Financial Advice

Right-Wing con-artist Grover Norquist

Sometimes I mention something I got from "my financial advisor." If he sounds like a conflicted mess, it's because "he's" half a dozen different people from 4 different institutions. Yesterday, the sanest one, who left her career as the finance director for a big Wall Street firm in 1997 to start her own boutique firm (which is not attached to any banksters) sent me a note responding to a post we ran Thursday about the reaction in England to the Conservative Consensus/Austerity movement there. She had just been watching Ron Paul on TV when she read it. Paul, a darling of the paranoid and deranged militia types, was saying how he felt violence was an imminent threat here in America. My financial advisor wrote:

I do find it amazing how no one has rallied the populace regarding the fact that no one has gone to jail for anything to do with the prior collapse let alone this one. They get people who have no chance of ever having to worry about the estate tax to fight against it. That’s why we particularly need you to keep pushing for progressives.

 

The 24 hour media cycle is being exploited to scare the %^& out of people. People’s perceptions are that things are as bad now as they were in 2008. I’m not saying this is a barn burner, but things are more stable. Hopefully the crazy right won’t take over everything.

 

Investment wise, this is an interesting time as the macro issues are the bear cause. The corporations themselves are earning and flush with cash. Even if we do double dip (which I don’t think is going to happen), corporate earnings should hang on due to global pull. 

 

We’ve had twelve years of this!

Another one of my advisors-- who I've worked with for decades, is Lisa Detanna at Wedbush, a mid-sized firm based in L.A. that seems to keep a healthy distance from Wall Street groupthink. She's been all over TV lately and this was her on CNBC this week:







She and I have steered my investments in a much more conservative direction ever since Bush started playing fast and loose with the economy. Obama being elected president didn't make me any less cautious; his policies are basically an extension of Bush's in (too) many ways.



Lisa-- and most people I've spoken to in the financial services industry-- seem to think that when push comes to shove the Republicans will do the right thing and compromise. I think they don't watch the day to day escapades, don't understand the hold of the teabaggers over Boehner and don't know who or what Grover Norquist is. Lisa says the "S & P downgrade is forcing government to react and not be so political." Lisa and others in her industry know more about investments than about politics. I'm nervous that the Republican intransigence the S&P blamed for their downgrade will tank the economy. It's beyond the comprehension of most serious people that members of Congress could be nihilists who want to tank the economy and want to burn down the whole house so "we can start over again" (as in start in 1950 and stop the clock right there). People in that industry are just starting to come to grips with it. After Bachmann's insane rantings in the Iowa debate Thursday night S & P tried to make it clear enough for even someone as congenitally stupid and willfully ignorant as she is to understand. Greg Sargent:

A Standard & Poor’s director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default-- a position put forth by some Republicans.



Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that “people in the political arena were even talking about a potential default,” Mukherji said.



“That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns.”



Let’s try to wrap our heads around this. Bachmann’s opposition to raising the debt ceiling is one of the most important planks in her presidential platform. She has touted it in two ads, presenting it as a sign of her courage. She repeated it again last night at the debate, asserting that opposing the hike is “the right thing to do,” and even cited Standard and Poors’s downgrade as proof of her superior grasp of our fiscal dilemma.



Less than 24 hours later, S & P confirmed that it was precisely this opposition to raising the debt ceiling, and the cavalier attitude towards default exhibited by the likes of Bachmann, that led to our downgrade.



The question of what led S & P to downgrade our credit rating is a matter of verifiable fact. And S & P has now confirmed that one of the central rationales of her candidacy is a key reason for their downgrade. What will she say when confronted with this fact? How will she explain it away? Will anyone even ask her to try to explain it?



In a rational universe, this would be devastating to her candidacy. Of course, the world of GOP primary politics is anything but a rational universe.

Mukherji, by the way, was referring to Paul Ryan (R-WI). So here are some notes for an outline Lisa sent me of what she's going to be sending to her clients Monday:

Although we have reduced our expectations of GDP growth globally and in the US we

are not anticipating at this point a double dip recession to the magnitude of 2008 – 2009.



Interest rates are at historic lows



Corporate profits are high

75% of corporations have reported positive or 10% better than expected numbers

Companies are lean and have deleveraged ahead of people and governments and continue to exceed expectations



Stocks are trading at historic low level PE’s not only from price decline but growing earnings as well



Balance sheets of banks are better now then they were in 2008

Capital ratios are better then they were at US banks in 2008 2009 Interest rates per the fed will remain low for two years



Oil prices lower



Commodity prices taken pull back but expected to climb as economy stabilizes and EU and US finalize and agree and have plan-- global demand strong



EU needs to address

Bail out of banks

Bail out of weaker EU countries



US

Pass budget that reduces deficient spending

And then to close the week-- as the stock market closed above 11,000 again-- one overall bit of advice from still another financial advisor:

What a week!



I had to wait until the market closed today (Friday) as it isn’t over until it’s over these days. In the first four days of this week, the Dow Jones Industrial Average moved at least 400 points each day. That has never happened before. We had two big ups and two big downs. On a percentage basis, the index moved at least 3.9% in each of the four days, a phenomenon we saw just once in 2008 and once in 1987, and before that 1933. So no doubt our heads are spinning.



As I read in one commentary on recent events, the media doesn’t like it when planes land safely. So while this last week has been incredibly harrowing, I would like to provide a little perspective on where the markets stand. While this correction has been unusual in its swiftness as I mention above, we have been through gyrations before. Just last year as a matter of fact. Last May the S&P 500 dropped 8.2% followed by a 5.4% drop in June. That wiped out all the years gain. The market had Greece, the BP oil disaster, the flash crash and China slowing down to deal with then. The market is dealing with many of the same issues in this year’s downswing as well as the debt ceiling drama in Washington and the S&P credit downgrade and a current flood of rumors surrounding European banks.



But corporate profits and balance sheets were strong in 2010, the financial system was working and the economy was stabilized. So 2010 ended with the S&P up 12.8%. It was not smooth getting there however.



Though it probably doesn’t feel like it, the market is well ahead of where it was one year ago. Versus August 31, 2010 the S&P is up 12.4%. That is despite the 8.9% drop of this August. So most portfolios are still ahead of where they were one year ago.



There are an awful lot of variables at work in the market today. On a very practical note, this turmoil is occurring when many people in the US and even more in Europe are on vacation. The lack of a full complement of market players can exacerbate volatility and allow program computer trading to impact short term results.



Despite the headlines, there is truly a good bit of debate out there about the state of the US economy. Japan (the third largest economy in the world) was largely offline after the tsunami. This created huge supply chain disruptions in the US which led to layoffs and shutdowns. As things return to normal, there may be upside in the coming quarters. Also the consumer sentiment numbers get a lot of play. Personally, I can’t imagine consumers being confident after the display of ineptitude from our esteemed politicians. What doesn’t get reported often is that US consumers report one thing but often do another. Consumer spending as evidenced by retail sales continues to surprise on the upside.



Another paradox, despite the US downgrade, someone out there still thinks the US is the safest place to invest as evidenced by the flight to US Treasuries during the height of the panic. The 10 years note was paying 2.09%, an incredibly low rate absolutely and relative even to the other countries still triple A.

In case you didn't know it, the revolution has already happened, and we lost

House Speaker John Boehner said the White House "moved the goal posts" by demanding an additional $400 billion in revenue during talks over a deal to avoid default. He said he was confident the U.S. will not default but said the White House has "refused to get serious" about spending cuts.

"Dealing with the White House is like dealing with a bowl of Jell-O," Boehner said.

-- a 7:30pm ET Washington Post "Politics News Alert"

by Ken

Compared with thinking about the horror in Norway (about which there doesn't seem to be any news coming in), it's almost a relief to turn to the Theater of the Weird that is our Debt-Ceiling Crisis & Negotiations Inc.

I don't doubt that Sunny John has a point about negotiating with the Obamablob, but when did any right-wing bully ever have trouble getting him to meet them 80 or 90 percent of the way? Besides, when it comes to blobulousness, how can you not return the charge playground-style: "Takes one to know one."

I don't know how this Theater of the Weird tragicomedy is going to work out except that it's going to be really, really bad. In important ways the outcome is predetermined, except for filling in some of the blanks and some of the numbers. As a colleague has been pointing out, the war is over, and we've lost. The oligarchs are in charge, and not many decisions of federal consequence are going to be made which don't meet with their approval.

Call it a civil war, or a New American Revolution, or a putsch, it took place without most of us realizing it was happening, and the New Order was established by the time it was determined that the federal government's basic principle in addressing the economic meltdown was going to be the ensure that the financial elites were made whole.

So I had to chuckle when I saw a piece pumped out by the NYT's DealBook financial-news service, chronicling the woes of the interns to the oligarchs, which starts like so:

"Fewer Perks and More Work for Wall St.’s Summer Interns"
BY KEVIN ROOSE

Wall Street interns have gone from pampered to pummeled.

In better days, college-age interns at the nation’s largest investment banks, known as summer analysts, were treated like young royalty. But shrinking profits and a spate of recent bank layoffs have forced this year’s interns to shoulder full-time workloads.

“I worked 85 hours last week!” said one Goldman Sachs summer analyst, a college senior who spoke on the condition of anonymity because she was not allowed to speak to the media.

“The last two days, I’ve been here until 3 a.m.,” said a Deutsche Bank analyst, who also spoke on the condition of anonymity to protect his job. “My weekends are fun, but that’s about it.”

While hard work has been customary among young finance workers for years, after-hours benefits once made the long days more palatable. . . .

And at this point we're launched on tongue-hanging-out tales of erstwhile intern splendor. The point of the piece, I'm sure, is to spread the word that the banksters are tightening their belts in these troubled times.

Unexpected turbulence in the industry has hit this year’s interns, who say that fewer full-time employees has meant more work for them. UBS and Credit Suisse have both conducted layoffs this year, and Goldman Sachs and Morgan Stanley are cutting back as well.

“Managing directors are telling interns, ‘We’re going to need you to step up,’ ” said one bank recruiter, who spoke only anonymously because she was not authorized to speak to the media.

By all means read the piece. It's entertaining. But I don't believe for a moment it tells us that the banksters are wobbling. What it tells me is that, now that they're consolidating their hegemony, one of the spoils of victory is being able to remake decisions about who has to be paid what. As we've been noting, there appears to be no limit to the greed of our financial lords, and I'm assuming they're simply making new calculations about what they have to pay those summer interns.

Maybe in the past they had to share some of their loot with the fiscal farmhands. For sure now they don't have to. As so many other bulwarks of the old-fashioned middle class have discovered to their chagrin, they're part of the team, they're just hired hands and hangers-on. As regards those poor downtrodden interns, reporter Roose seems to have found no shortage of whiners, but no deniers or decliners.

[D]emand at top-flight colleges for the internships, which had tailed off slightly during the financial crisis, has come roaring back.

“It’s the best way to land a permanent position, it’s prestigious, and there’s a steep learning curve, so you come away having been quickly trained and assigned meaningful work,” said Patricia Rose, director of career services at the University of Pennsylvania.

For their long hours, Wall Street interns are rewarded handsomely. Summer analysts are generally paid based on the prorated salary of a first-year analyst. At Goldman Sachs, for example, a first-year analyst’s salary of $70,000 translates to a summer intern’s pay of about $15,000 for 10 weeks of work, which includes a $2,000 housing stipend, according to one current intern. Interns at the Manhattan offices of BlackRock, the asset management firm, are paid a prorated salary that comes out to around $33 an hour, with time and a half for overtime exceeding 40 hours a week, according to a company spokeswoman.

But for most interns, the real prize is an end-of-summer job offer. Investment banks stock their full-time ranks with former interns, and the pressure to create loyalty during a 10-week summer is palpable. . . .

or interns who survive the summer, the payoff can be big. Top performers are often given offers in the fall for full-time positions that begin the following summer, freeing them from the stress of a senior-year job search.

And even for interns who don’t plan on returning full time next summer, like the overworked Deutsche Bank summer analyst, a Wall Street internship may be good preparation for the trials of working life.

“If I can get through this, I can get through anything,” the intern said.

On the chance that those internships may prove bonanzas, the would be financial wolves and sharks seem happy to take whatever terms are offered, so the oligarchs are adjusting the terms they're offering. "More for themselves" would be the operative economic principle.

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