Crudele on the Gardening Leave Clause

• Posted by: Joshua M Brown, July 29th, 2010 at 11:17 am
• Comments: 0

This is pretty hilarious if you ask me.  During the Black Days of 2008-2009, when Wall Street itself was hearing its own eulogy being read in the news each day, lotsa boys and girls down here signed some pretty unfavorable employment contracts.  You can't blame them, The Street was like Pearl Harbor then; everywhere you looked were scuttled and sinking ships.  It made sense to accept these terms and conditions just to drag yourself aboard a floating firm in order to stay alive.

And now the employees are regretting these terms.  My favorite of these is the Gardening Leave Clause.  The NY Post's John Crudele has the scoop:

Put simply, this gardening leave means workers who quit must stick around their old firm for up to three months -- paid, but twiddling their thumbs -- before they can move on. This cooling-off period -- "go play in the garden," in other words -- was common in the contracts most executives were more than willing to sign.

Now that Wall Street's job opportunities have improved a bit -- and I do mean just a bit -- these leaves are becoming a problem. Who would hire someone, after all, if they can't show up for three whole months?

There's already a mini-rebellion going on among Wall Street workers who feel mistreated. And while there is still a "robust applicant pool" for every job opening, there is a sense that much of Wall Street's talent (that means the folks who bring in profits) will bolt at the first sign of an improvement in hiring.

I would say that those in the position of having to wait three whole months to take a new job at an even better salary should drink a big cup of STFU and just deal with it.  Can you imagine a single mother of two, waiting tables until her feet fall off, complaining about being paid for three months to do sudoku puzzles?

You'd think this crew would be smart enough to just go frolic in the garden and run out the clock.  But no.

I hope the Gift Horse whose mouth they're peering into gnashes its teeth and takes a chunk out of one of 'em.

Source:

Trapped on Wall Street (NYP)

Ratings Agencies Play Chicken…Against the US Economy

• Posted by: Joshua M Brown, July 28th, 2010 at 11:27 pm
• Comments: 0

You can file this one under D for Despicable.

Apparently, Moodys, Fitch and S&P aren't quite satisfied with having batted cleanup for the 2002-2007 Economic Wrecking Crew All-Stars.  In a move straight out of a student sit-in protest, the three ratings agency stooges will now be wreaking havoc in the still-fragile $1.4 trillion asset-backed securities market by refusing to do their jobs.

This went on during my recent absence from blogging, but WSJ (via Coyote Blog) has the scoop:

Ford Motor Co.’s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday.

Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.

The nation’s dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.

Let me put this in schoolyard terms: The ratings agencies are playing chicken against the US economy.  The message is to insulate them from responsibility or else they're taking their marbles and going home.  And then you'll be sorry!

Isn't that nice?  Regulation and the professional cowardice of hapless analysts working together to crush whatever's left of American Capitalism.

Source:

Great Moments in Regulation (Coyote Blog)

We’re Not Playing For Peanuts This Time

• Posted by: Leigh Drogen, July 28th, 2010 at 6:52 pm
• Comments: 0

It’s hard to sit through pullbacks, but as Jesse Livermore said, the real money is made by sitting, not by coming and going.  The last two days have been a tough chop fest where you really don’t want to be trading.  I took off a decent amount of long exposure yesterday morning at the top,

Cleveland Loses Its Lawsuit Against The Street

• Posted by: Joshua M Brown, July 28th, 2010 at 3:24 pm
• Comments: 0

Did Wall Street investment banks create a "public nuisance" in the city of Cleveland with their free-wheeling mortgage assembly line? 

The courts just said no, as the city with 4 of the top 21 most foreclosure-laden zip codes was denied an appeal.

From CNNMoney:

But judges for the U.S. Court of Appeals for the Sixth Circuit dashed their hopes and rejected the notion that banks named in the suit -- including Goldman Sachs and JPMorgan Chase as well as now defunct firms such as Countrywide or Bear Stearns -- were responsible.

Rather, they suggested that at least part of the blame lay with the companies that sold the mortgages as well as the individuals who signed up for the loans.

"The injuries that Cleveland alleges could have been caused by many other factors unconnected to the Defendants' conduct," wrote Judge Richard Suhrheinrich.

No word on whether Cleveland will initiate a suit against former Fed Chairman Alan Greenspan for being the architect of Loanapalooza in the first place.

And how about the last name of that judge?  Did he get in the line for tough surnames or what?

Source:

Wall Street 1, Cleveland 0  (CNNMoney)

Introducing Like and Flag Features on Stocktwits

• Posted by: Howard Lindzon, July 28th, 2010 at 2:35 pm
• Comments: 0

At StockTwits, we continue to work to build tools to help you both filter out information that you do not wish to see and discover new users that you would enjoy following.  The newest tools to help accomplish this are the Like and Flag Features. The Like Feature The Like feature provides a way for users to [...]

When The Crowd Discovers Your Indie Stocks

• Posted by: Joshua M Brown, July 28th, 2010 at 10:15 am
• Comments: 0

You know how when your favorite underground band hits it big it you almost can't help but hate that band?  This revulsion to the sudden widespread popularity of something you had to yourself can also occur in your stock portfolio.  And it feels just as weird.

In the early 90's, I was way into the band Blues Traveler.  I'd seen them several times at some lower east side dive bars that I was definitely underage for and on the H.O.R.D.E Tour with a then-unknown Dave Matthews Band as opening act.  I had all the Blues Traveler albums (and bootlegs) and I thought harmonica virtuoso John Popper was The Man.  And then they put out this poppy, pandering, cheesy single - complete with Wizard of Oz-themed video - called Run-Around.  It became a radio hit nationwide and every 15-year-old girl at my high school loved it.

So of course, Blues Traveler was out of my life forever.

I'm starting to feel that way about Silver Wheaton ($SLW), a story I've been involved with since the single digits ("it's the miner without a mine!").  Riverbed Tech ($RVBD) has been my cloud computing stock since $22, now it's become everyone's cloud computing stock.  I'm also getting the same feeling about IMAX Corp ($IMAX), a stock I've been buying on and off since 2003 when the Co-CEOs first came up with the idea of getting studios to convert mainstream movies and conventional theaters to their 70 mm format.

These stocks have broken out in a major way, market capitalizations for them are now in a new league versus where I first began buying them.  And it makes me cringe to hear them mentioned...so I'm cringing a lot lately because they're on everyone's lips.

Now of course, this is exactly backwards.  When you're extremely early to a story and it begins to play out exactly as planned, you should be elated.  And at the beginning you are elated as the unrealized gains start building up on your brokerage statement.  And then you start to become concerned with the composition of the new shareholder base.  You begin to pray that the rodeo clowns on financial television don't bring in an army of "bad holders" who will cause a nasty anomaly on the charts with their massive stampede in and their subsequent lethargic exit.

And while this line of thinking may be somewhat childish, there is some merit to it.

When you love a story that begins coming to fruition (because we don't love stocks after all, but stories are OK), you always end up wishing you'd had more time to accumulate shares - even when you had years to do so.  Everyone knew the iPhone was gonna be huge, but strangely, no one "had time to buy it".

When you are early to a story and hear other people talking about, there is also an insane need to make it known that you were there first and that, "Yeah, the Green Mountain Coffee thing is pretty cool, but it's probably played out by now".  You almost cannot bear to listen to other people telling the story and talking about the investment that you had all to yourself at one point - "20 points ago, man."

My take?  Let that nonsense go.  I put on Blues Traveler's Save His Soul disc the other day and you know what?  It's still ridiculously awesome.  Know what else is ridiculously awesome?  Being early to a story and being right, all cringing aside.  Don't allow the sudden popularity of "your" stock make you hate it.  Be emotionally possessive about something else, not your investments.

***

OK, a quick list of bands that I was pretty early on and I temporarily hated when they got bigger...

Wilco, the Fugees, Pete Yorn, the Arcade Fire, Gorillaz, Franz Ferdinand, Smashing Pumpkins, the New Pornographers, Snow Patrol, Weezer, Vampire Weekend, Onyx, the Arctic Monkeys, Live, the White Stripes and Wolfmother - Just off the top of my head.

I remember specifically how each of these bands went from being "mine" to being "corny and played out".  But I got over that, because they all deserved to break out and I was just being a baby.

Selling Into Strength

• Posted by: Leigh Drogen, July 27th, 2010 at 2:47 pm
• Comments: 0

The market is overbought and it’s time to protect our winnings from the past week or so, they are extensive.  I peeled back some exposure on the long side from names that had run too far too fast (a great problem to have).  They include $TIE $OVTI $FNSR $SWKS and $PWER.  I will be looking

Finally..a Continuation in the ‘Inconceivable’ Rally

• Posted by: Howard Lindzon, July 27th, 2010 at 1:41 pm
• Comments: 0

I have avoided talking stocks for a while because there has not been much to talk about.  Things can change fast and it feels like they have. It is hard to be bearish when freaking Qwest Communications is getting a takeover bid. I have been adding to my longs the last week as my few trend holds [...]

Recovery Apartheid

• Posted by: Joshua M Brown, July 27th, 2010 at 10:01 am
• Comments: 0

Burger chains are killing it, neighborhood diners are hurting.  Oil & gas companies are raking it in, gas station operators are closing.  Mass merchandisers have a new pep in their step, mom and pop retailers can't afford the lease anymore.

Get the picture?

This isn't a class warfare post, this is a reality check about the Recovery Apartheid*.  Large businesses that are asset-rich are benefiting from our Sorcerer's Apprentice-like reflation policies (buckets and buckets sloshing over with corporate welfare).  Anyone dependent on actual end-customer demand?  Different story.  Go ask a sole proprietor doing business on the main drag of your town.

Imagine if, instead of Earnings Season for the S&P 500, we had a 4 week stretch in which we heard from a different sector of Small Business each night on a series of conference calls.  Imagine, if you will, that Monday night we heard from local restaurant and catering companies throughout the nation, then on Tuesday night we heard from auto dealerships, Wednesday night was machine repair shops, Thursday was real estate agencies, etc.

With my hypothetical Small Business Earnings Season in mind, I ask you the following...would the stock market have just posted an almost 4% gain since July 13th had that have been the case?  Would anything said by a majority of America's business owners on conference calls each night even come close to matching the positivity on the Alcoa ($AA) and the Intel ($INTC) calls that kicked this earnings season off?

Probably not.  Because away from the S&P 500, record-breaking cash hoards are not the norm for business owners, nor are trips to the Fed's discount window or financings done in a bond market voracious for yield of any kind.

Here's what the real "norm" is for small company owners these days - according to the latest NFIB Small Business Optimism survey, "the score of business owners who have reported higher nominal sales over the past three months fell by four points and now stands at a net negative 15 percent."

English translation - nobody's buying nothing.

Higher taxation and/or health care costs are an annoyance for a large cap, public company.  They may limit profitability and even necessitate charges, but they do not represent an endgame.  Health care hikes and additional taxation can be a death sentence for many smaller companies, however.  Combine these obstacles with a lack of access to liquidity and capital markets and you have an almost perfectly segregated recovery, a literal Apartheid keeping giant swathes of the population on the outside of the rebound looking in.

The best-case going forward is that an improving picture for S&P 500 companies and other large entities leads to a dramatic boost and turnaround for the rest of the economy.  The worst case is that the benefits of asset-price reflation and inventory restocking do not last much longer, and in hindsight, we find that the Recovery Apartheid was merely a temporary divide - that the big boys were just better at pretending they were recovering than their small company cousins.

We shall see.

*Author's note - Yes, I came up with the term "Recovery Apartheid" but you can totally use it because it is literally a perfect descriptive term for this business climate and it should one day appear in economics textbooks.

Folk Heroes of the Great Recession

• Posted by: Joshua M Brown, July 26th, 2010 at 5:28 pm
• Comments: 0

The statistical recovery we've all been told exists sure feels like a recession for most people who are not C-level execs at publicly-traded financial institutions.  In fact, the jobless situation hasn't hit Americans this hard since the 1930's.

During that decade's economic malaise, the people cheered for King Kong as he swatted away airplanes on the movie screens; they saw him as a surrogate for the little guy fighting against the world.  They celebrated sports heroes like James Braddock, Seabiscuit, Joe DiMaggio and Jesse Owens and lifted them to mythic status.  Even gangsters and bank robbers like John Dillinger, Al Capone and Pretty Boy Floyd found the adulation of the masses as they battled a system that itself was seen to be oppressive to everyday people.

The Great Recession, which began sometime in 2007 and has not necessarily ended for most of us, is now producing its own pantheon of folk heroes.  Some of these individuals are being elevated for their good works and impressive feats during tough times, others are simply sticking it to the man and inspiring those who wish they had the guts to do just that.

I suppose we should begin with The Barefoot Bandit, a total throwback to Depression-era rogues like Bonnie and Clyde and Babyface Nelson.  Born Colton Harris-Moore, he is the 19-year-old burglar from rural Washington State who led the Feds on a nationwide (and eventually international) manhunt for over a year.  He earned his 1930's-ready nickname by leaving actual bare footprints at one of his crime scenes as he committed more than 100 thefts from his home state to Illinois.  Born into a life of abuse and neglect, the teenage Barefoot Bandit earned new fans amongst the populace of the Pacific Northwest with every motorcycle, car, speedboat and airplane he managed to steal.

As debates over deficits have raged across the land, Governor Chris Christie has become the poster child for the new political austerity movement.  Christie rode into public office on the back of a promise to cut every wasteful government expenditure he could.  And much to the delight of his new constituents in New Jersey, he is the rare politician that gets elected and then actually does what he said he'd do.  Barely a month into his term as Governor, which began in January 2010, Christie signed Executive Order No. 14 declaring NJ to be in a state of fiscal emergency ($2.2 billion budget deficit for 2010).  He froze all spending across several departments and unveiled annual budget cuts of over $475 million.  While almost no area of the state will be spared from Christie's cost-cutting agenda, the people are getting exactly what they voted for - a man with a broom.  Christie's strong support for a 2.5% cap on property taxes has made him a hero to homeowners up and down the state.

And there are others...folk heroes of this era that have grabbed our imaginations and attention as we've trudged through each day waiting for the turn:

Harry Markopolos earned the national spotlight as the lone whistleblower who doggedly pursued Bernie Madoff and tried with all his might to get the attention of, well, anyone.  His frustration in trying to stop the largest fraud in financial history became a symbol of how unhinged and compromised our markets had become.  Markopolos sniffed out the fact that "the world's largest hedge fund is a ponzi scheme" in an era so defined by deregulation and capture that he was completely ignored by professional investigators.  His methods and courage will likely inspire the next wave of regulators as they seek to make up for lost time using mathematics and good old-fashioned skepticism.

Olympic swimmer Michael Phelps is almost a perfect sports hero for our time.  Quite possibly an actual Mer-man who spends more time in water than on land, Phelps couldn't wait to bring home all those record-shattering gold medals so that he could be photographed doing drugs and consorting with porn stars in Vegas at the first possible opportunity.

Speaking of sports, you have probably already forgotten the names Nicolas Mahut and John Isner, but their feat of carrying on the longest pro tennis match in history will likely last forever.  The two previously-unknown competitors played an 11 hour and 5 minute match of 183 games which stretched into a second day this summer at Wimbledon.  It was a duration of playing time that doubled the previous record and sports fans were glued to every serve, every volley.

Of course, we should mention airline pilot Chelsey Burnett Sullenberger, whose incredible competence under pressure stood in stark contrast to a crumbling society as he saved the lives of 155 people in January of 2009.  It was a freezing cold, steel-gray day in New York when "Sully" successfully landed a US Airways flight in the Hudson River after having one of his plane's engines destroyed in the vicinity of densely-populated Manhattan.  Having been referred to by NYC Mayor Michael Bloomberg as "Captain Cool", Sully had this to say about how he pulled the water landing off:  "One way of looking at this might be that for 42 years, I've been making small, regular deposits in this bank of experience: education and training. And on January 15 the balance was sufficient so that I could make a very large withdrawal."

Lastly, how could we leave out the cast of MTV's smash-hit show Jersey Shore?  Nothing has taken our collective mind off the endless economic and political suckitude like this lovable crew of Bronze Age cave people - pierced and tattooed and unsophisticated and fake-tanned - but all heart.  When one reads in the paper about how cast member DJ Paully D is now pulling in $80,000 per DJ gig thanks to his newfound fame, one does not begrudge him a penny of it...we are rooting for him.  The Jersey Shore kids are regular guys and gals who hit it big just by being themselves - and during this our Great Recession, that makes them the perfect folk heroes in an otherwise bleak day and age for ordinary people.