Bespoke Investment Group

Spot on Michael Lewis Article

Michael Lewis has a good column over at Bloomberg.com titled "Mass Hysteria Over AIG Obscures Simple Truths."   

Majority of Bespoke Readers Think Geithner Is A Goner

Yesterday we asked readers whether they thought Tim Geithner would depart as the US Treasury Secretary by the end of 2009.  As shown below, the majority of poll participants said he would.  At the same time, the contract on Intrade for his departure by the end of 2009 has now spiked to 41.2%.

 

Geithner Gone Chatter

Many stories have popped up over the last couple of days about Treasury Secretary Tim Geithner's job security. (Tim Geithner Deathwatch, Analysis: White House, Dems Backpedaling on AIG, 'Complete Confidence' in Geithner).  Of course, leave it up to Intrade to release a contract on the matter that people can trade.  Intrade currently has two contracts allowing people to bet on Geithner's departure.  One is whether he will depart by the end of June, and the other is whether he will depart by the end of 2009.  While the contracts have been ticking up in price lately, traders on Intrade aren't betting big yet that his departure is imminent.  The contract for Geithner's departure by the end of June is currently putting the odds at 15%, while the end of the year departure odds are higher at 26%.

 

So what do Bespoke readers think?  Please take part in the poll below and we'll report back with the results shortly.

Will Tim Geithner depart as US Treasury Secretary by the end of 2009?
	Yes
	No
Free polls from Pollhost.com

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Classic Friedman

Check out this interesting exchange between Milton Friedman and Phil Donahue back in 1979:

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"Was It Something He Said?"

The stock market is reacting to moves in Washington more than ever.  Politico.com had a good article on the subject yesterday titled "Yap Trap: Pols Talk, Markets Dive."  It's definitely worth the read.  And while we heard President Obama mention problems that were "inherited" multiple times in his speech to Congress last night, he is now getting the blame for any downside moves that the market makes:

The Bush Administration tried its hardest to blame the '00-'02 recession on the Clinton Administration, so this is not something that we haven't heard before.  Politicians are always quick to take credit for any positives and quick to place blame for any negatives.  Fortunately, most of the American people realize where the buck stops.

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Way Too Much Washington for Wall Street Today

Somewhere, Hank Paulson is chuckling today after seeing the market's reaction to Tim Geithner's much anticipated speech that turned into a debacle.  When you say stuff like this when investors were expecting a plan to be announced last week -- Geithner: We are not going to put out details until we get it right. -- is it any wonder why the market is down nearly 5%?  The market was hoping for a set plan of action from the new Treasury Secretary today, and Geithner failed to provide that.  Couple Geithner with a bombardment of additional government ramblings today, and you can't blame investors for not having much confidence that the right course of action will be taken in Washington.

From a technical perspective, the S&P 500 bumped up against resistance at its 50-day moving average today and failed miserably.

 

Sports Illustrated Swimsuit Indicator

It's that time of year again!  Last night on the Late Show With David Letterman, Sports Illustrated revealed that this year's cover model for the annual swimsuit issue was Israeli model Bar Refaeli. 

Based on the vaunted Swimsuit Issue Indicator, what does this mean for the market?  Over the last 30 years, an American has appeared on the cover of the annual Sports Illustrated Swimsuit Issue in 16 different years.  The average performance of the S&P 500 during those 16 years is a gain of 10.6% with 13 positive years (81.3%).  Of the fifteen years where no American appeared on the cover, the S&P 500 has averaged a gain of only 7.2% with 11 positive years (73%). 

 

Last year's market decline of 38.5% hurt the overall average return for years when an American appeared on the cover (somebody check Marissa Miller's passport), illustrating that like the Super Bowl indicator, there are always exceptions to the rule.  In the table below, we highlight the native country of the model appearing on each year's issue as well as the performance of the S&P 500 that year.  While this year's cover model indicates the less attractive scenario for the market, at this point most investors would probably be pretty happy with a gain of 7.2% in 2009.

Year	Country	S&P 500 (%)
1978	Brazil	1.1
1979	USA	12.3
1980	USA	25.8
1981	USA	-9.7
1982	USA	14.8
1983	USA	17.3
1984	Czechoslovakia	1.4
1985	Czechoslovakia	26.3
1986	Australia	14.6
1987	Australia	2
1988	Australia	12.4
1989	USA	27.3
1990	Spain	-6.6
1991	USA	26.3
1992	USA	4.5
1993	Sweden	7.1
1994	Multiple (NZ, US, AU)	-1.5
1995	Czech Republic	34.1
1996	Multiple (AR, US)	20.3
1997	USA	31
1998	Germany	26.7
1999	USA	19.5
2000	Czech Republic	-10.1
2001	Mexico	-13
2002	Argentina	-23.4
2003	Czech Republic	26.4
2004	Czech Republic	9.0
2005	USA	3.0
2006	Multiple Countries	13.6
2007	USA	3.5
2008	USA	-38.5
2009	Israel	???

Crazy MLB Commissioner Pay

Yesterday it was made public that Major League Baseball's commissioner Bud Selig earned a whopping $18,350,000 in 2007.  Why exactly does this man make so much money??

Many Americans are in awe that baseball players and other professional athletes make so much money, but at least they are providing entertainment value to the millions willing to pay to watch them perform.  People don't pay to see Bud Selig sitting in the front row at the World Series or make decisions on instant replay.  Only three MLB players made more than Bud Selig did in 2007 -- Alex Rodriguez ($23 million), Derek Jeter ($22 million), and Jason Giambi ($21.5 million).  With so many people up in arms about excessive Wall Street executive pay these days, this is one executive salary that is sure to turn heads.

   

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The Baby Boomers Doomers

This morning's release of Consumer Confidence for January was the lowest on record (going back to 1967).  In order to get a better read on the true state of the consumer, however, it often helps to look at the sub-categories within the report.  For example, the age of the person being questioned can play a large role in how he or she feels about things.  The charts below show the historical levels of Consumer Confidence broken out by age group.  While confidence levels are at historical lows for each age group, people under the age of 35 (43.6) are considerably less downbeat than those over the age of 55 (34.7).  While from time to time we have all put on the rose-colored glasses and reminisced about the "good old days," at the rate things are going, "Baby Boomers" run the risk of being labeled "Baby Doomers."

  

John Thain Called Out By The President

We're not sure how John Thain is feeling about being called out by the President this morning.  For some background, most readers are aware of yesterday's report from CNBC's Charlie Gasparino on how Mr. Thain spent $1.2 million to renovate his office at Merrill Lynch last year.  This came during a time when the firm was already on the skids and laying off employees.  It appears as though President Obama saw the story too, because in comments this morning, he basically said that it is unacceptable for companies receiving government aid to be renovating 'offices and bathrooms.'  President Obama must be even more surprised with the fact that he paid the same designer eight times less for his work on the White House ($100K) than Thain paid him to do his office ($837K).  Since when does the government get better deals than the private sector? 

John Thain could be thinking he must be pretty important if even the President of the United States is talking about him.  But most likely, Mr. Thain is shaking in his boots.  When the President of the United States calls out your actions as a symbol of greed and what's wrong with Wall Street, you may want to think twice about taking the Bentley when you go out 'antiquing' this weekend.

Who would have thought that Merrill Lynch would already have an ex-CEO that is less popular than Stan O'Neal?  Somewhere out there, Mr. O'Neal is saying, "Thank God for John Thain!"

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"They missed as obvious a trick as pyramid selling"

The above quote comes from an article in last Friday's Financial Times, which discussed how US regulators failed to detect the Madoff scam.  While there seems to have been plenty of red flags concerning the scheme, it's always interesting to see people analyze these things with the benefit of hindsight.  In the case of the above quote, the individual who made the statement was the leader of a group that had over $10 million invested with Madoff.  This begs the question -- if it was such an 'obvious' scheme, why did they fall for it?

A Christmas Card From The Stock Market

Hopefully the market doesn't send us all this holiday card again in 2009:

Irony of Yesterday's ISM

At a time when the Federal Government has pledged trillions and trillions of dollars to help backstop the credit markets, we found it ironic that in yesterday's production component of the ISM, the only industry that saw growth was 'Paper Products.'  How many trees does it take to print a trillion dollars?

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Cost of Christmas Up 8%

PNC's Christmas Price Index was recently released, showing that the cost of Christmas based on the popular "12 Days of Christmas" song rose 8% versus 2007.  This is the biggest increase since 2003.  If it weren't for the partridges, doves, and swans, the overall cost would have risen much less.

 

 

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The Uptick Rule: Mr. Cox, Is It Really That Devilish?

Christopher Cox's SEC eliminated the Uptick Rule on July 6th, 2007.  Since the rule was done away with, the S&P 500 is down 51%.  At this point, how much can it hurt to bring the rule back?  The government has already thrown enough you know what at the wall to see if it sticks.  Is the Uptick Rule that devilish that Cox can't even try to bring it back? 

 

 

Want Some TARP Money? Sign Here!

When you are dealing with the Federal government, if there is one thing you can typically count on, it's paperwork.  Just look at the tax code.  However, we just came across the application for participation in the TARP Capital Purchase Program and were astonished at how short it was. 

While the entire application is six pages, the first four pages describe the eligibility and confidentiality guidelines.  The part of the application that you actually need to fill out is just two pages.  The application goes on to say that any additional information regarding mergers, acquisitions, or other capital raisings must be confined to one page!  In all seriousness, no-doc sub-prime loans probably required more info on the part of the borrower than this application.

   

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Joke of the Day: The Stock Market

Today's Joke of the Day is an intraday chart of the Dow Jones Industrial Average.  After trading up nearly 300 points, the Dow had a 400-point reversal from 3:47 to 4:00 PM.  Some are attributing the late-day decline to an announcement from GE CEO Jeff Immelt that he aims for flat 2009 earnings, but could that really cause such a move?  Especially since GE's contribution to the reversal amounted to a mere 6 points of the Dow's decline.  Prior to this month, one could only think of a few events that would send the market down this much this fast.  However, after what we've all experienced over the last few weeks, today's action is just par for the course.

 

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Tax-Free IRA Withdrawals?

We're not sure how this one will help the stock market and the savings rate:

Relief to Families: Penalty-Free Withdrawals from IRAs and 401(k)s in 2008 and 2009. Obama is calling for new legislation to allow families to withdraw 15% of their retirement savings – up to a maximum of $10,000 – without facing a tax-penalty this year (including retroactively) and next year.

Drinking on the Rise

After days like yesterday, talk to most traders and they're likely to say, "I need a drink."  Apparently, that's exactly what they've been doing.  This morning, Anheuser-Busch issued a press release with the following headline:

Interestingly, while Anheuser-Busch (BUD) is reporting stronger than expected results, the company which is set to acquire it, InBev, came out today and warned that margins would be hurt due to higher worldwide costs.  At least BUD shareholders are being paid by InBev in cash.

Congress One Ups Prediction Markets

Last Friday, traders on Intrade were putting the odds of Congress passing a bailout plan by September 30th at 89%.  Even though constituent calls came in "150 to 1" complaining about the plan (never mind the fact that most people that agree with something don't call to complain), the majority of investors thought the deal was going to get done.  The chart below of the bailout odds looks very similar to a bank stock crashing -- something Congress is getting very used to these days.

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CEO Bludgeoned To Death By Laid-Off Employees

This headline is simply unbelievable and very troubling: CEO Murdered By Mob of Sacked Indian Workers.

Taking Our Cues From Russia?

Whether or not you agree with the recent actions by the US Federal government, it's hard to argue with the statement that it is beginning to look a little like Russia.  We all remember the headlines in 2004/2005 when the Russian government seized control of Yukos alleging that the company owed billions in back taxes.  Then in July, BP had to pull out of its energy joint venture in Russia citing 'sustained harassment' on the part of Russian authorities.  Just as Russia has been taking control of its energy companies, over the last two weeks the US government has taken over Fannie Mae (FNM) and Freddie Mac (FRE) in our nation's financial sector.  And the similarities don't just end there. 

Last Friday, the Russian government announced that it would buy $20 bln worth of equities for each of the next two years.  Now less than three days later, we are seeing headlines that the US government will also take equity stakes as part of their 'compensation' for the $700 billion government bailout.  Now we all remember when President Bush said he found Vladimir Putin to be a 'very straightforward and trustworthy' person who was 'deeply committed to his country and the best interests of his country.' But taking our cues from Russia?  That may be taking it a little too far.

Out of Office AutoReply: SEC on Vacation

The silence coming from the SEC is deafening.  No matter what their stance on the short selling rules and the effect they are having on the current market declines, one would think that there would be at least some commentary coming from the SEC.  Since they let the temporary ban on naked short selling expire on August 12th (which just happened to coincide with the peak in the rally off the July lows when the temporary ban was put in place), we haven't heard boo from the SEC.  Are they on vacation or just shell-shocked?

Out of Office AutoReply:

We will be out of the office indefinitely beginning August 12th.  During this period, we will have no access to phone or email.  If this is an emergency, please leave a voice mail.

Update:

The SEC has gone back to work.

CNBC's $190 Billion Reporters

A few minutes ago, CNBC's Charlie Gasparino reported that in discussions at the NY Fed regarding the fate of AIG, the prospect of the government providing some sort of assistance was on the table.  On that news, the S&P 500 staged a 1.8% rally in a matter of minutes.  In terms of market cap, the S&P 500 added $192 billion.  Minutes later, that $192 billion evaporated when another CNBC reporter said that the government's previously stated position regarding AIG (of providing no assistance) had not changed.  When hundreds of billions of dollars are created and erased in a matter of minutes like this, saying that the market is in a state of anxiety is quite an understatement.

Fed to Accept Lower Quality Assets As Collateral

"Fed Loosens Standards on Emergency Loans" - NYTimes, 9/15

"In an obscure but highly important announcement late Sunday evening, the Fed said it would let Wall Street firms post as collateral much riskier assets — including equities, junk bonds, subprime mortgage-backed securities and even whole mortgages — in exchange for emergency loans through the Primary Dealer Credit Facility."

You think a Gregg Jefferies rookie card is worth anything in collateral?  How about those old Beanie Babies?   Or maybe old Cabbage Patch Kids dolls?  Who knows what they'll take at this point.