The Mess That Greenspan Made: 2009

And ... we have another winner!

Thursday, December 31, 2009

Today's closing prices for a barrel of oil and an ounce of gold were $79.36 and $1097, respectively, making BN the winner of the seventh "Guess the Price of Oil and Gold" contest by a narrow margin over Scepticus and RP who were in fourth and first place last week.
[Note: The scale in the chart above paints a somewhat misleading picture of the final results below as horizontal displacements in percentage terms are smaller than they appear.]

It was a fairly exciting contest in the final days as BN came out of nowhere, first appearing in the top ten last week in sixth place and then vaulting to the top spot after the oil price continued to rise and the gold price continued to fall. The complete top ten is shown below, KC moving up from fifth to fourth and oilcan dropping from second to fifth.
Yours truly finished a disappointing 28th after making a brief appearance in the top ten a few weeks ago, the first such appearance in a year or so after a string of top ten finishes.

Dan, you finished in a tie for 14th.

For full details about the contest, see this summary post from last month.

Recall that BN will now receive a free one year subscription to Iacono Research where the model portfolio will end the year up somewhere between 15 and 16 percent, better than the average hedge fund in 2009 but well back of the major stock indexes.

Does anyone know anyone who's been fully invested in stocks this year?

Thanks to all who participated - there will be a mid-year contest next year which should kick off sometime in April.

Congratulations BN - please send me mail so I can get an account set up for you.

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To learn more about investing in natural resources using commonly traded ETFs,
stocks, and mutual funds, see this description at Iacono Research.

For subscription details, click here.

Interesting home statistics for the day

The $8,000 homebuyer tax credit in relation to the average sales price for existing homes over the summer of about $220,000 (per the National Association of Realtors) is:

3.6%

The percentage that home prices have risen from May to October (per the seasonally adjusted S&P Case-Shiller 20-City Home Price Index) is:

3.4%

Obviously there are other ways to look at this. For example, relative to the median sales price for existing homes of about $175,000, the $8,000 tax credit is 4.6 percent, more than a full percentage point greater than the increase in seasonally adjusted home prices. Or, using unadjusted Case-Shiller data, home prices have increased 5.3 percent since the spring, greater than either tax credit percentage.

Whatever figures you use, the tax credit and the home price gains are pretty close.

There is clear message here for the U.S. government. If they really want home prices to go back up, they need to drastically increase the tax credit. Maybe they should double it to about $15,000 next summer and then move it up to $25,000 or so in 2011, increasing the tax credit regularly as needed to keep home prices rising.

The year in U.S. home prices

Someone may have already compiled this chart this week after the release of the latest S&P Case-Shiller data on home prices on Tuesday. If so, it hasn't crossed my computer screen, so it seemed like a good idea to create one here today in order to see how home prices have fared in the 20 metropolitan regions that the Case-Shiller Index follows.
Note that the October data is released in December and the October figures also include the months of August and September, so this is anything but a real year-end result, but since most people aren't interested in "year in review" type stuff in March, this will have to do.

Don't be surprised if, around this time next year, the financial media is talking about the strong real estate rebounds in Las Vegas and Phoenix - prices can't keep falling forever.

The BBC 2009 global financial quiz

Here's a fun little quiz from the BBC about financial market events and economic developments around the world that probably wouldn't be mentioned here if I hadn't just gotten 10 out of 10. I suppose you could go back and fix your answers (like on some DMV tests) in order to get a perfect score, but that's not what was done to generate this congratulatory message:
It's a good thing question #11 wasn't, "Who's Robert Preston?" because I haven't a clue.

The ten multiple choice questions are as follows:

Which country introduced a car scrappage scheme in January that went on to become the biggest scheme in the world?
The price of US light crude oil hit its lowest level of the year on 12 February, but what was the price?
Which UK company, which ran some of the best-known fashion retailers on the High Street, went into administration in March?
Which country unveiled in April its third major economic stimulus package since the onset of the financial crisis worth $150bn (£94bn)?
Which two well-known European carmakers announced in May they had agreed to merge?
Which US carmaking giant filed for bankruptcy on 1 June?
Eurozone unemployment hit a 10-year high in July, but which country had the highest unemployment rate?
Figures released in August showed that which two major economies exited recession between April and June?
Which country passed a provisional banking code in September that limits bonuses to no more than 100% of a banker's annual salary?
In October, which country became the first G20 nation to raise its interest rates since the onset of the financial crisis?
Which US food giant made a hostile bid of $16.4bn (£9.8bn) for UK confectioner Cadbury in November?
The price of gold hit its highest level on record in December, but what was the price?

I think I guessed at one or two but, nonetheless, perfect is always good.

----------------------

UPDATE - 12/31/09 9:45 AM PST

Uh... There are 12 questions, not 10. Nevermind that stuff above about perfection...

Rick Santelli's Tea Party rant

CNBC has compiled what they think are their top ten videos for the year along with a poll for viewers to vote. Not surprisingly, with over 2,000 readers having already cast votes, it's not even close - Rick Santelli's Tea Party rant was the winner by a mile.

The now-classic line "President Obama, are you listening?" appears at about 1:20.

Some of the other top ten are pretty good too. Number two in votes was the Obama fly swatting incident ("I got the sucker") and Geithner-Rep. Brady Head-to-Head is entertaining as well ("Will you step down?... Remind me. What post were you holding when President Bush left office?"). And, of course, there's Lenny Dykstra.

It's just too bad you have to watch the ad every time.

Thursday morning links

TOP STORIES
World stocks close out bumper 2009 with gains - AP
Support grows for tackling nation's debt - Washington Post
Printing money is a game with potentially dangerous results - Telegraph
China Strongly Opposes U.S. Duties on Chinese Pipes - Bloomberg
AIG says general counsel Kelly resigns over pay cut - MarketWatch
Precious Metals to glitter in 2010 -Commodity Online
The year that was: Global financial quiz 2009 - BBC
GMAC Gets $3.8 Billion More in Aid - NY Times

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MARKETS/INVESTING
Oil above $79 after year of recovery - Reuters
Gold Rises, Heading for Ninth Annual Advance - Bloomberg
Art Cashin: Markets are Overvalued Like 'Nasdaq 4,000' - CNBC
Commodities Heading for Best Year Since 1970 on Chinese Demand - Bloomberg
Rep. Murtha's earmarks lead to fewer jobs than promised -Washington Post
2010 Forecast: Gold to hit $1500, Silver to hit $25 - Commodity Online

ECONOMY
Jobless Claims Post Surprise Drop; Seasonality at Play - CNBC
The Coming Great Inflation—Is It Real or Imagined? - Reuters
Parents use savings to support adult children - Telegraph
Apartment renters win as vacancy rate climbs - USA Today
What's in store for the economy in 2010 - SF Gate

INTERNATIONAL
Eurozone credit contraction accelerates - Telegraph
Zhou: 2010 Crucial Year for ‘Defeating’ Crisis - Bloomberg
Chinese buyers boost Canadian mining stocks - Mineweb
China Property Bubble May Lead to U.S.-Style Real Estate Slump - Bloomberg
With Greece Teetering, the Worst May Not Be Over for Europe - NY Times
US moves to place new duties on steel from China - China Daily
UK House prices rise 0.9% in November - TimesOnline
Iceland approves new Icesave deal - BBC

REAL ESTATE
Fannie, Freddie: Too Big To Shrink - HuffPost
Don’t Be Fooled by the Housing Market’s False Bottom - Money Morning
Housing Bubble: Let House Prices Do What They Must - National Ledger
Housing In 2010 - Forbes

FED/TREASURY/BANKING
Smooth Treasury Auctions May Fade in 2010 - CNBC
Mortgage Bond Rally May End, Rates Rise as Fed Stops Purchases - Bloomberg
Treasuries Head for Worst Performance Among G-7 on Supply Woes - Bloomberg
What to do about those danged bank lobbyists - Time

INTERESTING
Radio Host Limbaugh Taken to Honolulu Hospital - NBC
Orange promises end to crackly mobile phone calls - Telegraph
Burj Dubai Showcases "Vertical Travel" with World's Highest Elevators - Brunei World
Year of Gay China - China Daily

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Stephanie moves her money

From the Huffington Post comes this story of Stephanie taking the advice offered yesterday and moving her money out of Bank of America into a smaller community bank.

One unfortunate aspect of the last year of developments in "too big to fail" (as one commenter noted, a phrase that Treasury Secretary Tim Geithner couldn't bring himself to utter in yesterday's video) is that it only reinforces the idea that places like Bank of America are "safer" than any small bank around the country.

One opinion piece over the weekend referred to the biggest banks as "the new GSEs", which makes sense because the former GSEs are now GOEs (as in "owned", not "sponsored").

A decade of asset bubbles

Wednesday, December 30, 2009

It's virtually impossible to look back at the decade about to conclude and not see former Fed chief Alan Greenspan's fingerprints all over it. Though current Fed chief Ben Bernanke may outdo his predecessor by blowing even bigger bubbles, their size and destructiveness will not be seen until the 10's, a decade that, as far as bubbles are concerned, will be all his.

As for the 00s, the Associated Press files this report on the many Greenspan bubbles.

A string of exploding investment bubbles that started with the dot-coms and ended with mortgages and oil dominated the years from 2000 to 2009. And it looks like the next decade will be no different.
...
A mix of investor hubris, ignorance and piles of easy money created the bubbles. New ideas about where to invest seemed foolproof and greed crowded out doubts. Many investors looking for the best returns failed to see the potential problems with an Internet business that had no sales plan, or that thousands of expensive homes bought with no down payment might end up in foreclosure.

Now, these investors who fled the last blowups risk running smack into others. The Federal Reserve is keeping borrowing costs low to help revive the economy, and that means there's still plenty of easy money around, helping traders to inflate the price of everything from stocks to commodities such as gold.

"They've put out the biggest punch bowl in U.S. history and people are guzzling from it," said Haag Sherman, chief investment officer at Salient Partners in Houston.

Despite the claims of many in Washington and on Wall Street, they'll never be able to do much about either investor ignorance or hubris, so the only way to prevent more bubbles is to stop the easy money policies, but, given where we are today, that seems to be out of the question.

There's lots more in this story - from the Nasdaq bubble all the way through the housing bubble along with a little gold-bashing and a reminder that Ben Bernanke doesn't see any signs of a bubble at the moment.

Interview with Patrick of Patrick.net

There's an interview with Patrick Killelea of Patrick.net up over at Directors Live where the proprietor of one of the original housing bubble websites talks about his experience in the Bay Area housing market and life as a long-time renter (since the video isn't embeddable, you'll have to click on the link above or on the image below to play it).
I've had the pleasure of sitting down with Patrick on a couple of occasions in recent years to chat and he's as nice in person as he is on video, though realtors would probably disagree.

It's worth noting for those in other parts of the country that they've had a housing bubble in the Bay Area in one form or another for at least ten years now, going back to the technology bubble or earlier. I remember being in Southern California in 2000 when someone visiting from the Silicon Valley area told of average house prices in the excess of a half million dollars. It only took about five more years for that to be true for the entire state.

It's tough being a laid-off executive

Get a load of some of these tales of woe from the well-heeled in American society. It seems that the (formerly) highly paid are taking a hit along with the little guy during this downturn and there may be fewer $100,000+ incomes in our country's future.

As chief financial officer of a top New York advertising agency, Jeff Boose boasted annual pay exceeding $400,000, a spacious office and a lifestyle to match.

Boose and his family live in a sprawling house in this affluent suburb, belonged to a country club and took numerous lavish vacations each year.

But since he was laid off in late summer 2008, they've made a head-spinning pivot. It's no surprise the country club membership, the vacations and a Volvo sport-utility are history. More tellingly, the Booses question every dollar they spend, sometimes eating pancakes for dinner and borrowing from their parents to pay the bills.

Boose, 43, is equally dumbfounded by his inability to land a position despite a résumé brimming with accomplishment and a steady, 20-year rise to the upper echelons of Corporate America.

"I never thought this would happen to me," says the burly, easygoing Boose. "It's a punch in the face."

Maybe a little less spending in the past might have made today's situation a bit less of a shock for the Boose family and, it could just be me, but why didn't the Boose's take some portion of that huge income to pay cash for the car instead of ratcheting up the family's monthly debt service total to match his income.

How can anyone possibly have any sympathy for someone who has worked twenty years, then gets laid off from a job that paid him $400,000 a year and has to borrow from his parents?

Some more details about the Boose's spending...

The Booses' lifestyle grew proportionately. They moved from a tiny apartment to a townhouse, then to their current 4,000-square-foot brick house here on a quiet, winding street lined with expensive homes, having four kids, now ages 7 to 14. Several years ago, they began splurging on vacations, taking seven a year to places such as Hawaii and Costa Rica, and spending $500 a night at the Four Seasons. They joined the country club in 2007.

"Every year, the bonus got better, the salary increased steadily," Boose says as he and his wife, Karen, sit in a family room dominated by a large Christmas tree and a 52-inch flat-screen TV, the thermostat set at 66 degrees, on a recent weekday. "I just never thought it would end."

But as companies chopped advertising as the financial crisis deepened last year, Boose, a relative newcomer to the firm, was laid off. He wasn't worried.

"I thought I would be easily employable," he says, noting that a day later, the family took its annual trip to Hilton Head. By January, he realized, "This isn't going to be as easy as I thought."
...
The Booses, meantime, have gradually, sometimes painfully, downsized their way of life. In late 2008, they suspended the country club membership, stopped maid service and didn't schedule anymore vacations. In the spring, Boose laid his own mulch in the yard instead of hiring a landscaper, saving $500. Last summer, they turned off the air conditioner and axed their DirecTV NFL package.

Well, laying your own mulch is a start...

I'll never forget what LA Lakers Jerry Buss said about twenty years or so ago - the secret to becoming wealthy is to spend less than you make. A pretty simple concept, but one that the Boose's haven't thought much of, apparently.

There are a few more human interest stories in this report that really make you wonder what some of these people were thinking over the last ten years. But, what's most amazing to me in reading these accounts is that so many highly compensated laid-off workers just blow through their entire savings - however, big or small - maintaining their current lifestyle before they realize that they may never again make $150,000 or $400,000 a year.

HuffPost says, "Move your money"

The folks at The Huffington Post have come up with a simple, novel idea that might help right some of the wrongs of the last year, a year that has seen Wall Street faring much better than Main Street since the economy hit bottom over the summer - move your money from a big bank to a small community bank. The video below was produced to help make their point.

Having just watched It's a Wonderful Life again last week, this message rings true - today, the big banks are a big part of our nation's problems and you can't count on Congress to fix this on their own. Go to www.moveyourmoney.info to learn more.

Wednesday morning links

TOP STORIES
World stocks slip as year-end nears - Reuters
Is the recovery in home prices stalling? - CSM
Bankers Get $4 Trillion Gift From Barney Frank - Bloomberg
GMAC Said to Discuss U.S. Aid Package of $3 Billion or More - Bloomberg
E-mails inside AIG reveal executives struggling with growing crisis - NY Times
State and Local Tax Revenue Fell for Fourth Consecutive Quarter - Bloomberg
Sprott Says S&P 500 Index Will Plunge Below March Low - Bloomberg
The most memorable financial stories of 2009 - LA Times

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MARKETS/INVESTING
Oil back below $79 a barrel as stocks seen rising - AP
Gold Falls as Growth May Curb Investor Demand - Bloomberg
Dollar climbs to three-month high versus yen - Reuters
Options Trading Rises to Record Following 66% Rally in S&P 500 - Bloomberg
Decade’s Worst Funds Never Recovered From Tech Bust - Bloomberg
String of investment bubbles marked 2000-09 - AP

ECONOMY
Chance of a Double Dip Is 50%: Analyst - CNBC
Economics emerges from the rubble in fragile state - Guardian
Laid-off executives struggle to find any kind of job - USA Today
Shoplifters? Studies Say Keep an Eye on Workers - NY Times
Moody's: November credit card payments slip - USA Today
Consumer confidence rises in Dec, but still weak - AP

INTERNATIONAL
Euro Zone Grapples With Debt Crisis - WSJ
JAL shares dive to record low on bankruptcy fears - AP
Emerging Markets Soar Past Their Doubters - NY Times
Euro-zone money growth turns negative - MarketWatch
South Korean Conglomerate Faces Cash Crunch - NY Times
US Slaps China with Another Trade Penalty: Steel Grating - CNBC
China Willing to Spend Big on Afghan Commerce - NY Times
Japan unveils growth plan for next decade - AP

REAL ESTATE
New Slip in Housing Prices Undercuts Fragile Optimism - NY Times
Bay Area home prices rise from previous month - SF Gate
Turnaround in housing market expected - Boston Herald
Vegas housing market shows no ‘glimmer of hope’ - Las Vegas Sun

FED/TREASURY/BANKING
Move Your Money: A New Year's Resolution - HuffPost
Treasuries Set for Worst Year Since 1978 as U.S. Steps Up Sales - Bloomberg
Treasury Updates GSE Support, and the Mainstream Misleads - Housing Wire
How Virginia Is Handling Payday Loans - WSJ

INTERESTING
Where did the city's ever-present sea lions go? - SF Gate
Hotel guests seek out free breakfasts, buffets - USA Today
In the FT's parallel universe, Goldman Sachs boss is the hero of 2009 - Guardian
NY's Tavern on the Green restaurant bites the dust - AP

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Case-Shiller home prices rise modestly

Tuesday, December 29, 2009

The latest report for the S&P Case-Shiller Home Price Indexes showed another small monthly gain in October for the 20-city index, up 0.37 percent on a seasonally adjusted basis or a gain of 0.05 percent when seasonal factors are not taken into account. On a year-over-year basis, prices are now down 7.3 percent and indexes for all 20 cities are shown below.
Note that the top-to-bottom end-positions of the curves on the right of the chart correspond to the order in the legend in the upper left to aid in viewing the data - this represents how well areas have clung to housing market gains since the 20-city index began in 2000.

Naturally, Washington and New York continue to hold their gains better than any other areas in what seems most unfair since the housing bubble was spawned in these two cities.

Meanwhile, at the other end of the price appreciation spectrum, Phoenix moved back ahead of Atlanta for the 17th spot and Las Vegas held onto 19th position, fending off Cleveland again while Detroit maintains its lock on last place and, at 73.07 and rising, may soon re-enter the colorful graphic above.

Monthly data (NSA) for all 20 cities along with the two indexes are shown below.
David M. Blitzer, Chairman of the Index Committee at Standard & Poor's noted:

Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip. Before jumping to conclusions, recognize that the one time that happened at the beginning of the 1980s, Fed policy saw dramatic reversals, which is very different from the stable and consistent Fed policy we have today. Further, sales of existing homes – those included in the S&P/Case-Shiller Home Price Indices – have been very strong in recent months, working off the inventories of houses for sale. At the same time, housing starts remain weak, fears that the market will be swamped by a wave of foreclosures are heard and government programs aimed at the housing market will expire in the first half of 2010.

Maybe Mr. Blitzer should re-read his Federal Reserve history a bit to learn more about how different the early-1980s are from today and of the long-term impacts of Fed policy. For one thing, back then mortgage rates were three or four times the current level.

While it shouldn't be surprising that efforts by the central bank in pushing mortgage rates to freakishly low levels when combined with a Washington D.C. give-away of $8,000 for each new home purchased would provide a boost to home prices, it also shouldn't be surprising (if not likely) that prices may again tumble when these supports are removed.

As for the period immediately ahead, seasonal factors are now working decidedly against home prices and the "second derivative" is now clearly signaling the return of more minus signs in the monthly data as indicated in the non-seasonally adjusted data.

Seasonally adjusted data tells a similar story of the pattern taking shape, but, it's difficult to lend too much credence to seasonally adjusted data that looks very seasonal.

The direction and magnitude of home price changes over the next few months will be quite interesting indeed as traditional sellers await the spring selling season, whereas, banks itching to unload foreclosed properties may not.

But, more than anything else, it is likely that there will be a much bigger increase in sellers than buyers in the year ahead as the recent price stability will encourage the former while we see just how much the latter are affected by rising mortgage rates and how much demand has been "pulled forward" due to government incentives.

If there is one thing that is clear after the events of the last six months it is that an $8,000 check from Uncle Sam and 30-year fixed rate loans at below five percent were an irresistible combination for many homebuyers who are likely unaware of any second derivative in the Case-Shiller data that may portend future price declines.

Tiger Woods pummels stocks

Get ready to be inundated by year-end and decade-end reports and retrospectives about Tiger Woods. His timing probably couldn't have been worse, news of his dalliances breaking about a month ago making them not too recent to cause them not to be fully understood, yet still fresh enough for everyone to immediately recall when reflecting on the past.

In this LiveScience story, they look at the impact on the share prices of his former sponsors:

A new study — not yet published in a journal — finds the market value lost to companies that had the golfer as a sponsor is already as high as $12 billion.

The estimate is separate from whatever money Woods himself may lose as a result of his missteps. The golfer was thought to make about $100 million a year in endorsement income.

"Total shareholder losses may exceed several decades' worth of Tiger Woods' personal endorsement income," said Victor Stango, a professor of economics at the University of California, Davis and co-author of the study.

Leading sponsors were (or still are) Accenture, American Express, AT&T, Electronic Arts, Gillette, Nike, Gatorade, TLC Laser Eye Centers, and Golf Digest with share prices for Electronic Arts (via their Tiger Woods PGA Tour Golf game), Gatorade, and Nike reportedly faring the worst.

Twenty years ago today in Japan...

The BBC notes the 20-year anniversary of the Nikkei stock market index reaching an all-time high of 38,957 back on Decebmer 29th, 1989.

The index now trades at about quarter of that value. In other words, it has lost about 73%, closing at 10,638 on Tuesday. Back in 1989, Japan's growth was seen as unstoppable, with some analysts expecting the Nikkei to reach 100,000.
But as the bubble in the property market burst dramatically, so the stock market fell and Japan's economy has never quite recovered, struggling with deflation and sluggish growth.

Here in the U.S. we should feel pretty good about having just one "lost decade" in stocks - in Japan they're now starting their third.

Tuesday morning links

TOP STORIES
Home Prices Flatten in October After 5 Months of Gains - CNBC
Biggs, Faber Predict Dollar Rally as S&P 500 Extends 67% Surge - Bloomberg
Fannie, Freddie Shares Soar On Announcement Of Blank Check Support - HuffPost
Goldman Sachs Takes Biggest Share of $923 Million U.S. IPO Fees - Bloomberg
Owners taking painful steps to stay afloat in 2010 - LA Times
Financial Crisis Was Too Short to Teach Us Lessons - Bloomberg
US Equity Fund Inflows Hit 79-Week High: EPFR - CNBC
Forecast 2010 - Kunstler, CFN

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MARKETS/INVESTING
Oil price rise nears $80 a barrel - BBC
'Gold prices driven by huge investment demand' - Commodity Online
Next Decade Will Be Good One for Stock Investors - Bloomberg
$1 Million: Does It Still Mean You're Rich? - Investopedia
Copper, Mining Stocks, Rand Rally on Growth Outlook - Bloomberg
The Telegraph Market - Saut, Raymond James

ECONOMY
Home Prices in 20 U.S. Cities Rose for Fifth Month - Bloomberg
Wall Street Bounces Back and Main Street Gets Shafted - Reich, HuffPost
US Economy Could Grow 3% in 2010: Economist - CNBC
Retailers' stores thinly stocked; profits won't be - AP
Prepare for a Keynesian Hangover - WSJ

INTERNATIONAL
Nikkei peak: 20-year anniversary - BBC
FTSE 100 above Lehman collapse levels - Telegraph
JPMorgan’s Dimon Called Darling to Reject Bonus Tax - Bloomberg
House prices: Expensive homes in London cost four times as much - Telegraph
Thousands to be saved from losing homes by closure of legal loophole - Times Online
No full stops for central banks’ gold race - Commodity Online
Japan Airlines shares hit new low of 85 yen - BBC
Wen stands firm on yuan - China Daily

REAL ESTATE
Home's short sale turns long for Newport News family - Daily Press
Real estate speculator defaulted on 20 loans for 10 Queens homes - Daily News
Budding Housing Recovery Fails to Bolster Broker Commissions - Bloomberg
Short sales proving popular for many wealthier home owners - Wallet Pop

FED/TREASURY/BANKING
Rates Rise Slightly on Treasury Bills - AP
Build America Bond Subsidy Shift May Fuel $130B in Sales - Bloomberg
Is Criticism of the Bernanke Fed Justified? - MoneyWatch
Fed exit strategy: Let banks set up CDs - AP

INTERESTING
GM Plans Pontiac Fire Sale - Fox News
The 9 Strangest News Stories of 2009 - LiveScience
The 9 Science Stories We Loved and Hated in 2009 - LiveScience
Times Square shredder offers good riddance to 2009 - AP

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BofA's "solid risk management"

Monday, December 28, 2009

Sometimes, when you read something that was uttered by some official at a big bank, it makes you want to lash out and strike somebody, preferably the person that made the comment. But, unfortunately, that's almost always impossible.

Such was the case when Bank of America spokesman Rick Simon appeared in this AP story over the weekend about the dwindling use of home equity lines of credit now that millions of homeowners owe more than their houses are worth.

Bank of America, for example made about $10.4 billion in home equity loans in the first nine months of the year — down 70 percent from the same period last year, spokesman Rick Simon says. They also started sending letters freezing or cutting lines of credit last year, and will disqualify borrowers in areas where home prices are declining.

"This was just solid risk management," he says.

Just the idea that anyone at Bank of America can smugly claim to be performing any kind of risk management in the aftermath of the burst housing bubble in which they played a major role is worthy of some kind of a flogging.

Maybe this was taken out of context and Simon's full statement was much more humble, perhaps even acknowledging that BofA wouldn't still be in business if not for U.S. government bailouts and that they are now taking difficult, but necessary steps.

As it is, it just sounds arrogant and makes you think that nothing has really changed at the big banks, that is, with the notable exception that those banks previously deemed "too big to fail" are now even bigger.

Krugman on a possible double-dip recession

On ABC's This Week yesterday, Economist Paul Krugman noted there is a "reasonably high chance" that the economy will contract again late next year and, of course, more stimulus would go a long way in either preventing that from happening or minimizing its impact.

It's reasonable to think that, when placing odds on something bad happening, an economist who says there's a good chance of it occurring but who then quickly follows it up with the qualifier "less than 50-50 odds" is virtually certain of the bad thing happening.

Hulbert's top 10 newsletters for 2009

Part two of the year-end Hulbert Financial Digest newsletter performance summary was posted over at MarketWatch this morning. Peter Brimelow provides this report on the top 10 performers, a follow up to the HFD's bottom ten as noted here last week.

No less than five of this year's Top 10 also appeared on last year's Terrible 10 -- the bottom performers of more than 180 letters followed by the HFD. ( See Dec. 23, 2008 column.)

Three of them were hard-asset letters that had done well in this decade through last year and essentially rode right through the Crash of 2008: The Ruff Times, International Harry Schultz Letter, and The Dines Letter. (See columns from Aug. 13, April 13 and Nov. 19.)

But one of them, along with another of this year's Top 10, didn't trade at all for assorted reasons: Closed End Country Fund Report and Equities Special Situations. They are examples of what I call the "El Cid Effect" -- after the Spanish crusader whose armored corpse was put atop his horse and sent into battle to scatter the enemy -- right by luck or judgment on a stock of a major trend. ( See July 13 column.)

Closed End Country Fund hasn't traded since 2004 -- its major trend, a weakening dollar, is indeed pretty major.

In the July 13 link above, Brimelow notes that the Closed-End Country Fund Report hasn't been published since 2004 but, for some reason, HFD continues to follow it anyway. This year's result appears to be the exception to the recent rule since, over the last three years, the newsletter has an annualized loss of almost two percent.

What's funny about this year's top ten is that many of them are high risk-high return strategies that produced some horrific losses in 2008 and, here in 2009, not even triple-digit gains can recoup last year's declines.

The Top 10 of 2009
Equities Special Situations 174%
The Ruff Times 168.5%
Linde Equity Report 157.2%
The Dines Letter 149.4%
International Harry Schultz Letter 141.4%
Michael Murphy's New World Investor 120.1%
Closed End Country Fund Report 81.7%
Global Investing 71.7%
Forbes Special Situation Survey 69.9%
Motley Fool Rule Breakers 68.3%

Looking back at last year's results, the Ruff Times 168.5 percent gain followed a loss of 65.2 percent for a net decline of 6.6 percent over the last two years. (I don't know about you, but once I start working with numbers bigger than a 50 percent decline followed by a 100 percent gain that brings you back to even, I don't have a clue whether the two-year result would be positive or negative until the math is done).

The Dines Letter was down 72.1 percent in 2008 and up 149.4 percent in 2009 for an overall loss of 30.4 percent and Harry Schultz followed a 2008 loss of 75.6 percent with a gain of 141.4 percent for a two-year decline of 41.4 percent.

As an important point of reference, note that for an 80 percent decline, you need a 400 percent gain to get back to even, so, Mr. Schultz could have posted a gain of more than 300 percent in 2009 and still not made back 2008's losses.

For a 90 percent decline it takes a 900 percent gain to recoup the losses and, for the maximum loss of 100 percent, it would take an infinite gain to get back to even.

To their credit, HFD publishes a list of the ten best newsletters that takes into account these wild swings, eliminating publications from consideration if they've appeared in bottom ten lists as many investors would have bailed long before the triple-digit gains that follow these humongous losses.

Can you return an entire decade?

Spotted over at Jesse Felder's Posterous via the AAEC.
Uncle Sam's looking a little worse for wear...

Monday morning links

TOP STORIES
Wen Pledges to Cool China Property Prices - Bloomberg
As college costs rise, loans become harder to get - Washington Post
War on Wall Street as Congress Sees Returning to Glass-Steagall - Bloomberg
“The Last Time That Happened Was During the Great Depression” - Dollar Collapse
A plan for getting California's fiscal house in order - LA Times
Stocks higher? Famed investor says don't bet on it - AP
Do we need a new reserve currency? - Business 24/7
Credit crunch: Home equity lending evaporates - AP

Get these links delivered to your inbox every day.

MARKETS/INVESTING
Oil hits 4-week high above $78 on colder weather - Reuters
Gold Bubble Debate: Is it wise to invest in gold? - Commodity Online
At Tiny Rates, Saving Money Costs Investors - NY Times
Top 10 Investment Newsletters of 2009 - MarketWatch
Growing chorus says oil has peaked - The National
Stocks to wrap up 2009 on high note - Reuters

ECONOMY
The Recession Begins Flooding Into the Courts - NY Times
Weak economy motivates Americans to save more - Washington Post
Krugman: 'Reasonably High Chance' Economy Will Contract Next Year - HuffPost
Retailers get a modest gift this holiday season - LA Times
Back From the Brink (but Watch Your Step) - NY Times

INTERNATIONAL
Dubai drafts in debt expert David Anderson - Telegraph
Canada’s rate hikes will be tied to the Fed - Globe and Mail
Celtic Tiger finished off by debunked ‘miracle’ - Times Online
Japan’s Stocks Offer Bets on China 20 Years After Nikkei Peak - Bloomberg
Chinese government warns developers about land hoarding - Danwei
Japan’s Industrial Production Rises 2.6% on Exports - Bloomberg
‘Hot Money’ Adds to China Asset Volatility, Fan Says - Bloomberg
China won't be pressured over yuan peg: Wen - Reuters

REAL ESTATE
Fannie and Freddie's End Run - Fox Business
Where’s the help for homeowners? - Bend Bulletin
The Secret Reason We Eliminated The GSE Bailout Caps - Business Insider
Home sweet rental - NY Post

FED/TREASURY/BANKING
Morgan Stanley Sees 5.5% Note as U.S. Faces Deficits - Bloomberg
Mortgage Anxieties Mean Fannie-Freddie Limbo as Fed Pulls Back - Bloomberg
Where's The Plan On Foreclosures? Force Banks To Reduce Loans! - HuffPost
Treasuries Drop on Concern Recovery May Reduce Sale Demand - Bloomberg

INTERESTING
Donkeys escape from live nativity scene in Colo. - AP
There are 15,740 Social Media Experts on Twitter - Mashable
Sweden's Pirate Party battles Web laws - LA Times
Paul Volcker is engaged! - Fortune

###

The return of "subscription walls"?

Sunday, December 27, 2009

It wasn't too hard to figure out that more traditional news media outlets are having a hard time making a go of it (bankruptcies were the first sign) following a couple of years of capitulating to "all free content" models after prior versions of "subscription walls" resulted in customers turning away in droves. This New York Times report tells of the difficulties currently being faced by an industry that continues to struggle with the new realities thrust upon them by the internet and high speed connections to it.

Over more than a decade, consumers became accustomed to the sweet, steady flow of free news, pictures, videos and music on the Internet. Paying was for suckers and old fogeys. Content, like wild horses, wanted to be free.

Now, however, there are growing signs that this free ride is drawing to a close.

Newspapers, including this one, are weighing whether to ask online readers to pay for at least some of what they offer, as a handful of papers, like The Wall Street Journal and The Financial Times, already do. Indeed, in the next several weeks, industry executives and analysts expect some publications to take the plunge.

Well, I just got my renewal bill from the Wall Street Journal and was rather shocked at the number of digits that were involved in the check they were wanting me to write to repeat the deal that was done two years ago.

Things must be going well over there but, apparently, they are the exception to the rule.

Media companies of all stripes built their business models on the assumption that advertising would continue to pour into their coffers. But with advertising in a tailspin, they now must shrink, shut down or find some way to shift more of the cost burden to consumers — the same consumers who have so blissfully become accustomed to Web content that costs nothing.

So will future consumers look back on 2010 as the year they finally had to reach into their own pockets?

Industry experts have their doubts, saying that pay systems might work, but in limited ways and only for some sites. Publishers who sounded early this year as though they were raring to go have not yet taken the leap, and the executives who advocate change tend to range from vague to cautious in making any predictions about fundamentally changing the finances of their battered businesses.
...
Arianna Huffington, co-founder and editor in chief of The Huffington Post, predicted that much of the talk of media’s mining the Web for new revenue would never become reality — and that if it did, free sites like hers would benefit. Some of the plans now being laid might work, she said, but many of them would just alienate the Internet users who click from one site to another, wherever links and their curiosity take them.

“I’m not minimizing the fact that there’s a need to experiment with multiple new business models,” she said. “I just don’t believe in ignoring the current realities.”

The current realities must be daunting for the big, traditional media companies (except for the Wall Street Journal) where new competition sprouts up every day and this new competition works on weekends, holidays, and all hours of the night.

Having slowed down here considerably over the last few days, I continue to be amazed at how much content continues to flow from the Blogosphere while you might go to an RSS feed from, say, CNN/Money and see that they've all taken the last three days off.

Oil and gold contest update #5

Saturday, December 26, 2009

This is the final update for the sixth semi-annual "Guess the Price of Oil and Gold" contest prior to a winner being announced next Thursday and it's certainly been an interesting week or two for crude oil. Just when it looked like we were headed back to the $60-$70 a barrel range, now it looks like prices are headed to $80 or more and this causes another overhaul of the top ten list with just a few trading days to go.
In a holiday-shortened week, the price of crude oil finished at $78.05 a barrel and gold closed on Thursday at $1,104 an ounce, putting the current prices just below the average contest guesses of $80 for oil and $1,144 for gold.

With guesses of $75 and $1,101, that's RP snuggled up next to the most recently added yellow diamond with oilcan, CS, Scepticus, and KC not far behind and, as shown below, any big move up or down for the gold price will negatively affect RP's chances from here on out.
RP moved up from third place over the last week and APB, last week's leader, dropped seven places while GW, in second place last week, fell out of the top ten completely.

All tolled, there are seven new names in the top ten, PR being the third holdover dropping from fourth place to the ninth spot.

The pair of guesses ventured by yours truly is dropping like a rock in the standings. From the first appearance in the top ten in more than a year at number 7 two weeks ago, it has been a steady decline to position 16 and now the 28th spot.

For full details about the contest, see this summary post from last month.

Recall that the winner will be receive a free one year subscription to Iacono Research where it's shaping up to be a respectable year, the model portfolio now up almost 17 percent.

Good luck to all!

###

To learn more about investing in natural resources using commonly traded ETFs,
stocks, and mutual funds, see this description at Iacono Research.

For subscription details, click here.

Christmas trees around the world

Friday, December 25, 2009

Enjoy these wonderful Christmas trees - Merry Christmas to all!

[Note: This came in the mail and, as such, the source is not known. If anyone does know the source, please advise and they will be properly credited.]

Before the ball drops in Times Square, the Big Apple turns on its holiday charm with the Christmas tree in Rockefeller Center.
The Capitol Christmas tree in Washington, D.C., is decorated with 3,000 ornaments that are the handiwork of U.S. schoolchildren.

Encircling evergreens in the 'Pathway of Peace' represent the 50 U.S. states.The world's largest Christmas tree display rises up the slopes of Monte Ingino outside of Gubbio, in Italy's Umbria region. Composed of about 500 lights connected by 40,000 feet of wire, the 'tree' is a modern marvel for an ancient city.
A Christmas tree befitting Tokyo's nighttime neon display is projected onto the exterior of the Grand Prince Hotel Akasaka.
Illuminating the Gothic facades of Prague's Old Town Square, and casting its glow over the manger display of the famous Christmas market, is a grand tree cut in the Sumava mountains in the southern Czech Republic.
Venice 's Murano Island renowned throughout the world for its quality glasswork is home to the tallest glass tree in the world. Sculpted by master glass blower Simone Cenedese, the artistic Christmas tree is a modern reflection of the holiday season.
Moscow celebrates Christmas according to the Russian Orthodox calendar on Jan. 7. For weeks beforehand, the city is alive with festivities in anticipation of Father Frost's arrival on his magical troika with the Snow Maiden. He and his helper deliver gifts under the New Year tree, or yolka, which is traditionally a fir.
The largest Christmas tree in Europe (more than 230 feet tall) can be found in the Prado Comio in Lisbon, Portugal. Thousands of lights adorn the tree, adding to the special enchantment of the city during the holiday season.
'Oh Christmas tree, oh Christmas tree': Even in its humblest attire, aglow beside a tiny chapel in Germany's Karwendel mountains, a Christmas tree is a wondrous sight.
Ooh la la Galeries Lafayette! In Paris, even the Christmas trees are chic. With its monumental, baroque dome, plus 10 stories of lights and high fashion, it's no surprise this show-stopping department store draws more visitors than the Louvre and the Eiffel Tower
In addition to the Vatican's heavenly evergreen, St. Peter's Square in Rome hosts a larger-than-life nativity scene in front of the obelisk.
The Christmas tree that greets revelers at the Puerta del Sol is dressed for a party. Madrid's two-week celebration makes millionaires along with merrymakers. On Dec. 22, a lucky citizen will win El Gordo (the fat one), the world's biggest lottery.
A token of gratitude for Britain's aid during World War II, the Christmas tree in London's Trafalgar Square has been the annual gift of the people of Norway since 1947.
Drink a glass of gluhwein from the holiday market at the Romer Frankfurt's city hall since 1405 and enjoy a taste of Christmas past.
Against a backdrop of tall, shadowy firs, a rainbow trio of Christmas trees lights up the night (location unknown).

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