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

I stand before you chastened, a humble man who is must admit the errors of my ways.

You see, I thought the bailouts were going to be terribly expensive. Adding up all of the direct cash injections, loans, assumptions of debt, commitments, guarantees, and other obligations, I reached the unimaginable sum total of $14 trillion dollars.

As it turns, I was off by a few trillion. Thanks to the frugality of the Federal Reserve, the new total appears to now be a downright reasonable sum of a mere $11.6 Trillion dollars — a perfect bargain, an affordable expense for the new era of frugality !

“The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market to focus on rescuing the U.S. economy as the financial system revives and banks ask for less help.

The Fed is allowing some of the 10 support programs it created or expanded after the credit crisis began in August 2007 to expire or shrink. That caused the first decline in the amount of money the U.S. has committed on behalf of taxpayers to end the recession, according to data compiled by Bloomberg.”

Thank goodness this turned out to be so affordable!

To put $11.6 trillion into context, lets add up some major US expenses, adjusting for inflation: Take the Marshall Plan ($115.3B), the Louisiana Purchase ($217B), the Race to the Moon ($237B), the S&L Crisis ($256B), the Korean War ($454B), the New Deal ($500B), Invasion of Iraq ($597B), (Vietnam War $698B) all of NASA ($851.2B) and WWII ($3.6T).

By way of comparison, all of that totaled $7.52 trillion dollars. Hence, the bailouts have been the greatest commitment of capital the US has ever engaged in.

To be fair, many of the Federal Reserve commitments are backed by assets, although they vary dramatically in quality. The Fed considers much of the $11.6 trillion as a form of secured loans.

I beg to differ. Since the Fed refuses to identify the collateral backing its loans — and from my own research, I can tell you they have allowed random garbage to be used as collateral — I would guess that less than 75% is truly secured. I doubt they will will see 100% return against their total loan outlay.

I hope I am wrong about this.

Regardless, the outlays for the bailouts are a truly unfathomable amount of money. We are years away from learning the true costs — in dollars, and in future dangerous behavior encouraged by rewarding recklessness and stupidity.

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Previously:
Big Bailouts, Bigger Bucks (November 25th, 2008)

http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/

The Credit Crisis: The Largest Outlay In American History (August 7th, 2009)

http://www.ritholtz.com/blog/2009/08/the-credit-crisis-the-largest-outlay-in-american-history/

Source:
Fed’s Strategy Reduces U.S. Bailout Pledges to $11.6 Trillion
Mark Pittman and Bob Ivry
Bloomberg, Sept. 25 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=aJwZIBMSGsek

===========================================================
                                  --- Amounts (Billions)---
                                    Limit         Current
===========================================================
Total                            $11,563.65     $3,025.27
-----------------------------------------------------------
 Federal Reserve Total            $5,870.65     $1,590.11
  Primary Credit Discount           $110.74        $28.51
  Secondary Credit                    $1.00         $0.58
  Primary dealer and others         $147.00         $0.00
  ABCP Liquidity                    $145.89         $0.08
  AIG Credit                         $60.00        $38.81
  Commercial Paper program        $1,200.00        $42.44
  Maiden Lane (Bear Stearns assets)  $29.50        $26.19
  Maiden Lane II  (AIG assets)       $22.50        $14.66
  Maiden Lane III (AIG assets)       $30.00        $20.55
  Term Securities Lending            $75.00         $0.00
  Term Auction Facility             $375.00       $196.02
  Securities lending overnight       $10.42         $9.25
  Term Asset-Backed Loans (TALF)  $1,000.00        $41.88
  Currency Swaps/Other Assets       $606.00        $59.12
  GSE Debt Purchases                $200.00       $129.21
  GSE Mortgage-Backed Securities  $1,250.00       $693.60
  Citigroup Bailout Fed Portion     $220.40         $0.00
  Bank of America Bailout            $87.20         $0.00
  Commitment to Buy Treasuries      $300.00       $289.22
-----------------------------------------------------------
Treasury Total                    $2,909.50     $1,075.91
  TARP                              $700.00       $372.43
  Tax Break for Banks                $29.00        $29.00
  Stimulus Package (Bush)           $168.00       $168.00
  Stimulus II (Obama)               $787.00       $303.60
  Treasury Exchange Stabilization    $50.00         $0.00
  Student Loan Purchases             $60.00         $0.00
  Citigroup Bailout Treasury          $5.00         $0.00
  Bank of America Bailout Treasury    $7.50         $0.00
  Support for Fannie/Freddie        $400.00       $200.00
  Line of Credit for FDIC           $500.00         $0.00
  Treasury Commitment to TALF       $100.00         $0.00
  Treasury Commitment to PPIP       $100.00         $0.00
  Cash for Clunkers                   $3.00         $2.88
-----------------------------------------------------------
FDIC Total                        $2,477.50       $356.00
  Public-Private Investment (PPIP)$1,000.00          0.00
  Temporary Liquidity Guarantees* $1,400.00       $301.00
  Guaranteeing GE Debt               $65.00        $55.00
  Citigroup Bailout, FDIC Share      $10.00         $0.00
  Bank of America Bailout, FDIC Share $2.50         $0.00
-----------------------------------------------------------
HUD Total                           $306.00         $3.25
  Hope for Homeowners (FHA)         $300.00         $3.20
  Neighborhood Stabilization (FHA)    $6.00         $0.05
-----------------------------------------------------------
* The program has generated $9.3 billion in income, according to the agency.

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Glossary:
ABCP — Asset-backed commercial paper
AIG — American International Group Inc.
FDIC — Federal Deposit Insurance Corp.
FHA — Federal Housing Administration, a division of HUD
GE — General Electric Co.
GSE — Government-sponsored enterprises (Fannie Mae, Freddie Mac
and Ginnie Mae)
HUD — U.S. Department of Housing and Urban Development
TARP — Troubled Asset Relief Program

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Breakout of TARP funds:
===========================================================
                                  --- Amounts (Billions)---
                                     Outlay      Returned
===========================================================
Total                              $447.76        $75.33
-----------------------------------------------------------
Capital Purchase Program           $204.55        $70.56
General Motors, Chrysler            $79.97         $2.14
American International Group        $69.84         $0.00
Making Home Affordable Program      $23.40         $1.13
Targeted Investment Bank of America $20.00         $0.00
Targeted Investment Citigroup       $20.00         $0.00
Term Asset-Backed Loan (TALF)       $20.00         $0.00
Citigroup Bailout                    $5.00         $0.00
Auto Suppliers                       $5.00         $1.50

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All data sourced  vi Bloomberg:
Fed’s Strategy Reduces U.S. Bailout Pledges to $11.6 Trillion
Mark Pittman and Bob Ivry
Bloomberg, Sept. 25 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=aJwZIBMSGsek

WSJ’s China Editor Andy Browne discusses Goldman Sachs’ investment in the Chinese auto company Geely Automobile with Andrew Peaple, and how the investment may look better from outside of the country than it does from the inside

9/24/2009

Wow, a little travel and suddenly, the week is nearly over. Here are a few interesting items that caught my eye:

• Rosenberg: Equities carry too much risk (FT)

• Five Scenarios for the S&P 500 (Singer)

• Imagine If Lehman Brothers Had a Football Team (Crossing Wall Street)

• Emerging Markets Have Room for Growth (Real Time Economics)

• Bullish Estimates Fail to Keep Up With S&P 500 Gain (Bloomberg)

• Is Modern Macro or 1978‐era Macro More Relevant to the Understanding of the Current Economic Crisis? (Gordon, Northwest U)

• Brad DeLong’s Magnificant Takedown of Chicago-style foolishness

• Analyst Josh Rosner Nailed the Crisis (wallstcheatsheet)

• LIFE magazine now available on Google Books (Inside Google Books) LIFE photo archive

Anything else worth reading?

Thanks to unprecedented central bank intervention and massive stimulus programs, the global economy is no longer teetering on the edge of a cliff. “There’s no doubt we have come through this in the short run very, very well,” says Martin Wolf, chief economics commentator at The Financial Times.

-Yahoo Tech Ticker

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I am presenting tonight at a conference sponsored by the New York Society of Security Analysts:

Fundamental analysis and technical analysis have largely evolved independently over the past several decades. Both the CFA Institute and the Market Technicians Association are custodians for separate educational programs, examinations and designations. FINRA conditionally allows exemptions for Series 86 Research Qualification Exams for members of both organizations.

Also on the panel: Laszlo Birinyi, Jasmina Hasanhodzic, John Palicka.

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Here are the details:

Thursday, September 24, 2009
5:30 p.m.–6:30 p.m. | Reception
6:30 p.m.–8:00 p.m. | Presentation

LOCATION: 1177 Avenue of the Americas, 2nd Floor (between 45th and 46th Streets), NYC  (Photo ID required for access to the building).

American households were $2 trillion richer on June 30 than they were three months earlier, the first time in two years that household net worth has increased, the Federal Reserve reported Thursday in its quarterly flow of funds report. Household wealth rose in the second quarter at a 17% annual rate, or $2 trillion, to $53.1 trillion after falling at a 13% rate in the first quarter, the Fed said. It was the first time since the second quarter of 2007 that wealth had increased. Net worth is down $12.2 trillion from the peak in 2007, an indication of how much the collapse in stock prices and home prices have hurt.

Household Net Worth + Annual Rate of Change

click for ginormous chart

chart via Bianco Research

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See also:
Households’ net worth rises for first time in two years
Consumers continue to pay down debts at record pace
Rex Nutting,
MarketWatch, Sept. 17, 2009,

http://www.marketwatch.com/story/household-net-worth-rises-first-time-in-two-years-2009-09-17

Note:  I originally published this in 2004, but since it was orphaned at the old site, I figured I should bring it here.

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I’ve been to your home or apartment. We’ve broken bread, drank some wine or beer, had a few laughs and a good time. Its getting late, and some caffeine would be good for the ride home.

Here’s the problem: Your coffee sucks. That’s right, I said it: You do not know how to brew a good cup of Joe.

You suffer (actually, I’m the one who suffers) from one of four likely problems. Lucky for you, opinionated bastards like me are here on the ‘net to give you good advice you didn’t even know you needed:

1) You Use Crappy Coffee. Forget instant, that’s not even under consideration. Store bought, no name, canned ground coffee is at its best, mediocre. If you buy a good French Roast, and use 5 to 6 heaping scoopfuls (not spoonfuls, but those little plastic scoopers), you get a halfway decent brew.

But most people don’t. They buy whatever lame ass coffee is on sale that week, and then they use  miserly portions. Bleeeccch.

2) Your Coffeemaker Sucks

That’s right, its a piece of shit: It brews too fast, and it doesn’t make the coffee hot enough.

A good brewer will slowly let the water drip into the basket, allowing the natural oils, flavor and aroma of the beans to come out. Ahhhhh, can you smell that? Hmmmmm.

Ideally, your brewer will use fresh filtered water, crank up the heat, and then have the warmer turn off quickly — otherwise, it will burn the brew.

By the way, when was the last time you cleaned that stanky coffeemaker of yours? You can buy commercial products, or just run a 50/50 mix of vinegar and water. Clean it every six months or so.

3) Your Coffee Was Ground Ages Ago

Forget the stuff in the can — that was factory ground in 1994. I’m talking to the people who buy beans, ground them up immediately, and then put them in a jar in the fridge for months. That starts the gradual loss of flavor and aroma immediately. (Why even buy beans?)

You want beans, and you want them ground as close to the brewing process as possible.

4) Your Tap Water is Nasty

Depending upon where you live, your tap water ranges from tasty to industrial run off to chemical contaminants to carcinogenic.

Cancer flavored coffee tends to taste bad.

OK now you know why your coffee sucks. Let’s resolve each of these issues for you poor shlumps who up until know, did not know any better (but now ya do):

1) BUY GOOD COFFEE

There, that wasn’t too hard to figure out, was it? It doesn’t have to be expensive, just good.

My favorite coffee supplier is Porto Rico Importing; They have excellent coffee, and its about 1/2 to a 1/3 of what Starbucks charges. Here’s their contact info:

201 Bleecker St.
New York, N.Y. 10012
212-Gr7-5421
1-800-453-5908
Fax:212-979-2303

http://portorico.com/

If you are tight with the moolah, then you can stock up during their twice yearly sales: Going on in the Springtime sale (April 15-30); They run a fall sale (for Peter’s birthday) in October.

Try the Danish Blend (1/2 Mocha & Java, 1/2 French Mocha), or Peter’s Blend (1/3 French Mocha, 1/3 Colombian Supremo, 1/3 Venezuelan Tachira).  Both are on sale for $3.99/lb this week.

I’m sure there are plenty of other good roasters in your region. Outside of NYC, the Fairway on Long Island has their own roaster — also good coffee at reasonable prices.

Hunt around a bit, you’ll find something.

2) Get a Kickass Coffeemaker

My old machine is the Capresso CoffeeTeam Luxe 10-Cup Electronic Coffeemaker with Conical Burr Grinder. It cost me about 2 beans (I never see it go on sale). Its a great balance between performance and cost. The next step up beyond it are $600 to a few grand (see pictures at bottom). That’s a lot of wood, Jerry.

For half the price of my machine — about $100 — there’s a decent looking Cuisnart. It comes in Black or White; You can spend $150 for the Chrome machine, but at that point, you are better off spending the extra 50 clams for the Capresso.  I’ve never used this Cuisinart machine (but I have used their previous model grind and brew). Please post any comments on this if you have first hand experience (There’s a wide range of opinions at epinions).

Way back when, Toshiba made a grind and brew called “My Cafe” — and it was terrific. They still pop up on eBay, and in used appliance stores from time to time. Nice symmetrical design, too. There was a cottage industry repairing them. If you see one, grab it.

3) Grind Your Coffee Fresh

The ‘grind and brew’ machines resolve this issue. If you don’t want to go that route, than buy a small burr or blade grinder. As close as possible to the actual brewing, freshly grind the coffee beans. (Hmmmm, smell the aroma).

If you grind them at night for the morning’s coffee, that’s acceptable. Anything longer than that loses too much flavor.

4) Use Fresh Filtered Water

You have plenty of options: Some people buy the large 5 gallon jugs of bottled Deer Park water, or, you can buy the 2 gallon refrigerator size. Others use a separate filter (i.e., Brita) — its a pain, but better than tap water.

We installed a Moen carbon filtration system right into our kitchen sink; Most brand name kitchen hardware companies — Moen, American Standard, etc. — offer this as a modestly priced option. If you are remodelling your kitchen, this is a MUST DO option. If not, it is merely highly advised.

Yes, I’m being a bit on the picayune side here? Yes, but that’s the price for really good java.

I’ve been meaning to get this post up for sometime. Now go make me a good cup of coffee. I’ll be right here waiting . . .

UPDATE October 29, 2006 7:53 am

I originally posted this here over 2 years ago. This week, I received as a birthday gift the latest Capresso Design — and its awesome: The Capresso 455.05 CoffeeTEAM Therm Stainless Coffeemaker/Burr Grinder Combination

Yeah, its $300 — but its the best machine I’ve come across that’s under 4 figures.

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P.S.You probably don’t want to spend this type of wood, but consider what you get if you spend 10X as much, you can get the $3,000 Magic Saeco.

Now that’s a nice looking machine . . .

Graphic courtesy of  New York Times