Comment on the Treasury Bust

Treasuries have been getting crushed this week. They can't afford to have rates keep rising this much.

The fed could stampede investors out of stocks and back into treasuries.

That's probably what I would do in their hopeless situation.

Getting people out of stocks would be as simple as being honest about the economy, or no longer using the credit of the US to prop up insolvent companies.

That would be doubly effective because the bailouts are one of the things that make treasuries so unattractive.

Capital One Accounting Gimmick

Capital One Financial Corp, an issuer of MasterCard and Visa credit cards, said on Friday U.S. credit card defaults fell in April, beating analyst expectations, as the company changed its customer bankruptcy accounting.

[...] In a regulatory filing, the company said the annualized net charge-off rate for U.S. credit cards -- debts the company believes it will never collect -- fell to 8.56 percent in April from 9.33 percent in March. Under the accounting change, Capital One is waiting longer to declare the debts of bankrupt customers uncollectible.

An Empire with No Economic Basis

As America’s foreign policy becomes increasingly defined by our hubris and paranoia — seeing a world filled with nothing but client states, rivals, and enemies — we construct something almost unique in history: an Empire with no economic basis. Costing much, built with borrowed money, and providing no economic benefit to America (although enriching powerful special interests). A monument to folly.

The Case for Working With Your Hands

NYT

Contrast the experience of being a middle manager. This is a stock figure of ridicule, but the sociologist Robert Jackall spent years inhabiting the world of corporate managers, conducting interviews, and he poignantly describes the “moral maze” they feel trapped in. Like the mechanic, the manager faces the possibility of disaster at any time. But in his case these disasters feel arbitrary; they are typically a result of corporate restructurings, not of physics. A manager has to make many decisions for which he is accountable. Unlike an entrepreneur with his own business, however, his decisions can be reversed at any time by someone higher up the food chain (and there is always someone higher up the food chain). It’s important for your career that these reversals not look like defeats, and more generally you have to spend a lot of time managing what others think of you.

Rail Traffic Data Belies Recovery

It's Thursday and the railfax report is out.

You'll notice that the first derivative of rail traffic (YoY change; the Y-axis) has gotten worse and the second derivative (slope of YoY change) has gotten worse as well.

Shorts have been squeezed out of the market.

Further: State Taxes Take a Nose Dive

California Treasurer Bill Lockyer asked U.S. Treasury Secretary Timothy Geithner on Wednesday to authorize assistance for his state from the federal Troubled Asset Relief Program, warning that depressed tax revenues may cut into basic services and halt the building of infrastructure.

Japan Opposition Party Would Dump Ts

Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.

California Sales Tax Receipts and Other Indicators Turn Lower

Did anyone see the California Statement of General Fund Cash Receipts and Disbursements, just released?: Sales taxes were $452 million lower (-50.9%) than last April, and personal income taxes were down $5.7 billion (-43.6%).

California Retail Sales Tax Receipts YoY
Apr-09 -50.90%
Mar-09 -19.20%
Feb-09 -10.60%
Jan-09 -40.70%
Dec-08 1.60%
Nov-08 -17.30%
Oct-08 -4.90%
Sep-08 3.50%
Aug-08 -9.10%
Jul-08 -0.70%
Jun-08 0.90%
May-08 -16.50%

Everything I am seeing shows that there was a slight bounce in February/March 2009 and the fall has now RESUMED.
See: http://www.creditbubblestocks.com/2009/05/falling-demand-for-diesel-fuel...
And: http://ftalphaville.ft.com/blog/2009/05/07/55615/inventory-correction-ha...

Falling Demand for Diesel Fuel

I'm no expert on energy stuff, but this chart about diesel fuel demand seems really bearish:

(Source)

It would seem to match what I've been observing about rail traffic:

There was a blip up in March but it quickly turned back down.

Someone Broke the Market

My understanding is that current/old GM equity, which has a $1B mcap, is going to - optimistically - inherit 1% of the new GM equity.

That would value new GM equity at $100B. I'm not sure how much debt new GM will have but let's be generous and say none and the new GM will have an enterprise value of $100B.

GM reported negative gross profit in 2008. It's average annual gross profit the past three years is $17B. So the EV/trailing-bubble-gross-profit is 5.9x.

GM reported negative operating earnings the past two years. The cumulative operating earnings over the past three years are also negative. If we just take the operating earnings from 2006, $9B, the market is valuing new GM at 11x.

What is the deal? These multiples are ludicrous. Do people think the old equity is going to wind up with a much bigger chunk of the company than 1%? Is the market broken because you can't borrow GM and the holders are too stupid to sell?

More on Warren and WFC

Commenter:
If he increases BRK stake in WFC, he would be required to convert BRK into a bank holding company. Apparently that is not feasible.

My response:
The bullish theory on banks is that garbage loans aren't as bad as people say.

So Warren, why don't you buy a $10B block of WFC home equity loans that have been unjustly maligned and are dragging down this poor little bank.

There are preferreds that he could own that pay close to 10%.

Also if Warren really wanted to invest, wouldn't that have been easier than giving them TARP money?

NY Times Celebrates the Destruction of the Middle Class

Everything is fine according to the NY Times, since there are still burgers for sacked workers to flip.

Zachary Schaefer has hired 72 people since February for the Culver’s hamburger and frozen custard restaurant that he and several partners just opened in Surprise, Ariz.

“The amount of applicants who are qualified is definitely up,” compared with previous hiring efforts, he said. “Whereas before we were counting on a lot of high school applicants, now there are a lot more middle-age people applying.”

Eddie Hamm, a former construction worker, was unemployed for five months when he drove by the site where the Culver’s was under construction. Mr. Hamm, 29, applied for a job there, and now he’s a “fry guy.”

“I’m just happy I got hired — I didn’t want to stay home, not doing anything,” he said, hardly complaining that he is earning half the $15 an hour he made in construction. “I don’t look at it like I’m making $7.50. I look at it — I’m having a job in a down time, and it’s a job where I can move up.”

If Wells Fargo was So Great

Wouldn't Warren (BRK/A) be buying it and not telling us about it?