One year ago today, the market’s harrowing 17-month slide hit bottom. Since then, the market has rebounded nicely, with major indexes gaining more than 60%. Some say, the stocks are still poised for another strong year, even after their spectacular run since March 9, 2009.
Rebound since March 9, 2009 (12 month chart):
The Standard & Poor’s 500 is up 68.3 percent in the past 12 months, while the Dow is up 61.2 percent and the Nasdaq has soared 83.8 percent. It has been a bull rally of historic proportions … but in this case, the bull is in the eye of the beholder.
The major averages are still off a full 25 percent from their all-time highs of October 2007 and it would probably be unwise to expect another 2009-size rally to restore the portfolios to their former values.
So, still a long way to go to reach October 2007 levels (36 month chart):
One does not have to be a financial genius to pose this question and formulate a response. The common sense provides the answer and conclusion. Enough said, enough has been written already … let’s just scan the press.
In the latest news, a full week after European Commission have acted, the US Federal Government finally lifts a finger … will it be God’s punishing finger? Time will tell but I have my doubts.
In just the year before the A.I.G. bailout, Goldman collected more than $7 billion from A.I.G. And Goldman received billions more after the rescue. Though other banks also benefited, Goldman received more taxpayer money, $12.9 billion, than any other firm.
In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Société Générale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.
Goldman stood to gain from the housing markets implosion because in late 2006, the firm had begun to make huge trades that would pay off if the mortgage market soured. The further mortgage securities prices fell, the greater were Goldmans profits.
Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.
As worries over Greece rattle world markets, records and interviews show that with Wall Streets help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.
Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November three months before Athens became the epicenter of global financial anxiety a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.
The bankers, led by Goldmans president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greeces health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.
At 9:30pm on Sunday, September 21, 2008, Goldman Sachs was saved from imminent collapse by the announcement that the Federal Reserve would allow it to become a bank holding company implying unfettered access to borrowing from the Fed and other forms of implicit government support, all of which subsequently proved most beneficial. Officials allowed Goldman to make such an unprecedented conversion in the name of global financial stability. (The blow-by-blow account is in Andrew Ross Sorkins Too Big To Fail; this is confirmed in all substantial detail by Hank Paulsons memoir.)
We now learn from Der Spiegel last week and todays NYT that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad see the subprime mortgage crisis for further detail.
A single rogue trader can bring down a bank remember the case of Barings. But a single rogue bank can bring down the worlds financial system.
Goldman will dismiss this as business as usual and, to be sure, a few phone calls around Washington will help ensure that Goldmans primary supervisor now the Fed looks the other way.
But the affair is now out of Ben Bernankes hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.What happened to the global economy and what we can do about it
The European Commission should thoroughly investigate the case of debt swaps involving Greece and Goldman Sachs, as these types of operations are destabilizing financial markets, Simon Johnson, Professor of Entrepreneurship at MIT Sloan School of Management, told CNBC.com.
Goldman Sachs was widely reported to have arranged a debt currency swap transaction for Greece at the beginning of the past decade, providing it with money up front in exchange for higher payments later.
The reports sparked the European Union’s wrath and the group requested Greece to explain the debt swaps arrangements by Feb. 19.
“That’s clearly a huge affront to the EU,” Johnson, who propposed 10 questions for the EU investigation on his web site Baselinescenario.com, told CNBC.com.
“It’s more than an insult, it’s fundamentally destabilizing,” he said, adding that the debt swaps were “undermining what the EU, Maastricht want to achieve.”
Goldman Sachs officials declined to comment.
Under the Maastricht rules, EU member states’ budget deficits must not exceed 3 percent of gross domestic product (GDP), while public debt must remain under 60 percent. Press reports suggested that the swap arranged by Goldman allowed Greece to push its debt problems into the future.
The Federal Reserve will look into a report that several Wall Street firms, including Goldman Sachs, have been betting on a default by Greece on its sovereign debt, Fed Chairman Ben Bernanke told the Senate Banking Committee on Thursday.
“We are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece,” Bernanke said in response to a question for Senate banking Committee Chairman Chris Dodd.
Bernanke said the Securities and Exchange Commission was also “interested” in the issue.
“Obviously, using these instruments in a way that potentially destabilizes a company or a country is counterproductive,” Bernanke said. “We’ll certainly be evaluating what we learn from the activities of the holding companies that we supervise here in the U.S.”
Bernanke was reacting to a report in the New York Times that Goldman Sachs and other Wall Street firms were buying credit-default swaps in which they would profit if Greece reneged on its debt.
It was these same kind of trades that nearly toppled the American International Group, the Times said, and is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.
Above: Akio Toyoda, the president and CEO of Toyota, and Yoshimi Inaba, President and COO of Toyota Motor North America, answer questions from members of the House Oversight and Government Reform committee on the recall of 8 million vehicles worldwide.
This was not only a Congressional event, it was an international event, and a clash of cultures. To be blunt, a culture clashed with a lack of it. Although some congress people on the panel were prepared, asked the meaningful questions, and listen to the answers, most of them were just morons full of themselves … not prepared, not current on facts, bringing up dumb and/or outdated examples … posturing obtuse politicians not able to ask purposeful questions, nor to speak clearly in proper English. What a poor display of “parliamentary” manners. The clown in red jacket (Eleanor Holmes Norton?) got lost in her own stupid example and arguments. Despite Toyota North America COO attempts to nudge her back into her own logic, she failed miserably to understand her own drift and became belligerent instead. What a circus … and embarrassment … and shame.
These are the people who represent us and this nation? God save America …
You know all this crap makes me want to buy a Toyota now… at least the CEO has the balls to come up to a panel (without knowing English I should add) testify with a straight face, be in the hot seat and claim responsibility like an honest man, not like CEO who is dishonest and cost us billions of bailout money.
Watching this has gotten my ire up again. Congress is full of time wasters and time abusers. They’re talking more than the Toyota brass. Apparently they have the answers, why did they bother having anyone from Toyota there?? These folks in congress live in a fantasy world, not the real world in which the majority of us dwell. It’s a serious issue, but they are not treating it that way. They are using it as a forum to criticize and belittle some corporate execs.
This was just flashed in a business news channel. Almost all the committee members (12 of them) who are questioning the Toyota CEO accepted money from UAW. So now the question is will be a fair investigation? Toyota is in deep trouble. People’s lives have been lost. And Rahm Emanuel said – ‘Never let a crisis go to waste’. Will they get the answers for this crisis or they’ll want to benefit their election donors; i.e UAW? Either way politicians don’t really care.
Corporate leaders in Japan are affable cheerleaders who solicit everyone’s views and avoid confrontation at almost any cost. It’s called “nemawashi.” U.S. lawmakers are cut-throat partisans who clamor for the spotlight, especially in an election year. It’s called politics.
These cultures collided Wednesday in the appearance of a polite man from a distant land before a congressional committee stocked with angry men and women with axes to grind.
Toyota President Akio Toyoda’s moment was one brought to us by globalization, the integration of economies and societies through a worldwide network of trade and communications. Toyoda’s appearance illustrated two stark realities: Nations are more knitted together than ever, and still oh-so far apart.
After long anticipation and years of rumors, Apple finally unleashed its latest creation, the iPad, yeasterday morning in San Francisco. This oversizeg iPhone on steroids is smaller than Skiff but it offers a color screen and a lot of applications, including all of the iPhone apps. The iPad is available in Wi-Fi and Wi-Fi + 3G versions.
Apple touts the iPad as a third category of device, positioned between a smartphone and a laptop. During Wednesdays presentation, Jobs drew a pointed contrast between the iPad and netbookslower-cost PCs that have sold well in the mobile market. But Jobs characterized netbooks as slow, burdened with low-quality displays and running PC programs. Theyre not better than a laptop at anything, Jobs said. Theyre just cheaper.
Apple thinks the iPad fills the gap between phones and laptops by making it easier to browse through e-mail, photos, music, and videos. Apple also used demos Wednesday to showcase the iPads ability to display e-books and play games. Jobs spent parts of Wednesdays demo seated in an armchair to show off the ease of using the tablets on screen controls.
… Skiff … nice! A new e-reader device and service. This one has a large 11.5 inches display (measured diagonally) optimized for newspaper format, and can connect to content feeds via 3G and WiFi. More detail, pictures, and specs on Skiff (aka FirstPaper) website.
The end of what started as another jinxed year that turned out to be not too bad year … if you do not ask too many questions, nor think too deep. Here is to the new year 2010, the last year of this strange decade.
(CNN) — It was 1969 and a busy year for making history: Woodstock, the Miracle Mets, men on the moon — and something less celebrated but arguably more significant, the birth of the Internet.
On October 29 of that year, for perhaps the first time, a message was sent over the network that would eventually become the Web. Leonard Kleinrock, a professor of computer science at the University of California-Los Angeles, connected the school’s host computer to one at Stanford Research Institute, a former arm of Stanford University.
Forty years ago today, the Internet may have uttered its first word.
(Reuters) — Thousands of individuals claiming the first-time homebuyer’s $8,000 tax credit may have been attempting to scam the system, including purported four-year-olds and illegal immigrants, according to a watchdog report released on Thursday (by IG, inspector general Russell George).
It further faults the IRS for failing to take its advice that a third party be required to document an individual claiming the credit actually purchased a home.
The IRS refuted some of the findings of the IG, and argued for example that some findings are premature because some taxpayers may eventually purchase a home.
Under the law, the credit should be claimed after purchase.
The performance of some at UN General Assembly 2009 was summed up well by Michael Saul, NY Daily News reporter: Exit the two madmen, send in the clown. Here is my impression after watching their performances at the UN … three stooges.
WASHINGTON (CNNMoney.com) — In his first speech since he was reappointed, Federal Reserve Chairman Ben Bernanke said the recession is “very likely over” but detailed the tough road ahead for the economy. More …
The vendor, who messed up a job a bit and run significant cost overrun, said this when it was suggested that some of his overhead expenditure should be covered by a 10% markup fee charged to the project:
The 10% markup is part of our profit and has nothing to do with anything else.
Looks like the basic Profit and Loss (P&L) concept has been lost in the twists and turns of this business’ operations. The reply to this nonsense was:
The profit is not a right nor guaranteed under the rules of free market. Profit is a difference between revenue and expenses, and directly related to efficient operations and quality product/service/outcome. The problems with quality and workmanship take from the margin and bite at the profit.
Hey, don’t forget, P is for profit and L is for loser loss!
When you invest with help of financial adviser or investment portfolio manager you hear it … “stay invested”. You heard it in fall of 2007, in summer of 2008, and in the beginning of 2009. You heard it often. Every time the market took a dive, you heard it, and then the market took another dive.
No matter what the economic outlook was, you heard it. You heard it over and over in person, and on all the network and cable TV channels. There were other opinions too, but the “experts” who consistently and mindlessly touted the “stay invested” mantra were, almost without exception, the financial advisers and investment portfolio managers.
Why this group of “experts” was so consistent and so wrong? Simple, they had their, not your, interest at heart. Their compensation is directly linked to the size of your investment they manage. Their compensation does not depend on the results they achieve managing your investment. Conflict of interest … plain and simple. Their “stay invested” slogan is a smoke screen used to obscure the obvious, and to discourage you from looking at other options.
If you were not convinced by their first “stay invested” rule, then they probably used the second one … “if you have a stomach for the ups and downs that come with risk, you’ll be rewarded”. They tried to shame you and make you feel like a wimp. Well, heck … the risk is not about your stomach. It’s about making or missing an important goal. Whose goal? Yours … not theirs … the conflict of interest again. If you would hedge the risk and scaled down your investment portfolio or went to cash, their compensation would be affected negatively.
Therefore, the financial advisers and investment portfolio managers not only do not want you to hedge the risk, they do not hedge the risk themselves while managing your investment. They march boldly to face the risk, and they use your money to hedge their losses.
I think so … my gut feeling tells me that we are close.
I really hope so … enough already … if not now then soon, really soon. Done with the gloominess … be optimistic everybody … be positive if not bullish. Let’s start the steady recovery now!
We are in the shallow waters in stormy weather still, technically speaking. There are still dangers on the horizon: US banking and auto industry, residential and commercial real estate, big US recovery stimulus/spending plan, are still in flux, as are the Japanese and EU economies, and specifically Easter European and Russian situation. There is still Geithner factor … MIA as of now. This might be the worst risk we are still facing, but I think the freefall is over … now, how long are we going to move sideways before bouncing up?
Welcome to the 21st Century Great Global Depression … as it develops and moves at the speed of computers and automated trading systems we are using today, it’s not going to take decades for it to be over. In any case, not soon enough for many of us … too bad … unless, China anyone?
Credit-rating agencies … paid for the rating of customer securities invented by the same paying customers … conflict of interest perhaps. What a joke! Time to deal with this “financial oxymoron” for real this time. The US administration has tried in recent months already, and zip … nada … nothing real has happened since. It’s about time to get real!
The world needs a “global New Deal” to haul it out of the economic crisis it faces, Prime Minister Gordon Brown of the United Kingdom said Sunday.
“We need a global New Deal — a grand bargain between the countries and continents of this world — so that the world economy can not only recover but… so the banking system can be based on… best principles,” he said, referring to the 1930s American plan to fight the Great Depression.
French President Nicolas Sarkozy said the world’s response to the global financial meltdown had to be profound and long-lasting, not just tinkering around the edges.
“Europe wants to see an overhaul of the system. We all agree on that. We’re not talking about superficial measures now or transitional measures — we’re talking about structural measure, which need to be taken,” he said.
German Chancellor Angela Merkel, the host of the meeting, urged nations of the world to work together to fight the problem.
“Confidence can only be restored if people in our countries feel that we are pulling in the same direction and have understood that we really must learn lessons from this crisis,” she said.
And she proposed that a new institution grow out of the crisis, “which will take on more responsibility for global [financial] mechanisms.”
The Europeans say they have agreed international financial markets must be regulated more thoroughly. That also means stricter rules for hedge funds and credit-rating agencies.
For those who want to head out, CNN got advice on the best pre-warming travel destinations from Bob Henson, author of “The Rough Guide to Climate Change” and a writer at the University Corporation for Atmospheric Research in Boulder, Colorado. Here are Henson’s top five choices:
… that my posts are dominated by economic topics. Perhaps justified by the fact that the current state of economy is the biggest story in generations, and affecting generations to come. More from the wire … just in … so disappointing:
The early verdict on the Geithner plan: Too little, too little.
Markets are down, having had an adverse reaction to Treasury Secretary Tim Geithner’s presentation detailing the Obama Administration’s plan to pull the financial system out of its current morass, which many say is still too light on specifics. Certain facets of the plan resemble those that were entertained in the previous administration — with the exception of a stress-testing mechanism to determine which financial firms need assistance.
“Not doing anything is the worst option,” Dan Cook, senior market analyst at IG Markets. “Until there’s a firm plan in place it still seems like a lot of talk.”
I can’t resist the observation that many financial advisers and professional investors, not to mention financial bureaucrats and politicians in charge of US economy, were self-assuring and content with their inaction as they were watching the economical gauges and technical indicators getting off the scale. Meantime, the wheels of US economy were loosing the air under their butts. Eventually, the wheels come off in the fall of 2008. It’s hard to comprehend that the potential for current situation was not evident some 6, 12, or even 18 months earlier to the “professionals” who should know better, who are paid to know better.
Was it ignorance, arrogance, greed, or all of it mixed together into self-assuring and self-destructive herd mentality? The big picture, long term trends, economic facts and economic context, global perspective and national interests were totally lost and overshadowed by short term thinking, institutional arrogance, and collective greed.
Some food for thought for the future as global forces are rendering the US and US focused investment somehow irrelevant and risky, especially in the long term. Perhaps it’s time to look forward beyond the next quarter and current year, and beyond the horizon … beyond the continent … to identify future opportunities and beacons of prosperity.
Note to self:
Don’t trust the professionals, the consultants, the advisers, anybody, with your money.
As you might recall, Bank of America bought ailing Merrill Lynch in the fall of 2008. The “consultants” advising Bank of America on the wisdom of the deal from the shareholders perspective, Fox-Pitt Kelton and J.C. Flowers & Co., took a small fee … of $20,000,000 … for that professional (dis)service.
$20 million bucks for how many hours of work do you think that represented? Lets be generous and say 1000, spread out over a lot of people. That means the firms were being paid $20,000 per hour for their work. Thats fine. Everybody has their price, and that was theirs. But dont you think somebody should get a rebate? Do consultants ever give those? Perhaps not. Anyway, why should they? They did what was required of them, after all, what is always required of such folks.
The Rockefeller Center Christmas tree went “greener” with energy-saving lights replacing old-fashioned bulbs last year. The 84-foot-tall Norway spruce, New York City GREEN Christmas Tree, was covered with 30,000 multicolored light-emitting diodes, or LEDs, strung on five miles of wire.