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

Merry Christmas morn. I trust you slept well?

Earlier this week, we discussed two of my favorite holiday movies — A Christmas Story, and my suggestion, Elf Dylan Ratigan show. (Be sure to watch Santa Announcement and The Angry Elf clips).

That got me thinking about some holiday favorites. I pinged a few movie buddies, and here is the list of both non-traditional xmas movies and good old fashioned family fare.

I don’t know what your plans might be for today — the only places that are open will be Chinese Restaurants and Movie theaters — but I plan on firing up the DVD player for some seasonal amusement.

My holiday movie list, form top to bottom, is as follows:

• Elf: The movie: Will Farrell plays a man child raised as an elf at the North Pole. He is sent to the US to “find himself.” The casting is also inspired: James Caan, Bob Newhart, Edward Asner, Mary Steenburgen, Zooey Deschanel, Amy Sedaris, Andy Richter, Kyle Gass, Artie Lange, Leon Redbone.

Its Farrell at his hysterical, “committed performance” best.

• A Christmas Story -  Formerly a cult classic, a gentle, satirical look at the early the late 1930s or early 1940s Christmas — long before irony was hip. Its amusing that this has become a modern classic, as it was overlooked for so long. Released in the era before Irony was ubiquitous, it now seems as traditional as they come, with just a hint of subversiveness. (Its 2nd only because I have seen it so many times . . . )

• Bad Santa – Depravity of a hilarious kind, one of many great xmas caper films. Billy Bob Thornton plays a miserable conman who with his partner, pose as Santa and his Little Helper to rob department stores on Christmas Eve. But they run into problems when the conman befriends a troubled kid . . . Bonus flick: The Ice Harvest – Billy Bob and John Cusack in another caper comedy that’s more more noir than noel.)

• Gremlins – Joe Dante’s 1984  American black comedy/horror film. I loved Phoebe Cates’ terrible Christmas memory told completely deadpan. No wonder critics didn’t get it. (Read the film criticism 25 years later for laughs).

Never forget the film’s most heartfelt holiday lesson: RTFM!

• Home Alone – You have to love a holiday comedy that revels in sheer physical abuse of its antagonists, 3 Stooges style. The middle of the film — a 30 minute sequence of brutality where the bad guys — Joe Pesci and Daniel Stern — get demolished by 8 year old Macaulay Culkin.

Written by John Hughs, its his 2nd best film after Ferris Bueller’s Day Off.

• The Nightmare Before Christmas – A stop motion fantasy film conceived and directed by Tim Burton Xmas Xraziness

• The Ref – Another Xmas caper comedy, with a twist: Denis Leary (accidentally) takes a dysfunctional married couple hostage on Christmas Eve. The couple –played wonderfully by Kevin Spacey and Judy Davis — argue incessantly, and Leary becomes the accidental ref between them. A Christmas movie that reminds us its really all about family . . .

• Scrooged – A funny, dark take on Charles Dickens’ A Christmas Carol. David Johansen is the ghost of Christmas past, and Carol Kane plays the ghost of Christmas present. Cameos include Robert Goulet, John Houseman, Lee Majors, along with “street musicians” Miles Davis, Larry Carlton, David Sanborn and Paul Shaffer. Al Green and Annie Lennox sing “Put a Little Love in Your Heart.”

• The Muppet Christmas Carol – one of the better adaptations of the Dickens story

• Santa Clause – ’cause every top 10 list requires a 10th item . . .

Lets not forget the top 10 classics:

It’s a Wonderful Life
Bells of St Marys
Bishop’s Wife
Miracle on 34th St
Holiday inn
Christmas Carol (1951 version is best)
White Xmas
Babes in Toyland (March of the Wooden Soldiers)
We’re No Angels
Christmas in Connecticut

So.

What say we give this stock market/investing thingie a break for a day, and spend the next 24 hours discussing “other.”

How is your holiday season going?

Anyone traveling this week? Seeing friends and family?

Did y’all shop til you dropped, or not-so-much? Spend less or more than usual?

Any one do any big counter-cyclical spending?

Got any plans for New Years?

What is the general gestalt around your nape neck of the woods?

The telephones are open, with operators standing by.

What say ye?

Pardon the blasphemy, but this has to be the most amusingly titled book I’ve come across in years: What Would Keith Richards Do?: Daily Affirmations from a Rock and Roll Survivor.

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Enjoy your holidays!

Over the past week, relatively good economic news (headlines, anyway) have some people discussing a recovery in 2010.

That got me thinking: If the market bottomed in March 09, how often does that anticipate an economic recovery ?

Ron Griess (of The Chart Store) had the answer.  Typically, the markets bottom 3, 4 or 5 months in advance of the recession’s end. However, it has been as much as 7 months (1954) and in 2001, the market did not bottom until 12 months after the recession’s end.

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S&P500 Bottoms vs Recessions

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Hey, while no one was looking on Tuesday, we passed our 12,000th post.

Truly insane . . .

Initial Jobless Claims totaled 452k, 18k below expectations and down from 480k last week. It’s the lowest reading since mid Sept and continues to lend evidence to the story of a slower rate of firings that we’ve seen with the question of how quickly it turns into job gains still being open. Continuing Claims were well below forecasts at 5.076mm, almost 100k less than estimated and down from 5.203mm last week but the data past 26 weeks was more mixed. Emergency Unemployment Compensation rose by 142k but Extended Benefits past this fell by 145k. The data doesn’t tell us though whether that was due to the exhaustion of benefits where people may reapply due to the recently enacted extension of benefits or due to people finding new jobs. Either way, the slowing pace of firings will inevitably lead to a rise in hirings if the economy continues to heal.

Nov Durable Goods rose .2% headline which was .3% light but exceeded expectations ex transports where it rose 2%, .9% above forecasts. Oct was also revised up. Non Defense Capital Goods ex Aircraft rose 2.9%, bouncing from the Oct decline of 2% and the gain was in a variety of sectors such as computers/electronics, electrical equipment, machinery, fabricated and primary metals. New orders in vehicles and parts fell .2% but follows 4 months of solid gains as inventories have gotten filled again. Shipments, which get directly plugged into GDP, rose .3%. Inventories fell .2% and haven’t risen since Dec ’08 but the inventory to shipments ratio remained unchanged at 1.73. Bottom line, the data ex transports was good but has been lumpy over the past year as we’ve seen over the past 5 months in particular a down month followed by an up month so sustainability still remains an open question in the pace of capital spending.

Santa’s Coming

The Angry Elf

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen. When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

-Sylvain R. Raynes, structured finance expert at R & R Consulting

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Should investment banks make bets against their own clients? How about when they create new synthetic products, sell that to their clients, and then make bets that their own products will collapse?

Those questions get a once over from Gretchen Morgenson and Louise Story in a long, front page piece in the NYT.

Of course, front and center in this mess is Goldman Sachs. Their PR people must be putting in big overtime hours these days.

Goldman points out that the C.D.O.’s were made to satisfy client demand for such products (at least for those folks who had an optimistic view of the housing market). Further, Goldman says their clients knew they might be taking the other side of bets against the mortgages that underlay the securities. GS’ last defense: Buyers of synthetic mortgage C.D.O.’s were well financed, sophisticated investors .

Here’s an excerpt:

“Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.

Goldman’s own clients who bought them, however, were less fortunate.

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Note that other firms, such as Deutsche Bank and Morgan Stanley, also sold synthetic collateralized debt obligations and then bet against them. But no one else bet as much againstt heir own clients, and profited fromt hose bets, as Goldman Sachs did.

Congressional investigators, the Securities and Exchange Commission, and FINRA are all making inquiries into whether these “disastrously performing securities” violated any securities laws for “fair dealing.”

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Courtesy of NYT

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Source:
Banks Bundled Bad Debt, Bet Against It and Won
GRETCHEN MORGENSON and LOUISE STORY
NYT, December 23, 2009

http://www.nytimes.com/2009/12/24/business/24trading.html

This set of global data is updated in real time; Things like:

Current World Population
Births this year
Births today
Deaths this year
Deaths today
Net population growth for today

How cool is THAT ?

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click for interactive graphic

1. A full ‘payroll tax holiday’ where the US Treasury makes all FICA payments for us (15.3%). This will restore ‘spending power’ allowing households to make their mortgage payments, which ‘fixes the banks’ from the ‘bottom up.’ It also helps keep prices down as competitive pressures will cause many businesses to lower prices due to the tax savings even as sales increase.

2. A $500 per capita Federal distribution to all the States to sustain employment in essential services, service debt, and reduce the need for State tax hikes. This can be repeated at perhaps 6 month intervals until GDP surpasses previous high levels at which point state revenues that depend on GDP are restored.

3. A Federally funded $8/hr job for anyone willing and able to work that includes healthcare. The economy will improve rapidly with my first two proposals and the private sector far more readily hires people already working vs people idle and unemployed.

In 2001 Argentina, population 34 million, implemented this proposal, putting to work 2 million people who had never held a ‘real’ job. Within 2 years 750,000 were employed by the private sector.

4. Returning banking to public purpose. The following are disruptive and do not serve no public purpose:
a. No secondary market transactions
b. No proprietary trading
c. No lending vs financial assets
d. No business activities beyond approved lending and providing banking accounts and related services.
e. No contracting in LIBOR, only fed funds.
f. No subsidiaries of any kind.
g. No offshore lending.
h. No contracting in credit default insurance.

5. Federal Reserve- The liability side of banking is not the place for market discipline. The Fed should lend in the fed funds market to all member banks to ensure permanent liquidity. Demanding collateral from banks is disruptive and redundant, as the FDIC already regulates and supervises all bank assets.

6. The Treasury should issue nothing longer than 3 month bills. Longer term securities serve to keep long term rates higher than otherwise.

7. FDIC
a. Remove the $250,000 cap on deposit insurance. Liquidity is no longer an issue when fed funds are available from the Fed.
b. Don’t tax the good banks for losses by bad banks. All that does is raise interest rates.

8. The Treasury should directly fund the housing agencies to eliminate hedging needs and directly target mortgage rates at desired levels.

9. Homeowners being foreclosed should have the option to stay in their homes at fair market rents with ownership going to the government at the lower of the mortgage balance or fair market value of the home.

10. Remove the ‘self imposed constraints’ that are disruptive to operations and serve no public purpose.
a. Treasury debt ceiling- Congress already voted for the spending and taxes
b. Allow Treasury ‘overdrafts’ at the Fed. This is left over from the gold standard days and is currently inapplicable.

11. Federal taxes function to regulate aggregate demand, not to raise revenue per se, and therefore should be increased only to cool down an overheating economy, and not to ‘pay for’ anything.