Nov 18, 2011

Boeing Soars while Europe Struggles

November 18, 2011

Stocks are finishing off their worst week since September today while bonds have rallied and the US 10 year now sits at 1.98%. Economic data has continued to surprise to the upside, but the drumbeat of bad news from Europe combined with the Super Committee now facing a Monday deadline to hammer out a deal has kept a damper on investor spirits. Democrats and Republicans are split on taxation and social spending cuts. Representative Keith Ellison (D-Minn) summed up the barrier to a deal by saying “sequestration (the automatic cuts which kick in without a deal) is not the worst thing that could happen.” Could it be time for a new process in DC?

Last week I mentioned the decline in companies beating revenue estimates. The chart below (courtesy The Big Picture) shows the beat ratio graphically.

Speaking of DC, a friend sent me this quote on the lifespan of a democracy.

At roughly the same time that the Constitution was being hammered out in Philadelphia, a professor of history at the University of Edinburgh, in Scotland, said “A democracy is always temporary in nature,” wrote Alexander Tyler. “It simply cannot exist as a permanent form of government. A democracy will continue to exist until the time that the voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority will always vote for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.” Tyler goes on, “The average age of the world’s greatest civilizations from the beginning of history has been about 200 years. During those 200 years, those nations always progressed through the following sequence:

1. >From bondage to spiritual faith;

2. >From spiritual faith to courage;

3. >From courage to liberty;

4. >From liberty to abundance;

5. >From abundance to complacency;

6. >From complacency to apathy;

7. >From apathy to dependence;

8. >From dependence back to bondage.”

I’d say we are around stage 7.

If you think that central banks aren’t worried about the value of global currencies, then just look at their open market actions. Global central banks increased their acquisitions of gold by 2x versus an already inflated second quarter purchase volume.

Just when you think the public opinion of Congress couldn’t get any worse, along comes revelations of insider trading by the members of Congress, all sanctioned since they have exempted themselves from observing the rules applied to the masses. Below are a couple of securities and the amount owned by various members of Congress.

Bank of America (BAC). Members invested: 57. Top Congressional Investors: Rodney Frelinghuysen (R.-N.J.) – $1.02 million to $1.08 million; John M. Spratt Jr. (D.-S.C.) – $500,001 to $1 million; Dianne Feinstein (D.-Calif.) – $500,001 to $1 million

Wells Fargo (WFC): Members invested: 45. Top Congressional Investors: John Kerry (D.-Mass.) – $351,003 to $765,000; Sander Levin (D.-Mich.) – $250,001 to $500,000; David Vitter (R.-La.) – $126,007 to $365,000

Eastman Kodak (EK) announced plans to sell their online photo business, Kodak Gallery. Unfortunately for EK, after having the obvious brand advantage and early mover status online, the site badly trails photo-sharing sites as Flickr, Photobucket, Picasa, and Shutterfly. EK is a perfect example of a company not willing to cannibalize their core franchise. Companies take note: if you won’t cannibalize yourself, someone else will do it for you!

Things should get interesting at the FDIC as Thomas Hoenig, an outspoken critic of the “too big to fail” doctrine, is about to win Senate confirmation to become the vice chairman of the commission. It might be entertaining watching some of those hearings on C-Span.

Boeing (BA) has announced a provisional win for 230 jets from Lion Air of Indonesia. The deal is primarily composed of 737’s, and represents BA’s largest ever jet deal at $21.7 billion.

With two weekends left in the regular season and then conference championship games, this is a big weekend in college football. Given that most people don’t tune into the NBA until after the holidays, I’m not sure anyone truly cares that they haven’t started their season, and that may be the real problem facing the league.

Have a great weekend


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