"Self-reliance for the penniless and government aid to those who already had more than they could use was the plan."
- Nelson Algren, "A Walk On the Wild Side"
One full year. One full, impossible to believe stompdown screamer of a year. That's how long it's been since the credit machine on Wall Street suddenly slipped a gear, lost the chain and folded in on itself, howling with the awful griding sound of metal chewing metal. The real tragedy of it, the outrageousness of it, is that this machine's tear down is still ongoing, happening in horrific slow motion.
And so it is that the central bank announced yesterday it is extending the fat teat of acronyms that allow investment banks to borrow from the Fed through January of 2009. "Healthy economic growth depends on well-functioning financial markets," Federal Reserve Chairman Ben Bernanke told lawmakers in testimony earlier this month. "Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve."
Meanwhile, as banks jostle one another for position suckling the government teat, homeowners will have to settle for the dregs of the trough. Brett Arends, in a piece in today's Wall Street Journal, runs the math on the Hope for Homeowners Act and - surprise, surprise - finds that once you tally the "annual insurance premium" added on top of each loan to help pay for the program's losses, your interest rate right now would come to 8.1% a year.
One of the strangest of American myths is the notion of "America: The Welfare State." Say that outloud. Then give it five minutes. Doubtless some self-appointed propaganda minister and "defender of self-reliance" will trot out a stat that purports to show the massive government spending programs "designed to subsidize the poor and lazy."
In the Age of Self-Evidence, anything shouted loud enough, forcefully enough, is almost certain to be etched into stone somewhere, engraved on a government building and hailed as truth. It is, after all, self-evident. Look around, the poor and lazy are everywhere, constantly scheming to worm their hands into your pockets and help themselves to the fruits of your hard labor.
That's the popular lie. But these welfare programs don't so much subsidize anything as institutionalize it, just as the real winner in the War on Drugs has always been the budgets of those units formed to "fight the good fight." Yes, they institutionalize and structure things, like so many moats surrounding the castles of the kingdom of the rich.
There is no Welfare State, not for people, maybe for banks run by the rich, but for people there is only a protectorate of programs designed to shield the Wealthy from a teeming mass of filthy rioters and thieves who, without their economic stimulus checks, just might become desperate enough to scale the castle walls in search of victims to rob.
The weird part about this con is that the rich, the wealthiest 2%, don't even pay for these programs. They show the remaining 98% of us the money in suitcases, whet our appetites, and then close them up and walk away after we eagerly promise to fund the operations ourselves; like a deranged lunatic throwing dice against himself in a dark alley, shifting pennies from one pocket to another.
Maybe the lone nugget of grim consolation is that at least we did it to ourselves.
Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Executive Editor Kevin Depew. For related analysis from Minyanville, see Also:
Five Things You Need to Know: America, The Banking Welfare State
Banks Protected from On High
Thursdays With Story: Accounting for Change
Navigation device maker Garmin hit a 52-week low this week after the company said it will delay its new cell phone, called Nuvifone, until next year. Garmin had been trying to get Nuvifone out before the holidays. The company also missed expectations on quarterly sales and profit and lowered guidance for the year.
As I've said before, Garmin's days as a high-flying stock are over. This company is being hammered by falling margins, economic turmoil, nimble rivals and by GPS-enabled cell phones taking away from market share. Garmin must retrench and figure out a new strategy; the question is what kind of company will it become?
Garmin's announcement disappointed investors who viewed Nuvifone as the starting point for Garmin's strike back against new cell phones with built-in GPS navigation. Garmin itself had pegged Nuvifone as part of a strategic shift away from its traditional GPS devices, which have been declining in price and hurting margins. Shares are up less than 1% today to $35.28. A year ago they were at $99.
At Seeking Alpha, two posters have different opinions on Garmin. Matthew Rafat bought shares at $36, and said Garmin could have some unexpected upside if oil prices are abnormally high and if the dollar firms up.
But Greg Feirman questions whether Garmin has lost its direction, and says he's not buying any shares yet. "It could be that its business is under so much pressure from the economy, competition and saturation that it still has a ways further to fall," he writes.
I admire Garmin for trying to reinvent itself and innovate in new areas. The Nuvifone is a good start, but it's been delayed by the technical demands of phone carriers. If Garmin gives us a sophisticated, top-notch device that can compete in today's aggressive smartphone market, a small delay won't matter.
Related reading:
Garmin falls from its pedestal
Consumer electronics disaster ahead, analyst predicts
Garmin trades all over the map
Shares of server maker Sun Microsystems are up 4% today, a day before the company reports its fourth-quarter results. Sun gave investors a gloomy peek at the news earlier this month, saying that it would miss its own guidance on sales and that profit would be 25 cents to 35 cents a share. If you include restructuring charges -- which the Street likes to do -- profit is more like 20 cents a share.
Analysts turned quickly on the company, according to Barron's, expressing disappointment with margins and with ongoing restructuring charges. But Valuecruncher has run some numbers on the stock and comes back more optimistic about Sun's value.
Sun's revenues had a 7.4% compound annual growth rate from 2004 to 2007, Valuecruncher says. The site assumes a modest 2.6% compound growth rate going forward, and flat margins of 10%. It puts the WACC discount rate at 12% and looks at the cash and debt situation.
In all, Valuecruncher says it values Sun at $11.64 a share. Company shares are trading today at $10.80.
Through much of the spring and early summer, Wall Street experts and oil analysts said gasoline could break above the $5-a-gallon barrier as oil moved close to $150 a barrel and vacation travel increased. This has broken the back of the car industry and crippled airlines as well.
In some regions of the country premium gas prices did top $5, but now, for the first time in a long time, the move in prices is downward. Data from the AAA show the national price for a gallon of gas falling to $3.96 this week, down from $4.05 a week ago.
With crude still dropping, how far can gas fall and can it make it back to $3 this year? Because of changes in consumption patterns, gas prices could fall sharply and fast.
The link between $150 crude and $4 gas is one that the public associates with an absolute link between crude and petrol. The relationship is less direct than most consumers believe.
Because of falling demand and a strengthening dollar, crude has dropped below $124, and, barring political instability in one of the large producing nations like Nigeria or a hurricane in the Gulf of Mexico, oil should keep dropping.
Based on OPEC production and the flow out of other major producing nations, the supply of crude is fairly stable. Use of oil in large consuming nations including India and China should be dropping modestly. They have cut the level at which they subsidize gas and diesel, raising prices to consumers and businesses.
Airlines, tremendous consumers of fuel, are cutting capacity by as much as 15%, further denting demand.
The most significant point as which the link between the price of oil and the price of gas diverges is in the habits of the car driving public. Production of gas out of major refineries is likely to stay steady. A fast drop in crude prices should actually improve margins at major refiners as oil drops faster than what they charge retailers for gas at the pump. Americans have driven 40 billion miles less in the past seven months compared to the same period last year pushing down demand for gas by 2.4%. More people are not driving at all or are turning to public transportation.
If oil drops 25% from its $150 peak, moving down to $112, gas would likely be pushed back toward $3. But, gas could move down to that level even with oil only slightly under $120, if it stays there for a prolonged time.
One barrel of crude oil makes 19.5 gallons of gasoline. But crude is used for a number of other products including petrochemicals. The prices of oil by-products including plastics, synthetic fibers, and detergents have spiked up sharply, cutting demand.
If consumption of jet fuel, petrochemicals, and heating oil drops because of high prices, the amount of crude available to refine for gas will increase. Couple that with the fewer numbers of miles driven by Americans and there is a compounding effect.
Conservation plus less demand for other uses of oil spells gas moving back to $3, even if oil only falls modestly from here.
Top Stock blogger Douglas A. McIntyre is an editor at 24/7 Wall St.
Related reading:
The market rally depends on crude oil
A scary thought: Gasoline at $7.50 a gallon
Korea's hunt for oil fuels price hikes
