No More Dylan Ratigan on CNBC

They mentioned this during tonight's episode, so I had to confirm. It appears it's true. Melissa Lee's not awful, but the show's not the same.

Kindle, Snip and Staying Home

3 unrelated items here...

First, I'm still already on the hunt for information about a 3rd generation Kindle and so far only finding rumors and speculation. These rumors are hopefully better that the ones I started following last year, which originally predicted the Kindle 2 would be out in time for the holiday shopping season (for the record they missed that by a good 2+ months).

An unrelated item of interest that I found amusing, you never know what you'll find in an economics blog.

Finally, something I actually sought out and was surprised I could not find more articles on...NCAA tournament attendance. Here's a couple I did find- an AP Story and the Fan Box blog. I'll keep looking for articles to support what I see on TV, which is a lot of empty seats.

The textbook of the future? - Opinion

The textbook of the future? - Opinion

Roubini's latest thoughts

Today's Nouriel Roubini update is from his Op Ed in the NY Daily News. Roubini and Richardson lay out some scary thoughts. Although they are firmly behind the Geithner plan they also provide the ultimate question to be answered...will selling toxic assets push banks over the edge? They argue that the government needs to push the banks to sell. I say, if banks are really convinced that their valuation models are reasonable (and hence a rational alternative to MTM), then let them keep the allegedly toxic assets. The irony is that if banks subject their assets to the PPIP (Public Private Investment Plan) and don't like the market price they prove the value of MTM and should therefore right down anything they are holding immediately, however if they withhold assets from the market they would seem to be legitimately supporting their model valuation approach. In other words, banks can't have their cake and eat it too...should be fun to watch.

Check out this Economist.com article for more on whether banks will really sell.

Treasury auction update

I think I'm going to start monitoring the Treasury auctions to see if they detect on-coming weakness that could cause significant problems as the government attempts to raise funds to pay for all the economic stimulus. Here are the results of today's auction, which shows that there's still strong demand as bid to cover remains over 2 (actually 2.52).

It could be worse

Looks like the UK is taking a bigger hit in the public debt market then the US. Quick check today's US 5 year auction shows that there's still over 2 bids for every offering. Let's hope it stays that way or we won't be dependent upon the Fed printing money and then it's all downhill.

Doom = Good

Nouriel Roubini is apparently a fan of the Geithner plan, however the FT thinks it may take banks under.

I like the FT piece because it takes the heat off of MTM as the cause, it's essentially saying that if Geithner's plan yields a market price that banks can't sustain then it proves the value and necessity of having MTM in the first place. Welcome to zombie banks if that's the case.

Geithner's Plan and Mark-to-Market

Couple thoughts on Geithner's plan (aka 'TALF'). First, seems like Wall Street has finally warmed up to him, no longer does the market free fall every time he opens his mouth. Now, it does seem like this whole plan is a bit of a stretch of the FDIC's role and the details seem to be a huge win for anyone participating (with the exception of the tax payer). So in the end, this is another bail-out that's disguised as a market making mechanism. Socialism here we come.

One thing I would like to see is an ETF or Mutual fund established to allow some of us main street investors to participate in the TALF program. I mean if I have almost no risk and could stand to make some serious returns I want my piece of the pie. Let's hope Bill Gross hooks up the rest of us with a deal like this.

A quick final piece on mark-to-market (MTM), can't wait to see the relaxed reporting requirements combined with a pseudo-market created by the TALF. What a mess!

Whitney right again?

It's hard to decide which way banks are set to go. They've continued their rally from the end of last week and people like Larry Kudlow continue to talk up the upward sloping yield curve as a positive sign for the banks. However, the other side of the story is told by Meredith Whitney during her appearance on CNBC today.

I agree with Whitney, there's too much credit risk on banks balance sheets and I continue to believe that the credit card shoe has yet to fall. Commercial banks continue to hold a massive amount of consumer credit (currently at $877 Billion) and 4Q08 was up by $74B over 4Q07. Check out the facts!

One other thing. I don't want to hear that changing mark-to-market will solve everything. It may help stop a continued slide in non-existent markets, but it will not stop job losses, create consumer confidence and cause skeptics like me from questioning the true strength of a bank's balance sheet.

B-School Re-Do?

From today's NY Times, interesting piece on what role business schools may have had in arriving at the current financial situation and what they may do to change in the future.

It will be interesting to see how the cultural change that occurs because the events of the past year (since the collapse of Bear). Will schools be able to provide training that supports more responsible capitalism or (more likely in my opinion) will society create its own (free-market) solution?

Like any good capitalist I believe the market will create its own behavioral change that re-adjusts measures of business success to include more then a bottom line view. For instance, people will focus on finding companies that make understandable profit and companies that they perceive as being more stable and less focused on immediate short term profit. Therefore, companies with inconceivable profit will be avoided by investors, lose their stream of capital and eventually fall into line. The role of business schools is minimal, companies will figure it out for themselves.

Unions: An Anti-American Institution

Saw this article on The Economist website. It will be an interesting fight over the next few months or years as unions may try to regain strength and relevance. From an economic view I absolutely cannot understand how labor unions provide benefit to an economy. For a good summary of an economic view I found this piece, which may be a little dated but provides a very sound explanation of the general view of most economists.

I find that it's difficult to argue in a modern economic environment, where globalization is a reality here to stay, that any artificial increase in labor costs will not be adjusted out by simple supply and demand. The Economist article reaches this point in the last few paragraphs when it discusses union views and the role they play in protectionism. If as a firm I can simply move my factory to a different area or outsource my labor inputs in order to lower my cost, I can shift my supply curve to the right therefore increasing my output at all price points, which in theory should lead to a greater quantity demanded. If the theory holds, I could potentially increase the overall number of jobs I provide (albeit at a lower wage rate) and contribute to global growth.

We're at a point where we cannot afford to cut ourselves off from the global economy. If items can be produced cheaper overseas or through non-union means firms have an obligation to both their shareholders and society as a whole to do so. By contrast labor has an obligation to improve itself and constantly provide society with the greatest output at the lowest price.

As an 'oh by the way' it's easy to see why labor improving itself has a positive impact on the overall economy. It's no accident that the educated (or those who took responsibility to improve themselves as labor) are also the least likely to be unemployed. See the facts! I guess my overall summary is that labor unions attempt to shelter the under-skilled, which is not possible in a fully competitive global economy, therefore our government has an obligation to ensure that their policies support the greater good of the US, which is to discourage the anti-competitive wages of unions and focus on providing additional skills to the workforce through education and education related benefits (such as tax deductions and credits).

Next Shoe?

I have been saying for a while that homes are the start and eventually credit card delinquencies and non-performing debt will be the final shoe to drop. Seems like banks are taking preemptive action to try and cut off the credit card problem. Here's a couple articles from the past few days, first is Meredith Witney's opinion piece from the WSJ, also today I found this article from walletpop.com, which references the Witney article. In general, banks are cutting back consumer credit, which will keep the economy from recovering on its own and it's not like the $400/person tax credit is going to make up for people no longer having a credit line as security.

So despite the last 2 days, I'm still not ready to touch bank stocks because even though they're cutting back credit lines, they'll still end up holding the empty bag on billions of debt. (Maybe that's why BoA is considered to be worthless) Also, no way the overall rally is real if consumers don't have money to spend. Here's a case where the rush to avoid mark-to-market accounting is having a direct economic effect.

I used to disagree with Larry Kudlow's anti-mark-to-market views, but I've come around as we've found a middle ground in either a model valuation approach or a process to amortize the write-down over a period of time. So unless there's a change to mark-to-market there will continue to be significant write-downs on credit card debt unless there's a change in the accounting rules, which may help restore consumer confidence by encouraging banks in increase or re-instate credit lines.

Head Fake

So the news today is all about Citigroup sparking the huge rally. Not knowing what the market's reaction would be I absorbed the news with skepitism when I heard it this morning, hours before the market open. Well turns out there's at least some credit being given to Pandit's (Citi's CEO) comments about 'operating profit' through the current quarter sparking the rally.

So what's the truth? I hear 'operating profit' and I start thinking CEO spin...sounds like 'Operating cash flow.' Here's what I'm believing...Pandit doing his best to put a strong positive front out in the public without doing something that will get him time. So, when he says operating profit, he means 'operating cash flow' and turns out Citi has had positive operating cash flow for the last year. In fact the Q4 2008 Operating CF was 96 Billion. What this means it that Pandit states a common truth, the market takes it and runs and it avoid the true issue, which is likely that they will continue to suffer huge investment losses on things like MBS and other investment vehicles that are imploding.

Just my thoughts. But if you were day trading today you at least didn't have to dump at a loss at the closing bell. Thank you Mr. Pandit.

The Kindle Revolution | The Big Money

The Kindle Revolution | The Big Money

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Great regulation article

The Economist hits this one dead on! The article addresses the IMF's views on the financial collapse, which favors increased regulation as a response. The IMF proposes regulating based on the activities of the entity, not the entity itself (so include hedge funds that act as financial institutions the same as banks). From the accounting perspective this is classic rules-based versus principles-based.

At the end of the day, adding more regulations (like adding more rules in accounting) just means that institutions will find different ways to game the system. For instance, create a rule that causes a hedge-fund to be regulated like a bank if they receive over x% of their income from bank related activities and you'll be amazed how many hedge-funds suddenly receive x-1% of their income from bank like activities. It's always the same when you add regulation...you're still a step behind.

See the IMF's report here.

Madoff Mess

Just got around to watching the 60 Minutes piece on Harry Markopolos and the Madoff scam. Check it out if you can.

More commentary critical of the SEC.

Put this in the Theoretically Good, but Practically Flawed category

I like this idea in terms of enhancing the value of accountants by including an economic perspective. However, add this to the list of inefficient and ineffective government oversight that will eventually be exposed as just another too late to the table body.

I cannot believe that this is still newsworthy! Is there anyone alive that doesn't understand that GM is on government life support. The auditor's going concern is just a formality when you're business model is dependent on monthly cash infusions from the government.

JobsintheMoney's CareerWire: Crisis Seen Lifting Accountants' Status

JobsintheMoney's CareerWire: Crisis Seen Lifting Accountants' Status

Blame to spread in the Financial crisis

Seems like everyone is looking for someone to blame for the financial meltdown. I've started to think critically of my own profession and wondered did accountants miss the call? Is there something else that accountants could have done to reign in the leverage and exaggeratedly positive pricing models? Hard to find much supporting my suspicion, so I guess I'm on my own. What I do know is the as accountants we typically spend so much time focusing on minute details of accounting standards, I blame this on the last accounting crisis (post-Andersen and Enron and in the time of Sarbanes-Oxley), which focused accountants attention of very specific controls in the financial reporting process. However, the true risk that was missed was the larger (step-back) view and using a more holistic approach to assessing the overall business strategy of companies. In this the accountants may have dropped the ball again and the only thing people care about is mark-to-market!

So here's the end game...the accountants need to focus an equal amount of attention to being a trusted business advisor as to being a strict arbiter of the accounting rules.

Some accompanying reading...on economists missing the call and some mark-to-market reading.