The Destroyer of Finance

 So I saw a pretty interesting idea at this seeking alpha post.  Mostly this came to my attention because I bought some stock in an ETF that tracks Singapore’s stock index (EWS).  I didn’t commit enough money to it, blah blah blah, but it’s there.

 As mentioned before, PEG can be an interesting tool for evaluating the “value” of a stock.  No one ratio can ever tell the whole story, but a PEG of less than 1 inspires a bargain hunter while a PEG of greater than 1 raises the eyebrows, or at least that’s the basic theory.

 So I decided to duplicate the Seeking Alpha idea, but add a little bit of twist to it.  I kept the PE numbers from the original, but used GDP (real) growth forecasts from economist.com.  “Real” means “adjusted for inflation.”  Also, I included forecasts for the next 5 years, then annualized the growth estimates.  Next, to account for the fact that a forecast for 2012 is much less accurate than a forecast for 2008, I also did a time biased growth estimate:

• 2008: 100%
• 2009: 90% (-10)
• 2010: 75% (-15)
• 2011: 55% (-20)
• 2012: 30% (-25)

 There’s no particular justification for the biasing, just a crude attempt to reflect the increasing speculative nature as the horizon moves out.

 Below is the chart containing both the straight annualized and time biased national PEGs.  I’ve highlighted in green those countries who’s PEG was noticeably improved by the time biasing and yellow those who were hurt by time biasing (meaning they were relying on higher growth four and 5 years in the future).

 The average straight annualized PEG is 5.04, the average time biased PEG is 5.14.  So, these PEGs aren’t really working on the same scale as normal corporate PEGs (which is centered on 1, in theory), partly because corporate growth forecasts aren’t usually adjusted for inflation, while real GDP is.

 I’d be interested in ways that this might be improved, if anyone has any ideas.

Good times,

leap day

 Riddle me this, baht-man (get it?  It’s the Thai currency, the Baht!  It’s… nevermind):

 name the Democratic presidential candidate that said the following:

 “Upon which side shall the Democratic Party fight—upon the side of ‘the idle holders of idle capital’ or upon the side of ‘the struggling masses’?”

The greatest adventure through all time! 

 I mean, it’s like, I mean…

  Bernanke says no return to the 70s.  There’s a lot to say that he’s right, but that won’t stop the media or the politicians from lighting a fire about it.  Plus, if I could go back to the 70s, I’d invest in Google or something so it wouldn’t be that bad.

We all have our time machines, don’t we? Those that take us back… are memories. Those that carry us forward… are dreams.

 Bush says no recession!  While this is still possible, and most economist who do think a recession is likely still think it won’t be that long or that bad, it’s probably not a great example of good timing.

Treas Sec. Paulson’s reaction after Bush announces that Paulson has guaranteed “no recession or your money back.”

Do you know what it’s like to remember everything? [ed. note: yes.]

 Wind power is great, but it’s tough to say wind is the solution when things like this happen.  That’s why people usually pair wind power with solar power… generally, if it ain’t sunny, it’s windy.

 Also, the power co. should look into a giant battery for its windmills.  Think I’m joking?

My question is: why can’t one change the past?

 Hedge funds are fun!  Ever think to yourself, “if only I had enough money to invest in a hedge fund… those guys have all the secret market codes that let them make money guaranteed”?  Peloton Partners agrees.  After being named “Best New Fixed Income hedge Fund” as long ago as last month, Peleton announced yesterday: gig’s up!  From best new fund to can’t pay the lenders in a month… glorious?  or stunning.  Tough to tell.

 “It is the classic story of when leverage goes wrong,” one investor said. “But I can’t believe this problem is confined to these guys alone.”

 Ouch?

Because one cannot travel into the past.

 The bond insurer bailout that made the market so happy has hit a snag.  The markets are down this morning.  A lot.  Expect the general trend to continue for a while: a good week or so where things are looking up for the market, then a week where all the progress gets unwound leaving the market lower than where it started.

 Also, insurance giant AIG takes huge write down on mortgages, so everybody have a happy party time.

 Oil broke through $103 before retreating, although I suspect we’ll see $90 again like Pickens said.  If that happens, the oil bandwagon would look like an attractive ride.

 Gold, wheat, corn, copper, stuff, places… man, we’re screwed.  Sell everything and buy guns, ammo, and canned food.  I’ll meet you at the rendezvous.

I wonder if we’ll ever go too far.

News of the stupid:

 Athlete + costume party seems to be a certain bet for high comedy, and what’s funnier than Hitler?  He’s good at kicking a ball, not good taste, it seems.

 Due to MY sense of good taste, I can’t even begin to identify a good starting place to comment on this.

Who are you, to question 800,000 years… of evolution?  

 Ain’t got much for yo politics today.

 Here’s an article about the flaws in Obama’s economic positions from two people who have credentials that suggest they might know something, but I guess you could say the same thing about Krugman’s creditials, and look at him.

 And yet Obama’s winning, and to provide an example of why he’s winning, Clinton says “if you don’t like the way things are going, take someone to court!”  That’s the American spirit.

 Obama says he will “definitely be reaching out” to Bloomberg.  Interesting.

You’re forgetting one thing. What if?

 On the McCain front, as predicted, the Democrats are backing away from McCain’s natural born citizen issue as though it were radioactive.

Missouri Sen. Claire McCaskill, a prominent backer of Democratic candidate Sen. Barack Obama, introduced legislation Thursday that would define a “natural-born citizen” as anyone born to any U.S. citizen while serving in the active or reserve components of the U.S. armed forces. Obama’s campaign announced late Thursday that he will co-sponsor the bill.

 Think the NYT editorial staff got a call from DNC chair Dean screaming “What the HELL are you doing?!  YEAARRRRG!”?

 And yes, passing a bill is cute, since it couldn’t override the constitution, if in fact McCain’s birth status rendered him unconstitutional, which it doesn’t.

Ugh.  Busy.

Pete Fenson

Expect the Impossible

 This stuff rolls like the tide.  It’s like the news cycle goes in and out, in and out… I guess that also makes it like….

 Heavy dose of FT today.

Relax Luther, it’s much worse than you think.

 When your economy grows less than inflation, is that growth?  hrmm.

 Loads of good profit reports:  Sprint posts 29.5 Billion loss, government sponsored mortgage investor Freddie Mac posts 2.5 Billion loss, and it’s larger government sponsored mortage investing cousin Fannie Mae posts 3.6 Billion loss.

 Mixing in some politics with your economy, I think the oil tax bill that just passed the house is overblown.  The media, to make it sound exciting so that you’ll read/listen calls it an $18 Billion tax increase, but that’s over 10 years.  really we’re talking a few hundred million a year for the largest oil companies in the US.  That’s really serious money, but it’s not going to make a noticeable difference in anything for the oil industry, and IF the money was actually going to be used for what the bills backers SAY it will be used for, then it’ll help us down the line.  That’s a very strained if, though.  Plus, the bill, supposing it gets through the Senate, will get vetoed anyway, and doesn’t have enough votes, so….

Would you consider the cinema of the Caribbean? Aruba, perhaps?

 The dollar has been big news the last couple days:

  It held on with great tenacity ever since it’s precipitous decline in Fogust-Rocktober, but with inflation looming and Bernanke standing on top of a table in Congress, pulling an old navy cap over his bald pate and screaming “I’m David Farragut!” the dollar may have lost it’s grip on that 75-77 band it’d been in since November.  By the way, the US Dollar Index compares the dollar to a basket of currencies, not any one specific monetary unit.

 This is good and bad: it will help our economy be more competitive with exports and keep jobs from migrating overseas, but it will also increase the risk of inflation since ultimately the crap we import (oil? clothes? chinese spies?) will get more expensive in terms of dollars.

Thinking Machine laptops, I’m talking about the 686 prototypes, with the artificial intelligence RISC chip.

 I’m laughing, but only because I’m crying so hard.  A quote, you say?

Gavin Maguire, of Iowa Grain in Chicago, said consumers such as mills and bakers, who needed wheat, were “panicking”.

“Historical references are useless. We are breaking all the rules,” he said.

 Fed cuts interest rates?  Bond markets move the other way, raise rates.  At this point, if that’s the way the bond market is going to be, there’s no point in cutting the fed rate any further.  The more the Fed rate gets cut, the more the private market is going to demand higher rates to offset inflation concerns.

These guys are trained to be ghosts. We taught them to do it for Christ’s sake.

 Eastern Europeans wonder: why can’t we run our economy the same way we tell them to?  Now son, just because I’m snorting coke off your baby sitter’s teats doesn’t mean it’s ok for you to do it.

 And since I haven’t insulted anyone today: Krugman is a moron, and Larry Summers a buffoon.

 Zero bodycount.

 I’m crying, but only because I’m laughing so hard.  I feel this much closer to eternal glory and unlocking my psychic powers of prognostication!  Bloomberg’s actual letter below from NYT via FT:

Bloomberg: I’m not running for president, but…

By Michael Bloomberg

Watching the 2008 presidential campaign, you sometimes get the feeling that the candidates — smart, all of them — must know better. They must know we can’t fix our economy and create jobs by isolating America from global trade. They must know that we can’t fix our immigration problems with border security alone. They must know that we can’t fix our schools without holding teachers, principals and parents accountable for results. They must know that fighting global warming is not a costless challenge. And they must know that we can’t keep illegal guns out of the hands of criminals unless we crack down on the black market for them.The vast majority of Americans know that all of this is true, but — politics being what it is — the candidates seem afraid to level with them.Over the past year, I have been working to raise issues that are important to New Yorkers and all Americans — and to speak plainly about common sense solutions. Some of these solutions have traditionally been seen as Republican, while others have been seen as Democratic. As a businessman, I never believed that either party had all the answers and, as mayor, I have seen just how true that is.In every city I have visited — from Baltimore to New Orleans to Seattle — the message of an independent approach has resonated strongly, and so has the need for a new urban agenda. More than 65 percent of Americans now live in urban areas — our nation’s economic engines. But you would never know that listening to the presidential candidates. At a time when our national economy is sputtering, to say the least, what are we doing to fuel job growth in our cities, and to revive cities that have never fully recovered from the manufacturing losses of recent decades?

More of the same won’t do, on the economy or any other issue. We need innovative ideas, bold action and courageous leadership. That’s not just empty rhetoric, and the idea that we have the ability to solve our toughest problems isn’t some pie-in-the-sky dream. In New York, working with leaders from both parties and mayors and governors from across the country, we’ve demonstrated that an independent approach really can produce progress on the most critical issues, including the economy, education, the environment, energy, infrastructure and crime.

I believe that an independent approach to these issues is essential to governing our nation — and that an independent can win the presidency. I listened carefully to those who encouraged me to run, but I am not — and will not be — a candidate for president. I have watched this campaign unfold, and I am hopeful that the current campaigns can rise to the challenge by offering truly independent leadership. The most productive role that I can serve is to push them forward, by using the means at my disposal to promote a real and honest debate.

In the weeks and months ahead, I will continue to work to steer the national conversation away from partisanship and toward unity; away from ideology and toward common sense; away from sound bites and toward substance. And while I have always said I am not running for president, the race is too important to sit on the sidelines, and so I have changed my mind in one area. If a candidate takes an independent, nonpartisan approach — and embraces practical solutions that challenge party orthodoxy — I’ll join others in helping that candidate win the White House.

The changes needed in this country are straightforward enough, but there are always partisan reasons to take an easy way out. There are always special interests that will fight against any challenge to the status quo. And there are always those who will worry more about their next election than the health of our country.

These forces that prevent meaningful progress are powerful, and they exist in both parties. I believe that the candidate who recognizes that the party is over — and begins enlisting all of us to clean up the mess — will be the winner this November, and will lead our country to a great and boundless future.

Michael Bloomberg is the mayor of New York

© The New York Times Company

We were living in a democracy the last time I checked.

 Look, I just had a hole bunch of post deleted because wordpress logged me out while I was typing, so I’ve lost the life force necessary to regenerate the lost detail.  I’ll give you the overview:

 NYT doesn’t get it, tries different angle on hating McCain.  I don’t know what they think they’re going to accomplish.  The DNC certainly isn’t going to touch this since they hope to pick up military votes this year, and its been long accepted that military bases/embassies are US territory (not just land rented from another country).

 From the UP, an article about national healthcare.  I’m not sure how a ultimately feel about the article, as I disagree with some of her conclusions, yet think she has interesting observations.  My main disagreement is that she seems to assume that young people will continue to not get health insurance even if given an offsetting tax credit.  I think A) why are we, as young people, so stupid? and B) if it was ultimately made “free” by way of tax credits, I think most people would get health insurance, at least up to the amount covered by the credit.  Hell, you’d be paying for it anyway, you might as well get your tax credit.

What are we gonna do, Barnes? Put a guy at the airport?

 Ok, so this is the most defeating part to retype:

 I’ve criticized and dismissed a number of “solutions” to the housing problem, so I’d like to offer one of my own.  My idea has it’s weak points: 1) I don’t know the extent of the legal stumbling blocks that would have to be addressed (tax laws that may have to be changed, incentives put in place, who knows what else); 2) The plan requires some substantial funding from private investors, which lenders might not have right now; 3) It would certainly require a mess of paperwork to pull off, and would be a somewhat complex transaction (I prefer the term “elegant”).

 Joe McDouche bought a house 2 years ago for $500k (nice round number) by taking out a mortgage that wasn’t really sustainable (arm, interest only, lied about his income [hey, who hasn't?]).  He, of course, assumed that something would turn up down the road and things would work themselves out (sell the house for a profit, win the lotto, whatever).

 Now the McDouche manse is worth only $400k and every month he has to choose between making his mortgage payment and getting the new Aurora Snow dvd.  The tough decisions people are required to make these days.  It’s inhumane.

 He could walk away from the house, but the idea is we’re trying to find a way to keep people in their house AND let them get good pron.  We could look at “cram downs”, but talking about cramming and pron in the same post is too confusing, plus I dismissed cram downs as stupid yesterday.

 So here’s my test balloon: the lender refinances McDouche for the $400k the house is now worth.  Joe pays interest on this amount only, and he has to pay all property taxes.  The lender then takes a 20% stake in the house for absorbing the remaining $100k (100/500).  If the house returns to a 500K value and is then sold, the bank recoups all its money (it gets 20% of the 500k selling price, then the balance of the mortgage is repaid), and in the mean time Joe stays in his house and makes regular payments.  If he can’t afford 80% of the original mortgage, then there’s probably not much anyone can do.  The lender would also certainly be able to sell it’s equity stake in the secondary market that would be sure to pop up instantly, or it could hold the stake for investment if it thinks that its 20% stake will be worth more than 100k in the future (you wouldn’t cap the lender’s profit potential from the 20% because you’re trying to encourage them, remember?).

 Obviously, other than red tape issues, there’s 100k that has to be funded in the above example, and not many lenders have that sort of moola sitting around ready to go, but I think that given the proper incentives, you’d see enough money coming out of the private investment sector to make a go of it, at least in trial runs at first.

 Benefits:

• minimizes government interference, allows for a free market solution
• keeps people in their homes with a vested interest in the well being of the property
• gives lenders/investors the opportunity for profit and/or loss mitigation
• prevents high foreclosure rates from suppressing other homes’ values, reduces high risk crime environments [large stretches of empty repo'd homes]

 Drawbacks:

• red tape, red tape, red tape
• may need legislative support to clear roadblocks
• would require funding that lenders probably don’t have right now

 Let it never be said that I only criticize!

bukkake,

Alfred von Schlieffen

 Don’t say we didn’t warn you

I didn’t watch the debate last night, but I understand they kept playing king of the anti-nafta hill.  Whatever.

 Good article from the San Diego Union outlining some of my philosophical differences with the Democratic party, and in some cases the Republican party.  Is it fair that the CEO of an international mega corp makes as much in 10 minutes as an American unskilled vagabond makes in a year?  Well… yeah.  Sorry, Obama, but your radio spots don’t convince me.

I’m sorry… I don’t speak monkey.

 A note on the Christian Science Monitor article linked yesterday: there are some loans that judges are allowed to cram down interest rates on in bankruptcy.  These are loans for things like yachts and vacation homes.  So, if it seems “unfair” to you, as some politicians would claim, consider that the loans on those items already carry a higher interest rate to offset the risk of getting “crammed” in court later.  In the case of vacation homes, the typical mortgage rate is 1/4-1/2 of a percent higher than the mortgage on a main residence.

 SOME people in congress want to make everything fair, though.  Apparently, they think that the way to help boost the housing market, and to make home ownership accessible to everyone (a dubious goal in it own right), is to make the cost of owning a home… go up!  Higher rates are clearly the way to increasing the demand for homes and boosting the values.  Higher rates will help the poor and downtrodden find a place to call their own!

 Clearly, they wouldn’t put it that way.  They’d say they were helping those burdened by debt now, and after all it’s only fair that the common man have the same “advantages” of the rich (never mind the bit where the rich pay for that advantage).  The end result is essentially without contrary evidence: mortgages will get more expensive.  FEWER people will be able to buy homes, and those than can will be able to afford less.  This act, if passed (and then passed again over a veto), would actually prolong the housing slump.

  So, go government intervention!

Let’s go back to prehistoric times when dinosaurs ruled the earth!

 In other economic stuff:  Durable orders off 5% (bad), oil busts through $102/barrel, gold continues to near $1,000/ounce…

 and wheat reaches $13.50/bushel, which is about 69% higher than it was on October 2nd, 2007.  Tortilla anyone?

 A bit light today, but I’m a little pressed for time (and source material).

check MATE,

ralph nader

Pockets ain’t empty, cuz.  

Prepare to hear about Obama’s mother dying at age 53 for one more week.

 I’ve been picking up a lot of NAFTA bashing on the democratic side.  Obama and Clinton are attacking NAFTA with the same fervor the Republicans were romancing Reagan’s coffin.  Once again, it feels good to attack NAFTA, and it appeals to the common man.  However, as Herbert pointed out, fear is the mind killer, and the US economy will gain nothing from withdrawing from free trade agreements.  It would be a big mistake, and nothing more.

Yo, Jimmy, man, give me the status. Tell me we good.

 An insightful article on the housing problem from the Christian Science Monitor.  Lest your eyes glaze over, I assure you the publication has nothing to do with religion, it’s just a good newspaper.

 Polls are difficult to decipher during the primary season, especially when one primary is already done, and one is in the heat of battle.  Problem being that the average American likes to be where the action is at, and so many people who A) won’t vote at all, or B) won’t vote democrat suddenly have an opinion on Obama v. Clinton.  It’s exciting and enthralling and it stirs people’s emotions, but the truth is that all it really accomplishes is throwing up a lot of static for the pollsters and making their polls mean nothing beyond the primary next week.

 Polling the average American also presents the problem that Americans like to support what’s “in.”  In this case, that’s Obama, so you have a lot of people “backing” Obama who know nothing about him (other than Hope and Change) and who probably are not going to vote in November.  Sorry.  It’s just true.

 All that aside, the Economist had an interesting semi-scientific look at who was more likely to beat McCain (BO or HRC) [you actually have to click through to a different page from the economist, but I'm lazy]: the stunning conclusion is the Clinton comes closer in recent polls to winning a general election than Obama.  Massachusetts almost certainly is throwing up some bad poll numbers that won’t carry through to the general election, but whatever.

And we ain’t hungry no more either, brah,

Julia Bond

2Cool 

 What a DAY!

 Wholesale inflation for January was up 1%, led by, of course, energy and food, but also medicine.

Food prices, which have been surging because of increased demand stemming from ethanol production, rose by 1.7 percent last month, the biggest monthly increase in three years. Prices for beef, bakery products and eggs were all up sharply.

 So… ethanol has highly questionable greenhouse benefits, isn’t making energy cheaper, and IS making food more expensive (because higher corn prices drive prices for all grains higher, thus making meat and milk more expensive because of feed costs).  Um… can you explain to me what purpose the ethanol movement does serve?  Right, it makes politicians look good.  McCain wins points for his opposition to ethanol subsidies (yes, the gov’t pays a subsidy for ethanol production).

The January surge left wholesale prices rising by 7.5 percent over the past 12 months, the fastest pace in more than 26 years, since prices had risen at a 7.5 percent pace in the 12 months ending in October 1981.

 7.5% in the last 12 months, yes, but 3.3% in the last 3 months.  Last three months annualized works out to about 13.9%.  Good times?

Prices excluding food and energy are up 2.5 percent over the past 12 months, the fastest 12-month gain since a 2.5 percent rise in the 12 months ending in October.

 Did the writer have a word quota?  Does the above paragraph serve a purpose?  “It’s the fastest rate since 4 months ago.”  How is that informative?  Kill me.  Oh, again I’ll point out that if you wish away higher food and energy costs, 2.5% inflation doesn’t sound so bad!

 This is still wholesale inflation, and as I’ve said before the glory of market competition will force sellers to absorb as much of the cost increase as they can, so the consumer inflation is generally a more gradual increase.  There is a limit, though.

 Also, news like this puts the Fed in a bind, since they may now feel that they cannot lower interest rates further in the face of inflationary pressures.  Or, they might decide “damn the torpedoes, full speed ahead” and cut rates anyway.

Alright, Alright, Fire ‘em up!!

 Onward!

 I like chaos, this makes me giggle.  Lenders don’t want to own property.  Why?  Because if they did they’d be property managers or Real Estate Investment Trusts.  Lenders, almost without fail, are not equipped with either the personnel or systems to handle a real estate portfolio.  Hell, most places don’t even manage their own buildings.  A lending institution running a portfolio of repossessed houses is prime ground for disaster, and it will be interesting to see if a couple things happen:

• An industrious capitalist raises enough funds to buy a significant inventory of housing at a big discount to original value, and effectively manages it for profit.
• The inventory of unsold/empty/repo’d houses becomes so large that institutions decide it’d be cheaper/better to bulldoze some of the inventory than try to maintain them. (It’d help thin out the excess supply, for sure.)

 Speaking of excess supply… housing prices… not so good, buddy.  North Texas?  Hanging in there.  Other places?  Eh….

You know, I like you. But I still gotta kill you. It’s my job.

 Also, sales down of Home Depot (ouch!), and Siemens cutting 6.800 jobs.  Siemens Twins Activate?

 The bond insurers appear to have secured sufficient capital for the time being, so the market is happy about that, and Brit bank Standard Chartered (generic name?) gives first evidence that Asia’s economy is not getting slowed down as much as people feared.

 Yahoo had a strong article about saving for retirement re: probably tax changes.  Obviously, not getting your maximum match in your 401k is wasting money, but what you do past that is up for discussion.

 post script: Thank you ethanol!  My commodities investments up 19% in just 5 months!

 I’m sorry, it was on the radio this morning, it’s stuck in my head.

Not much of note in politics over the weekend.  Politics as usual, as usual: smears, innuendo, false claims, statistically based lies ["lies, damned lies, and statistics," as pointed out by Benjamin Disraeli, NOT Mark Twain].

 And this is what we call a “whooping stick”

 We got this gold about Obama this weekend.  Obviously a cheap play on Obama’s name, when all he was trying to do was be culturally aware and respectful on a trip to Kenya.  See, this is exactly the sort of low attack that makes people not like the Republican party.

 Say, what?  This originated from the Clinton campaign?  Well, politics as usual.

 Also, Chicago Sun sez Obama has a credibility problem with the Jewish segement in the US.  Maybe he should get a Jewish running mate.

 I’m just sayin’.

 Well, that’s all I’ve got for today.

 Live from Seattle,

Dave Grohl