The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Cramer references on the Simpsons?

Millhouse’s dad yells at Cramer ?!?  That has to be some sort of cultural jumping the shark sign of the Apocalypse.

Or maybe, its the peak of Cramer bashing . . .

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Go to the 3:54 minute mark

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Thanks, Pete.

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Awesome radio interview with Dylan Ratigan on the big fraud . . .

http://www.fedupusa.info/Dylan_Ratigan_Interview

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Fortune 500 Annual List is out for 2008. It is FUGLY:

▪ 2008 was the worst year in the history of the Fortune 500 for America’s largest companies;

▪ Profits fell from $645 billion in profits in 2007, to just $98.9 billion – an 84.7% decline;

▪ Eleven of the top 25 largest corporate losses in list history took place last year;

▪ Insurance giant AIG posted a $99.3 billion loss — the biggest corporate loss of all time;

▪ Thirty-eight companies disappeared from the list altogether;

▪ Newcomers to the Fortune 500 list: Polo Ralph Lauren, Visa and Mastercar;

▪ 15 women ran Fortune 500 companies in 2008 — an all-time high;

▪ One out of every six working Americans — 25.6 million people — work for the nation’s largest companies;

Pretty wild stuff . . .

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Source:
2008 “Worst Year” In Fortune 500 History
CBS.com, April 19, 2009

http://www.cbsnews.com/stories/2009/04/19/sunday/main4954725.shtml

This year’s Top 20 companies, with rank, revenues and profits, +/- (in millions) are:

1. Exxon Mobil (442,851.0; 45,220.0)
2. Wal-Mart Stores (405,607.0; 13,400.0)
3. Chevron (263,159.0; 23,931.0)
4. ConocoPhillips (230,764.0; -16,998.0)
5. General Electric (183,207.0; 17,410.0)
6. General Motors (148,979.0; -30,860.0)
7. Ford Motor (146,277.0; -14,672.0)
8. AT&T (124,028.0; 12,867.0)
9. Hewlett-Packard (118,364.0; 8,329.0)
10. Valero Energy (118,298.0; -1,131.0)
11. Bank of America Corp. (113,106.0; 4,008.0)
12. Citigroup (112,372.0; -27,684.0)
13. Berkshire Hathaway (107,786.0; 4,994.0)
14. International Business Machines (103,630.0; 12,334.0)
15. McKesson (101,703.0; 990.0)
16. J.P. Morgan Chase & Co. (101,491.0; 5,605.0)
17. Verizon Communications (97,354.0; 6,428.0)
18. Cardinal Health (91,091.4; 1,300.6)
19. CVS Caremark (87,471.9; 3,212.1)
20. Procter & Gamble (83,503.0; 12,075.0)

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Source:
2008 “Worst Year” In Fortune 500 History
April 19, 2009

http://www.cbsnews.com/stories/2009/04/19/sunday/main4954725.shtml

Very nice chart showing the peak-to-trough recovery duration of SPX earnings:
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Hat tip: Chad Starliper

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).

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Big changes in Muniland
April 19, 2009

Big changes are coming in Muniland. This commentary is the first in a series about them.

It used to be that all investors had to think about when they considered municipal bonds was whether they were AAA-insured and whether or not they were traditional tax-free or subject to the Alternative Minimum Tax (AMT). Those good old days are long gone.

AAA bond insurance has been severely discredited. Investors now realize that they were buying into an unsecured creditor status on an opaque structure. That realization and the subsequent losses they experienced first led them to be averse to most municipal risk; hence, there was a flight from all Munis. Subsequently, as they have returned to Muniland, they realize that they need more than casual help. For firms like Cumberland this has been a huge boost to our value-added business proposition.

Other changes in Muniland are already affecting pricing and terms of new Muni issues. Banks have received a benefit through recent legislation and now may own up to 2% of assets in non-bank-qualified municipal bonds. Previously banks were essentially restricted to bank-qualified bonds (BQ) only. These are small Issues which are customarily placed with banks by local government units. Banks are allowed to own BQ debt because of an exception to an interest-rate penalty in the tax law that was originally passed in 1986. This 2009 law change has had the effect of encouraging some banks to expand their portfolios of tax-free municipal bonds. Cumberland has developed a service designed for banks that seek to optimize their profits using this new law.

Another important and dramatic change is in the Build America bond program. Here the federal government is agreeing to pay 35% of the interest cost on a municipal bond under certain conditions. The Issuer pays the other 65% and the bond is subject to federal income taxation.

This means new issuers of bonds must consider both taxable and tax-free structures. We are seeing the first Build America bond issues come to market. So far the economic tests have encouraged the use of taxable Build America municipal debt under this program as a substitute for what would previously have been tax-free municipal debt. We expect this program to precipitate a huge change in the 2.7 trillion dollar municipal bond market.

Build America program bonds also operate as a boost to Cumberland. We have used taxable municipal bonds for years as a form of fixed-income management. Peter Demirali has capably led that sector in the firm, while John Mousseau has been the point person on the tax-free municipal bond side. They get the credit for the successes; my job is to be responsible for the errors.

Build America now means we are busier than ever in both categories. We have to examine this program and the options for both taxable fixed-income and tax-free fixed-income clients. And the tax bracket of each individual affects the decision since the Build America federally mandated arbitrage rate is 35% while the taxpayer’s marginal rate is variable.

Build America structures are different than traditional tax-free ones. One example is in debt service (DS) reserve funding. Build America bonds cannot be used to fund DS reserves. Traditional tax-free municipal bonds are allowed to fund DS with borrowed monies but are subject to complex arbitrage rebate rules. Bonds with DS are sometimes viewed as more secure than those without them. This tradeoff needs to be examined issue-by-issue.

Retention of a state income tax-free nature while being taxed at the federal level is another issue for Cumberland to examine. In many cases a Build America bond can be exempted from state income tax even as the federal tax is imposed. This nuance is sometimes material in choosing one form of bond over the other.

There are many more details about the new Muniland. We will be explaining them to readers over the next few months.

Suffice it to say that the landscape of the municipal bond arena is rapidly changing. Valuation of bonds and credit review requires much attention these days. The lazy days of an investor’s decision about AAA-insured tax-free bonds with no homework needed are over. Municipal bonds have morphed into an asset class that requires a full effort.

Anyone who thought bonds were boring is being proven wrong. It has become an exciting time in Muniland.

David R. Kotok, Chairman and Chief Investment Officer, email: david.kotok@cumber.com

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Copyright 2009, Cumberland Advisors. All rights reserved.

The preceding was provided by Cumberland Advisors, 614 Landis Ave, Vineland, NJ 08360 856-692-6690. This report has been derived from information considered reliable but it cannot be guaranteed as to its accuracy or completeness.

BoA has completed the superfecta of earnings from the money center banks with an earnings beat but with the run the whole group has had and the ‘stress test’ drama ahead of us, it’s sell on the news time. I know many don’t like to work on Sunday’s but watching the Sunday morning political talk shows now has to be part of one’s weekend as the event risk from a comment is highly possible. Summers implied that private capital should be the first resort of fund raising for those banks that are too stressed. Emanuel said he thinks the administration won’t need more TARP money from Congress but he hasn’t seen the results of the stress test yet. The FT today said “US to put conditions on bail out repayment.” The path to and destination of the May 4th release of the stress test may whip this market around from a psychological standpoint but in reality the govt won’t let any go bust. The $ continues higher on ECB confusion over policy.

Today, I added a new blog to the blog roll for the first time in months.

I urge you to do the same.

Why? Because they were sued by GS for criticizing the firm:

“Goldman Sachs Group Inc. has been called many things over the years. Plenty of people have raged against its power and wealth. If you spend decades as the most successful investment bank, it goes with the territory. Calling it the devil may be going a bit far, though, even for the flinty-hearted employees of the New York-based bank.

Last month, a blog called Goldmansachs666.com was set up. Goldman Sachs has taken legal action against the site, alleging it infringes a trademark in the phrase “Goldman Sachs.” The owner of the site, investment adviser Mike Morgan of Jensen Beach, Florida, has promised to contest the litigation and pursue similar campaigns against other banks.

“They might think it is just a Mickey Mouse Web site, but we’re coming after them,” Morgan said in a telephone interview. “It would be really stupid for the banks to try and stop us. But banks do stupid things all the time.”

Let’s review your tax dollars at work: Godlman Sachs CEO Hank Paulson lobbied the SEC to allow the 5 largest iBanks to be exempt from net capital rules, and then leverage up 40 to 1. Which they did, especially with Mortgage-backed paper and derivatives. Then he becomes Treasury Secretary, and transfers from the taxpayers to these same iBanks — some directly, and some thru AIG — trillions of dollars.

Now, the taxpayer subsidized disaster creator is thin skinned about criticism. Note that the trademark claim is bullshit — its well settled law, via WalmartSucks.com. This 2000 case was originally found in favor of Wal-Mart by World Intellectual Property Organization but later reversed. Walmartsucks.com is no longer operating, but a new site, Walmartsucks.org appears to be run by author Kenneth J. Harvey. As another example of the legality of the “–sucks.com” sites, see also, disney-sucks.com.

No one seems to ever learn: If you want to close a critical site down, you ignore — you don’t sue them.

Thus, we add Goldmansachs666.com to the blog roll. If you have a blog, I STRONGLY suggest you do the same.

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Previously:
How to Puff Up Earnings, Goldman Sachs Style (April 14th, 2009)

http://www.ritholtz.com/blog/2009/04/how-to-puff-up-earnings-goldman-sachs-style/

Goldman Sachs: No Criticism By Bloggers Allowed (April 13th, 2009)

http://www.ritholtz.com/blog/2009/04/goldman-sachs-no-criticism-by-bloggers-allowed/

Taxpayer Funded GS Profits (April 13th, 2009)

http://www.ritholtz.com/blog/2009/04/taxpayer-funded-gs-profits/

Source:
Goldman Sachs Love Blog Is Now for Sale to Anyone
Matthew Lynn
Bloomberg, April 20 2009

http://www.bloomberg.com/apps/news?pid=20601039&sid=a0..XFoot_uo&

Nassim Taleb suggests ways to make economic life closer to our biological environment: smaller companies, richer ecology, no leverage. The risk takers of the economy should be entrepreneurs, not bankers; Companies shouls be born and die every day, without making the news.

In other words, a place more resistant to black swans.

Ten principles for a Black Swan-proof world

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”.

5. Counter-balance complexity with simplicity. The complex economy is already a form of leverage: the leverage of efficiency.

6. Do not give children sticks of dynamite, even if they come with a warning.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is denial.

9. Economic life should be definancialised. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

10. Make an omelette with the broken eggs. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself.

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Source:
Ten principles for a Black Swan-proof world
Nassim Nicholas Taleb
FT, April 7 2009 20:02

http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html

Vice Chairman Donald L. Kohn
At the Conference in Honor of Dewey Daane, Nashville, Tennessee
April 18, 2009
Monetary Policy in the Financial Crisis

In response to the financial turmoil and economic weakness of the past 18 months, the Federal Reserve has taken unprecedented steps in conducting monetary policy. Not only have we reduced our target federal funds rate aggressively, essentially to zero, but we have also made credit available to institutions and markets in which we had not previously intervened. To varying degrees, similar actions have been taken by other central banks around the world. For Dewey’s class each January, I have been describing my take on the framework for making monetary policy. I thought a natural extension of that role and a way of honoring Dewey and his abiding interest in policymaking would be to talk about how the crisis has and has not affected that framework. Chairman Bernanke has done that already in several speeches, but participants in this conference might find my perspective useful. In providing it, I will try to address some of the questions people have raised about our policy actions.1

Although our actions have been unprecedented, the framework in which I have been considering them remains, at its most fundamental level, the same as the one I have been describing to Dewey’s classes over the years. Our objective is to promote maximum sustainable employment and stable prices over time. These goals are enshrined in law, and they also make sense in economic theory and practice. Central banks are uniquely suited to promoting price stability, and they contribute to maximum employment and growth over time by eliminating the uncertainties and distortions of high and unstable inflation. The goal of maximum employment also is critical: A balance between aggregate demand and potential supply is needed to maintain price stability; in addition, significant fluctuations in output impose costs on our economy, add to uncertainty, and impede planning and growth. Our monetary policy actions in the crisis have been aimed at fostering both broad objectives.2

We achieve our objectives by influencing financial conditions–the cost and availability of credit as well as asset prices. Changes in financial conditions, in turn, affect spending and thus the balance between aggregate demand and potential supply. And how close we are to maximum employment is a basic ongoing determinant of inflation, with slack reducing inflation and overly high resource utilization increasing it. The other major determinant is inflation expectations: If expectations are not anchored–if they vary in response to our actions or to persistent gaps between actual and potential output–inflation itself will follow.

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