Archive for the ‘United States’ Category
These companies benefitted from AIG bailout
Wall Street Journal identifies the beneficiaries of the AIG bailout for the first time.
Field report – Future of India and commodities
In January, I was visiting a few villages in India partly to understand how global markets are affecting them. After spending a week in Europe and a few weeks Indian cities, the villages marked a refreshing contrast. As I walked in the fields, I saw that the villagers were happy, gave me free juicy sugarcanes and they were more upbeat about economy that anybody else. As we will see, if India were to consume as much oil per-capita as a relatively poorer Eastern European nation like Slovenia, it alone needs 30 million barrels/day (mbpd) more (40% of world consumption) apart from another 35 mbpd from China. If they both want to consume as much as US, India needs about 60 million addition barrels apart from 70 mbpd for China (current world production of the order of 85 mbpd).
These villages might never get to the economic level of an average American or European countryside, their per-capita income might never get closer to that of an average American, but the changes going on in these nameless places will have a profound impact on world’s commodity, tech and consumer markets. And this could change the wage-commodity price relationship substantially.
Special Report – Recession impact on various sections of the society
Executive Summary
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82% are job loss are among men. Women are going to pass men in workforce for the first time
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West is hit the most compared to North east and MidWest
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Young, blacks and Hispanics are hit more in the recession
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Artists face a far worse time than other professions though their unemployment rate is not different from average population
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Uneducated lost more jobs than educated workforces, unlike the previous 2 recessions.
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With various government policies and market movement, misery could be spread to everyone, including rich
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Portland and St. Louis rank among the unhappiest cities in the US
World’s best companies – Fortune list
The House of Cards – CNBC
A good CNBC series on the mortgage crisis.
US Budget highlights
Who is John Galt? – Atlas Shrugged’s relevance today
Economist reports that there is a big spike in the sales of Atlas Shrugged – the monumental philosophical tome of Ayn Rand – since the start of the credit crisis. They even plotted the book sales against the economic events, and seems every time the government brings some major policy attempting to “solve” the crisis, the sale of the book goes up. Nothing incites as much love and hate as this book. And the book’s tagline – Who is John Galt is forever etched in the popular culture.
I have read the book atleast 5 times and consider it to be one among the greatest literary works ever written and thought I will share some opinion on this. From where I grew up, Atlas shrugged is not a political manifesto, but a kind of rite of passage from teenager into an adult. Almost every major college in India has fan clubs for this book, and since the reading of it was so normal (you don’t need to be a libertarian or atheist or anarchist anything) and so I didn’t go through the stereotyping process that goes on in America.
S&P gets its earnings wrong
Today’s Op-ed makes an interesting case for changing how S&P computes “E” in P/E for the S&P 500 index.
http://online.wsj.com/article/SB123552586347065675.html
Standard & Poor’s recently shocked investors with an announcement that reported earnings for its S&P 500 Index for the fourth quarter of 2008 are forecast to be negative for the first time since such data were calculated in 1936.
… Suppose on a given day the only price changes in the S&P 500 are that the largest stock, Exxon-Mobil, rose 10% in price and the smallest stock, Jones Apparel Group, fell 10%. Would S&P report that the S&P 500 was unchanged that day? Of course not. Exxon-Mobil has a market weight of over 5% in the S&P 500, while the weight of Jones Apparel is less than .04%, so that the return on Exxon-Mobil is weighted 1,381 times the return on Jones Apparel. In fact, a 10% rise in Exxon-Mobil’s price would boost the S&P 500 by 4.64 index points, while the same fall in Jones Apparel would have no impact since the change is far less than the one-hundredth of one point to which the index is routinely rounded.
Yet when S&P calculates earnings, these market weights are ignored. If, for example, Exxon-Mobil earned $10 billion while Jones Apparel lost $10 billion, S&P would simply add these earnings together to compute the aggregate earnings of its index, ignoring the vast discrepancy in the relative weights on these firms. Although the average investor holds 1,381 times as much stock in Exxon-Mobil as in Jones Apparel, S&P would say that that portfolio has no earnings and hence an “infinite” P/E ratio. These incorrect calculations are producing an extraordinarily low reported level of earnings, high P/E ratios, and the reported fourth-quarter “loss.”
How to proceed with Citi nationalization
Till this point government stuck to preferred stocks instead of common stocks (that we trade in the market). Preferred stocks are not exactly ownership, because there are no voting rights, and this arrangement between government and the banks is deliberate. Preferreds are more closer to debt than to equity. With today’s announcement, that might change with the government trying to convert its preferred holdings into common stocks. When it holds a majority of common stocks, it would then be defacto nationalization.
http://www.federalreserve.gov/newsevents/press/bcreg/20090223a.htm
Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares.
Where do US Universities spend their money?
Have you ever wondered where do the money from your tuition go? How do the universities spend their money? Why does the cost of tuition grow 2X more than the inflation rate? Why are the US universities extremely inefficient and uneconomical? I didn’t find any other study and workable stats on university spending in the net, so I just made a small exploratory study on how universities spend money.
Organization of this essay:
Part 1 concerns endowments, Part 2 contains analysis on a private University (Harvard) and Part 3 contains analysis on a public university (UW) and Part 4 is the initial conclusion. If there is enough audience interest, I will go deeper into this problem in further posts.
I started from this chart from my earlier post and started digging where the universities spend their money in.
H1b and Innovation
Here is an interesting paper on H1b and the contribution to innovation.
http://www.hbs.edu/research/pdf/09-005.pdf
It’s a pretty long paper and some parts of it are too technical. So, I have reorganized into two main themes and summarized the contents below.
Take a look at the Oil refining companies
The oil prices are going down and it should be bad for all petroleum related companies, right? Well, have you guys looked at the pump prices for gasoline the last 2 months? I took a month vacation in December and when I returned I was shocked to see the price in my gas station rocketed from 1.58 to 2.18 (a shocking 60% up), while the world oil prices are still going down. And in fact, the trend is seen nationally. The gasoline prices have gone up more than 25% since Christmas. So, who is benefitting from this? The answer is – refiners. Their gross margins have gone up from about 10% in December to as high as 50% in January.
Taking a look at investing in the airlines
If you have taken a flight these days, you will not be surprised with the amount of fees they add to your ticket. Most airlines even charge for the first bag you check-in. Here is the list of all charges in various airlines. Now, the positive is that many airlines are returning to profitability. Today’s WSJ writes:
But those who check multiple bags, ski equipment or oversized or overweight luggage are paying much, much more — allowing airlines to make a tidy profit. In those instances, baggage fees may yield more profit for the airline than what the carrier is making on the basic passenger ticket.
… Customers were paying the fee at other airlines without a backlash. Delta said it wasn’t getting any benefit from not charging the fee. So why not charge it?
A Series on Depression – Introduction
<< Previous in the Series Next in the Series >>
What do you normally expect in a recession? A “Grapes of Wrath” style dust bowls and people in rusted wagons shuttling all across the highways? People waiting in the soup lines and families going out of heat in the winter? People near the end of the world? Well, those are not the only pictures we will see.
Look at 1930s movies – how often do you find signs of depressions in it? In fact, some of the best and grandest of movies came during that period in every genre ranging from slapstick comedy to horror movies, romantic comedies, epics and serious social movies. By 1935, 50% of Americans owned automobile, the first of freeways came in (1939 – Pennsylvania turnpike) and concept of motels exploded 3 fold in a few years, as more Americans began to take vacation inspite of depression. They had fun by inventing so many past-times like Monopoly, miniature golf, swing dance, and reinvented activities like Jigsaw puzzle etc. Society held together and people won their crisis with hope. How did that happen?
A Series on Depression – Prologue
We might be getting close to a depression or atleast a deep recession. But, do we know what a depression means and how bad it is? In the next few months my plan is to take you through historical depressions worldwide, their causes and effects. I’m not going to wear a pink glass and say everything that is happening is going for good. I want to be realist and give you both sides of the coin – something that the traditional media lacks. There are both positives and negatives, and we keep an objective mind we can overcome any crisis is what history teaches us.
What is the series going to contain?
Some thoughts on taxation
What is an ideal tax rate? Do you know that the peak tax rate in 1944-45 was 94%? Do you know till 1913 the federal tax rate was below 2%, before the 16th amendment to US constitution gave wide range of powers to congress to tax the citizens? Does tax cuts really inspire growth?
Are we done with the down fall yet?
We have been seeing housing and stock markets falling the last few months. So, are we there yet? Is the crisis over?
I don’t think so.
Housing
Here is Shiller’s home price snapshot between 1890-2006. We have fallen a bit since 2006, but we have not fallen anywhere closer to historical levels. Look at how home price zoomed in the last 20 years, and we have a long way to fall to that point.
Stocks
Here is the historic stock price to earnings ratio measure as an average of 10 year corporate profits. This is the classic measurement that says how much value for money you get from your stock investment. This snapshot was taken last year, and current P/E as measured by this chart is around 18, whereas during historical bear markets, P/E fell below 10. So, we are not even down the half way point.
Image from Newyork Times
Exploding cost of education and medical services
Related ETFs: HHD, APOL, CECO & ESI
Have you ever wondered why your cost of tuition and medical costs keep going up far more than other costs? If yes, you are correct. Here is the research I made on the inflation in tuition, medical services compared with other items in the data from Bureau of Labor Statistics. In this article we will analyze the issue, the causes and give the performance of related indices.
And the Winner is – Barack Obama
Barack Obama has won a landslide. I just watched McCain’s speech and it was awesome. He was brilliant, moving and gracious. In spite of all the acrimony over the last few months of campaign it was great of him to concede so early and so gracefully. I think this is the greatest thing about American democracy. It was sad to see him going for his last race, and now he has no chance of competing for an office he was very close to achieving. On the other hand, Obama’s coming will also be a great thing, atleast for international relations. Except for a few allies like India and Israel, a lot of rest of the world grew to disliking this administration and Europeans particularly will look forward to the change. And they are celebrating big already. I believe that will move overseas markets enormously. Nikkei is going up now as
Lending started to get back to normal? What investment choices do you make at this critical intersection?
The last couple of weeks we are seeing a thawing of global credit markets. The credit crisis caused the lenders to be extremely cautious and tighten standards in September. Loans to individuals and corporations with poor credit reduced substantially and banks started hoarding cash. The interest rate spreads between less risky and more risky loans widened substantially. However, recently things are seemingly coming back to normal and most people in the market believe that credit is getting available once again. CalculatedRisk blog writes about some of the progress made in the credit markets recently. Stock markets saw the progress and is having a rally the past 7 days. So, is it time to get back into the markets and start investing again? Should you consider buying more of Financial sector ETFs like XLF and UYG? Well, not so fast.
Credit Default Swaps – Some Transparency Coming?
The voodoo world of Credit Default Swaps (CDS) is slowly getting some transparency with a Trade organization – DTCC agreeing to publish volume data starting from today.
So what is a CDS, how it works and what is its importance? Don’t worry we will take you through the process and help you understand today’s developments.
Let’s start with why it is important to understand. The market size of CDS is of the order of $45 trillion (equals the wealth of almost 900 Bill Gates or equivalent to 80% of World GDP). If that is not enough, this market is extremely entwined with world financial order with some of the major insurers (like AIG) and Investment Banks (like Goldman Sachs) playing big in it. Unlike the traditional financial markets (stocks, bonds and commodities) this market is highly opaque and hardly regulated. And the survival of world financial system could be threatened if this market goes crazy. A lot of institutions like Lehman Brothers and AIG have already collapsed due to their big exposure in CDS. Let’s analyze what is a CDS, why the problem is this big and what are the recent steps taken to partly increase the transparency.
US GDP growth in the negative
As expected the US GDP growth fell into the negative zone for the third quarter of 2008. GDP (Gross Domestic Product) is the fundamental measurement of economic progress of an economy. It is the sum total of value produced by an economy in a year and usually measured by adding total consumption of the consumers with the net investment made by individuals and corporations, along
What kind of economic stimulus should US government bring?
With the economy tanking lawmakers are talking about another round of economic stimulus. I’m not sure given the big national debt and fiscal deficit, such a kind of tax holiday is possible now. But, if they still want to go ahead and give stimulus they need to do it the right way.
The effects of current lower interest rates on Inflation
The US federal reserve has been reducing interest rates for the past 1 year and now it is close to a historic low at 1%. If all other factors are equal inflation grows inversely proportional to interest rates. Thus, a lot people believe easy money policies by itself will cause inflation no matter what
Why are CA and FL hit mainly by mortgage crisis? Striking difference between Jumbo and non-jumbo mortgages
I was going through ofheo’s data (Office of Federal Housing Enterprise) and one thing that mainly struck me was the dramatic difference between the Jumbo and Non-jumbo mortgages. In the first chart,
