Archive for March, 2009

I can’t think of anything more offensive to shareholders than giving bonuses to people in a failed company.
 
And that’s what AIG was when the U.S. tax payer stepped in as the investor of last resort and rescued AIG.
 
It’s a crock — no, a crime — that bonuses would even be considered.
Few people realize that we’re not just talking about $165 million in bonuses — but $1.2 billion worth! — the $165 million is only the amount due last Sunday.
 
So, it’s even worse than people think.
 
Reading between the lines, it seems that AIG’s CEO is saying that if he didn’t agree to these bonuses, he would have lost his braintrust.
 
Boy, he must feel foolish hearing himself say that… that’s what AIG needs to do… get rid of the braintrust that got them (us) into this mess.
 
Maybe he was afraid he couldn’t hire people at the "reduced" salary of $250K.  If so, wake up, we’re in a different world… there’s a city the size of New York filled with financial types that would jump at such a job these days.
 
So I love EVERYTHING about going after these bonuses… EXCEPT the way they are going after these bonuses… with special "taxes."
 
Uhm… wasn’t that what the Boston Tea Party was all about?
 
C’mon, we own the damn company.  Just declare eminent domain.  Or better yet, just say "no." 
 
Whatever you do — AND YOU HAVE TO DO SOMETHING — don’t unwind 200+ years of effort.
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I’m not an analyst.  But I did call the oil top back in July of 2008.
 
Well, to be fair, I really just shared some market observations.  Got lucky and those observations were meaningful.
 
I guess I’m ready to share some more observations. 
 
Something has been bugging me.  I finally figured out how to articulate:  Normal markets don’t totally fall off a cliff.  Emotionally markets do. 
 
No doubt all this extreme leveraging and speculation was horrible and wreaked serious havoc. 
 
But, what made it worse was everyone — in the entire world — panicked — at the exact same moment — something that could only happen in a fully connected planet (which is why what we’re going through is unlike anything we’ve ever seen before). 
 
You’ve heard of viral marketing?  Call this viral puckering.  Whoosh.  Everyone — at the same time — just squat on their money.  Poof.  There went spending for anything and everything… instantly.
 
Now, I’m not saying real people weren’t really hurt… those that lose jobs are very much hurt… and speculators lost a lot of real money.
 
But were these hurts worth the Dow getting cut in half seemingly overnight?
 
If consumers make up 2/3rds of our economy, then I think — for the most part — the engine is far from crippled… it’s still very much intact.
 
Let’s review.
 
For the majority of people — oil at $147 a barrel was financially far more damaging… a cost that ripped and rippled into almost everything they did and bought. 
 
At $40-$50 a barrel, I might argue that — even with portfolios decimated by 50% or more — consumers are better off today than they were 12 months ago. 
 
Why?  Because the 2/3rds of people that make up the majority of consumer spending don’t really have portfolios to get decimated. 
 
But they have to put gas in their tanks… and heat or cool their homes… and buy necessities that require oil to build/grow/transport. 
 
Call it the most effective, non-government, non-debt increasing stimulus package ever.  (Wow, a free market at work.)
 
On to one of my favorite observations:  Headlines always dictate mood… and mood always swings too far in one direction or the other.
 
Take the headline that new car sales have tanked 50%.  That’s horrible.  But that headline makes it seem like there are half as many cars on the road.  That’s ridiculous.  There are about the same number of cars being driven, it’s just that people continue to drive their old cars (and still pay for gas, pay repair people, pay road tolls, pay for drive-thru fast food, etc.). 
 
A final observation:  Supposedly the U.S. is still growing at 150,000 people per month.  At some point — even if people cut back spending — those new people will have to buy something, won’t they?
 
Again, just observations why I think the engine is still intact.
 
 
So if the engine is still intact, what’s the problem?
 
What we have here, people, is a crisis of confidence Internet-style.  Viral puckering.
 
And as of yesterday, I honestly didn’t know what would be the catalyst to change that.
 
 
WHY TODAY IS DIFFERENT
 
 
Did you ever wonder how a perfectly normal, humongous, rock-solid bank could go pfiff overnight? 
 
(BTW, perfectly normal, humongous, rock-solid things that go pfiff overnight can create quite a crisis of confidence.)
 
Well, if someone said, "hey, you know all those houses that you’re holding as security against your loans?  Since no one is buying houses, please value them at zero.  Hey, wait a minute, when you do that — that is, value all your assets at zero — why, you’re not worth anything!"  Pfiff.
 
That’s not fuel for the fire… that’s fuel for the inferno.
 
Don’t get me wrong… I think the value of an asset should be valued at fair market.  But this isn’t a fair market in any traditional sense (an unintentional consequence of technology).
 
If the powers that be really intend to improve mark-to-market to account for modern society… and oil doesn’t skyrocket again… then I think we’ve hit a bottom… or at least a sideways.
 
I’m not saying we’ll shoot up from here — lots of repair to do before that can happen — but the death spiral may be over… because people will have more confidence to buy again… because they will have regained their confidence that the big things in life — the stuff you’re supposed to have confidence in — just can’t go pfiff overnight.
 
And, watch, slowly you’ll hear things aren’t so bad as they thought.  That beaten down expectations get beat.  That companies are hiring again.
 
And technology will save the day… because the good thing about a connected planet… viral puckering can end almost as quickly as it started.
 
 
UPDATE:  1 July 2009:  Just a short few months later, the facilities that would take "toxic" assets off banks’ balance sheets aren’t being used:  "The irony, of course, is the plan hasn’t gotten off the ground and is hamstrung, most notably, by banks’ reluctance to sell their "assets" at what they consider rock-bottom prices."  There’s your answer as to whether we were in a fair market or not back in March.