Quote for the Week, December 30, 2012-January 5, 2013

Higher taxes on investments will turn your portfolio into a conduit between the [Fed's] printing press and those who do not have these financial assets.  Consider yourself lucky:  earlier societies resolved such imbalances through non-financial instruments such as the guillotine.
--Howard Simons

Tuesday Tune-up

Alison Kraus & John Waite, "Lay Down Beside Me"

Quote for the Week, December 23-29, 2012

We need a different narrative...away from a story of growth for its own sake and towards a future shaped by design, not disaster, where we value prosperity first and growth second, if at all.

--Chris Martenson, interviewed recently by OilPrice.com

Uncle Sam Cuts, Runs from GM

Taking the government out of Government Motors.

The U.S. Treasury has announced this morning that it will sell 200 million shares of its stake in General Motors back to the company for $27.50 a share, or $5.5 billion.  Sounds like a lot of money.  Trouble is, the cost basis was roughly $53 a share, which was a lot MORE money.  My calculator shows a loss of $5.1 billion, how about yours?

That still leaves Uncle Sam with 300 million shares to be sold on the open market over the next 12-15 months into the teeth of a recession.  Now he needs $72 a share on the remainder to break even.  Not likely.  More likely (for reasons mentioned previously) is an average share price of less than, maybe even far less than, today's $27-fifty.  Last year Treasury booked a $1.3 billion loss when it sold its "investment" in Chrysler.  Once the GM stake is fully liquidated, the total loss to the government for its capital injection into the auto industry in 2009 is expected to hit $24.3 billion.  The Obama Administration has avoided use of the word "bailout," but that is exactly what the intervention has turned out to be.

Credit Treasury for at least cutting its loss....


[update, 12-20-12--]

...and doing it before today's announcement that GM is recalling 145,628 pick-up trucks to install a secondary hood latch.  Quality control? 

Tuesday Tune-up

Mark Knopfler & Emmylou Harris, "Why Worry"

Who's the Target Now?

If you are not a gun aficionado, maybe you did not know the difference between a Bushmaster and a bush leaguer.  Until last Friday, that is.  Now you know.  A .223-caliber Bushmaster semi-automatic rifle (a civilian version of the military M-16) was used by a single attacker to mow down 20 first-graders and 6 faculty at Sandy Hook Elementary School in Newtown, CT.  It took less than ten minutes for the gunman to discharge 100 rounds.

This attack came ten years after the infamous D.C. snipers randomly targeted 13 victims at long range, killing ten (Washington Post retrospective here).  The weapon of their choice:  a Bushmaster .223.  Relatives of the victims eventually sued the manufacturer, Bushmaster Firearms International, LLC, as well as a gun shop, Bull's Eye Shooter Supply.  The gun used in the Beltway shootings was actually stolen from Bull's Eye, but that did not relieve the dealer of responsibility.  Plaintiffs argued that Bull's Eye was negligent in failing to control its inventory and furthermore that Bushmaster was negligent not for making the gun, but for distributing it to a dealer with a long history of stolen inventory.  Bull's Eye settled for $2 million in September 2004.  Bushmaster chipped in another 500 grand.

At the time Bushmaster was headquartered in Windham, Maine.  The company was manufacturing guns both there and at a second facility in Nevada and was doing about $65 million in annual sales.  The Windham plant had 95 employees.  In April 2006 Bushmaster was sold to Freedom Group, Inc., a gunmaker roll-up itself owned by Cerberus Capital Management.

River Valley citizens will recognize that last name.  Cerberus is the private equity firm that bought Rumford's coated-paper mill and several other sister mills from MeadWestvaco in 2005.  The new papermaking entity, NewPage, funded the acquisition with high-coupon debt.   Even after mill closures and workforce reductions, NewPage was forced to seek bankruptcy protection from creditors in 2011.  That was the same year that the Bushmaster plant in Windham was shuttered, eliminating the remaining 73 jobs there.  Anyone see a pattern here?

But I digress.  We were talking about GUNS and AMMO!  Question is, will Bushmaster be on the hook for damages from the Sandy Hook slaughter?  There might be some clever lawyers out there who think yes.  In its latest financial disclosure, Freedom Group included the following advisory to investors:

"As a manufacturer of firearms, we were previously named as a defendant in certain lawsuits brought by municipalities or organizations challenging manufacturers‘ distribution practices and alleging that the defendants have also failed to include a variety of safety devices in their firearms. Our insurance primarily excludes coverage regarding such claims. In the event that additional such lawsuits were filed, or if certain legal theories advanced by plaintiffs were to be generally accepted by the courts, our financial condition and results of operations could be adversely affected."

There is also regulatory risk, should lawmakers decide to tighten restrictions on the sale and distribution of certain kinds of firearms.  And if that is not enough risk, how about this:  13% of Freedom's sales are made through Wal-Mart.  There is no long-term contract governing this merchant relationship.  If Wal-Mart determines that continuing to push guns might invite a public-relations nightmare, the retailing giant could cut off Freedom just.  Like.  That.

Freedom is ill prepared for the blowback.  It has reserved less than $20 million for product-liability litigation and is saddled with over $650 million in debt, which about matches the company's total sales for the first nine months of 2012.  Perhaps to throw off the lawyers, Freedom has just changed its name to Remington Outdoor Company, Inc.  But it can't hide.  If Congress does not address the gun market soon, the courts will.

Click here to buy.

[update, 12-18-12--]

Under pressure, Cerberus is dumping its stake in Freedom Group.  Story here.

Dick's Sporting Goods has suspended sales of all rifles at its 500+ stores nationwide (company website here).  Wal-Mart pulled a Bushmaster model from its web store yesterday.

A spokesman for MetLife says that the N.Y.-based insurer has "no material exposure to gun manufacturers," which means that the firm's investors can stop sweating bullets.

The Massachusetts state pension fund is considering scrubbing its portfolio of gun manufacturers.

ZeroHedge passes along this chart from Smith & Wesson's latest pitch to investors:

[click here to enlarge]

People talk about gun control...
for the other guy.

And here's what Smith & Wesson's share price has done recently:

Off 30% in eight trading sessions!

[update, 01-24-13--]

Two major banks are urged to pull their credit lines to gun manufacturers as pension funds divest.  Story here.

Quote for the Week, December 16-22, 2012

Philosophy is a battle against the bewitchment of our intelligence by means of language.

--Ludwig Wittgenstein

Obama Trembles, HSBC Skates

There are more where this came from.

Democracy Now! interviews Rolling Stone's Matt Taibbi following the latest wrist-slap from the U.S. Department of Justice, whose advice to banksters is simple:  Do the crime, forget the time.

[12 minutes]

How do the mega-banks get away with serial malfeasance?  And why is the bad behavior not caught internally?  The Office of the Comptroller of the Currency recently evaluated corporate governance at the 19 largest U.S. banks.  Average grade:  D-.  Yves Smith at NakedCapitalism comments here.

Tuesday Tune-up

Dave Brubeck Quartet, "Take Five"

Dave Brubeck
(1920-2012)

Quote for the Week, December 9-15, 2012

Confidence is going after Moby Dick in a rowboat and taking the tartar sauce with you.
--Zig Ziglar

Nice Work, If You Can Get It

ZeroHedge calls it "age outsourcing":

[click here to enlarge]

The headline number from the Bureau of Labor Statistics this morning was 146,000 nonfarm payrolls added in the U.S. during November.  At least that is what the "seasonally adjusted" Establishment Survey says.  The companion Household Survey tells a different story:  130,000 non-ag jobs lost (Table A-8).  Which to believe?

Play with the numbers all you want, but the unspun facts are these.  First, the job mix is shifting to more part-time work without benefits; looking at the "not seasonally adjusted" data in the Household Survey, Lee Adler at the Wall Street Examiner found that over 500,000 full-time jobs were lost in November.  Second, new hires are mostly older folks whose retirement savings have shriveled faster than their skin (see chart above).  The number of jobs going to those between the ages of 25 and 54 (inclusive) has declined to roughly 94 million, a level first reached by that cohort in 1997.  That means zero employment growth for prime-time earners despite an overall increase in the total U.S. population of nearly 15 percent in the past 15 years.

In the last five years, the U.S. economy has lost 4.4 million jobs.  During the same period, the number of sidelined workers collecting Social Security Disability Insurance (SSDI) has increased by 1.7 million.  The number of food-stamp recipients has increased by over 20 million.  [More from ZeroHedge.]

General Mothballs

[click here to enlarge]

Usually, in the business world, graphs that work higher from lower-left to upper-right are Good.  Not so with this one.  Those are not car sales being counted, but unsold GM cars sitting unloved on dealer lots.  That's Bad.  The chart shows that dealer inventory increased by 49,000 during the month of November.  That compares to 139,520 sold to retail customers (company figures here).  Even with triple-zero sales incentives, GM could not sell three vehicles out of every four made.  As the Wall Street Journal reports, the company will be idling plants in December to allow sales to catch up.

The U.S. government still owns 26% of General Motors.  Sales figures like these will not allow Uncle Sam to exit the stock profitably (yesterday's closing price of $25 a share is less than half what he needs to break even).

MainePERS owned 186,408 shares of GM as of September 30.

The Way Life Was

...and where the 47-percenters are actually the majority.

Check out the Forbes Bottom Ten (+ One),

the so-called 'Death Spiral' states, marked by

a rising tax burden,

deteriorating state finances, and

an exodus of employers.

A single word of advice to investors holding municipal bonds issued by any of these states:

SELL.

Hunker in a Bunker

"We are the healthiest horse in the glue factory."

Surveying the fiscal stalemate in D.C., former U.S. Senator Alan Simpson (WY) has stern advice for his fellow Americans.

FixTheDebt.org

Tuesday Tune-up

Tom Rush, "Urge For Going"

[recorded just yesterday in the Boston.com MediaLab]

Worse Than W

Ralph Nader grades the President harshly:

[2 minutes]

"[Obama] is more aggressive, more illegal, worldwide...You know, like he is the prosecutor, judge, jury, executioner, and cover-upper, because it's all secret."

For more on how all Americans are becoming Persons of Interest, listen to National Security Agency whistleblower William Binney:

[12:29]

"The change is, it's getting worse [under the Obama Administration].  They're doing more...They're collecting a lot more now [e.g. private e-mails], and they need more storage for it."

Quote for the Week, December 2-8, 2012

The politicians may be able to say compromise, possibly even spell it, but have forgotten how to do it.
--Peter Tchir, on the 'fiscal cliff' negotiations in D.C.

More Gloom, Doom and Kaboom

"All of the ingredients are there to have this vicious cocktail fall apart."

[8 minutes]

Kyle Bass at the UVA Investing Conference,
November 15-16, 2012

Things That Go Bump in the Night

Can't get enough:

[N.E. Patriots at N.Y. Jets, 11-25-12]

"Waiting For Something to go KABOOM"

Jeffrey Gundlach, CEO, DoubleLine Capital LP:

“You’re just going to build up pressure in the pressure cooker, and when it blows, the lid will blow sky-high, and that’s when you get to phase three...If phase three takes two years, it’s worth waiting for. The markets don’t have lots of opportunity now.”

[October 2012]

Guy makes too much sense.
Will probably be ignored.

Bloomberg profile here.

Stock Market Waltzes Despite Data

[click here to enlarge--from ZeroHedge]

Figures released this morning indicated that U.S. stocks, up over 2% since yesterday's lows, are into some serious Kool-Aid.  First, a revision of the government's estimate of third-quarter GDP suggests that economic growth may soon go from anemic to nonexistent.  Increases in personal disposable income, business investment, and real final sales--the things that we want to go UP--were revised downward.  Government expenditures and unsold inventories--which we would like to see go DOWN--were up.  With stats like these, no one is expecting Q4 GDP to match Q3's.

Also headed in the wrong direction are initial unemployment claims.  The four-week moving average (chart below) has reversed back up over 400,000 for the first time in over a year.  With consumer spending accounting for roughly 70% of GDP, it is hard to see how things will get better soon.

Speaking of Cliffs...

How about these?

[click here to enlarge--thanks to ZeroHedge]

"The U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving."

--Laurence J. Kotlikoff & David Rapson,

"Does It Pay, At the Margin, To Work and Save?"

(2006)

Tuesday Tune-up

Taylor Swift (w/ Colbie Caillat), "Breathe"

Quote for the Week, November 25-December 1, 2012

No history is a matter of record; it is a matter of faith.
--James Branch Cabell

Tuesday Tune-up

Dixie Chicks, "The Long Way Around"

The Twinkie Is Dead, Long Live the Twinkie

Don't worry, Twinkies will survive Chapter 7.

Hostess Brands announced at week's end that it was breaking off negotiations with striking employees and entering Chapter 7 liquidation proceedings.  The company had been looking for concessions from unions on wages and pension benefits.  By holding out, the workers have lost their jobs altogether--18,500 of them (including 500 in Maine).  [The drag of union demands on profitability is succinctly documented here.]

The Case of the Disappearing Twinkie has brought a serious outbreak of nostalgia.  Apparently Hostess concoctions filled enough Baby Boomer lunchboxes back in the good ol' days to cause--a half century later--a veritable epidemic of latent health consequences, including diabetes and, now we see, saccharine sentimentality.  I remain immune.  It is possible that I have never eaten a Twinkie in my entire life.  It could be, could be, that one or two got dropped into my Halloween goodie bag during all those years of door-to-door trick-or-treating.  But my mother would never in a quadrillion years buy or serve mere "snack" food.  Her grocery cart at the local A & P invariably carved a wide circle around the Twinkie-Doodle-Dog aisle.

Those who do work that particular aisle can dry their eyes.  Twinkies are still made in Canada, so Mainers accustomed to crossing the border to buy drugs can load up on their favorite junk-food fix at the same time.  The brand will almost assuredly be revived in the U.S., just under different ownership.  Twinkies will still be there for Wall-E to find in the post-apocalyptic rubble.  It should be noted that the New Twinkies will be different in one important way.  When you buy them, you will no longer be paying for the retirement of the workers who make them.

But you will still need to pay for your insulin.

Quote for the Week, November 18-24, 2012

Autumn's fungussy, berries're manky, leaves're rusting, V's of long-distance birds're crossing the sky, evenings're smoky, nights're cold, autumn's nearly dead.  I hadn't even noticed it was ill.

--13-year-old Jason Taylor in David Mitchell's novel, Black Swan Green

Euro Zone 'on Life Support'

Kyle Bass sees the end game in Europe. 
[2:37]

BusinessInsider recap here.

If you have more time, below is the latest piece from Hayman Capital Management, L.P., in which Bass hits his usual themes of European dystopia, monetary debasement, self-referencing leverage, likely economic collapse, "inevitable" war, etc.:

Kyle Bass

Clinton 'Surplus'? Never Happened.

Question:  Why did you rob Social Security?

Slick Willy:  Because that's where all the money was.

Christopher Whalen at Institutional Risk Analytics:

"Presumably former Chairman [Paul] Volcker understands the difference between raising revenue to eliminate a deficit and merely borrowing money from the Social Security trust fund to finance a deficit. At the start of the 2000s the cash surplus from Social Security was financing the federal budget deficit, a situation that is now reversed. The federal budget deficit actually grew in those years. Today Treasury is compelled to borrow cash in the public debt markets in order to redeem earlier borrowing from the Social Security trust fund in order to pay recipients....

"When will Volcker and his peers among Fed Chairmen admit that the central bank is the main culprit in this growing national economic crisis? Is not the Fed the enabler for a national Congress literally out of control? The only sane choice is default and debt restructuring, but you will never hear Volcker or Greenspan or Bernanke ever speak such truth in public. Instead they take the cowardly path of defaulting quietly, via the printing press."

Gosh, a U.S. default?  Pretty unthinkable.  Kind of like secession.

Ron Paul Signs Off

Congressman Ron Paul (R-TX) gave his valedictory speech in the U.S. House of Representatives yesterday.  He retires after 23 years of service with no great sense of accomplishment:

"In spite of my efforts, the government has grown exponentially, taxes remain excessive, and the prolific increase of incomprehensible regulations continues.  Wars are constant and pursued without Congressional declaration, deficits rise to the sky, poverty is rampant and dependency on the federal government is now worse than any time in our history."

[Other than that, we're #1.]

If you prefer it straight from the horse's mouth, here it is:

[50 minutes]

Under My Thumb

...boasted Mick Jagger in the Rolling Stones' '60s hit.  Now singing that same tune is Samsung, the Korean electronics manufacturer and supplier to Apple Inc. of the A6 mobile processor used in iPhones.  It has just come to light that Samsung has raised its price for the A6 by 20%.  When Apple executives recently warned investors of shrinking profit margins, this is what they meant.  It is unlikely that Apple will pass on this added cost entirely to the consumer.  The company will have to eat at least some of it.

We have seen what this means for Apple's stockholders.  Among them is the Maine Public Employees Retirement System, which has more money invested in Apple than any other stock.  See what the share price has done in the last seven weeks:

AAPL [6-month chart]

That's a 23% drop.  For MainePERS, a steady practitioner of buy-and-hold, $37 million of portfolio value has been pressed into apple juice.  And the squeeze may just be getting started.  ZeroHedge speculates here that other component suppliers to Apple may be emboldened to follow suit.  Remember the rules, now.  Portfolio insurance is paid by Maine taxpayers sooner or later.  Oy!

Samsung inside.

Tuesday Tune-up

The Wailin' Jennys, "Bird Song"

Quote for the Week, November 11-17, 2012

Stock markets are mirrors of the human psyche. Like Homo sapiens, they can become depressed. They can even suffer complete breakdowns.

--Niall Ferguson

Election Post-Mortem

Arthur Kroeber, GaveKal Research

"It is now virtually impossible for a Republican presidential candidate to win anywhere in the Northeast, the upper Midwest, or the West coast...[E]verywhere the knowledge economy is growing, Republican credibility is shrinking. This is astonishing given that in knowledge economy hubs like Silicon Valley, entrepreneurship is prized and libertarian values hold sway. As we have written time and again, the US economy is becoming ever more knowledge based. If the Republican Party is to stay relevant, and have a shot at electing a president in four years, it will need to give up its affection for faith-based resentment and engage with the changing economic and social reality of America."

Lovin' It Less

Or maybe likin' it--sort of.

You know you are in a recession when Mickey D's sales comps go negative:

[click here to enlarge--nice catch by ZeroHedge]

I wonder if that red bar means that somebody's job is on the line.

[update 11-16-12--]

Somebody's was.  Today brings the announcement that Jan Fields, the company's president of U.S. operations, is out.  She can now train for triathlons full time.  Calories in, calories out.

So What's Next?

Barack Obama will parlay the next four years into another four after that, according to investment analyst Porter Stansberry (speculating here).  He will do this by being the right person in the right place at the right time.

The combination of

rising domestic production of shale oil

and

expanding global markets in natural gas

will make the U.S. an energy exporter.  That means profits for the producers and transporters--and licensing fees, royalties, and corporate taxes for the federal government.  Don't forget the re-shoring of manufacturing jobs as well.  The new revenues, says Stansberry, will buy Obama (or his proxy) another term.  Or two.

There is a flip side to rampant resource exploitation, naturally.  As Michael Feller opines at Macro Investor:

"The world, if it were a company, would be Enron. Its various divisions have, in the past 100 years or so, delivered blistering rates of growth, but its business model is structurally unsound and there is a massive disconnect between the gains of its executives and the returns enjoyed by all shareholders. Its administration is opaque, its financial measurement is flawed, its environmental record is awful and many of its managers are corrupt, incompetent or both. Some don’t even show up for work. Most of all, however, the world is largely borrowing from its future to deliver returns to the present. And while there’s no small amount of true innovation and genius in the mix, most of this entity’s economic performance, its profit line if you will, has been at the expense of its balance sheet: the earth."

[Full comment here.]

The International Energy Agency has just released its World Energy Outlook 2012, containing projections for global energy flows over the next twenty years.  [Click here for the executive summary.]  The IEA sees 2030 as the break-even year for net energy production in the U.S. 

[update, 11-18-12--]

However, balancing the books in total energy flows is not the same as being oil-independent.  So says this petroleum geologist, who calls the reversal in U.S. oil production "slight"--and not likely to close the present shortfall (with production lagging consumption) of 9 billion barrels per day.  Perception, as his graphs show, is all in the presentation.

More of the Same?

[from Grant Williams, "Signal 2 Noyz"]

Not sustainable.

Go back one more year to include W's last.  Add in the recipients of disability benefits, and it looks even worse:

[click here to enlarge--courtesy ZeroHedge]
NFP = Non-farm payrolls

Definitely not sustainable.

[In fairness to the President, these numbers are beyond his control.]

[Obama, hours ago]

Four more years.

Then what?

Tuesday Tune-up

Billy Joel, "Miami 2017"
(Turnstiles, 1976)

Quote for the Week, November 4-10, 2012

Do not go where the path may lead, go instead where there is no path and leave a trail.
--Ralph Waldo Emerson

Check the Box, Then Begin

PIMCO's Bill Gross

Armchair quarterbacks, take note:

"Elephants/Donkeys, Donkeys/Elephants. Perhaps the most farcical aspect of it all is that the choice between the two seems to occupy most of our time. Instead of digging in and digging out of this mess on a community level, we sit in front of our flat screens and watch endless debates about red and blue state theologies or listen to demagogues like Rush Limbaugh or his ex-cable counterpart Keith Olbermann."

[Bill's latest monthly comment is here.]

Ol' Hickory Takes Down the Biggest Bank

Might the following ring a bell?

"It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society-the farmers, mechanics, and laborers-who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles."

--Andrew Jackson, 7th President of the United States, vetoing a bill from Congress to extend the charter of the nation's central bank

[Complete veto message here.]

Tuesday Tune-up

Il Divo, "Hallelujah"

Wake-up Call

Purr softly, carry a big stick.

Quote for the Week, October 28-November 3, 2012

While there is a lower class, I am in it, and while there is a criminal element, I am of it, and while there is a soul in prison, I am not free.
--Eugene V. Debs

 

Beyond Ripe

AAPL: down 13.5% from its mid-September high

Go to the MainePERS website, and you will see that the largest holding of the pension fund's stock portfolio is Apple, maker of iEverything.  No surprise there.  With a market capitalization of over half a trillion dollars, Apple is the most highly valued company EVER.  Indeed, its market cap exceeds the GDP of all but 23 countries.  Still not sure what that means?  Here is a gallery of comparisons.

Caveat emptor.  Such a momentum stock invariably performs as does a Six Flags roller coaster:  it goes down faster than it goes up.  And Apple's share price may now be succumbing to gravity.  Just three weeks ago a single share of Apple's common stock was worth two iPad minis.  No longer.  Trading at over $700 a share in mid-September, AAPL was fetching a tad over $600 at one point in yesterday's after-hours market.

The reason?  Apple's Q3 earnings, announced at 4:30 p.m., fell short of expectations.  Worse, the company's forward guidance called for reduced profit margins in Q4.  When hedge funds (who are crowded into AAPL big time) hear "lower margins," they sell first, then ask questions later.  Supply constraints, stiffer competition, customer fatigue--doesn't matter.  With the hedgies evacuating, MainePERS has seen its position in AAPL decline in value by almost $22 million.

It is the Law of Large Numbers.  Companies like Apple (even Apple) cannot grow by double-digit percentages forever.  And especially in a contracting economy.  When the stock sprinted ahead by 50% in the first quarter of 2012, maybe portfolio managers at MainePERS should have taken some off the table.  But that's not how the fund's "passive" investment strategy works.  Now the portfolio will be rebalanced the old-fashioned way--by reversion to the mean.

All of which may leave state retirees waiting in line for their bennies:

[update, 10-29-12--]

News today of some upper-echelon house-cleaning at Apple, an admission that the company has disappointed investors.

Under 55? Uncle Sam Does Not Need You

[click here to enlarge]

from ZeroHedge:

In the last three years, the U.S. economy has added back about half the jobs lost in the Great Recession that began in January 2008.  However, for those between the ages of 25 and 55, there has been no recovery.  None.

Wonder if the President will get their votes on November 6.

Wall Street Gets Its Protection

"[President Obama] had the same ideology as Secretary Geithner and frankly the same ideology as a lot of those other people who came from Wall Street:  protect the banks."

"We still have a Too Big To Fail problem."

--Neil Barofsky, former SIGTARP and author of Bailout,
to Bill Moyers

Where Have All...the Dollars Gone?

Matt Stoller,

"Modern American Economic History in a Few Charts"

NakedCapitalism.com

Tuesday Tune-up

The Corrs, "Runaway"

Former VP Rips Squid

"The quickest way to make money on Wall Street is to take THE most sophisticated product and try to sell it to the least sophisticated client."

--Greg Smith, author of Why I left Goldman Sachs,

to 60 Minutes

Quote for the Week, October 21-27, 2012

I cannot imagine why anybody would give money to the U.S. government for 30 years for less than a 4% yield. I certainly wouldn't.
--Jim Rogers

Tuesday Tune-up

Tift Merritt, "Broken"

Quote for the Week, October 14-20, 2012

Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.
--Groucho Marx

Watch, Then Vote

Homework for November 6:

Inside Job, narrated by Matt Damon.

This movie gets taken down from time to time by The Powers That Be, but now it's back (with Spanish subtitles).  Catch this before it gets away.

JPM Underwhelms with Q3 Earnings

CEO Dimon:  feeling the heat?

This morning's headlines say it's a beat.  But the third-quarter earnings report from JP Morgan Chase leaves a lot more to be desired than just transparency.  The capsule summary from ZeroHedge:

"[T]he bottom line is this: revenues from trading dropped both sequentially and Q/Q while banking expenses rose, Net Interest Margin dropped to a new record low, even as the firm took a major $967 million loan loss reserve release on its loans to $22.8 billion, even as its total Non-Performing Loans rose by a whopping $1.3 billion to $11.370 billion, the largest quarterly jump in years!"

In other words, business is not exactly booming at this top-tier investment bank.  We might have guessed that a lackluster report was coming simply by listening to CEO Jamie Dimon's sour-grapes speech two days ago, when he insisted (regarding his firm's takeover of Bear Stearns in 2008) that the devil made him do it.  Make that devils, plural.  You know, Treasury Secretary Hank Paulson, Fed Chairman Ben Bernanke, the usual suspects.  "We did them a favor," Dimon said in D.C. on Wednesday.  "We were asked to do it and we did it at great risk to ourselves."

But that's not what Dimon was saying in March 2008, when he described the takeover as "good long-term value for J.P. Morgan Chase shareholders."  He then went on to say, "This acquisition meets our key criteria:  we are taking reasonable risk, we have built in an appropriate margin for error [i.e. we underpaid, heh-heh], it strengthens our business, and we have a clear ability to execute."

Yeah, clearly.  Dimon now claims that losses from the acquisition have run in the billions--and counting, what with state attorneys general launching litigation left and right.  Diamond Jim is being disingenuous, moreover, with the later assertion that risk came looking for him, and not vice versa.  Billions more have been lost as JPM unwinds the infamous London Whale trade.  And now we learn from this morning's report that the company in one quarter almost doubled its exposure (now close to $12 billion) to the sovereign debt of the stressed peripheral nations of Europe--a dice roll if there ever was one.  Whales, PIIGS, you name it, Dimon is rooting for profits in all the wrong places.

Bank analyst Christopher Whalen suggests here that Jamie needs a little adult supervision.  Either that or a freshly minted stack of resumés for his next job search.  Bank compliance expert Michael Crimmins is of the opinion that Dimon deserves not just a pink slip, but an orange jumpsuit.  The Whale Tale, in his view, reveals "glaring deficiencies in internal controls [at JPM] that warrant prosecution of Jamie Dimon under Sarbanes Oxley."  Remember that, in case Obama/Biden need to shag a few more votes going into the November election.

As for JPM's failed business model, Reggie Middleton and Max Keiser share some thoughts here:

[update, 10-15-12--]

Next up, Citigroup, whose Q3 report this morning used many of the same accounting gimmicks as JPM to make lemonade out of lemons.  ZeroHedge scrubs C's financials here.

[update, next day--]

Citi's Chief Executive Officer and Chief Operating Officer are given the heave-ho.  Some quarter.  Some company.