and job security is broken; especially in industries colored by non-market forces for decades;

The global conscience recognizes (yet may not be ready to admit or implement) that much business activity is hollow i.e. not nearly as value added as transacted.  What is the fully loaded accounting of the value added of many of the products and or services whose ENORMOUS sums starting with fees earned for M&A advisory fees in particular or investment banking in general? And who benefits the most from these deals?
Would it be better to answer (rather than continue to ask) the question, would the world be a better place – if we as global stewards of the earth and its current and future citizens – would devote a fraction of our resources to the basics – food, shelter, health care for those less fortunate and to act in the best interests of the environment for the benefit of future generations?

US Dollars – past, present and future
Too many dollars (yes Elizabeth, there are a few too many dollars especially those whose ink is still wet) have to find a home – and they often find them in the stock markets based on notions (although promulgated as "theories") which are dislocated from today’s REALITY; see below.

It is acknowledged that the US consumer has enjoyed, rather overstayed its place at the head of the table of the world's consumers due to a debt-induced buzz; aided by the overlooked, undervalued and imprudent risk transfer inherent in securitization since the early 1980s.

The future of the US Dollar, interlinked global currency and trade exchange mechanisms is as currently practiced untenable. Unless and until the inputs of labor, land (natural resources and rents), capital and entrepreneurship / innovation / intellectual capital / human rights / environmental obligations signals are openly priced and align with demand and recycle in alignment – we may experience persistent disruption.

Mr Kashkari - misplaced and or misguided LOYALTY?
Perhaps I may be wrong, I hope so, however during Mr Kashkari’s testimony today before the House finance committee showed that he was not crystal clear on an implied fact – that is this: he is Under Secretary of the US Treasury i.e. his paycheck comes from and on behalf of the people.

IMHO he needs to vigorously respond to the question of whose interests he represents and act accordingly; communicate with Congress (the people) before he acts and DEMONSTRATE a transparent, prudent investment process and an ARMS-length relationship with borrowers or else as one congressman suggested he could or should step aside.