Professor Elam

Best Business Books of 2009

USA today compiled its list of Best Business Books for 2009. 

1930 All Over Again?

We regret that stockcharts.com does not have data for the 1930s. Here is however a linear graph of what happened. THe market topped in 1929 and crashed that fall. 

High 390

Low 196

Recovery 294

At the recovery high everyone then, Hoover among them assumed things were back to normal. We are experiencing the same deja vu now, politicians are declaring their heroic efforts have saved the day. 

But as the chart shows, the market rolled over and then really crashed over two years losing 86% of its post crash high! So where are we now?

 

One has to go back to October 2007 to pinpoint the pre crash high. THe market wandered for a longer period but finally settled down and crashed from 11,000 in the fall of 2008. It recovered this year and appears it will still be doing so into the spring, So the time horizon has been lengthened this time. The purple arrow and line duplicate the line at 300 shown on the top graph. 

Note at top it took two years from that spring to find a bottom at 41! 1972-74 offers another parallel.

 

The stagnation of the 1970s presents the same picture, huge rallies followed by huge declines. 

We expect this will continue the next few years. The unemployment, the  negative equity in real estate, the weak bank sector all speak to problems to be addressed. 
 
 

 

Banks Move the Goal Post

Wednesday Dec 23 2009

Banks got  a reprieve from raising more capital to offset, well read the article and you tell me what they are offsetting. The fact is that the banks need more capital and have instead questionable assets.

The FDIC has granted more time but not the three years requested to implement new rules.

Yield Curve Steepens

 The yield curve shows the difference in short and long term rates on one graph. The steeper the curve the greater the difference in short and long rates. Right now, long rates seem to be anticipating higher interest rates. Reports are that the difference in short and long rates has not been higher than it is now for many years. 

An interesting graph is here. It allows one to see the yield curve at any point versus the S & P over the last few years. 

 We were surprised at the rise in very short term rates when we put this next  graph together. It compares the 3 moth T bill rate in black and red with the very long 30 year bond rate. 

Point is, they are both going up. Bond holders and buyers are beginning to demand a higher interest rate to hold bonds issued by this government. 

Presidential Dissatisfaction

Wednesday Dec 23, 2009

Barack Obama's disapproval ratings are up to 46%, and this is just his first year. This is no surprise to a student of socionomics, the trend and mood are down!  Remember out template is the period from 1966-1982. We are now well into the 1970s. If Bush was Nixon, Obama is Carter. While Carter embraced different policies than Ford and Nixon, he finally suffered one of the worst defeats ever. The same scenario is being repeated. The only surprise is that political observers are, well, surprised. Note by the way that this is Not necessarily driving voters to Republicans, lest you think I am cheering for Republicans. They too are suffering low approval, the reason is the negative perception of all in office. 

A public enamored with mobsters (the Sopranos won tv show of the decade as reported here yesterday) and vampires (everywhere!) is not enamored with politicians. Indeed, Congress rates lower than the President, and did so during the Bush presidency, nothing has changed!  The claims that housing and the economy are improving which is not the case, will only drive his numbers lower, as they did Carter. 

The parallel of the New York City economic crisis of 1976 is now multiplied, read about Detroit and bankruptcy here. Detroit Mayor Bing admits the actual unemployment rate may be close to 50%.

We suspect a big issue this next year will be city state and university pension funds seeking Federal bailouts. Is a pension fund a bank worthy of TARP money?  Do pensioners vote?  Do taxpayers asked to support pensioners vote? 

2010 is shaping up to be an interesting year to say the least. 

Mediaweek

Tuesday Dec 22 2009

Rush Limbaugh has been named Radio Personality of the Decade by Mediaweek, a leading industry magazine and Web site.  Mediaweek also named Apple’s Steve Jobs as Marketer of the Decade, “The Sopranos” the TV Show of the Decade, Rupert Murdoch the Media Executive of the Decade, YouTube the Web Site of the Decade, Wired the Magazine of the Decade, Apple the Brand of the Decade, Larry Page and Sergey Brin of Google the Media Entrepreneurs of the Decade, and Google the Media Company of the Decade.

This sort of thing is interesting in terms of emerging social trends, a popular topic for this blog. It matters not what you think of Rush Limbaugh, or Keith Oberman for that matter, what does matter is the opinion that large segments of the population have of them. 

For example, there have been numerous attempts to run someone liberal as a popular radio talk show host, Mario Cuomo, Jim Hightower, many try, most like Air America fail. Why?  The assumption is that Rush just talks conservative and that if the other side just talks liberal they will find an audience. Obviously this is not the case. Indeed there are many conservative talk show hosts but Mediaweek notes none of the others come close to Limbaugh in terms of audience. Limbaugh points out that he is a professional broadcaster, it is the content of his show that makes it different. So what is the difference, any thoughts?

At any rate, consider the others in the list. 

Jobs has made Mike Dell eat his words about liquidating Apple as Dell stock cannot rise above $20 and is in Wal Mart selling computers . The i Empire will no doubt spur lots of sales of the upcoming iTablet or whatever Apple will call its reader. The Sopranos tv show foretold the turn to the dark side and the popularity of gangster shows ala our previous template, 1966-82 for the period we are in now. Notably it was followed by True Blood, one show about contemporary gangsters, another about contemporary vampires. Conventional media still does not want to take Murdoch seriously but he did buy the Wall Street Journal, and his Fox News continues to attract and star ex CNN talent. O Reiley is up again this year. You Tube has made every video cam a potential tv studio, can Jay Leno rescue NBC?  I think I will subscribe to Wired, we did post a story about quants from Wired. Apple has created Apple devotees, something that escapes their commodity based competitors that are essentially selling television sets. I view today's personal computer as the new television set of another generation. Interestingly Apple has shown no interest in going down market to compete on price. Wall Street dismissed the Dutch Auction of Google shares, and then it went to $400 a share. Google continues to set the pace.  

A key component of success here is Design. We previously mentioned this with Apple, its elegant designs cascade right down to the packaging. Limbaugh has designed his program his way, it is right there for everyone to hear, why can't they duplicate it?  Note to younger readers, others tried to do the same when Johnny Carson and Ed McMahon were on the Tonite Show, they tried all sorts of guy combinations, none were successful. Letterman, O Brien, and Leno are shadows of that team. Google also has a clean uncluttered design interface. Conclusion, Good Design Works. 

Meanwhile Time Warner threatens to drop Fox, gee does that mean 24?  Time Warner proved its incompetence over paying for AOL resulting in the biggest impairment write off in history, perhaps they can do it again!

Taxpayer Funded Pension Plans?

Tuesday Dec 22, 2009

Pension plans helped sink GM and are now doing the same to YRC. YRC is the remnant of Yellow Freight and Roadway, now drowning in debt, and pension obligations. Seems that the surviving company is on the hook for all the laid off Teamster drivers of failed companies. Mish Shedlock takes an extensive look in his Dec 22 2009 post. 

The chapter on pensions is far too detailed in my opinion, it fails to give students the big picture of what is really happening in terms of liability to the employer, we will all be reading this column in Intermed II next semester. 

2010 will be characterized by these types of failed promises. Our template for the near future is 1968-82. This period was a series of ups and downs for the stock market, politicians and everything else. NYC actually defaulted because of its difficulties with municipal worker contracts. Now cities and states and employers have all made similar agreements that cannot be kept. This will come crashing down in spectacular fashion. Mish details how a congressman is trying to move the target on calculating the pension obligation. But there is no way all this can be paid. Expect pension funds to ask for bank status and TARP or other federal assistance. 

Texas Universities Offer Vampire Courses

 Well so much for cowboys and where the west begins, Texas tops the list of US universities offering courses on vampires. Literature, sociology, you name it. UT Austin, the class is now at 250 and growing, TCU, and gads, Texas Tech now offer courses on our they live by night friends. 

You heard it on my blog first. Fascination with the occult goes with the dark side of the downturn in the economy. The fact that interest in vampires is growing tells us we are nowhere near the end of this down cycle. For the time being there are no plans that I know of to offer a credit course on vampires at SA A & M. We will however keep you posted on the blog, well I am tempted to post a vampire analogy but....

Hawaii, Latest Trainwreck

Obama may be their native son but he has certainly hurt more than helped. After excoriating companies for trips to posh vacation spots, many companies cancelled trips to both Las Vegas and Hawaii. Well guess what, both economies are now on the intensive care list. 

Read about Hawaii here. 

As the say ing goes Mr. President, with friends like these.....

Watch the Bond Market

This is a ratio chart of Central Fund versus the US Dollar. CEF has outperformed the dollar, until Dec 1. Note the ratio went below the 200 bar moving average to really kick this off in April. The message is that we expect the 200 bar MA to be tested and overthrown again.

Well tell you what let’s look at the bond market before we go…

This is the very long picture of the fall in rates since the top in 1981. Rates have followed the 50 bar MA all the way down. We assume that the spike to two something percent on the thirty year and zero on t bills is the bottom of rates. Note 39 year rates are now 4.45%. The 200 bar MA is at 5.5%. So a mere 100 basis points would turn up a thirty year trend.

At top the rate of change from last fall’s panic low has topped out, significant on a thirty year chart, okay, twenty nine years and counting…

Our point here is that the bond market bears watching for what is  ble to be important events in 2009. How important is the bond market?  Glad you asked.

Bond yields are in black and red. They topped at 14% shown on the right scale in 1981 The stock market, the solid black line bottomed at that point. Money moved from CDs, safety, to the stock market, risk. And that continued until 2000. The  stock market managed to come all the way back up to 1500, but has not done so since. Low interest rates move money to stocks, high interest rates discourage stock investing, why bother when 14%  is available at the insured local bank (now a much larger question mark than in 1981!).  Note the stock market has NOT come near its previous high despite trillions of dollars poured into the ecomomy by Time’s Man of the Year.

Monitoring the bond yields should be the final clue to stock market behavior in  2010.