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Obama’s blue screen of death
Rocky thought that reading President Obama’s entire State of the Union speech would be virtuous and useful. He was sadly wrong.
Rocky’s primary computer contracted a horrible virus yesterday from a website which re-printed the speech.
If this was a political conspiracy, then Google is behind it too — as Google directed Rocky to this insidious site. And, if Al Gore “invented” the internet, then President Obama’s speech just un-invented it (for Rocky.)
The site implanted the “Internet Security 2010″ malware program — which takes control of the computer … and eventually results in the “Blue Screen of Death.”
Several websites advertise repairs for the virus ($39.95), however after consulting with Computer Man, Rocky learned that the virus is essentially irreversible. And the software vendors are simply extorting money.
[Disclosure: Rocky’s primary computer was rebuilt from scratch, and his backup systems worked fine. Thanks to Computer Man for his expert advice. No thanks to President Obama. Rocky wonders whether a Republican President’s State of the Union might result in a “red” Screen of Death?]
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.
A spaghetti speculation scandal
While the US CFTC aim their regulatory cannons at crude oil speculators, their Italian cousins have their daggers out for “spaghetti speculators.”
Roberto Sambuco (aka “Mr. Price”), Italy’s so-called Guarantor of Price Surveillance launched a fresh investigation into manipulation of the dry spaghetti market. See:
http://www.google.com/hostednews/afp/article/ALeqM5ioX0WHXK0S5zq2_cm4sIs-Sos_PQ
“The price of pasta is a scandal and the result of speculation,” Bloomberg News quotes Italy’s National Farmers’ Association. Bloomberg says Italians eat an average 62 pounds of pasta each year.
Rocky has been known to “throw around his weight” in the crude oil market, but if the spaghetti scandal heats up and boils over, he’ll be forced to start watching his carbs.
He also added an Olive Oil (EVOO) / Marinara Sauce “spread” to both his Bloomberg monitor page and a loaf of Italian bread.
Lest the speculators and collusionists drive prices even higher, Rocky’s “Plan B” will be a switch from Linguine #7 to Capellini #9. Alternatively, he may purchase the Ronco Pasta Maker Kitchen Appliance. (As seen on TV.)
Is there a housing-like bubble in the spaghetti market?
No. But there’s bubbles aplenty in Rocky’s boiling pasta pot.
[Disclosure: From the Ronco Pasta Machine User Manual: “With a powerful yet quiet motor, this incredible machine also makes sausage, cookies, and small bagels.” Trophy Wife notes that Rocky’s fagottini already resembles a day-old bagel with cream cheese.]
Let’s play “stump the tax man”
IRS Commissioner Douglas Shulman doesn’t file his own taxes because he believes the tax code is too complex. (See: http://thehill.com/blogs/blog-briefing-room/news/75119-irs-commissioner-doesnt-file-his-own-taxes )
However the complexity has now reached the point where even accountants and the tax authorities don’t understand the rules.
From New York’s new Form IT-204-LL-I:
“A partnership, LLC, or LLP with no income, gain, loss, or deduction from New York sources who is filing a partnership return solely because it has a New York resident partner, is formed under the laws of New York State, or is dormant, is not subject to the filing fee.”
That seems pretty straightforward. Except the next paragraph reads:
“The amount of the filing fee will be based on the New York source gross income for the tax year immediately preceding the tax year for which the fee is due. If the LLC or LLP did not have any New York source gross income for the preceding tax year, the filing fee is $25.”
These two paragraphs are 100% contradictory. The first paragraph says if you have no NY-sourced income, you don’t pay any fee. The second paragraph says if you have no NY-sourced income, you pay a $25 fee.
Rocky’s corporate accountant called the New York State Tax Department professional assistance desk for an official interpretation of these paragraphs. After thoroughly researching the issue, The Tax Man’s answer: “We don’t know.”
The Tax Man’s honesty is refreshing. This lastest example of tax code lunacy is not.
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?
Dick Clark and the long bond yield
A popular investment platitude is “The trend is your friend, until it ends.”
The above chart shows the yield of the US 30-yield treasury bond. For the past twenty years, buying the bond as its yield approached its 100 month moving average has been a winning strategy. Right now, that strategy demands a purchase of bonds — with a stop-loss a little bit above. (Remember that bond yields and bond prices move in opposite directions.)
However, if the bond yields more than 4.75% when Dick Clark rings in the New Year, this long-term “secular” trend will have ended. Historically, broken secular trends are dangerous beasts, and the first leg of the reversal can be violent.
[Disclosure: Rocky is agnostic about whether Dick Clark should have retired 20 years ago. He is also agnostic about the short-term direction of the bond market. Because he accepts that “the trend is his friend,” he may buy a few bonds — before he leaves his office to buy his New Year’s Eve party hat. When Rocky wakes up in 2010, he’ll find out whether the 20-year-long bond bull market remains alive — or has joined Guy Lombardo in heaven. See: http://www.last.fm/music/Guy+Lombardo/Christmas+Through+the+Years/Auld+Lang+Syne]
Sorry, but we’ve run out of dollars
Just a few weeks ago, the Dollar was tanking and gold was spiking. Now, speculators want to bet on a rising Dollar, but the vault is empty.
This morning Bloomberg News reports, “The Powershares DB US Dollar Index Fund suspended distribution of new share baskets after exhausting its capacity to create stock under a registration statement with the Securities and Exchange Commission.” The ticker symbol is UUP, and it moves with the Dollar Currency Index. That is, when the Dollar increases against the Euro and Yen, the UUP goes up in price.
Translation: Sorry folks, we’ve run out of dollars!
[Dislosure: Rocky recently bought a “slug” of UUP calls as a trade. If the UUP trades at a substantial premium to it’s net asset value because of this “shortage,” Rocky will gladly sell his UUP dollars to the hungry buyers for more than a Dollar. This is a temporary technical/arbitrage condition. Rest assured, the Federal Reserve’s printing press is still running 24/7.]
Chocolate Chip Cookies & Financial Markets
Forrest Gump famously said, “Life is like a box of chocolates.”
Rocky Humbert counters, “Life is like a rack of homemade chocolate-chip cookies.”
To celebrate the first snowfall of the season, Rocky baked three racks of chocolate-chip cookies using the Nestle Toll House Recipe. A trained scientist, Rocky weighed the ingredients precisely; he used an ice-cream scoop to size each cookie; he timed each tray’s bake time to the nano-second. The oven and rack temperatures were kept constant and carefully monitored.
Nonetheless, the cookies had a mean size of 6.93 cm with a standard deviation of 0.93 cm. The smallest cookie diameter was 5.5cm and the largest cookie diameter was 8.5cm.
This is a statistically improbable dispersion — and it jibes with Rocky’s view of the apparent randomness of markets.
[Disclosure: Rocky’s only explanation for the size dispersion is the cookie dough temperature as it entered the oven. Rocky’s daughter offered a mathematical explanation that uses fractals. Any reader who offers a better hypothesis will win a unique prize of dubious monetary value. The Blackberry model (as shown above) did not go in the oven.]
The Federal Reserve and Elvis Presley
Homebuyers will face a new and important “development” in the next 90 days — and anyone thinking about buying a house (and even a bank CD) should pay attention:
As part of “Quantitative Easing,” the Fed purchased $1.02 TRILLION worth of “Agency MBS securities” (aka home mortgages) in the open market. The Fed will complete their purchases within the next 90 days. As the chart above shows, they will have purchased a total of $1.72 TRILLION of securities including $1.25 TRILLION home mortgages.
Putting this in perspective:
In 2009, home buyers borrowed a total of $1.01 Trillion. ( See: http://www.sifma.org/research/pdf/Mortgage_Related_Issuance.pdf for the data.)
The Fed has purchased EVERY new home loan made in 2009, and they pegged mortgage rates at an entirely arbitary yield !
Ladies and Gentlemen: The Federal Reserve has left the building!
Once the Fed steps back from the mortgage market, the “free” market will re-price home mortgage rates…presumably at higher yields. Rocky doesn’t know if the upward move in mortgage rates will be violent or gradual, but it will happen — and it will dwarf the effect of Congress’ homebuyer tax credits. It behooves homebuyers to bear this in mind when they consider when to lock in a mortgage rate.
[Disclosure: Rocky acknowledges that the one Elvis reference in this post was weak. So he’ll add a second one: Elvis said, “The only thing worse than watching a bad movie is being in one.”]
Did Yale lose $57 Billion in three months?
The Yale University endowment is valued at “only” $17 Billion, yet their March and June, 2009 SEC 13F Filing reported total stock investments of $62.7 Billion.
Rocky yelled “Boola-Boola” and rubbed his eyes. The obscene leverage shocked him, as did Yale’s September filing which reported investments of “only” $5.2 Billion.
How was this possible? Was this some sort of novel high-frequency trading strategy engineered by David Swensen in the Yale Investment Office? Or had a Harvard student hacked into Yale’s computer system (again)?
Alas, no — Yale’s Associate General Counsel issued a press release stating that there was a “defect” in their reporting program — which caused the March and June SEC filings to be wrong by a factor of 1,000!
Rocky wonders:
1) What would happen if the decimal points on his 2009 Tax Return “accidentally” move three places to the left? Would the IRS notice?
2) What would happen on a Yale economics final exam if a student’s answer is wrong by a factor of 1,000?
Here are the SEC filings for the green-eyeshade crowd:
Madoff jewelry auction & Valentines Day 2010
The US Marshals Service will auction Bernie Madoff’s possessions on Saturday. Proceeds will benefit the victims of his fraud.
For the auction catalog, click on : http://www.proxibid.com/asp/Catalog.asp?aid=23422
Rocky looked through the odd collection of watches, necklaces and Lynn Swann-autographed footballs (“certificate of authenticity not included.”)
He decided that Lot #7, a heart-shaped pendant would be a perfect Valentines Day gift for Trophy Wife.
Fast forward to Valentines Day 2010….
Rocky (to Trophy Wife) : “Honey, I got you a special present for Valentines Day.”
Trophy Wife: “That’s nice. What did you get?”
Rocky: “It’s an 18KWG heart-shaped pendant set with 7 princess, 4 half-princess & 40 baguette cut diamonds, total weight 2.75 cts.”
Trophy Wife: “Why is it in a brown paper envelope? And not a nice blue Tiffany box?”
Rocky: “Because I got it special. It was a deal.”
Trophy Wife: “A deal? That’s typical. Let me see, what’s this little paper tag with a star on it? Hmmm. Marshalls??? You bought me a piece of jewelry at Marshalls????”
Rocky: “No, silly. That’s US Marshals. I always think of you as the Wyatt Earp of our family.”
(Unimpressed, Trophy Wife examines the heart under her jeweler’s loupe.)
Trophy Wife: “Rocky, these diamonds are fake.”
Rocky: “I guess I should have known better. The price was too good to be true.”
[Disclosure: Jewelry gifts purchased at the Madoff auction may contain dangerous levels of bad karma.]
Getting married in India & the price of gold
The Central Bank of India announced this morning that they purchased 200 metric tonnes of gold from the International Monetary Fund. See: http://www.imf.org/external/np/sec/pr/2009/pr09381.htm
This is ostensibly bullish for the price of gold. But is it bullish for Blue Nile stock? (NILE)
Rocky does the math:
1 Tonne = 32,151 Troy Ounces
1 Troy Ounce = 31.10 Grams
This fashionable Blue Nile wedding ring contains 1.6 grams of gold:
http://www.bluenile.com/wedding-ring-gold_6673
Rocky’s X-22 computer calculates that the Indian Central Bank just bought enough gold for “only” 125 MILLION wedding bands. Since the population of India is 1.1 BILLION, the Indian Central Bank is sensibly planning ahead.
[Disclosure: Rocky has been, is, and may continue to be, long gold bullion. But he may change his mind if he reads that scientists have finally succeeded in turning lead into gold.]
Predicting today’s stock market close
A distinguished theoretical physicist sought Rocky’s counsel for predicting today’s Dow Jones closing price. In addition to unlocking the secrets of the universe, this physicist seeks to unlock the prize in a “Guess the Dow Jones” contest. (The winner receives the actual closing price in dollars.)
Rocky usually leaves such precise speculations to Trophy Wife, as Rocky considers “good fundamental analysis” to be successfully picking a pair of matching socks. (Or at least they seem to match in the darkness of dawn.)
Rocky realized that the physicist’s challenge was too big for his HP-45 Calculator, so he borrowed Virgil Starkwell’s X-22 computer, and fired it up for the first time in 40 years…
The X-22 generated four possible closing prices:
9507.90
9728.64
9822.52
9955.41
[Disclosure: As the price dispersion demonstrates, Rocky does not provide investment advice. However, readers are encouraged to learn more about the legendary X-22 computer by watching the YouTube video embedded below. Warren Buffett will probably enjoy this approach too.]
A twist on French Roast coffee: “New Jersey Roast”
Coffee futures are rising this morning as news of a fire at Sara Lee’s New Jersey Coffee plant percolates through the markets.
From Bloomberg News: “Coffee prices pared losses in New York after a fire burned overnight at a Sara Lee coffee and tea plant in New Jersey that roasts millions of pounds of beans each year. Firefighters were still extinguishing hotspots from the fire, the fourth at the plant since October 2008.”
Four fires in less than a year???
Rocky believes Starbucks’ French Roast coffee already has a burnt taste. Now, competitor Sara Lee (which packages Chock Full Of Nuts) appears to have devised a new process for a darker, deeper, richer flavor….
How does one make New Jersey roast? Just burn down the building.
Bank closures, oranges, and broken glass
“A day without orange juice is like a day without sunshine,” says the Florida Citrus Commission. Because of his acid stomach and acid wit, Rocky doesn’t drink much orange juice. Instead, Rocky says, “A week without a bank failure is like a week with sunshine.”
According to the FDIC, last week marked one of the rare weeks of 2009 without a single bank failure. Folks who see their glass as “half-full” will read this statistic as a ray of economic sunshine. Folks who see their glass as “half-empty” will note that the FDIC usually closes banks on Fridays. Due to the Columbus Day holiday, FDIC employees may have just decided to take a long weekend. The FDIC bank closing list can be viewed here: http://www.fdic.gov/bank/individual/failed/banklist.html
Rocky isn’t someone who views his glass as either half-full or half-empty. Instead, he views his glass as cracked. Hence, he was not surprised when OJ prices went “limit up” (outperforming gold) yesterday. The Trading Places-esque price spike occurred after a Agriculture Department crop report showed a 16% decline in Florida orange production. See: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aC2tcKYnOSOk
Rocky sensibly concludes that any surviving banks won’t be serving free orange juice to their customers.
[Disclosure: Rocky frequently mixes metaphors, as this is part of constructing a “well-diversified” portfolio.]
Supply, demand and buried treasure
An amateur “metal detectorist” recently stumbled upon a trove of more than 1,500 gold and silver artifacts in a Staffordshire, England field.
The items date from the Seventh Century, and archeologists say it is the largest hoard ever found in Britain.
Click here for the full story: http://www.nationalpost.com/news/story.html?id=2028795
Rocky makes two observations:
1) While the bull market for gold is several years old, the bull market for Metal Detectors may just be starting. (Click here for a half-price sale on the “Bounty Hunter Time Ranger Metal Detector and Deluxe Gold Pan Kit.”)
2) The collection has been officially declared as a “treasure trove,” and under UK Law is the property of the State. Even in a field, the tax man is never “afield.”
Is gold expensive?
Over at Jeff Watson’s excellent blog, he’s been debating whether gold is going up or going down. Rocky asks a slightly different question, “At $1,000 per ounce, is gold expensive?”
The following graph shows the behavior of gold and the behavior of the US Consumer Price Index going back to 1947. While examining this chart, it’s important to remember that:
1. It was illegal for US citizens (anywhere in the world) to own gold from 1933 until 1974.
2. In 1944, the “Bretton Woods” agreement fixed the price of gold at $35 per ounce.
3. In 1971, President Nixon unilaterally took the USA off a gold standard, and from then to the present the value of gold (and the US Dollar) were allowed to float freely.
So, the question remains, is gold expensive at $1000 per ounce? As those annoying math textbooks like to say, “the answer is left as an exercise for the reader.”
The black line is the CPI Index. The yellow line is the price of gold. Both values were normalized to make the visual relationship easier to see.
Gold Price versus US CPI Index
Family dogs contribute to financial collapse
Economists, regulators and bankers all contributed to the financial crisis. Today, the family dog joined that list.
Rocky just learned that “man’s best friend” is being blamed for contributing to insurance giant AIG’s collapse, as well as the skyrocketing cost of health care.
The Insurance Information Institute reports that dog bites represented a third of all homeowner insurance liability claims in 2008, and cost insurers $387.2 million, up 8.7% from 2007.
“In the last year, the number of claims rose nearly 9% from 14,531 to 15,823. More than 4.5 million Americans are bitten by dogs each year, with nearly 900,000 requiring medical care, according to the Centers for Disease Control and Prevention. In 2006, more than 31,000 victims required reconstructive surgery.”
Click here for the Insurance Information Institute report entitled “Avoid Being Bitten By A Lawsuit By Being a Responsible Dog Owner:” http://www.iii.org/Press_Releases/Avoid-Being-Bitten-With-a-Lawsuit-by-Being-a-Responsible-Dog-Owner.html
[Disclosure: Rocky lives in a state where repeat Felons face a “three-strike-and-you’re out,” mandatory life sentence. His state also has a “One-Bite Rule”where the owner is not liable for the first bite, but is fully liable for the second. Rocky believes that the Criminal and Dog Laws should be harmonized … so either wayward dogs get three bites or repeat felons only get two. Accordingly, Rocky hopes Congress convenes a special Committee on Canine Culpability. ]
GM takes on Hertz & Avis with FREE cars
For really great Super Bowl parties, Rocky’s neighbor would “buy” large-screen TV’s at Circuit City on Saturday, and then return the TV’s the following Monday morning for a full refund. No questions asked. No cost. (Except that Circuit City eventually went bankrupt.)
This morning, GM announced a similar no-questions-asked, 60 day full refund on its cars. The promotion is called “May the Best Car Win,” and GM Chairman Whiteacre coyly “declined to put a price tag on the overall promotion.” That’s probably a good thing, since US Taxpayers are paying for this.
Click here for the full story from the NY Times: http://www.nytimes.com/2009/09/11/business/11gm.html
Forget about free toasters for opening new bank accounts. Forget about value meals at fast food restaurants. For consumers with a chunk of cash in their checking accounts, this is the largest giveaway in recent history. (An even better deal than “cash for clunkers.”)
Although the exact details have not been disclosed, here’s Rocky’s arbitrage analysis:
1. Money market funds are yielding approximately 0%, so there is no cost of money.
2. Buyers empty their savings accounts and purchase a new GM car. They pay cash.
3. Title and registration (non-refundable) will cost about $250. Sales tax will be refundable if the transaction constitutes a “return.”
4. After 60 days, the car gets returned to the dealer. (And GM has lost 10%-15% of the car’s value.)
A Hertz rental car for 60 days will cost about $3,000. A GM “rental car” for 60 days will cost about $250.
[Disclosure: Rocky has no position in Hertz Group (HTZ) or Avis Group (CAR). He does have a position as a citizen and taxpayer in the USA.]
One Honest Man 
