Power Outage

It's not exactly The Shining, but we've been without power up here in NH since midnight Thursday.   

"Kid Dynamite, " you ask, "How are you blogging if you don't have power?"  

I have found a small bar  in my town that has wi-fi, and more importantly - the Olympic men's gold medal hockey game (USA vs Canada.)   Come Monday, I'll likely head to the town library to get my internet fix and feel like I'm still in the information flow.  At some point this week, I want to write blog posts about Wynn's earnings call transcript, and the Berkshire Hathaway letter to shareholders - both of which are now available on the internet, but neither of which I have seen yet,

So anyway, I wanted to bail and head to either my mom or dad's house 80 minutes away outside of Boston, but my wife took the "Captain must go down with the ship" mentality and insisted we stay and keep the house warm so that the pipes don't freeze.   Upon hearing that there were downed trees all over our neighborhood (although not on our property) blocking the roads, my in-laws took it as a personal challenge and trekked out through a blizzard to come visit us from Albany.   They brought candles, a chainsaw and a small generator, which we eventually hooked up to one of our refrigerators to try to salvage Oscar's frozen raw food and the few steaks and burgers we had that were worth saving.  Unfortunately, I wasn't ready to let my father-in-law cob-job a manual hookup for our well pump or furnace, so we were still without water and heat.  Without major practical uses for the generator, we put it to pleasurable use:  hooking it up to the TV/DVD player and watching Fletch, which my in-laws had never seen.

As far as being without power goes, this isn't exactly the toughest situation in the world, but it's more than enough to rattle a city boy like me who's addicted to the internet.  I wake up in the middle of the night shivering from withdrawal, wondering what sort of discussion is going on the blogosphere, and what is happening in the real world.   Temperatures have been in the upper 30's, so we don't need to worry about extreme cold, although we've been burning a fire in our fireplace non-stop to try to keep the temperature in the house hovering around 60 degrees and ensure that there is no chance of frozen pipe issues.  We just got our fireplace lined last week, and have a problem with smoke billowing back into the room.  My father-in-law rigged up a sort of smoke barrier to deflect the smoke back up the chimney using a piece of stove pipe we'd bought to make into a smokestack for our maple syrup evaporator, and sealed off the ends with cut up lasagna pans.  So far, it's doing well as a fix -  the premium debarked wood that he provided us with is burning very fast and furious and cranking out heat.  My wife remarked that the 75 degrees we managed to attain at full fire last night was warmer than she'd been able to get me to crank up the oil furnace to.  We've gone through most of the face-cord that we had stacked in the barn, which necessitated a practical solution:

Today, I demo'd the chain-saw that my in-laws brought for us - cutting down a 30 foot tall dead maple in my yard, and dicing it into pieces to alleviate our wood shortage.  It was quite the Daniel Boone moment, but carried another consequence - I haven't showered since Thursday morning, and I played soccer Thursday night but didn't shower before the power went out.  After working up a sweat cutting down the tree, cutting it up, and lugging the pieces to the house, I smelled like a dirty diaper.  The hardest thing about being without power, considering that it was 35 degrees and not 15 degrees outside, is the lack of water.  We'd been taking 5-gallon buckets of water out of our hot tub and using it to flush our toilets, but the tub is getting down near tail ends.  If and when we run out of water, I'll either have to go to Dunkin'Donuts to take a dump, or grab a tree and squat in the woods.  I took a "bath" in the hot tub today, sitting in a hip deep pool of lukewarm water.  Luxurious.

Hopefully I'll get online for a while tomorrow and get caught up with the stories of the past few days, but I won't be as timely as usual in responding to comments or emails.

All work and no play makes KD a dull boy. All work and no play makes KD a dull boy.  All work and no play makes KD a dull boy.

-KD

Olympics Moment of The Day

Before tonight's Women's Hockey gold medal game - the much anticipated showdown between the US and Canada - MSNBC was reporting live from the Molson Beer Garden.  They showed us the buffet, and then a number of tables full of raucous Canadian fans.   The reporter went up to a table of four - two couples - and urged them, "Are you guys excited about tonight's GAAAAAME?"

"YEAHHHHH!!!" the girls squealed, as their boyfriends/husbands shrugged somewhat indifferently

"What are you most excited about?" The reporter inquired, perhaps expecting some sort of response about the wide open play in the Women's game due to the illegality of body checks.

"LUONGO IS PLAYING!"  One of the girls screamed, referring to Canada's MEN'S goalkeeper, and Vancouver star, Roberto Luongo, who most certainly was not playing in this Women's gold medal game.

"That's tomorrow night, babe,"  Her boyfriend muttered quietly, but loud enough for the camera to pick up.

The announcer quickly ended the interview and moved on to another table.

hosers.

-KD

R.I.P. Mosi Tatupu

1980's Patriot's special team force and power running back Mosi Tatupu has passed away.

From the NYT obit:

"A bruising 227-pound running back, Tatupu rushed for 2,415 yards and 18 touchdowns, including a career best 578 yards in 1983. He thrived on snowy and icy fields, running for 128 yards on a snow-covered field in a win over New Orleans that season.

Tatupu was beloved by Patriots fans for his spirited play on kickoff and punt teams and even had his own cheering section known as Mosi’s Mooses. He was selected to the 1986 Pro Bowl as a special-teams player."

I loved Tatupu - and spent the last 5 years or so fruitlessly searching for a vintage jersey of his, which was impossible to find.   I remember watching games with my dad and "Uncle" Jay when I was a mere 10 years old in the mid-80's - they'd christened Mosi as "Moishe,"  and told me he was Jewish, perhaps in an attempt to inspire me to become the next great Jewish special teams force.  I ended up specializing in soccer instead, but will always remember Mosi "Moishe" Tatupu

-KD

Reality Bites: Mark to Wishful Thinking Fails Again

Thanks to Karl Denninger for pointing readers toward this story from Bloomberg's Jonathan Weil.

"Next time you see some company complain its “mark-to-market” losses aren’t real, remember this name: the Federal Home Loan Bank of Seattle. It used to claim that, too. And it couldn’t have been more wrong. 

About a year ago, the government-chartered lender blamed accounting rules after it wrote down its portfolio of mortgage- backed securities by $304.2 million to reflect how much their fair-market values had fallen. While those declines counted against its earnings and regulatory capital, the bank said they were “well beyond any expected economic loss.” 

The bank’s executives said they expected to lose a mere $12 million of principal over the life of the securities. That estimate proved far too hopeful, though. 

The bank, one of 12 regional Federal Home Loan Banks that supply low-cost loans to about 8,000 member banks and finance companies, now says it expects about $311.2 million of credit losses on its portfolio."

As Homer Simpson would say... DOH!  In case it wasn't clear: a year ago the market value of their portfolio fell by $304MM, but the bank claimed those were just temporary dislocations - panic in the market - and that actual losses would be $12MM.  Now, reality has struck, and they have increased their loss estimates to $311MM.  It seems that economists declaring the recession over and recovery imminent do not actually make recovery imminent.

But there's more:

"The bank became a poster child for everything supposedly wrong with mark-to-market accounting. At a March 12, 2009, congressional hearing, U.S. Representative Ed Perlmutter of Colorado cited the disparity between the bank’s writedown and its much smaller anticipated loss as “an example that really was disturbing.

The congressman leading the hearing, Paul Kanjorski of Pennsylvania, pointed to a similar instance at the Federal Home Loan Bank of Atlanta. The bank reported an $87.3 million writedown on its mortgage-backed securities for the 2008 third quarter; however, it said it expected its actual losses would be only $44,000.

While that’s roughly equivalent to the losses from a modest studio condo foreclosure, Kanjorski didn’t question the tiny number, saying: “I find that accounting result to be absurd.”

“It fails to reflect the economic reality,” he said. “We must correct the rules to prevent such gross distortions.” Kanjorski, Perlmutter and other lawmakers told Bob Herz, the chairman of the FASB, that it needed to change its rules immediately so banks could show stronger earnings. The board, which fancies itself as an independent standard setter, complied a few weeks later.

The rest of the story: Last year when the Atlanta bank released its financial results for the third quarter, it said it had raised the credit-loss estimate to $263.1 million. (Here’s the math in case you missed it: $263.1 million > $44,000.)"

Double DOH!  In case that part wasn't clear -  Congress was dismayed that banks were unjustly showing decreased earnings - after all, the banks clearly had very low estimates of losses compared to the panicking market which placed fire sale values on the portfolios.   We needed to act to prevent such "gross distortions!!!"  That crazy Mr. Market was harming the banks' earnings unnecessarily!  Yet again, it seems that the banks were wrong:  FHLB of Atlanta's $44,000 loss estimate was raised to $263,000,000.  I mean - what can you even say about that?  Insane. 

In any case, Congress managed to push through a change in the rules:

"The FASB rule change gave companies a new way to avoid counting paper losses from toxic debt securities in their earnings. Before 2009, whenever companies recorded writedowns on impaired securities that they labeled as held-to-maturity or available-for-sale, they had to run the full amounts through net income for any losses deemed to be “other than temporary.”

Now they get to separate the impairments into two parts: estimated future credit losses and everything else. The first kind reduces earnings and regulatory capital. The other doesn’t."

later, from Weil

"what happened here is that a few members of Congress bum-rushed the FASB into action based on a premise that was false, in a misguided effort to boost public confidence in the financial system through smoke and mirrors. It’s an open question if the board’s standard-setting process can regain its credibility someday. Undoing this disaster of a rule change would be a good start."

A peripheral lesson to be learned here is that rosy projections, hopes, and anticipations do not equate to a rosy reality. 

-KD

Thursday Links

First of all, I want to give props to commenter JCH who came up with a (half joking, I think/hope) suggestion in my "Employer of Last Resort," post:

"The joke in the Great Depression was we paid one guy to dig a hole, and then we paid paid some other guy to shovel the dirt back in the hole. Most modern people would die if they had to work outside digging holes, etc.

So I've been working on the modern equivalent of the above. For instance, we could pay one person to write a computer virus, and then pay another person to write the anti-virus. This job could outlast any recession.

Congress has taken to reading the Federal reserve's AIG emails multiple times. This is great work if one could get it. So we could have a computer generate random AIG email messages, and then congress cold pay people to read them. This, obviously, could go on forever, as it already has. It just needs some creative expansion.

These are make-work jobs that could be done in cubicles in air-conditioned offices, and that is what we need."

on to the links:

-NY Times: "Vancouver: "$1B Hangover From an Olympic Party"

"As for Vancouver’s municipal government and the taxpayers, the bad news is already in. The immediate Olympic legacy for this city of 580,000 people is a nearly $1 billion debt from bailing out the Olympic Village development. Beyond that, people in Vancouver and British Columbia have already seen cuts in services like education, health care and arts financing from their provincial government, which is stuck with many other Olympics-related costs. Many people, including Mrs. Lombardi, expect that more will follow."

-Ritholtz: "When Were Stocks Last Undervalued?"

I am less interested in debating stock market valuation, but more interested in the second chart in Ritholtz's post: consumer spending in excess of cash income.

-Paul Kedrosky, regarding "The Paradox of Toil"

-KD

Warren Buffett Invented the PPIP?

The Pragmatic Capitalist brings us a must read letter that Warren Buffett sent to then Treasury Secretary Hank Paulson back in October, 2008.  In the letter, Buffett lays out his framework for the PPPF: "Public Private Partnership Fund," which would allow the Treasury to partner with private investment to get more bang for its buck in purchasing troubled assets.  It appears certain that this letter was a framework for the development of the eventual PPIP program.

Buffett even mentions how he had already talked to PIMCO's Bill Gross and Mohammed El-Arian about managing the program, and GS's Lloyd Blankfein about providing equity investment for it. 

The letter is embedded at the bottom of TPC's post, and is a must read.  Although I knew Buffett was always talking his book when he wrote the bullish on America Op-Ed during the midst of the crisis, I had no idea he was pulling the strings behind the scenes to create new policies that would bail out and profit his investments.

One of the commenters on TPC's piece also points to an old Barry Ritholtz post that shows just how much Buffett's holdings have been involved in the bailout proceedings.  Another must-read post.

-KD

Maple Sugarin'

It's just about time for the Dynamite Household to engage in our inagural batch of Maple Syrup production.  We inherited a bunch of tools for the job, and bought some simple additional enhancements.  Thus far, the most difficult task may be identifying which trees are maples (not as easy as it sounds in the winter when there are no leaves on the trees, and you've spent the last 10 years living in New York City).  I've been looking for the opposite branching characteristic - but if any readers have other tips, or other hints for sugarin' in general, please do leave me a comment.

So far, we have: 

buckets & covers

sap tanks

spigots & hooks

evaporating pans

hydrometer & cup

skimmer

glass bottles & caps

stovepipe & cinder blocks for fabricating an evaporator

filtering felt

My concern is with sterilizing things - obviously, the sap boils for an extended period of time, but do I need to dip the bottles in boiling water?  How about the caps?  We weren't sure if we should wash the caps because they have those little paper seals inside them.  We already ran the bottles through the dishwasher.  How clean do the evaporating pans needs to be? 

If any of my readers have made maple syrup from scratch before and have any tips, please let me know.  My middle school actually did this as an after school activity, which I participated in at length, but that was many moons ago.  My chief concern is 1) not burning the finished product and 2) transferring it from the evaporating pans to the bottles - we don't have a spigot on our finishing pan, so I'll have to ladle it through a filtered funnel I guess.

Also, we have a monster maple tree in our driveway, but it's under some duress.  This is a centerpiece tree - the kind of tree that is the focus of the whole property.  I could probably put 6 to 8 buckets on it if it were healthy (it's two giant trunks merged together), but we had an arborist come by yesterday who warned us that the tree had major health issues (like an old metal chain that was grown into it, choking off its life and slowly killing half the tree) and that it would be best not to tap it. 

-KD

Links: Goldman Sachs, Reality, and Cantor

-Cantor continues it's push to bring wall street to main street, with a proposed platform to trade movie futures.

"Cantor Fitzgerald said on Monday it expects to launch an electronic futures exchange next month that would allow investors to bet on box office returns for movies."

"People love movies, and this is a way for them to profit from what they know," said Melanie Gordon-Felsman, a Cantor spokeswoman. "Let's say you love 'Avatar,' and you loved 'Titanic,' and (director) James Cameron's coming out with his next movie -- so you want to get in the game."

The contracts are valued at one-millionth of a share of the film's expected box office in the first four weeks playing, Gordon-Felsman said. If the film earns more than it was calculated to earn, you're in the money; if not, you're out -- unless of course you shorted the contract."

If you recall, Cantor also brought us the real-time in-game sports betting device I saw at the Venetian on my most recent Vegas trip.

-Goldman Sachs wrote a response to the furor over the Greek interest rate swaps:

"In December 2000 and in June 2001, Greece entered into new cross currency swaps and restructured its cross currency swap portfolio with Goldman Sachs at a historical implied foreign exchange rate. These transactions reduced Greece’s foreign denominated debt in Euro terms by €2.367bn and, in turn, decreased Greece's debt as a percentage of GDP by just 1.6%, from 105.3% to 103.7%.

The Greek government has stated (and we agree) that these transactions were consistent with the Eurostat principles governing their use and application at the time."

Felix Salmon responds:

"The fact is that €2.367 billion is a rather large amount of money — both in absolute terms and in terms of a percentage of GDP. Your adjectives just make you look out-of-touch, both in your official press release, where you describe the sum as “just 1.6%” of Greece’s GDP, and in your statement to the UK parliament that it was “a rather small but nevertheless not insignificant reduction” in official debt figures.

Translating into American, remember, 1.6% of GDP is about $227 billion — more than the cost of bailing out AIG, Bear Stearns, GM, and Chrysler combined. And depending on how you account for them, you might even be able to throw Fannie and Freddie in there as well. There’s no such thing as “just” 1.6% of GDP — especially when you’re magically making those billions disappear through clever manipulation of currency swaps."

-Michael Panzner: "Dream World vs Ugly Reality"

"Once again, they highlight the extraordinary disconnect between the dream world that economists live in and the ugly reality that a great many Americans are forced to wade through on a regular basis."

-KD

Vanity License Plates

Vanity plates are huge here in New Hampshire.   Today my wife and I were driving back from picking up our new laundry room cabinets at Lowes (big day! although we didn't go to Bed Bath & Beyond), when we saw the plate: "BFYMAN" in front of us.

"biffyman?"  I asked out loud, then continued, "maybe Boyfriend Yes Man?"

"Maybe his name is Brian Fyman," Mrs Dynamite replied, which for some reason made me laugh absolutely hysterically.  Maybe he's a beefy man?  Chunky?  Driving past him later, that didn't appear to be the case.

Before getting my Subaru Forester, I debated a vanity plate.  Dirty Dave suggested JMZRSKY, in homage to Alpha Dog's Jake Mazursky character, masterfully played by Ben Foster.  Other quality suggestions included EVHOUND and 2THFELT.  In the end, though, I went with a simple moose plate - which costs extra - about the same as a vanity plate, but is a state issued number with a moose logo on it, and the money goes to the  conservation fund.

I'll try to keep a log of the good and bad plates I've seen so far ("GLD" on a Saab), but there is a clear winner to date:  MOOSNKL on a Jeep 4x4.

-KD

Jobs - On the Topic of Employer of Last Resort

I promised last week that I would write a post where commenters who so desired could debate the merits of an ELR (employer of last resort) program.  Without writing everything I have been thinking about on this topic, I have decided to provide you with a few links for discussion, accompanied of course by some commentary.  If there is sufficient interest, there is certainly ample material floating around in my brain to write more on this subject.

first:  Marshall Aurback via Barry Ritholtz:

"To all of the “Chicken Littles” (including the president), who fret about “excessive” government spending, we would simply point out that it is far better to deploy government spending in a way that reduces unemployment instead of settling for having it rise as a consequence of this spending.

We therefore suggest a new approach: Government as Employer of Last Resort (ELR). The U.S. Government can proceed directly to zero unemployment by hiring all of the labor that cannot find private sector employment. Furthermore, by fixing the wage paid under this ELR program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected. A sizable benefits package should be provided, including vacation and sick leave, contributions to Social Security and, most importantly, health care benefits, providing scope for a bottom-up reform of the current patchwork health care system.

Government as ELR would not be introducing another element of intrusive bureaucracy into our economy, but simply better utilizing the existing stock of unemployed, who are now dependent on the public purse — especially the chronically long-term unemployed. The current system we have relies on unemployed labor and excess capacity to try to dampen wage and price increases; however, it pays unemployed labor for not working and allows that labor to depreciate and develop behaviors that act as barriers to future private-sector employment. Social spending on the unemployed prevents aggregate demand from collapsing into a depression-like state, but little is done to enhance future growth and demand, which can be done via the ELR by providing the currently unemployed with jobs, greater education and higher skill levels.

The ELR program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption."

One thing to note - I THOUGHT that I'd previously read ELR advocates saying that an ELR program would not replace unemployment benefits.  It seems to me that Auerback is saying that the ELR would replace unemployment insurance (note the final sentence in the quote above).    I actually wrote about this before - suggesting that in NYC we should pay people to clean the streets instead of paying them to sit home and do nothing - but of course there is a counterargument to that claim:  the point of UI is "insurance"  (money for basic expenses so you can spend time looking for a job instead of panicking to pay your basic bills) while people are looking for a new job - not "welfare."   In traditional times that may be true, but if there's any discussion of an ELR program, you can't (in my opinion) allow people to collect unemployment insurance for upwards of a year, like many can do right now.

Anytime you talk about government creating jobs, the issue of "efficiency" or "productivity" always comes up.  It's relevant because if the government spends $100k to create a job that isn't "efficient," perhaps the money could be used more productively.  In other words, instead of creating 10,000 jobs at a cost of $100k per job (note - that's COST, not salary, as infrastructure projects have huge costs aside from salaries, obviously.  Perhaps the net salaries to the workers in this over simplified example are $50k)  building a hypothetical bridge to nowhere, why not create 40,000 jobs paying $25k each for people to sit at home?  "But Kid Dynamite, they are building something!"  Yes - a bridge to nowhere - the ultimate in non-productive infrastructure.   I'm certainly not in favor of paying people to dig holes and fill them back in (why waste the materials - just give them the money if you want to do that!) - and I'm not in favor of paying people to build a bridge to nowhere.  Even in infrastructure projects there is a cost/benefit analysis that must be undertaken.   I'm not advocating either of those solutions - only using them as boundary scenarios to illustrate the issue of "efficiency" and "productivity" which MUST be considered.

Felix Salmon digs deeper into some government data on the cost of job creation:

"What’s at issue here is a ratio: I’m talking about dollars per job created. To get that number, you take the number of dollars spent, and divide it by the number of jobs created. DeFazio, by contrast, subtly tries to change the denominator when he says that “$92,000 in direct government spending creates one job-year”: he’s taking dollars, dividing by jobs created, and then dividing again by the number of years that each job is expected to last.

In the real world, of course, if you spend $300,000 to create a job which lasts three years, then that’s one job created with your $300,000, not three jobs. Only in DC would people attempt to claim that their $300,000 had created three “job-years”."

"A 5-mile stretch of highway, costing $50 million, creates a total of 79 jobs. That’s over $600,000 per job. Even if you divide that by two on the grounds that it’s a two-year project, that’s still $300,000 per job-year. In railways, a $15 million investment creates 12 jobs — that’s $1.25 million per job, and it’s a one-year project.

I’ve seen similar numbers surrounding hospitals, and higher numbers surrounding nuclear power stations — basically, infrastructure investment is an incredibly inefficient way of creating jobs."

The bottom line is that, although we need not get a 100% return on capital for this spending, it's essential that there is SOME efficiency/productivity/benefit in these projects - even infrastructure projects - otherwise, as I noted above, you could help a lot more people with the same amount of money.  A new bridge linking Jersey to NYC may be a good project - relieving congestion and improving worker productivity.  A bridge to nowhere is not a good project.

A final point to ponder (which will likely become relevant as this discussion evolves)  is "what is the purpose of a job?"  Some people claim it's to keep people busy - to occupy their time and keep them out of trouble.  I'll leave this to the reader to decide, but for me, that claim is hogwash.  People work to get paid.  If you have a job you absolutely love going to everyday and would do for free - kudos.  I'm happy for you - you're a very  lucky person.  In my opinion, people work to get paid, and I don't think I'm alone in this view.

-KD

Olympic Ice Hockey: "Tremendously Tremendous"

Olympic Ice Hockey is awesome.    I always thought it was because the ice was bigger and roomier - thus leading to a more offensive oriented, wide open game.  Guess what - that's true when they play in Europe, but since these Olympics are in North America, they are using NHL-sized ice!  So it's not that there's more room - I guess it must be that there's just more talent.  If you watch NHL hockey, you'll probably agree that you've never seen as much set-up play in the offensive zones as you see in the Olympics.  It frequently looks like one team is on a power play  even when play is even strength.  

Sunday afternoon's Russia vs Czech Republic game was a frenetically paced back and forth battle (did you SEE that hit that Ovechkin put on Jaromir Jagr?), but the USA vs Canada Men's Hockey game Sunday night was one of the most amazing hockey games I've ever seen.  Wide open end to end  - with non stop action and hard hits.   The final four minutes of the game featured absolutely RELENTLESS pressure by Team Canada, in the US's zone for almost the entire time, peppering goalie Ryan Miller, who ended the game with 42 saves en route to a 5-3 win for Team USA.   Canada, the host nation, was a huge favorite, and the atmosphere was absolutely electric.  Did I mention this was just a preliminary round game?

I think the game was summed up by color commentator Ed Olczyk's exclamation with 5 minutes left:

"This game has been tremendously tremendous!"

I guess I'm not the only one who was excited about today's hockey action.  Google's Autocomplete feature automatically suggests "Ovechkin Hit on Jagr" if you type in "Ovechkin," and "Canada vs USA hockey olympics" if you simply type in "Canada."

-KD

Las Vegas Sands Q4 Select Tidbits

When I go to Vegas, I frequently stay at The Venetian (owned by LVS).  However, I'm uber-bearish on Vegas, and recently held short equity positions in LVS and WYNN.  I covered the majority of those positions last week, but I have a tiny short in LVS still, and will likely add to that short position on strength.  In February of 2008, I stood outside the Planet Hollywood with Big Show, looked around at all the cranes, and said "we HAVE to short this place."  However, I thought Macau was the main driver of earnings at that time, and that everyone knew that Vegas was a bubble heading for disaster.  I was dead wrong about the second half - it clearly wasn't priced in.  I still don't know about Macau (which accounts for roughly half of their earnings (EDIT:  Vegas was about 30% of LVS's 2008 Revenues, and 25% of LVS's 2009 Revenues- the 50% number is wrong).  That said, here's what catches my eye as I peel through the LVS Q4 Earnings Call Transcript:

"Cash flow generation of The Venetian Macau continues to mirror our strategy. For every dollar of EBITDA generated at the property during the quarter approximately 49% was produced by less volatile, higher margin mass gaming and slot play. Approximately 26% was generated from non-gaming areas including our hotel, convention, banquet and retail operations had approximately 25% was contributed by the more variable, lower margin VIP rolling play."

I thought the breakdown was interesting - 1/2 from everyday chooches, 1/4 from non gaming, and 1/4 from VIPs.

"The Las Vegas properties delivered EBITDA of $57 million in the fourth quarter compared to $90 million in the fourth quarter of last year. In a nutshell, the game piece of our business is holding up pretty well, in fact the volume levels clearly are trending above what they were in 2008. The problem for us and for all Las Vegas remains room rates."

Given the massive new supply in terms of Vegas rooms, and the state of the economy, I don't see how anyone can be bullish on  the future of room rates.

"Looking ahead, we will clearly realize more group rooms in 2010 than we realized in 2009. The pace of group bookings continues to improve and all signs indicate 2011 will be stronger than 2010. In 2009, we realized approximately 478,000 group room nights; as of today we have more than that number on our books for 2010. In the month of January, we realized approximately 64,000 group room up 17% from 55,000 group room nights in 2009."

Note that he's talking about group bookings - conventions.  These numbers are certainly improving over 2009.

from CEO Sheldon Adelson:

"Thanks, Ken. Before we go to Q&A let me make a couple of final points. We worked very aggressively over the last year to right-size our cost structure and to clean up our balance sheet. The results of those efforts are now clear. We just completed the most successful quarter in our history, generating record revenues and EBITDA, and our balance sheet now has more than $5 billion of cash, providing significant financial flexibility and enabling us to continue our industry leading growth strategy.

We stand today on the cusp of our next major phase of Sands growth. In about ten weeks Marina Bay Sands will open its stores to the public, introducing to the people of South Asia a convention-based integrated resort destination that will be unique in the world. In less than 18 months from today, we will open additional integrated resort destination on parcels five and six on Macau’s Cotai Strip including the Shangri-La, Traders, Sheraton and extend Sheraton brands and extending position in the world’s largest gaming market on the doorstep of the world’s fastest growing major economy.

And while the Las Vegas market may not shine quite as brightly as our Asian properties in the net term, our convention based business model remains compelling, and we remain confident that our group business strategy together with our reduced cost base will enable us to perform well in Las Vegas in the years ahead, particularly in comparison with our competitors."

I read this as: "look - Vegas sucks - but Macau is the future.  Although we have sizable outstanding debt ($11B), we have ample cash on hand to handle servicing that debt for the next few years, and then Macau will be cranking out cash for us."   It appears that LVS does not face imminent bankruptcy concerns, as a result of their cash raising IPO of Sands Macau, but their future depends largely on the outcome of a  big bet on Macau. 

from the analyst Q&A:

Q:  (re: Macau Q1 2010 so far) "Got it. And can you, are you able to – you able to comment generally on Chinese New Year"

A: (couldn't give specifics, due to disclosure rules) "Let's put it this way. Over the results we’re smiling we are not frowning."

Q: "I know you have your group rooms booked in largely for the year, at least for the same level year, I’ll be curious to know how those rates are trending and then what the overall impact is on your RevPAR?"

A: "Well, we’re turning down, I mean, relative to 2009 rates were 211 for actual group segment for the year, were down in the 180 range for 2010, high 170s to 180s. And again the competitive pressure is pretty relentless, I mean, to be honest with you it’s not slowing down."

Overall, I think the call was relatively boring and un-insightful.  I look forward to MGM's transcript soon, and WYNN's next week.   Steve Wynn is a level above and beyond his competition in terms of expressing a knowledge of exactly what's going on in Vegas, and I encourage anyone interested in the segment to make sure they read what he says.  WYNN's Q3 2009 transcript is here.

-KD

Once Again, The Onion Nails It

I'd be remiss if I didn't highlight this story from The Onion which I mentioned in yesterday's comment thread.

"U.S. Economy Grinds to a Halt as Nation Realizes Money Just a Symbolic, Mutually Shared Illusion"

"The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, "Oh my God, he's right. It's all a mirage. All of it—the money, our whole economy—it's all a lie!"

Screams then filled the Senate Chamber as lawmakers and members of the press ran for the exits, leaving in their wake aisles littered with the remains of torn currency.

As news of the nation's collectively held delusion spread, the economy ground to a halt, with dumbfounded citizens everywhere walking out on their jobs as they contemplated the little green drawings of buildings and dead white men they once used to measure their adequacy and importance as human beings."

As usual, it's scary when The Onion explains economic factoids better than the WSJ or NYT can.  Everyday I write a blog post saying that I don't want to get into another comment thread debate about MMT, and everyday I do it anyway - but let me just say this:  the more money we create, the more likely it is that this article from The Onion turns out to be reality.

-KD

Two Sides To Every Story

The news-making piece today comes from KC Fed President Thomas Hoenig.

"The United States is moving into an era in which government finance is taking center stage. Fiscal measures taken to bring the economy out of recession, mounting longer-term liabilities for Social Security and Medicare, and other growing demands placed on the federal government have invited a massive buildup of government debt now and over the next several years. Congressional Budget Office (CBO) projections have the federal debt reaching a unsustainable level of two to five times our total national income within the next 50 years, which leads us to an inescapable conclusion—U.S. fiscal policy must focus on reducing this debt buildup and its consequences.

In managing our nation’s debt going forward, it strikes me that we have only three options. First, the worst choice for our long-term stability, but perhaps the easiest option in the face of short-term political pressures: We can knock on the central bank’s door and request or demand that it “print” money to buy the swelling amounts of government debt. Second, perhaps more tolerable politically, although damaging to our economy: We can do nothing so long as domestic and foreign markets are willing to fund our borrowing needs at inevitably higher interest rates. Or third, the most difficult and probably the least palatable politically: We can act now to implement programs that reduce spending and increase revenues to a more sustainable level."

later (emphasis mine):

"Someone recently wrote that I evoked “hyperinflation” for effect. Many say it could never happen here in the U.S. To them I ask, “Would anyone have believed three years ago that the Federal Reserve would have $1¼ trillion in mortgage back securities on its books today?” Not likely. So I ask your indulgence in reminding all that the unthinkable becomes possible when the economy is under severe stress."

Now, readers of this blog will be able to guess that I find Hoenig's piece to be completely reasonable, and a pretty accurate enunciation of very common fears that most Americans (myself included) have.  However, there is a contra-view that says that holders of my view are completely crazy and have no understanding how how our monetary system works.

In the interest of avoiding another lengthy comment thread discussion with those who hold the opposite view, I point you toward Billy Blog where you can read for yourself the other side of the story.  Bill Mitchell is a leading proponent of Modern Markets Theory (MMT).  He is intelligent and responsive, although I think his points would be much better taken if he could somehow express them with 90% fewer words - sorry, Bill, we Americans have narrow attention spans.  I would do a disservice to Bill's writing if I pulled out a few select quotes which anyone unfamiliar with the basics of MMT would find completely preposterous, but I'm going to do it anyway, with the hopes that the reader will think not "what a f'n moron, " but rather "how on earth could he make a claim like that, maybe I'll go check out what he's writing."

from Bill:

“If the Chinese do not want to buy US Government bonds then they will not. The US government will still go on spending and the Chinese will have less $USD assets. No loss to the US.”

In reply to that, I left the following comment on his blog:

"So, let’s say that when the debt China is holding matures, instead of buying new debt with it (rolling their position), they say they want their money back. We print up a fresh trillion dollars (digital or otherwise) and give it to the Chinese. Now, they either 1) sell the $$$ and buy Yuan and take them back to China (unlikely?) or 2) buy real assets in our country with our currency (more likely?)

when China takes its trillion dollars and starts buying up US real estate, ports, sports teams, and businesses, doesn’t that have a real (negative) effect on me – The American Who Now Has To Pay Higher Prices Because I’m Competing With The Chinese For Assets? I could have also called myself The American Who Has Savings And Doesn’t Want To See The Purchasing Power of Them Reduced."

I suggest readers check out Billy Blog for his models on simple "business card economies."  First read this one, and then progress to this one.   It will be up to the reader to figure out how these models expand to real world concepts - I still have not figured it out, but I am willing to read on, frustrated. 

-KD

Your Online Privacy

People are angry about Google Buzz infringing on their privacy.  As usual, The Onion has the best take on the potential solution, with their report: "Google Opt Out Feature Lets Users Protect Privacy By Moving To a Remote Village"  (h/t Barry Ritholtz)

Google Opt Out Feature Lets Users Protect Privacy By Moving To Remote Village

In more depressing news, MISH continues to be the bearer of bad news.  Things are so absurdly bad with our municipal finances across this country, that solutions like this are being proposed:

"At Utah's West Jordan High School, the halls have swirled lately with debate over the merits of 12th grade. The sudden buzz over the relative value of senior year stems from a recent proposal by state Sen. Chris Buttars that Utah make a dent in its budget gap by eliminating the 12th grade."

I mean - wow.  

Then you have the Illinois Pension Fund, which is $61 Billion underwater!  YOWZA!

"Illinois politicians are at it again. They're borrowing from the future to make state pension contributions today.

In early January, while everyone was busy watching the nasty campaign commercials, the State of Illinois pulled an end-run on the budget process. On Jan. 7 the state sold $3.5 billion of "pension obligation notes." In simple English, the state borrowed money to finance the state's contribution to its five retirement systems."

In case it's not clear yet, this does absolutely NOTHING to solve the problem.

-KD

Brief Winter Olympics Thought Of the Day

Short Track Speed Skating is awesome. Seriously - check it out.  Physical, tactical, strategic, athletic, exciting. 

-KD

Weekend Roundup - Blame Canada!

So I watched the opening ceremonies for the Winter Olympics last night.  I can't believe they didn't have Wayne Gretzky slap a flaming hockey puck into the cauldron to light it.  What actually happened is that one of the four pillars ascending from the floor to form the cauldron pedestal malfunctioned, and Gretzky and the other 3 torchbearers stood there looking confused for a few minutes before the program proceeded with just the three pillars - and no flaming hockey pucks.  Mohammed Ali, it was not (6:00 mark in the video - awesome).

I have never been to Canada, but it seems pretty awesome.  I'm not just saying that because my blog is absolutely huge in Canada - it's because they have so many cities which just seem to rock:  Montreal, Calgary, Vancouver.  I guess I'll have to go there someday.  Watching the Olympics over the next few weeks, I don't think I'll be able to get the immortal South Park song "Blame Canada,"  out of my head at all, even if they don't do anything wrong:

One more Winter Olympics question?   WTF is the deal with biathalon?  Cross country skiing and guns?  That's the best they could come up with?  If you're going to combine a winter sport with rifelry, I think either Alpine Downhill Skeet Shooting or Nordic Ski Jump Riflery would be much more interesting than watching guys cross country ski around a big loop while periodically stopping to shoot targets.  Who came up with this idea?  Blame Canada, I guess.   

Ok - one more question - did you know that Jaromir Jagr is still playing hockey in Europe?  He's captaining the Czech Republic team!  Olympic hockey is absolutely awesome - fast paced and wide open - and I"m looking forward to watching as many of those games as I can.  

Last question - I promise:  Which country has won more Winter Olympics medals:  Denmark or Kazakhstan?   I can't be the only one surprised to find out that Denmark has only won 1 Winter medal all time, while Kazakhstan has 5...

Some links for the weekend:

David Merkel @ Aleph Blog: "Ignore Anyone Who Tells You Debt Levels Don't Matter"

"Debt levels in an economy matter.  They matter a lot.  An economy that is financed primarily by debt can be like a chain of dominoes.  If one fixed claim fails, and it is large enough, many other fixed claims that rely on the first claim could fail as well, triggering a chain of failures.  This is a reason why a fiat-money credit-based economy must limit leverage particularly in financial institutions."

Contrasted with:

Via NakedCapitalism: Prof. L. Randall Wray: "The Federal Budget is Not Like a Household Budget"

"I realize that distinguishing between a sovereign government and a household does not put to rest all deficit fears. But since this analogy is invoked so often, I hope that the next time you hear it used you will challenge the speaker to explain exactly why a government’s budget is like a household’s budget. If the speaker claims that government budget deficits are unsustainable, that government must eventually pay back all that debt, ask him or her why we have managed to avoid retiring debt since 1837-is 173 years long enough to establish a “sustainable” pattern?"

Via Tyler Cowen:  "Gay Men and Lesbians"  Poll Better than "Homosexuals."  

Barry Ritholtz:  Mathematical Proof That Companies Manage Earnings

"The WSJ reports today on a study that confirms what everyone has known for years: That many firms manage their earnings, pulling all manner of shenanigans to beat the street. 

The way this form of fraud was detected was rather ingenious: The lower than mathematically expected incidences of the digit “4″ in corporate earnings releases. (“X.4″ to be precise) This simple statistical insight was due to an analysis of normal random distribution. “When the authors ran the earnings-per-share numbers down to a 10th of a cent, they found that the number “4″ appeared less often in the 10ths place than any other digit, and significantly less often than would be expected by chance.”

Why? 

By finagling the 0.4 to a 0.5, accountants then get to round up to the next higher number. Hence, 12.4 cents is “managed” to 12.5, which then becomes rounded to 13 cents per share."

-KD

There is No Change In Value - The Value is The Same

In light of the discussion in my prior two posts, "Partisan Economics" and "Partisan Economics Revisited,"  I thought this would be a good time to post the Dynamite-In-Law favorite video  "The New Ghana Cedi."






-KD

Debt and Partisan Economics Revisited

My last post, Partisan Economics, generated a lot of discussion and debate, although much of it was a back and forth between me and a textbook Keynsian.   

Before continuing, I want to address a point that Barry Ritholtz mentioned to me, stating that there are indeed a lot of deficit partisans out there who are acting with extreme hypocrisy.  This is indubitably true - and they should be held accountable as hypocrites.  However, this doesn't mean that their newfound deficit concerns are unfounded, which is what I was trying to show in my post.

I already linked to Krugman and Reich on the subject, and Dean Baker weighed in yesterday as well.   On the other side, the Pragmatic Capitalist wrote a piece similar in tone to mine, and made some important clarifications about Keynsian Economics:

"The truth is – Keynesianism works – in the right environment.  It works well when debt is fairly low and organic economic growth is relatively strong, but exponential debt growth becomes an increasing concern every time you print your way out of an economic downturn.  The larger the downturn, the larger the response.  So on and so forth.  If you happen to enter a period of severe irrationality and spending the problems multiply.  If the recovery period is not used to pay down debts the problems become exponentially worse.  The tipping point comes when the debt burden hinders future economic growth and destroys your ability to spend your way out of any future recessions.  It effectively turns into one great pyramid scheme if it you let it get out of hand."

 and then:

"In sum, the idea that you can turn on the debt spigot every time your economy gets into trouble is deeply flawed.  The major flaw in the Keynesian approach is that it ignores  exponential growth in debts.  As a government continually spends and prints to get themselves out of one recession the debt they incur slowly hinders their ability to overcome any impending economic woes.   Should they continue to attempt to print and spend their way out of each subsequent recession it becomes a negative feedback loop.  The debt hinders future economic growth, the potential for subsequent downturns actually increases and the ability to handle those downturns is severely reduced.  If fiscal imprudence continues in times of recovery you end up right where we are today."

Dean Baker's piece was the most surprising to me.  It echoes Krugman's points, and generated some very intelligent replies in his comments section rebutting his claims.  One commenter rebuts Baker point by point, accurately, in my opinion:  it's a must read here.  Here's just a little taste, the first paragraph of eight:

"{Baker wrote:}“The country faces a serious crisis in the form of a manufactured crisis over the budget deficit”. {commenter responds:}The world is in the grips of the first truly global DEBT crisis of unprecedented proportions. Period. Public sector debt, corporate debt, personal debt: not even in the great wars of centuries past have we seen such extreme debt levels, when expressed as a percentage of GDP. It is one thing to say, “The ratio of (public) debt to GDP was over 110 percent after WWII”, suggesting that, therefore today’s numbers needn’t concern us. It is quite another to observe that, in fact, “total credit market debt as a % of GDP” at its WWII peak was less than 170%, whereas today it is more than double, at about 350%. In other words, WWII was financed with “public sector” debt; when the war ended, so did the expenditures, and the US enjoyed a financially solvent private sector with a suddenly expanded, hard working labour force with which to pay off the debt. Now we have comparable levels of public sector debt AND unprecedented levels of private sector debt; and anyone who ignores that inconvenient fact is a fool."

Clusterstock republished a segment of Baker's piece, and commenter Mike C clarified another nice, simple point:

Baker wrote: "The problem is that, as a society, we are not spending enough to keep the economy running at capacity." 

Commenter Mike C responds:

"The problem is, for too many years we've had a seriously inflated idea of what our 'capacity' really is. Our economy running at 'capacity' is something more akin to 1985 levels than 2005 levels. The rest of that was a flood of easy credit and overleveraging...not actual capacity."

Finally, Ron Paul weighs in.  Do with that one what you will...

-KD

Partisan Economics

This is not a political post.

I think partisan politics is one of the worst traits of our country.   Now, however, as we continue to see the line between political policy and economic policy blurred, we're encountering the absurdity of partisan economics.  For me, there is an essential truth we must acknowledge before even beginning this conversation:  debt is not partisan.  Debt doesn't care if you're liberal or conservative, democrat or republican.  Debt is mathematics.

I don't agree with everything Karl Denninger writes, nor with his ceaselessly hyperbolic delivery, yet he has been adamant (and correct, in my opinion) about one thing for the last 2 years in his blogging - debt is exponential, and you can't borrow your way out of a debt problem.  The concept that you cannot borrow your way out of a debt problem is an important one (one that I've touched on many times before, and I would have thought, a simple one), but it's even more important in today's fiscal/economic landcscape - we'll get to that in a minute.  Denninger takes issue with two widely read authors this week. First, Nobel Laureate Paul Krugman's NY Times piece titled "Fiscal Scare Tactics."    Krugman writes:

"Let’s talk for a moment about budget reality. Contrary to what you often hear, the large deficit the federal government is running right now isn’t the result of runaway spending growth."

Denninger responds with a graph:

as well as some choice words for Krugman.

I take issue with Krugman's "partisanization" of economics - if I could coin a new word.    Krugman writes:

"True, there is a longer-term budget problem. Even a full economic recovery wouldn’t balance the budget, and it probably wouldn’t even reduce the deficit to a permanently sustainable level. So once the economic crisis is past, the U.S. government will have to increase its revenue and control its costs. And in the long run there’s no way to make the budget math work unless something is done about health care costs.

But there’s no reason to panic about budget prospects for the next few years, or even for the next decade. Consider, for example, what the latest budget proposal from the Obama administration says about interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush.

Why, then, all the hysteria? The answer is politics."

No, No, No, No, NO Dr. Krugman - the answer is MATHEMATICS.   By politicizing the issue, Krugman is the one who is shirking the truth.  I would think that a Nobel Prize winner in economics would understand the concept of max-debt, yet Krugman cavalierly compares the current situation to one twenty years ago, under the first President Bush.   Let's go to some more charts!

That's government debt as a percent of GDP.  Again, you don't have to be a Nobel Laureate to see how debt has become a larger portion of our financial world in the last twenty years (the chart shows that the current ratio is DOUBLE what it was under the first President Bush).  Krugman wasn't referring to the Debt/GDP ratio - he was talking about the interest/GDP ratio - but you can't look at the latter without taking into account how much the former has grown - you have to pay back principal too!  I don't know when we will reach "max debt" but I do know what we're closer to that point than we've ever been before, and to simply write off concerns as partisan politicians trying to stonewall Obama's agenda is naive, not accurate (although Conservative critics may indeed be trying to stonewall the Administration),  and partisan in its response.

Robert Reich wrote the other piece which I found mind boggling.    I"ll give you Denninger's take first.  Reich inquires:

"Alright class, here's your assignment: Look at President Obama's budget proposal, spending freeze, jobs bill, stimulus, tax hikes on upper-income individuals, and proposed deficit commission. Also take a look at the fees he wants to impose on the biggest banks, and his proposed regulations of Wall Street. Look at his stalled trade agenda. Now, explain the big picture."

Denninger responds:

"Ok, I'll take a shot:

$500 billion in newly-embedded STRUCTURAL deficits in concert with rapidly-falling tax revenues = ultimate insolvency of the US Treasury.

Oh wait, you didn't like that answer.  Here's what Reich said:

If you're about to write "more taxes and more spending," you're either not thinking hard enough or you're a Republican running for office this November.
To see the big picture you need to keep your eye on three big things. The first is the extent of government spending needed to offset the continued reluctance of consumers and businesses to spend."

And then Denninger gets to the first of his two essential points:

"It's not reluctance.  It's inability.  That's usually what happens when your general mantra is "I can't be out of money - I still have checks left!" and then try the same trick with your credit card only to have it come back "REALLY DECLINED.""

Reich continues:

"You don't have to be an orthodox Keynesian to understand that as long as the private sector is deleveraging the public sector has to borrow and spend in order to keep the economy moving forward."

Which Denninger sharply and accurately refutes in a few simple sentences which are the key to the entire economy for me:

"I don't have to have an IQ larger than my shoe size to understand that when the private sector has reached it's leverage limit it is not possible to "spur" it to take on more leverage - that is, to borrow and spend that which isn't earned in the present tense. 

All government borrowing and spending does in that case is make the ultimate deleveraging (across the entire economy) WORSE."

Again, I don't think you have to have a PhD in economics to understand that we're in a relatively unfamiliar spot in our economic landscape.  We're out of (or running out of) borrowing power.  Ned Davis Research publishes a chart of consumer debt to GDP:

Yes - I believe consumers have reached their debt limit - but the problem, as the chart I posted further above shows, is that the Government is also closer to reaching ITS debt limit than ever before.  No one knows if or when China will stop financing our economy, but to bet our entire stack on the fact that China has no choice but to continue to buy our debt - since they face a prisoner's dilemma otherwise because they already own massive amounts of it - is the equivalent of fiscal Russian roulette.

A final chart I'll reference is total credit market debt to GDP - it's a combination of the federal and household charts above, along with all other corporate debt (courtesy of Barry Ritholtz).

One more gem from Robert Reich:

"The federal budget deficit is a huge problem, to be sure. But if you want an A in this course you need to distinguish between deficits occurring this year and next when the economy is still trying to climb out of a hole, and deficits five to 10 years from now. If government doesn't spend enough in the short term to get jobs back, those out-year deficits will be even larger because tax revenues will be lower then, and government will be spending more on unemployment benefits."

Reich is actually claiming that if we don't spend more now to "get jobs back,"  then we'll have to spend more later on unemployment benefits.  He's ignoring the fact that the spending we're doing now is much more than the spending we'd be doing on unemployment benefits!  Otherwise, we'd just magically spend to create jobs instead of paying unemployment.  Of course, he's also using the classic Ponzi logic that a debt to be faced in the future is not as big a concern as a debt to be faced today.  I wholly agree with Denninger's comment on this that attempts to spend our way out of this crisis inevitably make the eventual reckoning (deleveraging) worse.

Which brings us back to politics.  One key realization I got from my sit down at the Treasury several months ago was that, although they didn't say this explicitly, the officials at the Treasury had realized how political economic policy was.  They were smart enough to understand that you can't make debt go away by borrowing more, yet they lacked the political will/ability to attempt any other option.    In my opinion, President Obama's biggest failure was his refusal to make the tough choices (which to me means recognizing bad debts, insolvent banks, etc, instead of trying to pretend they don't exist) early on in his presidency .  Obama's gift is his incredible eloquence, and the mandate he had (which would give him a very wide berth in any policy decisions) from the people who were starting to realize just how "up a creek without a paddle" our country's economic direction was heading.  I think he was one of the few presidents in recent memory who had the ability to recognize the bad debts, take the pain, talk the nation through it, and begin the road to recovery.  Instead, he did what almost any other President would have done - tried to avoid the inevitable - but we're quickly realizing that it's unavoidable.  Now, however, it may be too late to change course and make the really hard choices, as the pain involved will be worse, and some support for him has waned.

I can't help but think of the lyrics to the Grateful Dead's Touch of Grey:

"I know the rent is in arrears

The dog has not been fed in years

It's even worse than it appears

but it's all right.

The cow giving kerosene

Kid can't read at seventeen

The words he knows are all obscene

but it's all right"

I don't think we can talk our way out of this recession - I think the remedy calls for drastic, painful action that will result in a lot of losses for a lot of people and corporations.  However, such action would avoid the state we're in now: where our nation, our corporations, and our consumers are virtual debt-zombies, unable to borrow more, and unable to pay back the debts we currently have.  After taking the pain, the spending done by the government would have real "oomph" behind it - and could potentially fuel a legitimate recovery, but it won't be easy.

note: please think carefully before leaving off topic partisan political comments blaming Bush, Obama, Democrats,  Republicans, or Tickle Me Elmo for the current economic problems.   The point is how we FIX the problems, not placing blame for causing them.

-KD

Super Bowl

Bodog is offering the following prop:

"Super Bowl XLIV - What Color will the Gatorade be that is dumped on the Head Coach of the Winning Super Bowl Team? " 

Lime Green: 8/1

Yellow:  4/5

Orange:  11/2

Red 10/1

Blue 25/2

Clear/Water:  9/5

For those not gambling inclined, this means that if you bet on "Red" and win, you get paid $10 for every $1 wagered, and if you bet the favorite, "Yellow,"  you win $4 for every $5 wagered.  Yellow is a heavy favorite.

Maybe I'm old school, but Green is still my color of Gatorade, and I love the value there at 8/1!

Of course, there's the old favorite "Length of the National Anthem" prop:

" Super Bowl XLIV - How long will it take Carrie Underwood to sing the National Anthem? Clock starts as soon as Underwood sings first Note and Stops when she sings her last note."

Over 1 minute 42 seconds:  +115

Under 1 minute 42 seconds:  -145

If you want to bet the under, you have to bet $145 to win $100.

Big Show astutely notes "Take the under and lay the wood - It's right in her name! UNDERWOOD!"

-Kid Dynamite

Goldman Sachs's Lloyd Blankfein's Bonus: $9mm in Stock

Well, as predicted,  Blankfein's bonus was nowhere near $100mm.   He ended up getting $9mm in Goldman Sachs stock.

-KD

Unemployment: Birth/Death Adjustments Overstated Jobs by 902,000

Leading up to the release of today's BLS Employment report, there was a lot of talk about the birth/death adjustment.  The b/d model can be a bit tricky to explain - I think Barry Ritholtz's old piece here does a good job of summarizing what happens.  Basically, the BLS estimates job creation or destruction based on the filings of new company incorporations - because companies which are too new or too small don't get counted in the CES (current employment statistics) survey. In Ritholtz's words:

"Previously, BLS tended to under report new jobs in the beginning of a a cycle turn. What the new B/D Adjustment series did was take new incorporation filings per state, and deduce from them that new jobs were being created. (That took effect around 2003).  This improved somewhat the ability to capture new jobs at the start of the cycle. But the flaw in the adjustment was that the model radically overstated job creation at the end of the cycle. Say a firm goes out of business, or lays off 100s of workers. They form new shops, incorporating these start ups.  According to the BLS, that is job creation.  But in reality, a steady paycheck with benefits has now been transformed into a start up with none of the above. And as we know, 90% of all new businesses eventually fail.  How misleading is the BD adjustment at the end of the cycle? Consider that in 2007, 75% of the BLS newly created jobs were due to the B/D adjustment. That did a nice job masking the actual problems beneath the surface."

Today, when the number came out, the results were even worse than most expected.  From the BLS report:

"The total nonfarm employment level for March 2009 was revised down-ward by 902,000 (930,000 on a seasonally adjusted basis), or 0.7 percent. The previously published level for December 2009 was revised downward 1,390,000 (1,363,000 on a seasonally adjusted basis)."

In plain English, all the employment data that was reported up thru March 2009 understated the number of jobs lost by 902k.    How big a variance is this?  Is it normal?  The CES tells us:

"The March 2009 total nonfarm payroll employment estimate was revised downward by 902,000 or -0.7 percent. Over the past decade, absolute benchmark revisions have averaged 0.3 percent, with a range from 0.1 percent to 0.7 percent.  Benchmark revisions are a standard part of the payroll survey estimation process. The benchmark adjustment represents a once-a-year re-anchoring, based on March data, of sample-based employment estimates to full population counts available through UI tax records filed by nearly all employers with State Employment Security agencies."

In other words, this revision was the largest (at -.7%) since the modern adjustments began 10 years ago.  The interactive Bloomberg graphic I linked to above also highlights this dispersion. 

-KD