Enticing Dividends

I have friends who argue that many stocks are nicely priced now when contrasted to their relatively high dividend yields.  My retort (from Bloomberg, via The Big Picture):

“Stock dividends are disappearing at the fastest rate in 50 years as the worsening recession forces U.S. companies to conserve cash.

…

“Until we start to see the economy turn around, you have to assume broadly that dividends could be at risk in many sectors of the economy, especially among financials,” said Fritz Meyer, the Denver-based senior market strategist at Invesco Aim Advisors Inc., which manages about $358 billion.

…

“Companies feel like they have to conserve capital,” said Bill Stone, who oversees $56 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “If you’re out there raising a lot of capital, it doesn’t make a whole lot of sense to turn around and be paying it out.””

I gave a soft, out-of-my-ass estimate to friends saying they should ask themselves if the stock price is still appealing should the dividend be cut in half before making a purchase.  Each industry should be treated differently, but there seems to be far too much optimism right now about companies maintaining dividends near their current and past levels.

… and the cow goes moo

Old Report: 1 in 5 auto dealerships expected to close. New Addition: How many will cut their staff by half?

A lot of noise was made two months ago when a study revealed the dire makret situation facing the small-business owners of the automotive industry in 2009.

Reuters:

“With U.S. light vehicle sales predicted to drop to the 13.7-million-unit range in 2009, the study said that about 18 percent of the total number of U.S. car dealerships would need to close to maintain sales per dealer at last year’s level of about 750 units.”

What has escaped mention until now is the much greater impact this will have on automotive dealership employees (beyond sales staff; think mechanics, administrative staff, and accountants).

The New York Times:

“In October alone, 20,000 employees of auto dealerships lost their jobs nationwide, more than half of those who were newly unemployed in the retail trade, according to the Labor Department.

The auto dealers association estimates that new-car dealers produce a $54 billion annual payroll for 1.1 million workers and nearly 20 percent of the retail sales and sales taxes in small and large communities alike.

…

In this small town outside Tallahassee, Mr. Thomas had 50 employees only two years ago when his two dealerships sold an average of 24 new vehicles a month. But now Mr. Thomas is lucky if he sells three new vehicles a week, and he has had to dismiss 10 of his remaining 40 employees in recent days.

…

“We have never seen anything like this,” said Denny Fitzpatrick, owner of a Chevrolet-Hummer dealership outside Oakland and chairman of the California New Car Dealers Association. Having already dismissed 56 of his 114 employees, Mr. Fitzpatrick added, “You lay awake at night trying to figure out how to keep these doors open.””

Perhaps 20% of dealerships will close in 2009.  Is it unrealistic to expect the remaining 80% to have cut their workforce in half by then?  This is far beyond decimation: 60% of automotive dealership workforce could be eliminated by some time next year.  That would be over 600,000 jobs in the new-car industry.  And this looks likely to occur even if there is a massive automaker bailout that doesn’t compel consumers to buy cars (or lenders to backstop consumers buying cars).

As someone who has worked at an automotive dealership in the past, out of a love for cars, my condolences go out to those who are having their salaries (and commissions) squeezed now and may lose their jobs entirely.

… and the cow goes moo

Tesla Needs a Bailout!

See article snip (from the NYT) and Ritholtz’s comment at The NEW The Big Picture.

So what’s Tesla’s argument?  Low gas prices have destroyed demand for their electric sports car?  Their investor-class clientele (that can afford a 6-figure sports car) has taken such a big hit with the Dow Jones drop that demand has dried up?

I’ll assume the lack of investors and lending facilities for business is the cause for Tesla’s request.  Or they just know a good thing when they see one.  Why WOULDN’T you request a low-interest loan from the government?  Why would you even seek capital elsewhere?

Ritzholtz make a great (short) point about public funding for technology start-ups and innovation in general.  It’s a rarely-acknowledged fact that many of the game-changing technologies that we enjoy now had their origins in public R&D (NASA’s Jet Propulsion Laboratories’ role in the invention of the digital camera being one example; and if you like a supporting reference in quotation form: “”Virtually every aspect of information technology upon which we rely today bears the stamp of federally sponsored university research,” said Ed Lazowska, a computer scientist at the University of Washington”).

As it relates to the automotive industry… Right now, Congress is trying to accelerate the issuing of a $25 billion loan to the automotive industry purportedly to help them build fuel efficient vehicles.  One of the reason’s this is essential to the public interest is, as Wesley Clark recently argued, the potential military value of such vehicles.

If this technology is essential to the public interest, why not fund it publicly?  By providing money to the Big Three in hopes they will apply it to electric propulsion technology seems like a wasteful route, relying on and enriching a notoriously poor management team.

And if we HAVE to bailout the auto industry, why do it with loans?  Why not get something for it instead by contracting GM, Ford, and Chrysler in a joint project with DARPA to develop an electric Humvee?  At least that way we’ll get something out of it.

… and the cow goes moo

Mumbai Terrorist Attacks: A Human Resources Dilemma?

I was at work when reporting began on the terrorist attacks in Mumbai and was dumbfounded as many others that Mumbai would be the target, especially considering the scale (I had, like many, assumed it was an attack that orginated in Pakistan).

As more information trickled out, the most impressive element of the attacks was the scale and simplicity.  It appeared more and more like a brute force attack that could be planned in a moment’s notice and quite impossible to stop outside of a police state.  I wondered if this style of attack was chosen to instill a new fear not of conspiratorial plane hijackers, training and coordinating for years. There certainly seems to be little reason why a such an attack couldn’t occur in any city where the elements of the terrorist group could fill a truck and not appear too out of place.

Gary ‘The War Nerd’ Brecher has an insightful article in Exiled Online on why he believes this act shifted away from the high-explosive, high-level planning, low-personnel approach of what we are accustomed to.

“What’s clear is that this was a labor-intensive enterprise. Terrorism is usually a matter of spending as few of your people as you can, but somebody connected with Al Qaeda or its Pakistani fan club decided to spend a lot of lives here. That’s what’s interesting, looking at these attacks cold-bloodedly.

…

But it comes down to what you might as well call market forces, and in those terms it makes perfect sense. Supply and demand. Supply: it looks like the gunmen came from Pakistan by ship. Supplies of dumb triggerhappy young Pakistanis in a hurry to find martyrdom are basically infinite.

…

Now quality, that’s a different issue… But when you look at the recruits the madrassas in Pakistan have been turning out, you see how far short of those goals these rookies are. Most of them are slum kids or village kids who like the free food and the idea of shooting people, the two things any teenage boy is naturally drawn to.”

Please read the whole article if you’re interested in the subject.

Brecher, as always, breaks down a little-considered factor in a manner a layman like myself can comprehend.  And his logic seems bulletproof to me.  Now what does it say about the future of terrorism and counter-terrorism, and the state of international relations, when terrorists are so plentiful, they can be expended on relatively high-cost, low-yield missions like these?

I always felt more comfortable knowing that intelligence agencies were combating intellectually-sophisticated terrorists bent on highly-public missions that were born of years of planning.  But a bunch of kids with assault rifles and RPGs in an SUV?  How do you defend against that?

(The New York Times has an update on the situation.  Apparently, Indian commandos have regained control)

… and the cow goes moo

This market makes no sense to me

Well, it never made much sense to me.  But this past week has been especially baffling.

Good thing Yves Smith of Naked Capitalism is trying to make some sense of things (let’s hope she adds to this post in the future):

“I am puzzled by some recent market anomalies, which are breakdowns of established patterns:

1. Long dated Treasuries rising (a deflation signal) as stocks stage a dramatic rally

2. Dollar weakening while long dated Treasuries rise (the dollar and bonds usually go together)

3. Oil stocks rallying more than the S&P (28% versus 18%) when oil prices continue to weaken and heating oil looks primed to fall”

That’s your teaser.  Check out Naked Capitalism for the rest of the post, including a collection of data and analysis.  Quite frankly, things aren’t much more clear for me after reading it but that is reflective of my own failure of comprehension, I suspect.

I have a gentleman’s bet with a friend that we have not seen the bottom yet for the Dow Jones.  He says that we won’t fall below the 7,500 we’ve already hit.  I am calling for 7,200 or below, with a decline heading into the New Year (it’s a mulligan if it falls between the two values).  I foresee no good news for shareholders from now until 2009 (maybe February or March where we will cease to see continued downwards corrections from analysts and companies).  Even the impending GM bailout won’t do much for their shareholders from the current $5.50 mark or so (including after hours trading).

We’re experiencing a larger surge than usual with the latest Fed interventions into the financial market, but as all previous interventions have proven short-lived, so will this one.  And when the market realizes the Fed’s commitments only provide an illusion of repair, the market will return to falling until the next big, dramatic intervention that doesn’t really do all that much.

(That’s my prediction, anyways.)

… and the cow goes moo

Black Friday: What the hell is going on??

I’m sure many will have heard of this already but…

The National Post:

“… based on early reports, two rival groups shopping at the store had some kind of argument and then shots were fired. Two men were killed in the exchange of gunfire…”

and in another, more repulsive incident:

“Customers in a frenzy for deals at a Long Island Wal-Mart trampled an overnight stock clerk to death.”

This isn’t normally the type of news I comment on, but I’ve gone to sales like these before and I can definitely see how incidents like these can occur.

More broadly, is there anything more depressing than people dying, in effect, for other people to save some money on an iPod?

… and the cow goes moo

Passage of Prop 8: Breaking up families

According to Dan Savage’s editorial from the New York Times two weeks ago (it took me some time to get to this… quite frankly, I was worried about making my point carelessly about this sensitive subject.  And, as my five day post drought would attest to, it’s been very busy time for me).

The New York Times:

“Florida, Arizona and, most heartbreaking, California, where Proposition 8 stripped same-sex couples of their right to wed. Eighteen thousand same-sex couples were legally married in California this past summer and fall; their marriages are now in limbo.

…

Proposed Initiative Act No. 1, approved by nearly 57 percent of voters last week, bans people who are “cohabitating outside a valid marriage” from serving as foster parents or adopting children. While the measure bans both gay and straight members of cohabitating couples as foster or adoptive parents… there are 3,700 other children across Arkansas in state custody; 1,000 of them are available for adoption. The overwhelming majority of these children have been abused, neglected or abandoned by their heterosexual parents.

…

Most ominous, once “pro-family” groups start arguing that gay couples are unfit to raise children we might adopt, how long before they argue that we’re unfit to raise those we’ve already adopted? If lesbian couples are unfit to care for foster children, are they fit to care for their own biological children?”

It’s a very short editorial (I think I quoted about half of it right there) and I recommend it to those interested in the subject.

I find myself very sympathetic to Mr. Savage’s views and his own sympathies, as well as the concerns of children growing up in the system for the want of adoptive parents,  but I do want to focus on one commend — and one point — in this debate that I feel is neglected in this editorial and in the debate in general.

That there are churches and motivated individuals willing to volunteer their time and money to defeat the prospects of homosexual couples marrying, adopting, or even existing (to be perfectly frank) shows clearly the animus held by a large number of Americans against homosexuals.  This, I believe, is impossible to ignore.

As much as we believe that children are innocent of prejudice, free from the biases of their parents, they are not.  They may not hold the views with the same intensity or cognitive consistency, but anti-gay views are not merely held by adults: they tend to diffuse to their children.

… “once “pro-family” groups start arguing that gay couples are unfit to raise children we might adopt, how long before they argue that we’re unfit to raise those we’ve already adopted?”

I don’t believe a gay couple is any less capable than a straight couple of raising a child, and I certainly feel that a gay couple would build a far better home for a child than the state, but I believe our society is unfit to raise a gay family.

As much as the world has changed for the better in its acceptance of gay couples and gay families, it is far from the point of painless acceptance.  Living in Toronto, one of the most gay-friendly cities in the world (“Canada’s hottest gay city”), I see that there still exists a fair bit of quiet homophobia.  From what I remember as a kid in Toronto only twenty years ago, I fear the daily tortures that might find a target in the child of a same-sex couple.  Memories of seeing the fat kid relentlessly made fun of, the kid with the weird clothes, or the kid slowest to pick up the newest lesson, I wonder what might await the kid with two mommies or two daddies, should his or her family circumstance come to light?

Eventually, it seems gay and lesbian couples will be accepted exactly as heterosexual couples.  I can think of many groups of people that do so today, and their numbers probably count in the millions just in Canada alone.  And that day cannot come fast enough.  But children should not be the vanguard of that movement to shift social opinion.  If adults wish to change social opinion of homosexuals, more power to them.  But I fear adoption puts a child into the situation of being a target for a maligned group.  As unfair as the world is to homosexuals, I do not think I can support the idea of children inheriting the abuse their parents already find themselves the recipients of.

In time, I’m sure this will no longer be an issue.  But as of right now, more power to gay couples, and more power to gay individuals as well.  But I cannot say I want that power to extend into adoption.

[I understand many will disagree with me on this point and I welcome and appreciate the correction or the debate]

… and the cow goes moo

Detroit: Synchronized Bankruptcy the Solution?

Daniel Kahneman of Princeton and Andrew M. Rosenfield of the University of Chicago Law School penned an Op-Ed a few days ago for the New York Times proposing a novel solution for the automaker bankruptcy/bailout crisis.  Their proposal lies somewhere in between bail and bankrupt, I suppose.

“We believe that there is a better way: simultaneous bankruptcy filing by all three companies would substantially reduce both the uncertainty and the stigma for each one.”

It is a short editorial, so should anyone be interested in the proposal, I recommend reading it in it’s entirety.  But the quotation above I believe accurately summarizes their proposal and its primary benefit.

It is shocking to me how the tide of public (as voiced in editorials) opinion has shifted away from a typical bailout and towards a bankruptcy filing.  I certainly understand that the Big Three need more than just a little help to get through a tough time: their business has to change from the blue-collar union members’ compensation levels, to their suddenly ineffectual lobbying team, their either uncompetitive or stifled research and engineering teams (their designs seem fine), and of course, their clueless and politically-disabled management.

In Kahneman and Rosenfield’s proposal, they acknowledge the dearth of debtor-in-possession financing if any one (let alone all three) automakers were to file for chapter 11, and propose that the government step in with the funds to insure continued operations and, I would assume, an orderly liquidation to repay the loan.  If the government is going to step in with a loan where the market would not, why not avoid the stigma of bankruptcy entirely and just provide the loan prior to a bankruptcy filing?

A bankruptcy might allow for more leverage to renegotiate contracts or shirk obligations, but any shortage in pension or medical benefits will fall in the government’s lap anyways, so there’s no benefit if you consider the automakers and the government to be on the same side.

A bailout could include conditions that protect these obligations to an extent as well as force management changes, executive compensation restrictions, and elbow Detroit into building cars that everyone-but-Detroit-executives recognize as being popular in the future.

Considering the changes that need to be made, why not retain government involvement and avoid bankruptcy’s stigma entirely by keeping the government in control of the financing?

Either way, whatever money is lent to the Big Three, whether as a bailout or as debtor-in-possession financing, is gone.  But at least the Big Three might survive in a more substantial and useful form should the government be able to keep the incompetent automotive executives in check.

(for firsthand accounts of GM’s executive and managerial incompetence, please see this insider’s account by Bob Sutton — found a few day’s ago in the daily links at Naked Capitalism — that highlights the top-down structure of GM and its ability to stifle dissenting thought)

… and the cow goes moo

One Month’s Reprieve? $250 billion, says Citi

Remember when Paulson was throwing money at banks that didn’t want it just to cover-up the giveaway to a bank that really, really, really needed it but was too embarrassed to say so?  (Heaven forbid we have a banker beg for cash like a lowly industrial CEO).  Considering how much help / free money Citigroup and other banks have received so far, and the trouble they are clearly still in, is there any wonder why they’re not lending?

I commented on the capital injection program in the past, pointing out that Wells Fargo was provided a capital injection commensurate with a much larger institution (link to NYT chart) (equal to that received by Citigroup, Bank of America/Merrill Lynch, and JP Morgan Chase/Bear Stearns).  I took that as a sign that Wells Fargo Financial was the bank either most in need of the capital (and too embarrassed to ask for it) or perhaps they were given an outsized injection to sweeten their acquisition of Wachovia (which was all the news at the time).

Well, oops.  I still think Wells Fargo is fudging their books, and I made a sweet 387.5% profit having made bets along those lines (thank you for the new motorcycle, Wells Fargo!), but I guess it’s clear now that Citigroup was the biggest bleeder of the bunch.

How close to failure was Citigroup in October that receiving $25 billion didn’t keep death from their door for more than five weeks???

But don’t worry, the ever-competent US government is poised to step in and rescue Citigroup!  Another $25 billion (cleverly hidden in another $250 billion injection to all the major banks so as not to tarnish Citi’s pristine reputation) and Citi might make it to Christmas!  Notice the conspicuous absence of a Fed or Treasury official grilling Vikram Pandit over his willingness to sell the phone he is calling them on in exchange for a bailout.

Ho ho ho!

… and the cow goes moo

The Lieberman Absolution: What, you were surprised?

I’ve been meaning to comment on this subject for a while, but it seemed like I was always reading articles and posts about it on my Windows Mobile phone at the gym.  It was never convenient for me to pen a response.

My most recent impetus to comment on the subject comes from Bob Morris at Polizeros, who seems to share my opinion of Barack Obama and said this in response to the furor over Obama’s support of Lieberman (for more on the subject, see the second half of this New York Times article. For a delicious appetizer, the first half of the article reports on Ted Stevens’ loss of his Senate seat):

“Many in the liberal blogosphere seem appalled that Obama might not be a liberal. Well, he never said he was. Like I said here many times before the election, Obama is a pragmatic, centrist moderate. So don’t be surprised when he acts like one.”

EXACTLY!

And beyond that, he has made bipartisanship the center of his campaign beyond any of the topics that likely won most of his support among Democrats (such as green power and the environment, getting out of Iraq, universal or expanded health care, or reversing Bush’s tax cuts).

To ostracize Lieberman, a man he campaigned for in the 2006 Connecticut Democratic primary, simply because Lieberman has not been the good soldier of the Democratic party and has refused to return the favour by supporting Obama in his presidential run, could only be interpreted as partisan at the highest order.

Did Joe Lieberman become a different man in between running against Ned Lamont and McCain and Obama’s contest for the Presidency?

I have not heard any arguments from those who support the stripping of Lieberman’s chairmanship of the Senate Commitee on Homeland Security and Governmental Affairs or expulsion entirely from the Democratic caucus that list crimes other than betrayal to the party and Barack Obama and, of course, vociferously supporting the President on the War in Iraq.

The issue of ‘betrayal’ is partisan beyond argument.  Though I agree with Lieberman on very little — and like him even less — I am glad to see members break rank and make stands for what they believe in.  I’m certain many Democrats feel the same about Republicans who have chosen to break ranks with the President in the past few years, whether due to political expediency or genuine belief.

If Joseph Lieberman’s instrumentality and continued support of the Iraq War is grounds for expulsion, I wonder why there exists such silence over Hillary Clinton’s initial support for the Iraq War now that she seems to be a likely candidate for Secretary of State?  As important as Lieberman’s committee chairmanship may be, I doubt it could far exceed that of Obama’s Secretary of State.  Granted there are major differences between Hillary Clinton and Joseph Lieberman on the subject of Iraq, should there not be a mild reaction to the idea that a Senator who so easily succumbed to President Bush’s annexation of Congressional authority to declare war being made our nation’s top diplomat? (I wonder how many of those against Lieberman, or who support Clinton, wish Colin Powell played more of an oppositional role against President Bush during the run-up to the Iraq War?)

Show me some consistency.  Either poop on Hillary’s candidacy for Secretary of State (which is a fantastic political move by Barack Obama to offer her up for the 2016 Presidency, as opposed to the 2012 Presidency) or admit that the expulsion of Joseph Lieberman is purely partisan (and that you would willingly see Barack Obama abandon his exulted speech on bipartisanship to castigate a naughty Senator).  Or prove my thinking wrong entirely.

ADD:

Oops.  Man, I’m slow.  Hillary Clinton has already accepted the Secretary of State position, according to the New York Times, via MarketWatch, via Naked Capitalism.

… and the cow goes moo