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

At the recent Make Markets Be Markets conference, I got to ask a questions of the esteemed panel — Joseph Sitglitz, George Soros, Jim Chanos, Simon Johnson, Elizabeth Warren, etc.

That question was simply this:

Why do Bad Ideas seems to persist for so long? How do certain concepts hang around, long after they have been disproven?

The answers were unsatisfying.

Which brings me to this question for any graduate students, undergraduates and even college Professors: What bad economic or financial ideas are being currently taught in your departments?

Perhaps its the usual nonsense about the rational profit maximizing homo economicus; Maybe its the wonders of Deregulation, and its bastard cousin Self regulation. The Efficient Market Hypothesis is a perennial favorite amongst the tenured set. And any sort of deification of markets also qualifies.

So, college students of America (or their parents), what can you tell me?

Been out of pocket all afternoon — gotta catch up! Here are few items that I will be reading on the train home:

Oh, and I am doing this in real time. You can watch this list come together (keep refreshing Done!)

• Dow at New 17-Month High (WSJ)
• Google Is Hiring Bond Traders (Business Insider)
• Feinberg Cuts Cash Pay by a Third at Five U.S. Firms  (Bloomberg)
• Pressure grows to overhaul Fannie Mae, Freddie Mac (LA Times)
• Oil reserves ‘exaggerated by one third’  (Telegraph)
• Republican lawmakers stir up the ‘tea party’ crowd (WaPo)
• Too big to fail is too costly to continue (FT)
• Broken China (Fortune)
• The top five brief and blunt Steve Jobs email replies (Mac Daily)
• Google to China: Your move (GMSV)
• Astronomy Picture of the Day (NASA/Astropix)

Whats are you reading?

I just love this chart — it essentially argues the case that US markets have been over valued  since around 1990:

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courtesy of the Chart Store

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I will be chatting with Dylan Ratigan on Financial Reform from 11 to 11:30 am this morning over at WABC 77 AM radio.

Feb Existing Home Sales, which measure closings of contracts likely signed in the Nov-Dec timeframe, totaled 5.02mm annualized, down from 5.05mm in Jan and a touch above expectations of 5.0mm. Single family sales fell but were partially offset by a gain in condos/co-ops. BUT, because the absolute number of homes for sale rose by 312k, the inventory to sales ratio rose to 8.6 months from 7.8 and now is at the highest since Aug ’09. The median price fell 1.8% y/o/y to $165,100. Even though contracts were mostly signed late last year, the NAR is saying that the bad Feb weather may have impacted the timing of closings but they do say that “the housing recovery is fragile at the moment.” Distressed sales made up 35% of sales and that 42% of buyers were first time vs 40% in Jan. The home buying tax credit expires at the end of April and time is running out. Bottom line, the next big test for this phase of the housing recovery is just ahead.

VIVmag http://vivmag.com/

VIV Mag Interactive Feature Spread – iPad Demo from Alexx Henry on Vimeo.

Hat tip Bits

http://bits.blogs.nytimes.com/2010/03/18/a-peek-at-an-interactive-magazine-for-the-apple-ipad/

The Wired Tablet App: A Video Demonstration

http://www.wired.com/epicenter/2010/02/the-wired-ipad-app-a-video-demonstration/

VIVmag http://vivmag.com/

Don’t expect China’s property bubble to shrink as long as Beijing tinkers with rules but neglects credible reform

Beijing has unleashed another round of property market tightening measures, and this time it’s tightening mortgage loan terms considerably: The mortgage interest discount has been reduced for first-time homebuyers; the discount has been abolished and down payment requirement raised to 40 percent for second-time homebuyers; and rates are at banker discretion while the required down payment has been raised to 60 percent for third-time buyers.

Predictably, sales volumes in the primary and secondary markets have collapsed. But no one is panicking, not even those who live off the property bubble. Why? Aren’t they supposed to be terrified when Beijing cracks down?

It seems we have seen this movie before. Beijing launched property tightening measures several times in the past but then relaxed as soon as the market felt the bite. The bottom line is that local governments, and Beijing through them, depend very much on property for fiscal revenues. And now, the market does not believe the government will cut off the hand that feeds it.

Local governments and developers are sitting on massive amounts of liquidity they raised last year through land and property sales and borrowings while taking advantage of an “anything goes” window open during the economic stimulus period. They seem to think Beijing will change its mind before their liquidity runs dry, so they are comfortably waiting without cutting prices.

Read the rest of this entry »

Here are the key data points:

• The average CASH payout for the top 25 execs at the 5 companies that were bailed out by Uncle Sam — AIG, Chrysler, GM, GMAC and Chrysler Credit — has been cut in half since 2008 to $469,777.

• For the top earners at those companies, pay is expected to fall by 11% to $1.62 million.• Total compensation is down nearly 77% from 2008.

• More than 70% of all approved compensation is expected to be given in the form of stock instead of cash this year.

Oh well, that’s what happens when you run your firm into the ground.

Here’s your NYT excerpt:

“For months, Wall Street banks and the troubled automakers feverishly protested that their top executives would flee if they were not lavishly rewarded for their talents. New data, however, suggests the departures were more of a trickle than a flood.

Of the 104 senior executives whose pay was set by the federal pay regulator in the last two years, 88 executives, or nearly 85 percent, are still with the companies even though their pay was drastically cut back, according to people briefed on the government data.

The relative stability, at least within the executive suite, suggests that a soft job market, corporate loyalty and personal pride helped deter the feared management exodus at the companies hardest hit by the pay rules.”

Gee, complaining execs turn out to be full of crap — who could have ever seen that coming?

One last note: None of this data includes comp from Bank of America/Merrill Lynch, Citi, Goldman Sachs, Fannie/Freddie, JP Morgan/Bear Stearns, Morgan Stanley or Wells Fargo . . .

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Source:
Few Fled Companies Constrained by Pay Limits
ERIC DASH
NYT, March 22, 2010
http://www.nytimes.com/2010/03/23/business/23pay.html

US$ 3 mo LIBOR continues its march higher, however glacial, to .284%, the highest since mid Oct ’09. The move follows the rise in the discount rate one month ago and expectations it will soon go up again, the 1 month bills the Treasury has been selling to rebuild its supplemental financing program, the coming end to QE and the growing belief that the fed funds rate will be moving slightly higher over the next 6 months. Greek bonds and CDS are trading up after comments from the Greece finance minister that said even with a weaker than expected economy in ’10, their budget deficit cutting plans are still on track. Greek stocks are also bouncing but the euro is back below 1.35 vs the US$ on continued uncertainty with where Germany stands on a credit backstop or loan plan for Greece. As we approach the spring selling season, end to QE and upcoming expiration of the home buying tax credit, Feb Existing Home Sales are out today.

What are the pros doing?

I’ve been speaking with various institutional investors, and I can tell you there is little in the way of uniformity of thought. Here we are, up 70% or so from the lows of over a year ago, and there is no consensus — which is probably a good thing.

What are they thinking about? The health care bill, financial reform, the federal deficit, tax policy, a bubble in china, hyper-inflation, structural unemployment, another lost decade, and even demographics, their concerns are many and varied.

Their investment postures are even more varied. I can oversimplify them into one of five buckets

1) All In: They caught the bottom, or jumped in not much after it. They have been long and strong the whole run. They see no end in sight. Some are leveraged, some used options.  My estimate: About 10% of pros fall into this camp.

2) Not-Too-Late: They joined the party later in the rally, and are still carrying some cash (10-20%) but not excessive amounts. They are not sure why we have been going higher, but feel they must participate. (About 20% of pros)

3) Reluctantly, Partially Invested: The group that originally fought the rally, but honored their stop loss discipline to flip from short to long around June of last year (after the pullback reversed). They are a combination of Global Macro traders and Long/Short funds who hate this environment, along with Trend followers who don’t want to fight the tape. They are carrying too much cash — from  20% to as much as 50%. Many are looking for the next opportunity to get short. (About 30%)

4) Bought It, Sold It, Waiting for Clarity: This group had a very good 2009, but did not want to overstay their welcome. They hit the bid near year end, and took huge performance fees. They moved aggressively to cash –  50%+ — and have dabbled on the short side. They are waiting for the next inflection point to redeploy capital in either direction. (~20%)

5) Missed it Totally, Waiting for Vindication:  The “structural economic problems” and “Unconscionable Federal Reserve actions” have kept this group out of the markets. They are awaiting the next leg down, a retest of the lows, and then a break even lower. They are well stocked with Puts, bottled water, and MREs. This was a bigger cohort, but investor pressure and stress have reduced their numbers.  (Down to less than 5% of hedge funds)

That’s about 85%, as there are others who simply don’t fall neatly into one of these buckets.