News

Government Making Profit From Bank Bailout?

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The huge government bailout of banks during the height of the banking crisis was the cause of much concern and hand wringing. Among political types, the debate centered around the theoretical concepts of whether or not the government should be involved in propping up banks and whether or not such involvement constituted something “socialist.” Whenever the political theories involved, as a more practical matter, there were some very real concerns about how and when the government might be able to undo some of the things they had done. One example was the government’s bailout of Citigroup. The Treasury provided $25 billion to the banking giant. In exchange, it got an enormous amount of preferred stock. At the peak, the U.S. Treasury owned approximately 27 percent of Citigroup stock. This unprecedented arrangement left some very difficult questions up in the air to be determined later, not the least of which is how does someone — the U.S. Government included — get out of a 27 percent position in a major financial institution without causing more problems? Thankfully, recovering markets and an improving situation at Citigroup have made it unnecessary to answer such questions under difficult scenarios. Rather, the Treasury has been …

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Is The Recession Really Over – Recession Ended in June 2009 News Reports Say

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Is the recession really over? That is the question a lot of people are asking today as newspapers, news websites, and television news shows lead with a headline that seems to declare that the economy is back to normal. Of course, this is not at all what is going on. This presents another opportunity to take a quick look at how financial facts and financial reporting are not always in sync. First, the actual event that occurred is that the National Bureau of Economic Research, or NBER, released a statement saying that “a trough in business activity occurred in the U.S. economy in June 2009.” Obviously, this does NOT mean the economy is back to normal, a fact that the NBER statement goes out of its way to highlight. In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Why is every news outlet in America proclaiming that the recession is over then? Technically, the recession is over, but that doesn’t necessarily mean what people think it means. Assuming the picture below depicts a hypothetical economic …

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Economy Outlook 2010 2nd Half – June Job Losses

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Recent new that payrolls fell in June here in the U.S. is bad news for the economy, but maybe not as bad as it is being made out by the headlines. Let’s start with what the numbers are and move on to what they mean. As with all economic statistics, employment numbers are compiled from numerous sources which provide an inconsistent snapshot of job activity from around the country. These numbers are made usable by applying a consistent mathematical methodology to them. This results in numbers that may or may not be in any way accurate. What makes the statistics relevant and useful is that because they are always calculated in the same manner looking at the numbers relative to previous statistics is a valid way to analyze growth or contraction in employment. ….More about personal finance tips. Total Nonfarm Payroll US Department of Labor The “employment number” everyone is talking about today is specifically the total nonfarm payroll numbers and is based upon a combination of data gathered from surveying people (the household survey data) and surveying businesses (the establishment survey data). Much like the Nielsen ratings for television, the numbers gleaned from the surveys are then extrapolated to …

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Ratings Agency Downgrades British Petroleum

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Recently, we talked about how Warren Buffet’s Congressional testimony about Moody’s responsibility for causing the banking crisis and stock market crash by rating collateral mortgage options (CMO) triple-A up until it was already obvious to everyone that these investments were in trouble, was wrong headed. Today, the ratings agencies Fitch and Moody’s gave us all another reason to wonder why we listen to rating agencies at all with its downgrade of British Petroleum. It is not that downgrading BP is incorrect. It is both the timing and the sanctimonious nature of how the downgrades British Petroleum (BP plc – NYSE:BP) stock and debt came about. It has been six weeks since the April 20th explosion on the Deepwater Horizon oil rig and the company’s stock has already fallen over 40% since the incident. Which has been a big hit on Members of Congress are calling for BP to put $20 billion into some sort of escrow fund out of concerns that the company may end up not being able to fully pay its legal obligations resulting from the massive gulf oil spill. Yet, both Moody’s and Fitch’s statements act like their concerns about BP are actually news to anyone. “Today’s …

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Warren Buffet Wrong About Moody’s

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Warren Buffet testified before Congress that Moody’s rating agency should not be blamed for its enormous role in the financial collapse that occurred following the blow up in the real estate market and the subsequent implosion of collateral mortgage options, or CMOs. These securities eventually became the so-called toxic securities that continue to weigh down the balance sheets of many financial companies. Buffet is not dumb nor is he being led to say certain things by Berkshire Hathaway’s large stock holding in Moody’s. Rather, Buffet is saying that Moody’s and the other rating agencies including Standard and Poors and Fitch can’t be held responsible since what they missed is the same thing that everyone else missed. In other words, they weren’t any worse than anyone else. The problem with this line of thought is that the whole point of Moody’s business is that it knows MORE THAN EVERYONE ELSE. Otherwise, what is the point of paying them to rate securities. If Moody’s role in the securities industry is nothing more than the corroboration of information that others have already figured out, then what is the point of what they do exactly? Don’t forget that numerous investment concerns including pension plans, …

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Inflation Stays Tame – Fed Not Raising Rates Soon

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Everyone is worried about if and when the Federal Reserve will raise interest rates, even though the Fed itself continues to say that it is not considering doing so. That is what happens when interest rates are so low (basically just above zero) that everyone knows the only way they can go is up.

Google Posts Higher Than Expected 3rd Quarter Numbers – Is The Recession Over

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To hear many of the newspapers and other media outlets tell it, Google’s blowout third quarter is the official signal that the recession is over and that businesses are spending again, because customers are spending again, and everything is fine again. The logic goes something like this. Google is not only the largest search engine, but it is also the largest provider of Internet advertising, particularly in America where its ad market share is something like 75% or so. Thus, Google acts as a bit of a proxy for the online advertising market in general. Online advertisers, then, spend money on online advertising only when, a) they have the money available to spend, and b) there are customers out there spending money to attract. So, theory is that since Google’s earnings came in above expectations, then that shows that advertisers are spending more money on online ads, which therefore means that more consumers are spending money online. That’s the idea, anyway. Google Is Not The Economy It is tempting to pronounce everything that Google does and everything that happens to Google as very important to major aspects of American life, including the overall business environment, and the U.S. economy. After …

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Abby Joseph Cohen Track Record Accurate As A Broken Indicator Light

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I fired off a quick post yesterday about the “news” that Goldman Sach’s Abby Joseph Cohen declared the recession over.  If you missed it, I made the point that an arrow pointing up painted on a wall had just as accurate of a track record as Ms. Cohen did over the past decade or so.  For some reason, Cohen has a set of groupies, or fan boys, or whatever that always like to remind people of when she was “right” and, of course, always forget about when she was wrong. The truth is that Abby Joseph Cohen has never been “right”.  If your answer to a yes/no question is always the same, you aren’t getting the questions right.  You are just happening upon the questions that were written with a yes answer.  That isn’t intelligence or ability, that’s statistics. Still, so as to avoid anyone showing up and (publicly, so far, it’s only messages) saying that I have forgotten about all the really great “calls” she has made, I offer the following factual data as proof that any upward pointing arrow would have made, and lost, investors just as much money as Abby Joseph Cohen over the last 10 years. …

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Government Mortgage Help Programs Scams and Deceptive Marketing and Mailings

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It was with much fanfare last month that Congress and the Obama administration passed laws putting into effect government programs to help American homeowners with their mortgages.  Both The Emergency Economic Stabilization Act, and The American Recovery and Reinvestment Act were front page news all over the country. A lot of this publicity was due to the fact that Americans have started to perceive the government as helping out Wall Street and big banks more than they are helping ordinary taxpayers and homeowners who did nothing wrong during the housing bubble and subsequent market collapse and banking collapse. However, the same publicity also made it easier for scammers and dishonest marketers to take advantage of people’s hopes by pretending to have something to do with the government programs when, in fact, they are either outright scams to steal your money or steal your identity, or they are mortgage brokers or mortgage companies that have nothing to do with the government mortgage aid programs trying to insinuate that they are part of those programs.  Unfortunately, many people are falling victim to these con artists and their tricks. How To Protect Yourself From Scams, Thieves, and Con Artists Using Government Mortgage Aid …

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2009 Stock Market Recovery Starts Now?

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Recently, people have begun to draw all the wrong conclusions about the stock market for all the wrong reasons.  It is a common phenomenon and it happens every time the stock market moves up or down long enough for the average citizen whose only market investments are in IRAs or 401(k) plans to notice. The first bad conclusion is that now is the time to pull money out of the market.  While this market has fallen long and fallen fast, it is almost always the case that when the average person looks to get out of their investments, they have already fallen significantly which means that getting out now just means locking in losses, especially because precious few of them have any idea about when or how they will get back in. The second miscalculation that continuously happens to virtually everyone who is not a seasoned investor is the mistaken notion that the stock market is moving and pricing based on now, as in today.  It isn’t. The stock market is now, and has always been, priced based on the future.  Investors buy stock not because the stock will be higher today, but because it will be higher in the …

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