Larry Kudlow writes on CNBC.com:
Stagflation. It’s Back.
"Stagflation officially returned today with a nasty GDP report that showed only 1.8 percent real growth, but 3.8 percent for the consumer spending deflator. It’s a mini version of the 1970s: low growth, higher inflation.
Looked at another way, rising inflation is coexisting with high, near-9 percent unemployment. Keynesians argue this can’t happen. They believe strong growth and too many people working leads to high inflation. But they were blown out of the water way back in the ’70s. And their view is hitting another pothole right now.
Supply-siders know that inflation is a monetary problem. Growth is caused by low tax-rate incentives. And the combination of flat tax rates and sound money could produce strong growth with no inflation. Think 1980s and 1990s.
But that’s not what we have now.
The dollar is falling relentlessly and gold is soaring. These market indicators are correctly predicting higher inflation as the Fed creates more excess money than anybody knows what to do with."
Read more at:
http://www.cnbc.com/id/42805616
Friday, April 29, 2011
Thursday, April 28, 2011
Mean Street: Bernanke Talks, Rome Burns
Update from Evan Newmark's blog at the WSJ.com:
"Well, I was wrong and the conventional wisdom was right. There is no end in sight to the Fed’s easy money. There will be no post-Bernanke selloff.
In fact, at Wednesday’s press conference, Bernanke was at pains to keep the markets happy. He dismissed recent inflation as “transitory” even as the FOMC jacked up its own internal inflation forecasts by 50%.
Naturally, the markets rejoiced. And why not? Bernanke gave a greenlight to all of Wall Street’s easy “one-way” trades. Gold hit a new record. The dollar index slumped yet again. And the stock market hit new post-Lehman highs.
“Party on!” said Ben...
He missed a chance to put a little fear into the markets. And make no mistake, Wall Street needs fear. Without it, things get out of control. Remember the internet bubble? Subprime CDOs?
Nowadays, it’s the government bond market that’s pretty much fearless. It doesn’t care about $4 a gallon gas or $1500 an ounce gold. It doesn’t fear inflation. If it did, would the 5-year note yield 2%?"
Read more at:
http://blogs.wsj.com/deals/2011/04/28/mean-street-bernanke-talks-rome-burns/
"Well, I was wrong and the conventional wisdom was right. There is no end in sight to the Fed’s easy money. There will be no post-Bernanke selloff.
In fact, at Wednesday’s press conference, Bernanke was at pains to keep the markets happy. He dismissed recent inflation as “transitory” even as the FOMC jacked up its own internal inflation forecasts by 50%.
Naturally, the markets rejoiced. And why not? Bernanke gave a greenlight to all of Wall Street’s easy “one-way” trades. Gold hit a new record. The dollar index slumped yet again. And the stock market hit new post-Lehman highs.
“Party on!” said Ben...
He missed a chance to put a little fear into the markets. And make no mistake, Wall Street needs fear. Without it, things get out of control. Remember the internet bubble? Subprime CDOs?
Nowadays, it’s the government bond market that’s pretty much fearless. It doesn’t care about $4 a gallon gas or $1500 an ounce gold. It doesn’t fear inflation. If it did, would the 5-year note yield 2%?"
Read more at:
http://blogs.wsj.com/deals/2011/04/28/mean-street-bernanke-talks-rome-burns/
Wednesday, April 27, 2011
Big Ben and the Question of "When?"
The refreshingly clear Evan Newmark on his Wall Street Journal blog:
Mean Street: Get Ready for the Bernanke Stock Market Selloff
Are you ready for Ben Bernanke’s press conference on Wednesday?
Or put another way: are you ready for the stock market correction that everybody’s been anticipating since the start of the year?
... But here’s what you should keep in mind for tomorrow: Bernanke knows things are getting out of hand. Half of Europe is almost bankrupt but it now takes $1.46 to buy one euro. Once upon a time, it only took a buck. Gas is now at over $4 a gallon.
How can Bernanke not “get it?”
So I’m guessing he will use the press conference to put an end to the speculative “easy trades” even if this creates temporary unpleasantness in the markets.
The markets don’t expect this. The dollar is down again today. For months Bernanke has said little that could be interpreted as “hawkish.” But does he really have a choice at this point?
Can he stand by and watch gas run to $5 a gallon? Can he continue to punish America’s elderly with meager returns on bank CDs?
Read more at:
http://blogs.wsj.com/deals/2011/04/26/mean-street-get-ready-for-the-bernanke-stock-market-selloff/
Mean Street: Get Ready for the Bernanke Stock Market Selloff
Are you ready for Ben Bernanke’s press conference on Wednesday?
Or put another way: are you ready for the stock market correction that everybody’s been anticipating since the start of the year?
... But here’s what you should keep in mind for tomorrow: Bernanke knows things are getting out of hand. Half of Europe is almost bankrupt but it now takes $1.46 to buy one euro. Once upon a time, it only took a buck. Gas is now at over $4 a gallon.
How can Bernanke not “get it?”
So I’m guessing he will use the press conference to put an end to the speculative “easy trades” even if this creates temporary unpleasantness in the markets.
The markets don’t expect this. The dollar is down again today. For months Bernanke has said little that could be interpreted as “hawkish.” But does he really have a choice at this point?
Can he stand by and watch gas run to $5 a gallon? Can he continue to punish America’s elderly with meager returns on bank CDs?
Read more at:
http://blogs.wsj.com/deals/2011/04/26/mean-street-get-ready-for-the-bernanke-stock-market-selloff/
Monday, April 25, 2011
Will your investments last longer than a jet?
A few days ago I started reading the novel Airframe, written by Michael Crichton, whose books, which also include Jurassic Park, have sold over 150 million copies worldwide. The thriller, published 15 years ago, examines what caused a commercial aircraft to make sudden, wild movements that shook passengers like dice in a cup and killed three during the flight.
"We don't stop to think how little we use most devices. For example, if your car lasts 200,000 miles, you'd probably think it was pretty rugged. But at an average speed of 30 mph, that's only 6,600 hours of use. To get 100,000 hours, you would have to drive the car 3 million miles. You tell me if you're sure your car-or any car-would make it. But we are sure an aircraft will go that many hours. We rely on it as a matter of course, every time we board a plane.
In summary, if you're aware of any mechanical device that requires more than half a million man hours to build, that is assembled from more than a million parts, and that operates with absolute reliably for more than 100,000 hours, please let me know.
If you have additional questions on this subject, as a journalist you might want to call Boeing."
http://www.crichton-official.com/qa-airframe.html
By coincidence, journalists in today's Wall Street Journal focus on the manufacturing of jet aircraft by Boeing from 15 years ago. You may recall that earlier this month a Southwest Airline Jet was forced to land when the "airframe" of the jet tore open during mid-flight:
"Investigators suspect that a manufacturing lapse at a Boeing Co. factory 15 years ago is why the fuselage of a Southwest Airlines Co. jetliner ruptured in midair this month, according to government and industry officials.
It is too early to draw definitive conclusions, the officials said, and further testing and data analysis could bring other issues to the forefront. But the federal probe increasingly is focused on some type of assembly-line lapse—a rare occurrence in modern aircraft production— that would explain an incident that stunned the airline industry and worried travelers.
The Boeing 737-300, with 122 people aboard, had a five-foot gash rip open in the upper part of its cabin and suffered a rapid decompression while cruising at about 34,000 feet on April 1...
A big reason behind the manufacturing-related focus, according to government and industry officials, is that a number of the Southwest planes with fuselage cracks were built around the same time."
http://online.wsj.com/article/SB10001424052748704123204576283370460150808.html
---------------------------------
This prompts us to make a suggestion to all investors: look at the quality of your investments. How many hours can they give you?
We think the best investments are ETFs, Exchange Traded Funds, made by Vanguard and a few other giant asset managers who offer the highest quality product at the lowest costs: 0.2% annual fees or less.
Owning the lowest cost ETFs that you can reasonably keep for the rest of life is the way stop costs from wasting your wealth. We explain why and how to make this happen in seminars, talks, and private consultations.
Learn how to build significant amounts of extra wealth over the rest of your life by cutting costs today.
Sunday, April 24, 2011
Happy Easter. What's the value of your house?
From the New York Times:
Builders of New Homes Seeing No Sign of Recovery
RICHMOND, Ill. — In this distant Chicago suburb, a builder has finally found a way to persuade people to buy a new house: he throws in a car.
Kim Meier’s spring promotion, which includes a $17,000 credit at a nearby General Motors dealer, has produced seven sales since the beginning of March, a veritable windfall of business for a builder who sold only 20 houses last year. “We needed to do something dramatic,” said Mr. Meier. “The market’s been soft.”
That is one way of putting it. The recession hurt a lot of industries, but it knocked the residential construction market to the mat and has kept it there, even as the broader economy has started to fitfully recover.
Sales of new single-family homes in February were down more than 80 percent from the 2005 peak, far exceeding the 28 percent drop in existing home sales. New single-family sales are now lower than at any point since the data was first collected in 1963, when the nation had 120 million fewer residents...
But in the meantime, sentiment might still be souring. Executives at Equity LifeStyle Properties, a Chicago firm that sells properties in resort communities, said this week they were seeing “a psychological change”: potential customers wanted to preserve their capital rather than risk it in real estate.
Bill McBride, who runs the popular financial blog Calculated Risk, said this might be the moment when people decisively started to turn on home ownership. “I’m starting to feel the hate,” he wrote.
http://www.nytimes.com/2011/04/23/business/economy/23housing.html?_r=2&hp
-------------------
The referenced website:
http://www.calculatedriskblog.com/
A telling chart follows below. Sorry for the spill over into the margin - yours truly can't figure out how to fit the chart so it can be clearly read. When I shrink it, the chart is hard to read. I recommend visiting the Calculated Risk Blog.
NOTE WELL: The RED line represents New Home Sales, which have fallen like a dagger. I suggest you do this wherever you live: visit a reliable, local real estate website and search for homes. Look at your neighborhood. Are homes really selling? Also, search the more expensive neighborhoods in your area. I've seen new construction houses in the "best areas" drop prices more than half and yet the things just sit there with no buyers. Sometimes homes are removed from the listings for a short period of time, then are re-listed. Inform yourself.
New home construction puts a lot of people to work. There is a great spillover effect. But, as you can see, new home construction is pitiful.
Existing home sales represent a much narrower set of employment. Now think about one more thing: of all the homes owned by banks in your area on sale, are they all for sale? Or instead, are the local banks sitting on inventory that has yet to show up in the For Sale listings? What do you think is really going on in your neighborhoods? Look around and do your own digging.
Builders of New Homes Seeing No Sign of Recovery
RICHMOND, Ill. — In this distant Chicago suburb, a builder has finally found a way to persuade people to buy a new house: he throws in a car.
Kim Meier’s spring promotion, which includes a $17,000 credit at a nearby General Motors dealer, has produced seven sales since the beginning of March, a veritable windfall of business for a builder who sold only 20 houses last year. “We needed to do something dramatic,” said Mr. Meier. “The market’s been soft.”
That is one way of putting it. The recession hurt a lot of industries, but it knocked the residential construction market to the mat and has kept it there, even as the broader economy has started to fitfully recover.
Sales of new single-family homes in February were down more than 80 percent from the 2005 peak, far exceeding the 28 percent drop in existing home sales. New single-family sales are now lower than at any point since the data was first collected in 1963, when the nation had 120 million fewer residents...
But in the meantime, sentiment might still be souring. Executives at Equity LifeStyle Properties, a Chicago firm that sells properties in resort communities, said this week they were seeing “a psychological change”: potential customers wanted to preserve their capital rather than risk it in real estate.
Bill McBride, who runs the popular financial blog Calculated Risk, said this might be the moment when people decisively started to turn on home ownership. “I’m starting to feel the hate,” he wrote.
http://www.nytimes.com/2011/04/23/business/economy/23housing.html?_r=2&hp
-------------------
The referenced website:
http://www.calculatedriskblog.com/
A telling chart follows below. Sorry for the spill over into the margin - yours truly can't figure out how to fit the chart so it can be clearly read. When I shrink it, the chart is hard to read. I recommend visiting the Calculated Risk Blog.
NOTE WELL: The RED line represents New Home Sales, which have fallen like a dagger. I suggest you do this wherever you live: visit a reliable, local real estate website and search for homes. Look at your neighborhood. Are homes really selling? Also, search the more expensive neighborhoods in your area. I've seen new construction houses in the "best areas" drop prices more than half and yet the things just sit there with no buyers. Sometimes homes are removed from the listings for a short period of time, then are re-listed. Inform yourself.
New home construction puts a lot of people to work. There is a great spillover effect. But, as you can see, new home construction is pitiful.
Existing home sales represent a much narrower set of employment. Now think about one more thing: of all the homes owned by banks in your area on sale, are they all for sale? Or instead, are the local banks sitting on inventory that has yet to show up in the For Sale listings? What do you think is really going on in your neighborhoods? Look around and do your own digging.
Thursday, April 21, 2011
Start today to cut your investment costs; keep the large chunks of extra money in your account!
We teach investors something very simple:
Stop costs from wasting your wealth. Keep the extra money in your accounts.
Extra wealth comes from immediate cost savings. But once you cut costs, the real story comes into play: the extra savings helps your money grow even larger as time moves forward. No adviser, bank, brokerage, or mutual fund company wants you to truly understand this.
We teach investors how to save thousands of dollars, even tens of thousands of dollars from cost cutting in the first year.
What really gets their attention is when we show how that money can make differences of extra hundreds of thousands of dollars over time.
Our method: keep control; own the best quality; pay the lowest costs.
We keep things simple. You keep amazing amounts of extra wealth by taking effective, easy to follow steps in the way you take care of your investment money.
Discover how we can help.
Stop costs from wasting your wealth. Keep the extra money in your accounts.
Extra wealth comes from immediate cost savings. But once you cut costs, the real story comes into play: the extra savings helps your money grow even larger as time moves forward. No adviser, bank, brokerage, or mutual fund company wants you to truly understand this.
We teach investors how to save thousands of dollars, even tens of thousands of dollars from cost cutting in the first year.
What really gets their attention is when we show how that money can make differences of extra hundreds of thousands of dollars over time.
Our method: keep control; own the best quality; pay the lowest costs.
We keep things simple. You keep amazing amounts of extra wealth by taking effective, easy to follow steps in the way you take care of your investment money.
Discover how we can help.
Tuesday, April 19, 2011
Gold
Gold Tops $1,500 on Outlook for Escalating U.S. Debt, Dollar
Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment. Silver surged to a 1980 high...
“The U.S. credit rating will undoubtedly be lowered in the next few years,” said Michael Pento, a senior economist at Euro Pacific Capital in New York. “This will mean much higher borrowing costs and a much lower currency. International investors have been using gold and silver as an alternative currency and an alternative to the dollar, and this will only exacerbate and accelerate that process.”
http://www.bloomberg.com/news/2011-04-19/gold-futures-top-1-500-on-outlook-for-escalating-u-s-debt-dollar-slump.html
Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment. Silver surged to a 1980 high...
“The U.S. credit rating will undoubtedly be lowered in the next few years,” said Michael Pento, a senior economist at Euro Pacific Capital in New York. “This will mean much higher borrowing costs and a much lower currency. International investors have been using gold and silver as an alternative currency and an alternative to the dollar, and this will only exacerbate and accelerate that process.”
http://www.bloomberg.com/news/2011-04-19/gold-futures-top-1-500-on-outlook-for-escalating-u-s-debt-dollar-slump.html
How Financial Advisers Gun for New Clients
Read the part about what advisers say is their "top priority."
From Smart Money Magazine online:
Forget the tried-and-true sales methods of previous generations—glossy mailings, cold calls or maybe a ho-hum luncheon presentation at the Lions Club. In an effort to grab a larger share of the more than $10 trillion that Americans have invested through financial professionals, the country's 325,000-plus advisers are employing a range of clever, pricey or just plain over-the-top tactics to woo clients.
...call it all pricey and dicey prospecting. By many measures, advisers are increasing (or planning to increase) the time and money they devote to bringing in new clients—a big change from the days when many merely relied on referrals from existing clients to boost their practices. According to a 2010 survey by SEI, a consulting firm that works with more than 6,500 financial professionals,
66 percent of advisers say growing their business is their top priority.
(By contrast, just 25 percent say they need to meet with current clients more frequently.)
Read more: http://www.smartmoney.com/investing/stocks/financial-advisers-how-they-gun-for-new-clients-1301589329613/?page=all
---------------------------------
Do your advisers share your top priorities?
Have they taught you how cutting their costs can help you?
Learn how you can add extra hundreds of thousands of dollars over time to your accounts by focusing on stopping costs from wasting your wealth.
We teach how to Refinance Your Investments®. Cut your costs; keep the difference; measure the impact in actual dollars personalized to your accounts, your money, your retirement wealth.
Many people find this hard to understand because it is so simple.
From Smart Money Magazine online:
Forget the tried-and-true sales methods of previous generations—glossy mailings, cold calls or maybe a ho-hum luncheon presentation at the Lions Club. In an effort to grab a larger share of the more than $10 trillion that Americans have invested through financial professionals, the country's 325,000-plus advisers are employing a range of clever, pricey or just plain over-the-top tactics to woo clients.
...call it all pricey and dicey prospecting. By many measures, advisers are increasing (or planning to increase) the time and money they devote to bringing in new clients—a big change from the days when many merely relied on referrals from existing clients to boost their practices. According to a 2010 survey by SEI, a consulting firm that works with more than 6,500 financial professionals,
66 percent of advisers say growing their business is their top priority.
(By contrast, just 25 percent say they need to meet with current clients more frequently.)
Read more: http://www.smartmoney.com/investing/stocks/financial-advisers-how-they-gun-for-new-clients-1301589329613/?page=all
---------------------------------
Do your advisers share your top priorities?
Have they taught you how cutting their costs can help you?
Learn how you can add extra hundreds of thousands of dollars over time to your accounts by focusing on stopping costs from wasting your wealth.
We teach how to Refinance Your Investments®. Cut your costs; keep the difference; measure the impact in actual dollars personalized to your accounts, your money, your retirement wealth.
Many people find this hard to understand because it is so simple.
Monday, April 18, 2011
$2 trillion stealth tax hike
From James Pethokoukis
http://blogs.reuters.com/james-pethokoukis/
The Obama Framework is so vague and fuzzy that doing a true apples-to-apples comparison between the Ryan Path and the Obama Framework comparison is almost impossible. (Best guess: Ryan cuts $3 trillion more than Obama over a dozen years.) This could be intentional....
If you’re keeping score, what Obama is actually proposing is $1 trillion in new taxes on wealthier Americans (and small businesses) and $1 trillion in higher tax revenues by reducing tax breaks and subsidies for a total of $2 trillion in new taxes over 12 years...
America’s debt problem is one of too much spending, not too little revenue. By offering a tax-heavy fiscal fix that keeps Big Government firmly in place, Obama offers Americans a clear choice of economic futures, his or Paul Ryan’s.
http://blogs.reuters.com/james-pethokoukis/
The Obama Framework is so vague and fuzzy that doing a true apples-to-apples comparison between the Ryan Path and the Obama Framework comparison is almost impossible. (Best guess: Ryan cuts $3 trillion more than Obama over a dozen years.) This could be intentional....
If you’re keeping score, what Obama is actually proposing is $1 trillion in new taxes on wealthier Americans (and small businesses) and $1 trillion in higher tax revenues by reducing tax breaks and subsidies for a total of $2 trillion in new taxes over 12 years...
America’s debt problem is one of too much spending, not too little revenue. By offering a tax-heavy fiscal fix that keeps Big Government firmly in place, Obama offers Americans a clear choice of economic futures, his or Paul Ryan’s.
Government Motors has problems
From the New York Post:
Neither current management nor its government masters dare admit it, but the truth is obvious: The bailout's been a disaster for taxpayers and GM's pre-bailout stock- and bondholders -- and for GM itself.
GM's management team lacks stability... fourth chief executive in less than two years...
Chinese market is far less profitable than North America...
GM's European division, Opel, continues to struggle...
More problems are already in the pipeline. The company's probably going to have to dilute its shares again: It recently laid the groundwork for further dilution by raising the number of authorized shares from 2.5 billion to 5 billion. I don't see how GM can meet its UAW pension obligations without issuing more shares -- but that will inevitably push the stock price even further below the $54 price that's break-even for the taxpayers.
http://www.nypost.com/p/news/opinion/opedcolumnists/government_motors_is_still_lemon_BdOQV86lpsfZx5LkTZd7aK
Neither current management nor its government masters dare admit it, but the truth is obvious: The bailout's been a disaster for taxpayers and GM's pre-bailout stock- and bondholders -- and for GM itself.
GM's management team lacks stability... fourth chief executive in less than two years...
Chinese market is far less profitable than North America...
GM's European division, Opel, continues to struggle...
More problems are already in the pipeline. The company's probably going to have to dilute its shares again: It recently laid the groundwork for further dilution by raising the number of authorized shares from 2.5 billion to 5 billion. I don't see how GM can meet its UAW pension obligations without issuing more shares -- but that will inevitably push the stock price even further below the $54 price that's break-even for the taxpayers.
http://www.nypost.com/p/news/opinion/opedcolumnists/government_motors_is_still_lemon_BdOQV86lpsfZx5LkTZd7aK
More reasons to cut your own investment costs
Tax compliance employs more workers than Wal-Mart, UPS, McDonald's, IBM and Citigroup combined. (Arthur Laffer in today's Wall Street Journal online.)
Standard & Poor’s put a “negative” outlook on the long-term AAA credit rating of the U.S., citing a “material risk” the nation’s leaders will fail to deal with rising budget deficits and debt. (Bloomberg.com)
...the move signals at least a one-in-three chance that it could cut its long-term rating on the United States within two years. (Reuters)
---------------------------------------
Have you considered cutting the costs of your investments?
We can show you, or your group, how you can personally save from thousands to tens of thousands of dollars in costs every year. We measure it in actual dollars specific to your investment accounts.
We also explain how to replace what you own with better, lower cost substitutes. We teach. You keep the savings, no matter where you invest or how much money you have. Just decide to keep more of your own money by cutting investment costs deeply and permanently.
Call it: Refinance Your Investments®.
Standard & Poor’s put a “negative” outlook on the long-term AAA credit rating of the U.S., citing a “material risk” the nation’s leaders will fail to deal with rising budget deficits and debt. (Bloomberg.com)
...the move signals at least a one-in-three chance that it could cut its long-term rating on the United States within two years. (Reuters)
---------------------------------------
Have you considered cutting the costs of your investments?
We can show you, or your group, how you can personally save from thousands to tens of thousands of dollars in costs every year. We measure it in actual dollars specific to your investment accounts.
We also explain how to replace what you own with better, lower cost substitutes. We teach. You keep the savings, no matter where you invest or how much money you have. Just decide to keep more of your own money by cutting investment costs deeply and permanently.
Call it: Refinance Your Investments®.
Thursday, April 14, 2011
Did the world's biggest banks collude to manipulate a key interest rate before and during the financial crisis?
From the Wall Street Journal online:
For the past year, law-enforcement officials have been investigating whether the U.S. and European banks understated their own borrowing costs, which are used to calculate the London interbank offered rate, or Libor. The investigators are now looking into whether the banks effectively formed a global cartel and coordinated how to report borrowing costs between 2006 and 2008...
Inside the Justice Department, the case is being pursued by antitrust and antifraud prosecutors, said people familiar with the situation. Criminal antitrust investigations typically focus on collusive behavior such as price-fixing and bid-rigging. A number of the banks involved in the probe have hired high-profile corporate-defense law firms...
http://online.wsj.com/article/SB10001424052748704547804576261120293347088.html
For the past year, law-enforcement officials have been investigating whether the U.S. and European banks understated their own borrowing costs, which are used to calculate the London interbank offered rate, or Libor. The investigators are now looking into whether the banks effectively formed a global cartel and coordinated how to report borrowing costs between 2006 and 2008...
Inside the Justice Department, the case is being pursued by antitrust and antifraud prosecutors, said people familiar with the situation. Criminal antitrust investigations typically focus on collusive behavior such as price-fixing and bid-rigging. A number of the banks involved in the probe have hired high-profile corporate-defense law firms...
http://online.wsj.com/article/SB10001424052748704547804576261120293347088.html
Wednesday, April 13, 2011
Budget Cut Nonsense
WASHINGTON (AP) — A new budget estimate released Wednesday shows that the spending bill negotiated between President Barack Obama and House Speaker John Boehner would produce less than 1 percent of the $38 billion in claimed savings by the end of this budget year.
The Congressional Budget Office estimate shows that compared with current spending rates the spending bill due for a House vote Thursday would pare just $352 million from the deficit through Sept. 30....
http://hosted2.ap.org/txdam/54828a5e8d9d48b7ba8b94ba38a9ef22/Article_2011-04-13-Spending%20Showdown/id-6932201e346e4152a8ec420d1cdbcc8a
The Congressional Budget Office estimate shows that compared with current spending rates the spending bill due for a House vote Thursday would pare just $352 million from the deficit through Sept. 30....
http://hosted2.ap.org/txdam/54828a5e8d9d48b7ba8b94ba38a9ef22/Article_2011-04-13-Spending%20Showdown/id-6932201e346e4152a8ec420d1cdbcc8a
Monday, April 11, 2011
Bill Gross betting against U.S. Treasuries
by Colin Barr on Fortune.com
"Gross, who manages the world's biggest bond fund and has spent recent months jawboning about the dangers of U.S. debt, has placed a $7 billion bet against Treasury bonds, according to the latest statistics released by his Pimco Total Return fund.
Gross made a splash last month by selling all the big bond fund's Treasury holdings and calling the federal budget a Greek tragedy in the making. Now he has gone one better, leaving the $236 billion fund with a short position in U.S government debt for the first time since February 2009 – and putting a third of the fund's assets in cash....
His fund is holding a staggering $73 billion of cash, in an apparent bet that the market recovery is on borrowed time...
Gross hasn't been optimistic that our political class will avert a crisis. His Greek tragedy commentary reasons that unfunded U.S. entitlement spending amounts to five times gross domestic product – a bigger debt burden than the one in bailed-out Greece...
Treasury securities aren't the only bonds Gross is betting against. Gross cut the Total Return Fund's holdings of mortgage securities to 28% of assets from 34%...
All the same, it is clear that it wouldn't take much of a dip in Treasury prices to bring Pimco back to the lot to start kicking the tires again. In spite of his posturing about bond market turkey shoots and the like, Gross told Bloomberg last month he believes U.S. economic growth dictates that the 10-year Treasury should trade "with a 4% type of yield."
http://finance.fortune.cnn.com/2011/04/10/pimcos-gross-betting-against-u-s-debt/
-----------------------
"Gross, who manages the world's biggest bond fund and has spent recent months jawboning about the dangers of U.S. debt, has placed a $7 billion bet against Treasury bonds, according to the latest statistics released by his Pimco Total Return fund.
Gross made a splash last month by selling all the big bond fund's Treasury holdings and calling the federal budget a Greek tragedy in the making. Now he has gone one better, leaving the $236 billion fund with a short position in U.S government debt for the first time since February 2009 – and putting a third of the fund's assets in cash....
His fund is holding a staggering $73 billion of cash, in an apparent bet that the market recovery is on borrowed time...
Gross hasn't been optimistic that our political class will avert a crisis. His Greek tragedy commentary reasons that unfunded U.S. entitlement spending amounts to five times gross domestic product – a bigger debt burden than the one in bailed-out Greece...
Treasury securities aren't the only bonds Gross is betting against. Gross cut the Total Return Fund's holdings of mortgage securities to 28% of assets from 34%...
All the same, it is clear that it wouldn't take much of a dip in Treasury prices to bring Pimco back to the lot to start kicking the tires again. In spite of his posturing about bond market turkey shoots and the like, Gross told Bloomberg last month he believes U.S. economic growth dictates that the 10-year Treasury should trade "with a 4% type of yield."
http://finance.fortune.cnn.com/2011/04/10/pimcos-gross-betting-against-u-s-debt/
-----------------------
Mean Street: Whip Me Harder, Bond Market!
Evan Newmark writes a blog for WSJ.com.
He is concise, funny, irreverent, knowledgeable and opinionated.
He is a must read. From today's blog:
"For the first half of this weekend I was riding high on a wave of Reagan-era optimism...
By early Sunday, however, I was back down in the dumps. As I watched White House advisor David Plouffe on the Sunday TV talk shows serve up predictable Obama “win the future” and “tax the rich” platitudes, it felt like morning in America…circa 1978.
If America was on the brink of fiscal Armageddon, why was the White House even trotting out Plouffe, an Obama election consultant, instead of Jack Lew, its numbers guy and head of the OMB?
Why? You know why.
It turns out that last week’s big shutdown showdown wasn’t about cutting the deficit at all. It was about opinion polls dictating government policy. It was about getting Obama re-elected....
Which means that over the next two years there are only two things that can keep our nation from going bust: what your neighbor says and what the U.S. bond market does.
Unfortunately, your neighbor probably isn’t going to be of much immediate help. Go next door and talk with him.
According to all the polling, he still believes America can magically keep all its middle-class entitlements. What’s more, he’ll vote against any politician who tells him otherwise.
Of course, your neighbor is 100% wrong. But how is he to know that?
...No one easily gives up something they’ve been promised. That’s human nature – and as talented as Paul Ryan is – he can’t change that.
This is why only the bond market can really save America. The bond market speaks louder and more aggressively than even New York Senator Chuck Schumer. It sets America’s borrowing rates for both the government and your neighbor. Poorer credit means higher interest rates. Just see how your neighbor reacts when his adjustable-rate mortgage spikes to 7%.
This is why the winding down of the Federal Reserve’s QEII policy set for June can’t come a moment too soon.
By buying back hundreds of billions of dollars in U.S. Treasurys since October, the Fed has been keeping rates artificially low, making America appear more solvent than it actually is.
In effect, the Fed has been withholding the bad news from you, your neighbor and the politicians.
This will soon change."
http://blogs.wsj.com/deals/2011/04/11/mean-street-whip-me-bond-market/
He is concise, funny, irreverent, knowledgeable and opinionated.
He is a must read. From today's blog:
"For the first half of this weekend I was riding high on a wave of Reagan-era optimism...
By early Sunday, however, I was back down in the dumps. As I watched White House advisor David Plouffe on the Sunday TV talk shows serve up predictable Obama “win the future” and “tax the rich” platitudes, it felt like morning in America…circa 1978.
If America was on the brink of fiscal Armageddon, why was the White House even trotting out Plouffe, an Obama election consultant, instead of Jack Lew, its numbers guy and head of the OMB?
Why? You know why.
It turns out that last week’s big shutdown showdown wasn’t about cutting the deficit at all. It was about opinion polls dictating government policy. It was about getting Obama re-elected....
Which means that over the next two years there are only two things that can keep our nation from going bust: what your neighbor says and what the U.S. bond market does.
Unfortunately, your neighbor probably isn’t going to be of much immediate help. Go next door and talk with him.
According to all the polling, he still believes America can magically keep all its middle-class entitlements. What’s more, he’ll vote against any politician who tells him otherwise.
Of course, your neighbor is 100% wrong. But how is he to know that?
...No one easily gives up something they’ve been promised. That’s human nature – and as talented as Paul Ryan is – he can’t change that.
This is why only the bond market can really save America. The bond market speaks louder and more aggressively than even New York Senator Chuck Schumer. It sets America’s borrowing rates for both the government and your neighbor. Poorer credit means higher interest rates. Just see how your neighbor reacts when his adjustable-rate mortgage spikes to 7%.
This is why the winding down of the Federal Reserve’s QEII policy set for June can’t come a moment too soon.
By buying back hundreds of billions of dollars in U.S. Treasurys since October, the Fed has been keeping rates artificially low, making America appear more solvent than it actually is.
In effect, the Fed has been withholding the bad news from you, your neighbor and the politicians.
This will soon change."
http://blogs.wsj.com/deals/2011/04/11/mean-street-whip-me-bond-market/
Oh.... that house was finally sold
A story at Dealbreaker.com mentions that U.S. Treasury Secretary Tim Geihtner has not sold his home in Connecticut, but JPMorgan Chairman Jamie Dimon (see next entry) sold his Chicago home.
"(Dimon) reportedly sold his manse for $6.8 million (after having bought it for $4.7 million) and JPMorgan apparently picked up the realtor tab.
And the house of Dimon:
http://www.businessinsider.com/jamie-dimon-chicago-home-2011-4
"(Dimon) reportedly sold his manse for $6.8 million (after having bought it for $4.7 million) and JPMorgan apparently picked up the realtor tab.
JPMorgan covered $421,458 in real estate commissions and related costs in selling Dimon’s Gold Coast mansion. In the company’s proxy, it said the payment of commissions, appraisals, inspections, title search and other ordinary costs of selling a home was “in accordance with the firm’s general policy on relocation expenses, applicable to all eligible employees who relocate at the request of the firm.”http://dealbreaker.com/2011/04/jamie-dimon-1-tim-geithner-0/#more-39490
And the house of Dimon:
JPMorgan Accused of Breaking Its Duty to Clients
Oh boy, the banks really care about you!
A tale from Louise Story of the NYTimes about JPMorgan:
"In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about a troubled investment vehicle called Sigma, which was based in London. But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.
Sigma collapsed a year later. Now, new documents unsealed late last month as part of a lawsuit by bank clients against JPMorgan show for the first time just how high the warnings about Sigma went — all the way to the office of the bank’s chief executive, Jamie Dimon.
While the clients lost nearly all their money, JPMorgan collected nearly $1.9 billion from Sigma’s demise, according to the suit. That’s because as Sigma’s troubles worsened, JPMorgan lent the vehicle billions of dollars and received valuable assets in the form of a security deposit.
After Sigma came undone in September 2008, many of those assets ultimately became JPMorgan’s and eventually appreciated in value, giving the bank a large profit, the suit says...
it sheds new light on one of Wall Street’s oldest problems — whether banks treat their clients’ money with the same care that they treat their own...
One internal e-mail between top executives, for instance, states that the firm needed to protect its own interests in its dealings with Sigma, without taking into account the clients’ position...
JPMorgan made over $470 million in profit within a year of the default by selling off some of the collateral and had recorded a paper gain of $1.2 billion on assets it still held, according to the suit. The bank had also made $228 million in fees from Sigma in exchange for the loans. The total gain was nearly $1.9 billion...
The pension funds... lost nearly all of their investment. The suit said their $500 million became worth 6 cents on the dollar.
Mr. Evangelisti, the JPMorgan spokesman, said the bank disputed the profit figures but he would not say how much the bank believed it made on the Sigma transactions...
http://www.nytimes.com/2011/04/11/business/economy/11bank.html?_r=1&ref=business&pagewanted=all
A tale from Louise Story of the NYTimes about JPMorgan:
"In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about a troubled investment vehicle called Sigma, which was based in London. But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.
Sigma collapsed a year later. Now, new documents unsealed late last month as part of a lawsuit by bank clients against JPMorgan show for the first time just how high the warnings about Sigma went — all the way to the office of the bank’s chief executive, Jamie Dimon.
While the clients lost nearly all their money, JPMorgan collected nearly $1.9 billion from Sigma’s demise, according to the suit. That’s because as Sigma’s troubles worsened, JPMorgan lent the vehicle billions of dollars and received valuable assets in the form of a security deposit.
After Sigma came undone in September 2008, many of those assets ultimately became JPMorgan’s and eventually appreciated in value, giving the bank a large profit, the suit says...
it sheds new light on one of Wall Street’s oldest problems — whether banks treat their clients’ money with the same care that they treat their own...
One internal e-mail between top executives, for instance, states that the firm needed to protect its own interests in its dealings with Sigma, without taking into account the clients’ position...
JPMorgan made over $470 million in profit within a year of the default by selling off some of the collateral and had recorded a paper gain of $1.2 billion on assets it still held, according to the suit. The bank had also made $228 million in fees from Sigma in exchange for the loans. The total gain was nearly $1.9 billion...
The pension funds... lost nearly all of their investment. The suit said their $500 million became worth 6 cents on the dollar.
Mr. Evangelisti, the JPMorgan spokesman, said the bank disputed the profit figures but he would not say how much the bank believed it made on the Sigma transactions...
http://www.nytimes.com/2011/04/11/business/economy/11bank.html?_r=1&ref=business&pagewanted=all
Friday, April 8, 2011
Patrick the Pit Bull
A pit bull named Patrick? Nothing could be finer.
Thursday, April 7, 2011
Washington Post: Bill Gross of Pimco
Bill Gross, founder and co-chief investment officer of Pimco, the world’s largest mutual fund, made news last month when he dumped all U.S. Treasurys from the $1 trillion fund he operates. I spoke with him by phone yesterday afternoon. He had a solemn warning: The United States has a year or two to change course or face a debt crisis akin to what Greece, Portugal and Ireland have experienced.
He describes bond traders as “vigilant but not vigilantees,” meaning they are cautious and on the outlook for signs that inflation (“the enemy of bonds”) will rear its head. He explained that he got out of Treasurys because the return was too small relative to the huge risk on the horizon. Moreover, the Federal Reserve, he says, has masked the problem because “the right hand is buying from the left,” referring to the Fed’s controversial move in November to engage in huge buying of U.S. debt (“quantitative easing”)...
He doesn’t think much of the Fed’s inflation model, which doesn’t account for increasing demand for commodities from emerging countries. He thinks it is “definitely possible” we will have some form of stagflation, “3 percent or 2 percent or 4 percent inflation and low growth.”...
He warns, “It behooves Republicans and Democrats to begin to set an agenda for changing the direction of the country.” As for Rep. Paul Ryan’s plan he’s most enamored of the Medicaid reform. He says if we go to a block grant system “then there is hope” to get entitlements under control....
read more at this link:
http://www.washingtonpost.com/blogs/right-turn/post/exclusive-interview-bill-gross-of-pimco/2011/03/29/AFI5qXuC_blog.html
He describes bond traders as “vigilant but not vigilantees,” meaning they are cautious and on the outlook for signs that inflation (“the enemy of bonds”) will rear its head. He explained that he got out of Treasurys because the return was too small relative to the huge risk on the horizon. Moreover, the Federal Reserve, he says, has masked the problem because “the right hand is buying from the left,” referring to the Fed’s controversial move in November to engage in huge buying of U.S. debt (“quantitative easing”)...
He doesn’t think much of the Fed’s inflation model, which doesn’t account for increasing demand for commodities from emerging countries. He thinks it is “definitely possible” we will have some form of stagflation, “3 percent or 2 percent or 4 percent inflation and low growth.”...
He warns, “It behooves Republicans and Democrats to begin to set an agenda for changing the direction of the country.” As for Rep. Paul Ryan’s plan he’s most enamored of the Medicaid reform. He says if we go to a block grant system “then there is hope” to get entitlements under control....
read more at this link:
http://www.washingtonpost.com/blogs/right-turn/post/exclusive-interview-bill-gross-of-pimco/2011/03/29/AFI5qXuC_blog.html
Monday, April 4, 2011
Why Is Buffett Whitewashing Sokol's Exit?
More on Warren Buffett from Smart Money:
by James Stewart
"I've always admired Warren Buffett's advocacy of the highest ethical standards in business. As a journalist, I especially applaud his rule of thumb that employees consider whether they would be "willing to have any contemplated act appear the next day on the front page of their local paper." This is a far higher standard than simply adhering to the letter of the law. But does Buffett have a blind spot when it comes to implementing his own policy?
That question needs to be asked after the abrupt resignation this week of David Sokol, whom many viewed as the top contender to succeed Buffett at the helm of Berkshire Hathaway. In a press release on Wednesday announcing the resignation, Buffett said that Sokol had bought approximately $10 million in shares of chemical company Lubrizol in January -- not long before Berkshire Hathaway agreed to acquire the company at Sokol's urging.
Despite these highly suspicious and troubling actions, Buffett went out of his way to praise Sokol and stress that he didn't feel the Lubrizol trading was "in any way unlawful." He also said he had not asked for Sokol's resignation and that it came as a "surprise" to him. Mr. Sokol himself told The Wall Street Journal that his resigning had "absolutely nothing" to do with the Lubrizol situation. Buffett said that Sokol was resigning for family reasons...
Berkshire Hathaway did not respond to requests for comment. Sokol declined to comment for this column.
Let's assume Sokol's revelations failed to make much of an impression on a busy Buffett, caught up in the excitement of a potential new deal. But why would Buffett now go out of his way to whitewash Sokol's departure? In my view, Sokol should have been fired for the simple reason that he violated Buffett's "front page" standard. However painful, Buffett should have come clean to send a message to employees, investors and regulators that Berkshire Hathaway adheres to the highest ethical standards and enforces its own stated code of behavior."
Read more at:
http://www.smartmoney.com/investing/stocks/why-is-buffett-whitewashing-sokols-exit-1301690748602/
by James Stewart
"I've always admired Warren Buffett's advocacy of the highest ethical standards in business. As a journalist, I especially applaud his rule of thumb that employees consider whether they would be "willing to have any contemplated act appear the next day on the front page of their local paper." This is a far higher standard than simply adhering to the letter of the law. But does Buffett have a blind spot when it comes to implementing his own policy?
That question needs to be asked after the abrupt resignation this week of David Sokol, whom many viewed as the top contender to succeed Buffett at the helm of Berkshire Hathaway. In a press release on Wednesday announcing the resignation, Buffett said that Sokol had bought approximately $10 million in shares of chemical company Lubrizol in January -- not long before Berkshire Hathaway agreed to acquire the company at Sokol's urging.
Despite these highly suspicious and troubling actions, Buffett went out of his way to praise Sokol and stress that he didn't feel the Lubrizol trading was "in any way unlawful." He also said he had not asked for Sokol's resignation and that it came as a "surprise" to him. Mr. Sokol himself told The Wall Street Journal that his resigning had "absolutely nothing" to do with the Lubrizol situation. Buffett said that Sokol was resigning for family reasons...
Berkshire Hathaway did not respond to requests for comment. Sokol declined to comment for this column.
Let's assume Sokol's revelations failed to make much of an impression on a busy Buffett, caught up in the excitement of a potential new deal. But why would Buffett now go out of his way to whitewash Sokol's departure? In my view, Sokol should have been fired for the simple reason that he violated Buffett's "front page" standard. However painful, Buffett should have come clean to send a message to employees, investors and regulators that Berkshire Hathaway adheres to the highest ethical standards and enforces its own stated code of behavior."
Read more at:
http://www.smartmoney.com/investing/stocks/why-is-buffett-whitewashing-sokols-exit-1301690748602/
Saturday, April 2, 2011
Aw Shucks: the World's Greatest Investor
Aw shucks, Warren Buffett is such a great guy, being a billionaire and all.
But over the last several days, information has come out about Buffett, The World's Greatest Investor, and his former heir apparent, David Sokol.
Buffett, a hero to many investors and Chairman of Berkshire Hathaway, has tried to spin the Sokol situation with some of his typical folksy, aw shucks language.
Sokol resigned from Berkshire Hathaway this week when it was revealed that Sokol acted in a... a, aw shucks, let's call it a sleazy manner.
The lesson? Beware of everyone, including Mr. Aw Shucks Billionaire!
-------------------------------------
What follows is some commentary in the media worth reading.
The best commentary comes from David Sokol himself, quoted in the blog "Deal Journal," on the Wall Street Journal's website:
"Before David Sokol became the world’s most famous ex-employee of Berkshire Hathaway, he was a self-published author.
Sokol in 2007 issued a 127-page business guide, “Pleased but Not Satisfied” which is packed with personal biography and anecdotes (go karts and irate shoppers returning fatty roasts, for example) and business aphorisms influenced by some of Sokol’s mentors.
Deal Journal plucked a few choice nuggets from “Pleased But Not Satisfied.”
Sokol on integrity:
[W]hat is integrity? First of all, it is not as complicated or gray as many would have you believe. Integrity is merely doing what is right, even when no one is looking.
It is being honest with people. It is being forthright and candid. It is honoring a commitment even when it is not convenient. It is admitting when you are wrong. It is maintaining confidentiality. It is giving proper credit to an individual’s contributions or achievements.
It is playing by the rules and not attempting to get around them.”
http://blogs.wsj.com/deals/2011/03/31/read-excerpts-from-david-sokols-book/
--------------------------------------
Aw Shucks, thank you for your wisdom, Mr. Sokol, for you were handpicked by the Oracle of Omaha, Uncle Warren Buffett, Chairman of Berkshire Hathaway!
But over the last several days, information has come out about Buffett, The World's Greatest Investor, and his former heir apparent, David Sokol.
Buffett, a hero to many investors and Chairman of Berkshire Hathaway, has tried to spin the Sokol situation with some of his typical folksy, aw shucks language.
Sokol resigned from Berkshire Hathaway this week when it was revealed that Sokol acted in a... a, aw shucks, let's call it a sleazy manner.
The lesson? Beware of everyone, including Mr. Aw Shucks Billionaire!
-------------------------------------
What follows is some commentary in the media worth reading.
The best commentary comes from David Sokol himself, quoted in the blog "Deal Journal," on the Wall Street Journal's website:
"Before David Sokol became the world’s most famous ex-employee of Berkshire Hathaway, he was a self-published author.
Sokol in 2007 issued a 127-page business guide, “Pleased but Not Satisfied” which is packed with personal biography and anecdotes (go karts and irate shoppers returning fatty roasts, for example) and business aphorisms influenced by some of Sokol’s mentors.
Deal Journal plucked a few choice nuggets from “Pleased But Not Satisfied.”
Sokol on integrity:
[W]hat is integrity? First of all, it is not as complicated or gray as many would have you believe. Integrity is merely doing what is right, even when no one is looking.
It is being honest with people. It is being forthright and candid. It is honoring a commitment even when it is not convenient. It is admitting when you are wrong. It is maintaining confidentiality. It is giving proper credit to an individual’s contributions or achievements.
It is playing by the rules and not attempting to get around them.”
http://blogs.wsj.com/deals/2011/03/31/read-excerpts-from-david-sokols-book/
--------------------------------------
Aw Shucks, thank you for your wisdom, Mr. Sokol, for you were handpicked by the Oracle of Omaha, Uncle Warren Buffett, Chairman of Berkshire Hathaway!
Warren Buffett: World's Greatest Investor
From the Wall Street Journal:
Mean Street: Waiting for Mr. Buffett’s Apology
by Evan Newmark March 31, 2011
It’s long been my belief that you could never be too cynical about our leaders on Wall Street or in Washington.
But given the recent revelations over insider dealing at the Galleon Group and now David Sokol’s greasy wheeling and dealing with Lubrizol, it’s clear, that I was way too forgiving.
You can never be too cynical about any leader in America. Even Warren Buffett.
Did Buffett break the law in allowing Sokol, his employee, to front-run Berkshire Hathaway’s proposed acquisition of Lubrizol? Almost certainly not.
But has Buffett conducted himself in line with his own high ethical standards, in a way befitting America’s most revered corporate leader?
Sorry, President Obama and the rest of you Buffett fans, it’s not even close. As my WSJ colleagues make clear, the timeline of Sokol’s purchases of Lubrizol shares makes for an ugly fact pattern.
Buffett showed a distinct lack of interest in the exact size and timing of Sokol’s actual share purchases. And judging by yesterday’s press release, Buffett appears untroubled by how Sokol came up with the Lubrizol acquisition opportunity in the first place.
Remember Sokol was sent material by Citi’s investment bankers not its private wealth managers. In his CNBC interview, Sokol was a bit fuzzy on the details. But it’s clear he met with Citi and asked for a meeting with the Lubrizol CEO as a representative of Berkshire Hathaway, not in his own private capacity.
Does Mr. Buffett allow all of Berkshire’s senior management to pick and choose their shareholder duties as they see fit? Or is it only his heir apparent that he let get away with such outrageous behavior?
Not that Sokol or Buffett consider the behavior outrageous. Sokol seemed unaware of the problem on CNBC this morning.
And Buffett’s press release said nothing about Berkshire’s own Code of Conduct. It’s also apparently his final word on the matter. “I have held back nothing in this statement. Therefore if questioned about this matter in the future, I will simply refer the questioner back to the release.”
It’s no surprise that the terse defensiveness of Buffett’s press release reminded me of the fierce denials that have come from Rajat Gupta’s lawyer in the Galleon proceedings.
Put aside the “legality” of Gupta’s various chats with his buddy Rajaratnam. Gupta engaged in behavior that by the standards of the senior partner world-wide (emeritus) of McKinsey and Goldman Sachs board member were clearly wrong.
What standard is Buffett using to evaluate his and Sokol’s behavior? Is it the law? Or is it an even higher standard that is founded on acting beyond reproach?
It should be the latter, but today in America, it rarely is. For years, we’ve been easy on our leaders. We’re too quick to excuse their failings, too eager to make them “human.”
Think of Clinton’s and Spitzer’s extra-martial affairs. Think of the many violations of NCAA football and basketball coaches. Think of the Wall Street CEOs who ended up bankrupting everyone but themselves.
Of course, leaders make mistakes. But the most disturbing element of these mistakes is just how out of touch our leaders often seem.
In many instances of wrongdoing, we’re not talking about “gray” situations. We’re far into the realm of “just what was that guy thinking?”; Clinton in the Oval Office with Lewinsky; Gupta calling Rajaratnam 23 seconds after his Goldman board call; Buffett sanctioning Sokol to deal on Berkshire’s behalf while buying shares on his own account.
Does America still have leaders who can see the world as the common man might? Does America still have leaders who haven’t let riches or public adulation go to their head?
Until now, you would have thought the Oracle of Omaha would be just that leader. And you would have been wrong.
http://blogs.wsj.com/deals/2011/03/31/mean-street-waiting-for-mr-buffetts-apology/
Mean Street: Waiting for Mr. Buffett’s Apology
by Evan Newmark March 31, 2011
It’s long been my belief that you could never be too cynical about our leaders on Wall Street or in Washington.
But given the recent revelations over insider dealing at the Galleon Group and now David Sokol’s greasy wheeling and dealing with Lubrizol, it’s clear, that I was way too forgiving.
You can never be too cynical about any leader in America. Even Warren Buffett.
Did Buffett break the law in allowing Sokol, his employee, to front-run Berkshire Hathaway’s proposed acquisition of Lubrizol? Almost certainly not.
But has Buffett conducted himself in line with his own high ethical standards, in a way befitting America’s most revered corporate leader?
Sorry, President Obama and the rest of you Buffett fans, it’s not even close. As my WSJ colleagues make clear, the timeline of Sokol’s purchases of Lubrizol shares makes for an ugly fact pattern.
Buffett showed a distinct lack of interest in the exact size and timing of Sokol’s actual share purchases. And judging by yesterday’s press release, Buffett appears untroubled by how Sokol came up with the Lubrizol acquisition opportunity in the first place.
Remember Sokol was sent material by Citi’s investment bankers not its private wealth managers. In his CNBC interview, Sokol was a bit fuzzy on the details. But it’s clear he met with Citi and asked for a meeting with the Lubrizol CEO as a representative of Berkshire Hathaway, not in his own private capacity.
Does Mr. Buffett allow all of Berkshire’s senior management to pick and choose their shareholder duties as they see fit? Or is it only his heir apparent that he let get away with such outrageous behavior?
Not that Sokol or Buffett consider the behavior outrageous. Sokol seemed unaware of the problem on CNBC this morning.
And Buffett’s press release said nothing about Berkshire’s own Code of Conduct. It’s also apparently his final word on the matter. “I have held back nothing in this statement. Therefore if questioned about this matter in the future, I will simply refer the questioner back to the release.”
It’s no surprise that the terse defensiveness of Buffett’s press release reminded me of the fierce denials that have come from Rajat Gupta’s lawyer in the Galleon proceedings.
Put aside the “legality” of Gupta’s various chats with his buddy Rajaratnam. Gupta engaged in behavior that by the standards of the senior partner world-wide (emeritus) of McKinsey and Goldman Sachs board member were clearly wrong.
What standard is Buffett using to evaluate his and Sokol’s behavior? Is it the law? Or is it an even higher standard that is founded on acting beyond reproach?
It should be the latter, but today in America, it rarely is. For years, we’ve been easy on our leaders. We’re too quick to excuse their failings, too eager to make them “human.”
Think of Clinton’s and Spitzer’s extra-martial affairs. Think of the many violations of NCAA football and basketball coaches. Think of the Wall Street CEOs who ended up bankrupting everyone but themselves.
Of course, leaders make mistakes. But the most disturbing element of these mistakes is just how out of touch our leaders often seem.
In many instances of wrongdoing, we’re not talking about “gray” situations. We’re far into the realm of “just what was that guy thinking?”; Clinton in the Oval Office with Lewinsky; Gupta calling Rajaratnam 23 seconds after his Goldman board call; Buffett sanctioning Sokol to deal on Berkshire’s behalf while buying shares on his own account.
Does America still have leaders who can see the world as the common man might? Does America still have leaders who haven’t let riches or public adulation go to their head?
Until now, you would have thought the Oracle of Omaha would be just that leader. And you would have been wrong.
http://blogs.wsj.com/deals/2011/03/31/mean-street-waiting-for-mr-buffetts-apology/
Warren Buffett: World's Greatest Investor
From the New York Times Deal Book:
March 31, 2011
The Perception of the Sokol Situation
ANDREW ROSS SORKIN
Perception is more important than reality.
After watching David L. Sokol on Thursday morning on CNBC as he tried to explain some potentially questionable trades he made in Lubrizol before Berkshire Hathaway bought the company, I was struck by what appeared to be a remarkable lack of appreciation for the way the public would perceive his actions.
Mr. Sokol clearly appeared to believe he had not done anything wrong or broken any rules when he bought shares of Lubrizol on Dec. 14, just a day after he instructed Citigroup to set up a meeting on behalf of Berkshire Hathaway to potentially orchestrate an acquisition of the company.
I have met Mr. Sokol before, found him to be an honest man and take his word that he thought he had acted completely appropriately.
But the facts paint an unattractive picture that creates a public perception problem — even if the reality of the situation is more innocent (I don’t know if it is or isn’t)...
Perhaps most striking, Mr. Sokol said on Thursday morning that if he could do it again, he would have bought shares of Lubrizol but not subsequently suggested that Mr. Buffett buy the company.
Putting aside the legality of the trade — and several lawyers I have spoken with believe the S.E.C. will scrutinize this matter seriously — the transactions demonstrate poor judgment.
Mr. Buffett once said: “Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends.”
That is a good rule to live by.
http://dealbook.nytimes.com/2011/03/31/the-perception-of-the-sokol-situation/?src=mv
March 31, 2011
The Perception of the Sokol Situation
ANDREW ROSS SORKIN
Perception is more important than reality.
After watching David L. Sokol on Thursday morning on CNBC as he tried to explain some potentially questionable trades he made in Lubrizol before Berkshire Hathaway bought the company, I was struck by what appeared to be a remarkable lack of appreciation for the way the public would perceive his actions.
Mr. Sokol clearly appeared to believe he had not done anything wrong or broken any rules when he bought shares of Lubrizol on Dec. 14, just a day after he instructed Citigroup to set up a meeting on behalf of Berkshire Hathaway to potentially orchestrate an acquisition of the company.
I have met Mr. Sokol before, found him to be an honest man and take his word that he thought he had acted completely appropriately.
But the facts paint an unattractive picture that creates a public perception problem — even if the reality of the situation is more innocent (I don’t know if it is or isn’t)...
Perhaps most striking, Mr. Sokol said on Thursday morning that if he could do it again, he would have bought shares of Lubrizol but not subsequently suggested that Mr. Buffett buy the company.
Putting aside the legality of the trade — and several lawyers I have spoken with believe the S.E.C. will scrutinize this matter seriously — the transactions demonstrate poor judgment.
Mr. Buffett once said: “Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends.”
That is a good rule to live by.
http://dealbook.nytimes.com/2011/03/31/the-perception-of-the-sokol-situation/?src=mv
Warren Buffett: World's Greatest Investor
From The Daily Beast:
Warren Buffett's Tarnished Halo
by Charlie Gasparino
As reputations go, Warren Buffett’s was Teflon. Charlie Gasparino on how his deputy’s strange trading profits reveal the Oracle of Omaha as—gasp!—another overambitious businessman.
The Securities and Exchange Commission is now “kicking the tires” on the bizarre news that David Sokol, Warren Buffett’s heir apparent to run Berkshire Hathaway—a guy who manages two large companies for Buffett, among many other duties—has a little job on the side in trading large blocks of stock, including shares in one company he helped convince Buffett to buy....
But I can tell you that this entire episode shows why investors and the media should stop portraying Warren Buffett as a saint, who never lies, cheats or equivocates and surrounds himself with similar heavenly characters. Instead, Buffett should be seem for what he is: A great investor and businessman motivated by greed and ambition and like his unheavenly deputy.
If this weren’t Warren Buffett, the immediate fallout would be greater. Consider the following: Sokol bought 2,300 shares of a stock in a company called Lubrizol in mid-December 2010, sold it a week later, then made a massive bet by snapping up close to 100,000 shares in early January when the company was trading around $110 a pop. That’s an $11 million position, which is huge even for the most sophisticated individual investor.
Like I said, Sokol also runs two companies for Buffett, MidAmerican Energy Holdings and NetJets Inc., so you have to wonder where he has all the time to moonlight as a day trader...
Buffett’s halo has been dimming for some time. He tried to downplay the role that rating agencies played in missing the financial crisis while he owned a chunk of one of the biggest raters, Moody’s Investors Service. He stood behind Goldman Sachs CEO Lloyd Blankfein despite general sleaze at the firm, while he boasted that he was earning $15 a minute, on his ownership stake in Goldman...
http://www.thedailybeast.com/blogs-and-stories/2011-03-31/warren-buffetts-halo-tarnished-by-david-sokol/
Warren Buffett's Tarnished Halo
by Charlie Gasparino
As reputations go, Warren Buffett’s was Teflon. Charlie Gasparino on how his deputy’s strange trading profits reveal the Oracle of Omaha as—gasp!—another overambitious businessman.
The Securities and Exchange Commission is now “kicking the tires” on the bizarre news that David Sokol, Warren Buffett’s heir apparent to run Berkshire Hathaway—a guy who manages two large companies for Buffett, among many other duties—has a little job on the side in trading large blocks of stock, including shares in one company he helped convince Buffett to buy....
But I can tell you that this entire episode shows why investors and the media should stop portraying Warren Buffett as a saint, who never lies, cheats or equivocates and surrounds himself with similar heavenly characters. Instead, Buffett should be seem for what he is: A great investor and businessman motivated by greed and ambition and like his unheavenly deputy.
If this weren’t Warren Buffett, the immediate fallout would be greater. Consider the following: Sokol bought 2,300 shares of a stock in a company called Lubrizol in mid-December 2010, sold it a week later, then made a massive bet by snapping up close to 100,000 shares in early January when the company was trading around $110 a pop. That’s an $11 million position, which is huge even for the most sophisticated individual investor.
Like I said, Sokol also runs two companies for Buffett, MidAmerican Energy Holdings and NetJets Inc., so you have to wonder where he has all the time to moonlight as a day trader...
Buffett’s halo has been dimming for some time. He tried to downplay the role that rating agencies played in missing the financial crisis while he owned a chunk of one of the biggest raters, Moody’s Investors Service. He stood behind Goldman Sachs CEO Lloyd Blankfein despite general sleaze at the firm, while he boasted that he was earning $15 a minute, on his ownership stake in Goldman...
http://www.thedailybeast.com/blogs-and-stories/2011-03-31/warren-buffetts-halo-tarnished-by-david-sokol/
Warren Buffett: World's Greatest Investor
From the New York Times:
Excuses, Excuses, Excuses
By JOE NOCERA
Published: April 1, 2011
Whenever the world’s greatest investor gets in a tight squeeze, he straps on his angel wings, readjusts his halo, and leans on his reputation for avuncular straight talk to make the problem go away.
Warren Buffett did it in the early-1990s, when one of his holdings at the time, Salomon Brothers, was caught in a Treasury bond scandal. He did it in the mid-2000s, when executives at General Re, owned by Buffett’s company, Berkshire Hathaway, were prosecuted for concocting a phony transaction with A.I.G.
Now he’s doing it again as he attempts to gloss over the actions of a close associate that look suspiciously like insider trading. The deputy, David Sokol, resigned earlier this week, claiming he wanted to concentrate on his “philanthropic interests.” (That’s what they all say.) The resignation, said Buffett, came as a “total surprise.” (They all say that, too.)....
Let’s recount the story, shall we? On Dec. 13, some investment bankers meet with Sokol to pitch possible acquisitions. He expresses an interest in Lubrizol and tells them to convey his interest to its chief executive, James Hambrick. He then buys 2,300 shares, selling them a week later. (Go figure.)
The plot soon thickens. In early January, Sokol goes back into the market and buys 96,000 shares at around $100 apiece. A week later, Sokol calls Hambrick and has a preliminary discussion about a possible deal. Sokol then takes the idea to Buffett, mentioning “in passing” that he owns some Lubrizol stock. Buffett expresses “skepticism” about a deal. Inexplicably, he says nothing about Sokol’s stock holdings.
Does Sokol let the matter die there? No. For some reason — what could that be? — he’s got a bee in his bonnet about this deal. On Jan. 25, he has dinner with Hambrick; when he reports back to Buffett about the conversation, Buffett becomes interested in making a deal. By early February, Buffett himself is wooing Hambrick. He tells the Lubrizol chief executive that he would like to buy all the company’s outstanding shares for $135 a share.
Sokol, of course, owns a nice little chunk of those outstanding shares. When the deal is announced in mid-March, Buffett’s trusted deputy walks away with a nifty little profit of $3 million or so. Not bad for a few weeks’ work.
How is this not, on its face, evidence of insider trading? A guy buys stock in a company and then talks his boss into buying the company. The fact that his boss is Warren Buffett makes it even more “material,” to use the word the S.E.C. favors when it investigates insider trading. If a company executive trades on material information, knowing that he is privy to stock-moving news that hasn’t yet been divulged to other shareholders, he is likely to be committing a crime. When Warren Buffett buys a company, the stock price goes up. Everybody knows that — including, presumably, Dave Sokol.
What is galling about Buffett’s stance is not the recitation of facts, but the way they were spun to make Sokol’s actions look benign. “Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea,” he writes. “In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest.”
I’m sorry, but that’s ridiculous. Since when do companies turn their backs on Buffett? Besides, Sokol knew that his idea would get a serious hearing; he was so esteemed by Buffett that he was rumored to be the Great Man’s successor. When you strip away the Buffett gloss, the facts are harsh. Sokol (a) brought the deal to Buffett, (b) brokered between Buffett and Hambrick, and (c) persuaded Buffett to pull the trigger. All while owning 96,000 shares he’d bought a few weeks earlier.
http://www.nytimes.com/2011/04/02/opinion/02nocera.html
Excuses, Excuses, Excuses
By JOE NOCERA
Published: April 1, 2011
Whenever the world’s greatest investor gets in a tight squeeze, he straps on his angel wings, readjusts his halo, and leans on his reputation for avuncular straight talk to make the problem go away.
Warren Buffett did it in the early-1990s, when one of his holdings at the time, Salomon Brothers, was caught in a Treasury bond scandal. He did it in the mid-2000s, when executives at General Re, owned by Buffett’s company, Berkshire Hathaway, were prosecuted for concocting a phony transaction with A.I.G.
Now he’s doing it again as he attempts to gloss over the actions of a close associate that look suspiciously like insider trading. The deputy, David Sokol, resigned earlier this week, claiming he wanted to concentrate on his “philanthropic interests.” (That’s what they all say.) The resignation, said Buffett, came as a “total surprise.” (They all say that, too.)....
Let’s recount the story, shall we? On Dec. 13, some investment bankers meet with Sokol to pitch possible acquisitions. He expresses an interest in Lubrizol and tells them to convey his interest to its chief executive, James Hambrick. He then buys 2,300 shares, selling them a week later. (Go figure.)
The plot soon thickens. In early January, Sokol goes back into the market and buys 96,000 shares at around $100 apiece. A week later, Sokol calls Hambrick and has a preliminary discussion about a possible deal. Sokol then takes the idea to Buffett, mentioning “in passing” that he owns some Lubrizol stock. Buffett expresses “skepticism” about a deal. Inexplicably, he says nothing about Sokol’s stock holdings.
Does Sokol let the matter die there? No. For some reason — what could that be? — he’s got a bee in his bonnet about this deal. On Jan. 25, he has dinner with Hambrick; when he reports back to Buffett about the conversation, Buffett becomes interested in making a deal. By early February, Buffett himself is wooing Hambrick. He tells the Lubrizol chief executive that he would like to buy all the company’s outstanding shares for $135 a share.
Sokol, of course, owns a nice little chunk of those outstanding shares. When the deal is announced in mid-March, Buffett’s trusted deputy walks away with a nifty little profit of $3 million or so. Not bad for a few weeks’ work.
How is this not, on its face, evidence of insider trading? A guy buys stock in a company and then talks his boss into buying the company. The fact that his boss is Warren Buffett makes it even more “material,” to use the word the S.E.C. favors when it investigates insider trading. If a company executive trades on material information, knowing that he is privy to stock-moving news that hasn’t yet been divulged to other shareholders, he is likely to be committing a crime. When Warren Buffett buys a company, the stock price goes up. Everybody knows that — including, presumably, Dave Sokol.
What is galling about Buffett’s stance is not the recitation of facts, but the way they were spun to make Sokol’s actions look benign. “Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea,” he writes. “In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest.”
I’m sorry, but that’s ridiculous. Since when do companies turn their backs on Buffett? Besides, Sokol knew that his idea would get a serious hearing; he was so esteemed by Buffett that he was rumored to be the Great Man’s successor. When you strip away the Buffett gloss, the facts are harsh. Sokol (a) brought the deal to Buffett, (b) brokered between Buffett and Hambrick, and (c) persuaded Buffett to pull the trigger. All while owning 96,000 shares he’d bought a few weeks earlier.
http://www.nytimes.com/2011/04/02/opinion/02nocera.html
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