Wardrobe decisions for congressional testimony

Rocky lacks any substantive insights on today’s AIG grilling of Treasury Secretaries Geithner and Paulson by the House Oversight and Government Reform Committee. So he’ll instead focus on the important stuff.

Rocky notes that both Geithner and Paulson appeared to be wearing waterproof scuba diving watches.

Geithner’s watch came before the camera as he was pointing his index finger at the committee in a Clintonesque “I did not have sex with that woman, and even if I did, it was in the best interests of American Taxpayers” moment.

Paulson’s watch came before the camera when the Committee ran over Paulson’s self-imposed time limit, and he “graciously” agreed to stay for an extra eight minutes. The eight minutes ran to ten minutes, and Paulson objected. The Committee Chair graciously acknowledged Paulson for providing an extra two minutes.

If Paulson and Geithner had been Secretaries of the Navy, the waterproof watches would make more sense.

Perhaps Geithner chose a waterproof watch to protect against a waterfall of tears. In contrast, Paulson was probably enroute to a flyfishing date with Robert Rubin, Tiger Woods and Dan Rather at “The Perfect Cast,” a resort who’s list of celebrities is a who’s who of the morally challenged.

Infinity times zero = zero

Ally Bank sent Rocky a letter apologizing for failing to pay interest on Leap Day 2008. Rocky grew excited at his unexpected windfall, until he sadly realized that anything times zero is still zero. And bank interest rates are extremely close to zero!

Rocky was also surprised by the Leap Day interest because his trusty Monroe Bond Calculator (vintage 1986) always assumed 30/360 for interest calculations.

Perhaps the biggest riddle is why the calculation error affects accounts “that were opened or matured between March 1 and December 31, 2008″ — since Leap Day was February 29, 2008.

Ally Bank, the retail banking subsidiary of GMAC, last week received an additional $3 Billion in US Government bail-out funds….perhaps for leap day interest payments?

TARP & canned beverage consumption

Local charities in Moline, Illinois (population 43,000) want every man, woman and child to quickly drink 93 cans of soda.

After Rep. Barney Frank criticized Northern Trust (a TARP recipient) for sponsoring their annual charity golf tournament, Wells Fargo and US Bancorp slashed their charity contributions to the Moline-based John Deere Classic.

Local charities said that they were relying on this $200,000. To fill the budget gap, they instructed their volunteers to collect empty beverage cans and claim the 5-cent deposit.

Rocky did the math in his head, and that’s 4,000,000 empty cans!

The charity’s can-collecting seems especially odd since Wells Fargo and US Bancorp both said that they will donate the same amount of money directly to local charities.

Rocky’s three theories:
1. The local charities saw local homeless people living high on the hog (collecting empty soda cans,) and they wanted a piece of the action.
2. A weak economy and high unemployment rate correlates with increased beer consumption — and those empty cans are strewn in the streets and parks.
3. It is a publicity stunt on the part of the charities.

Click [here] for the full story.

Tim Geithner’s Throne (and more)

A wise man once said, “You can judge a man by the company he keeps.” Rocky finds this platitude unsatisfying. Rocky also wants to see the man’s “abode.” Oops, typo. Make that “commode.”

Secretary of the Treasury Tim Geither continues to (unsuccesfully) market his New York suburban home. The listing is now on Zillow. Click here for details and pictures.

Mindful that former Federal Reserve Chairman said that he did his best thinking in the bathtub, the world can now see the room [click here] in which Secretary Geithner dreamed up the TARP. The computer on which he botched his income taxe return [click here.] And most importantly, the room to which he fled, when he learned that Lehman filed for bankruptcy [click here.]
While Mrs. Geithner sits by the phone waiting for a call from the producers at MTV Cribs and House Hunters, Trophy Wife asks, “What’s with those blue bathroom tiles anyway?”

A bonfire of two-by-fours

Goodbye: Gasoline. Hello: Lumber.

Rocky today bid adieu to the last of his position in the June gasoline crack spread. He entered the spread in January (click here) when gasoline prices were below the marginal cost of production (“a free lunch”). Since refineries are ineligible to receive TARP funds, they needed to produce less, raise prices, or go bankrupt. All three things happened, and his position returned an improbably successful unleveraged 765%.

(As a humble speculator, Rocky admits that he didn’t buy the exact low, or sell the exact high — and he admits that anyone who bought the exact low in Bank of America did nearly as well!)

Rocky now sees a similar situation unfolding in Lumber. Lumber currently trades at its lowest price in 25 years — below its marginal cost of production. The US and Canada are locked in a bitter tariff dispute, and Weyerhaeuser, among others, are closing mills and curtailing production. This interview with the CEO of the world’s largest lumber company summarizes Rocky’s view. (Rocky hopes this CEO’s clairvoyance is better than Ken Lewis’ at Bank of America.)

Rocky is confident that lumber prices will eventually rise…and perhaps double or triple from the lows. But he’s less confident about his timing and entry point because the recently shuttered lumber mills are dumping their excess inventory into the wholesale channel. Once this inventory clears (30 days or 300 days?), he expects prices to gap importantly higher — and because lumber has a tendency to gap violently, there probably won’t be a graceful entry point.

[Disclosure: Rocky NEVER gives investment advice, and he is frequently wrong on the price direction, the timing, or both. If Rocky is wrong on lumber, and oil prices continue to rise, he'll replace the oil furnace in his home with a wood stove -- and will heat his house next winter by burning two-by-fours.]

Here’s a 25 year picture of lumber prices:

Lumber prices since 1986

Populism in retail banking: Redneck Bank

Many banks give free pens and toasters to new depositors.

At Redneck Bank, they send you a free beer-can holder. (See picture above.)

Many banks have serious slogans (“The Citi never sleeps.”)

At Redneck Bank, their slogan is “Where bankin’s funner!”

Many banks have spokesmen with gravelly baritone voices, meant to instill confidence and demonstrate gravitas.

At Redneck Bank, their spokesman is a talking horse. And, to enter their online banking portal, you click on the door to an outhouse.

Most importantly, at most banks, the money market interest rate is near zero.

At Redneck Bank, they pay 3.10% APY on balances up to $35,000.

Rocky lacks any pretensions. Especially when it comes to making money. After checking with the FDIC to ensure that Redneck Bank is fully insured (it is,) he opened a new money market account.

Rocky successfully transferred $1,000 from his Citibank account to Redneck Bank. But the Redneck website generated an error message whenever he tried to transfer more money. He went to Redneck’s on-line chat and tried to reach a Customer Service Representative. But that didn’t work either because every time he typed the word “Redneck,” their syntax filter (more puritanical than redneck) generated a pop-up message which scolded: “You have used foul language! Your message will not be sent!”

Finally, Rocky called their 800 number. He learned that Redneck imposes a 30-day waiting period on new account owners “to prevent fraud.” Although mildly annoying, Rocky concluded that Washington Mutual might have learned a thing or two from those Rednecks!

For more information, see: www.redneckbank.com

[Disclosure: This is a true story. Redneck Bank is the internet banking division of the Bank of the Wichitas, and is a member of the FDIC system.]

Not your grandfather’s depression

A widely publicized Rasmussen poll reports, “53% say the US is entering a 1930′s-style depression.”

Buried deep within the fine print, the same poll reports, “45% believe anyone who wants to work can find a job,” and “most say it is possible for just about anyone to work their way out of poverty in America.”

Rocky wonders, “Is someone trying to make political points with the reporting of this poll?”

Rocky checked his history books:
1930: Unemployment climbs from 3.2% to 8.7%
1931: Unemployment climbs to 15.9%
1932: Unemployment rises to 23.6%
And money supply contracted by more than 30% from 1930.

Currently, M2 money supply is growing at an inflationary 17%.

The economy is admittedly in bad shape. But in 1933, unemployment insurance, social security, and the FDIC, were just a gleam in the socialists’ eyes, and no self-respecting man would stand in a soup-line without his gatsby cap or fedora.

This sure ain’t your grandfather’s depression!

GE: Master arbitrageur

“Give a man a fish: feed him for a day. Teach a man arbitrage: feed him for a lifetime.”

General Electric CEO Jeff Immelt learned his lesson well. Rocky reckons that GE shareholders just made a cool $250 million because of Immelt’s arbitrage prowess.

On Friday, GE announced a $1.45 Billion debt buyback. That debt was yielding around 9%.

Today, GE sold $8 Billion of FDIC-backed notes. The new debt (courtesy of the US Government TLGP guarantee) costs around 2%.

Fannie Mae and Freddie Mac used to be called GSE’s (government sponsored enterprises). Now that Fannie and Freddie are kaput, Rocky suggests that we drop the “S” from “GSE.”

[Disclosure: Rocky continues to nibble at shares of GE. And he thanks Mr. Immelt for his entrepreneurial efforts.]

AIG sues USA: Man bites dog

“Where’s John Kerry?” That was Rocky’s reaction upon learning that AIG sued the US Government over a disputed $306 million in taxes, interest and penalties. AIG sued while simultaneously negotiating an additional $30 Billion in US Government bailout funds. Click here for the full article from the Wall Street Journal.

AIG defended the suit to the WSJ: “AIG is taking this action to ensure that it is not required to pay more than its fair share of taxes,” said a company spokeswoman.

The irony is beyond words.

Too bad that Rocky cannot buy stock in American Law Firms. They are the only winners.

Senator Kerry’s Left Pocket (and right pocket)

“I’m sick and tired of picking up the newspaper and reading about another idiotic use of taxpayer money while our country is on the brink,” said Senator John Kerry. He made the comment after learning that Northern Trust (a TARP recipient) upheld their committment to the Northern Trust Golf Open.

For the first time in recent memory, Rocky and Senator Kerry agree on something. However, their agreement is not about business and charity decisions at Northern Trust, one of the few profitable banks (2008 net income = $640 million). Their agreement is about the idiotic use of taxpayer money.

For some “idiotic” examples, visit Time Magazine’s 2008 Top 10 Outrageous Government Earmarks: [click here for the list]

Rocky thought that the purpose of a stimulus package is to increase consumption. He wonders why would the Senator discourage a private, profit-making enterprise from engaging in that exact activity? If Northern Trust cancels their consumption while the Government spends stimulus dollars, it’s like moving money from the left pocket to the right pocket. Perhaps the Senator is upset because Northern Trust won’t sit nicely in his left pocket?

On a positive note, Rocky appreciates the Senator’s Rocky-esque pose in his picture. But there’s much more to “being Rocky” than just raising one’s fists.

Gasoline, Washington and Pundits

Rocky wrote last month that he was buying the Gasoline crack spread because he thought it was a good investment both technically and fundamentally. Since he entered the trade, Rocky’s investment has returned 550% (unleveraged). Rocky never gives investment advice, he just “calls them as he sees them.” Hence the purpose of this update is not to gloat or celebrate, but rather to point out the inconsistency of an article in this morning’s Wall Street Journal.

Mark Gongloff writes a modestly gloomy piece, “Falling Gas May be Gone as a Stimulus:”
“Falling gasoline prices were for months a rare and welcome bright side to the economic meltdown. They aren’t falling anymore….Gas has risen even as crude oil prices have tumbled…and demand for gasoline has fallen amid a deep recession. Higher gasoline prices sometimes crowd out consumer spending on other suff, but they will bolster January retail sales numbers due Thursday.”

He concludes: “…if gasoline has found its floor, it will be one less support for any economic recovery.”

Rocky notes that this is a textbook example of glass-half-empty syndrome — reminiscent of a frightened blind man looking in a mirror. (Rocky frequently mixes his metaphors. Always shaken, not stirred.)

As gasoline prices reached $5 last summer, doomsday pundits wrung their hands and politicians spoke about intervention in the markets. Newspaper columnists predicted the end of the American way of life. Fortunately, Washington did not intervene, and high prices increased production and curbed consumption.

Last fall as gasoline prices collapsed, the same doomsday pundits pointed to the deflationary collapse of the economy — and all the evils the collapse will wrought. As commodity prices ticked lower, more people jumped on the bandwagon and viewed this as a coincident indicator of economic implosion. Eventually gasoline prices overshot to the downside late December (when Rocky entered his bullish trade); other industrial commodity prices are groping for a similar floor.

An algebraic representation of this phenomenon:
Prices high = pundits are bearish. Prices low = pundits are bearish.

Both when gasoline reached $5 and when the crack spread went negative, supply and demand came back into balance, and a new equilibrium was reached.

To conclude: Rocky believes that gasoline’s ticking up a bit is a POSITIVE sign for the economy. It also shows that markets, when left to their own, eventually find a sensible equilibrium.

Capping salaries to create jobs? It really works!

Rocky just read the most brilliant idea to create new jobs in this post-financial crisis world.

Jan. 30 (Bloomberg) … Earlier today, Senate Democrats took the first step toward limiting pay for workers at companies receiving federal bailouts. Senator Claire McCaskill of Missouri introduced legislation to restrict compensation at such companies to $400,000, the equivalent of the U.S. president’s salary. Another measure being proposed would create a court to restrain executive compensation.

Rocky observes that if the government “caps” compensation on the best and brightest employees at a company, those employees will quit. The capped employees will then either launch or join an unregulated company.

Once they settle into their new positions, these employees will count as “new jobs created” in the monthly statistics of the Labor Department (even though they are just moving around). The old positions will not count as “job losses.” (Although the regulated company performance will deteriorate faster, that’s a problem for the Treasury Department, not the Labor Department.)

Perversely, the lower the cap, the more jobs that will be “created.” So, if Obama wants to “create” millions of jobs, he can pick random industries, force them to accept a few government dollars, and just keep lowering the salary cap!

Note to Senator McCaskill: You wrote that the $400k cap is based on the salary of the President of the United States. Does your cap for executive compensation permit the following tax-free FREE perks: Company Residence (White House); private chef and dining room; private jet (Air Force One); private helicoptor; 34 member domestic staff; private security detail; and a personal “needs” expense account, which total tens of millions of dollars each year?

Memo to Ford: Burn natural gas not cash

Rocky supports the major automobile manufacturers’ initiatives to reduce American dependence on imported oil. This includes research into fuel cells, natural gas, and the combustion of leftover General Tso’s chicken from Rocky’s local Chinese Restaurant.

The following news story from Bloomberg surprised Rocky:
Jan. 29 (Bloomberg) — Ford Motor Co., insisting it can survive without federal loans, said it burned $5.5 billion in cash in the fourth quarter.

Rocky knows of no internal combustion engines that efficiently burn “cash.” This opinion is based on independent research he conducted many years ago:

As a political science experiment, Rocky replaced a Chevy’s gas cap with a rolled-up copy of the editorial page from the New York Times. He then set the newspaper on fire (Chevy “Blazer.“) He believes that the test results can be extrapolated to Ford vehicles and a wad of US currency.

Rocky applauds the news that Ford will not seek Federal loans. He also ponders whether Ford’s R&D Department may actually be wiser than they appear: “Is cash trash?”

[Disclosure: Rocky is currently bullish on gold. But his opinion may change at any time.]

Citibank doesn’t want my money! (Vikram Pandit meet William Safire)

Rocky reports that his Citibank teller just refused to deposit a check drawn on Wachovia Bank. The check was in the amount of “Twenty-Nine Hundred Dollars,” and the teller politely informed Rocky that she would only accept the check if it read “Two Thousand Nine Hundred Dollars.”

Rocky offers the following explanations for this bizarre experience:

1) Congress revised the Uniform Commercial Code last week. Rocky missed the announcement because he was the only customer shopping at Sears. At Sears, Rocky bought large garbage bags which he heard were “too big to fail.”

2) The Federal Reserve replaced the US Dollar with Itunes Cards. (If true, Rocky happily offers his daughter’s Britney Spears CD in trade for foreclosed real estate.)

2) Rocky is a dinosaur. Noone writes checks anymore.

3) George W. Bush signed the “No Child Left Behind” Law. He missed one child. (She’s a teller with Citibank.)

4) Citi discourages investments with “strings attached” … such as a depositor who, one day, might actually want his money back . Government TARP funds have no such strings.

Bank of America & the largest poker pot in the history of the world

The news that Treasury will provide BofA with $139 Billion for the Merrill Lynch deal, reminds Rocky of the saying: “If you’re in a poker game, and you don’t know who’s the sucker, then look in the mirror.”

Rocky speculates that Ken Lewis’ December threat to walk away from the Merrill deal was a massive bluff. The US Government folded.

Although Ken Lewis may be getting heat now, after the economy heals, Ken Lewis will be remembered as The Greatest Gambler of All Time.

Rocky also shares, “When I’m at a racetrack, I’ll never eat at a restaurant called Mom’s, nor bet on a horse owned by The Government.”