Archives For June 2012

June turned out to be a decent month for nearly every index I track here at AFM (you can click on the graphic to download a PDF version).

Total Returns for the S&P 500, S&P 400, S&P 600, and Other Indexes

One interesting thing to point out. Had the month ended on Thursday, oil would have been down 9% for the month. Instead, yesterday’s $7.27 per barrel increase resulted in oil only being down 1.81% for June.

BlackBerry, oh how far you have fallen.

Market share:

Share price:

To make matters worse, they reported a quarterly loss AND their next smart phone won’t be ready until NEXT year instead of this Fall. This is huge in that they miss out on the Christmas season (that said, they’re probably only missing out on five sales).

I’m Stunned

June 28, 2012

I have to say, I’m stunned by the Supreme Court’s ruling on Obamacare. It was split down the middle ideolocigally with John Roberts siding with the liberals.



This quote came from an article I found in the Wall Street Journal and copied and pasted to facebook but now I can’t find the original article. Anyway, what John Roberts says here is surprising to me:

“It is well established that if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so.”

I have mentioned Alan Blinder a couple of times on AFM. His op-ed pieces in the Wall Street Journal are always good for a discussion. This week’s piece was no exception. I hope AFM readers can access it without a WSJ subscription. Just in case you can’t, I have highlighted some of the main points below along with my thoughts. Enjoy.

He opens with (bold mine)…

A debate now rages in Europe over whether fiscal austerity—that is, higher taxes and less spending—helps or hinders growth. That’s progress of sorts. Not long ago, European policy makers seemed stuck on the notion that austerity promotes growth. Yes, we were supposed to believe that countries grow faster when their governments spend less and tax more.

“Yes, we were supposed to believe that countries grow faster when their governments spend less and tax more.”

That’s not accurate. That’s not accurate at all. Austerity is meant to get a country back on the path to growth, not that it austerity itself accelerates growth. In other words, austerity is painful but the end result is a country that is better off. Compare it to dieting. A person may be over weight and want to lose 100 pounds. The path to losing that 100 pounds is not fun but the end result is a hopefully a healthier happier person.

Now, people may agree or disagree with that statement but the way Blinder states it, it is inaccurate.

He then compares Democrats (favorably) with Republicans (NOT favorably) on several points. This one seemed a tad ridiculous:

Democrats also typically seek a growth strategy that boosts the incomes of the middle class, not just of the top 1%. Many Republicans counter that the most effective way to bolster middle-class incomes is via trickle-down from the rich—who start and grow businesses.

What growth strategy? Where is it? Show it to me. President Bush lowered taxes for all income brackets. Tax law changes in the 80s paved the way for wealthier people to claim corporate income as personal income, which inflated their income numbers. Nothing really changed other than where the income was claimed (individual vs. corporate level).

It’s this portion of the column that I found incredibly ridiculous:

Republicans often focus on lowering the top income tax rate. Just like Gingrich Republicans did in 1993, Romney-Boehner Republicans now want us to believe that the success or failure of the U.S. economy hinges on whether the top bracket rate is 39.6% (which President Obama prefers), 35% (where it is now), or 28% (as in Mitt Romney’s proposal).

But the evidence is against the GOP on this one. We’ve experimented with moving the top rate up or down a few percentage points several times. Under President Clinton in 1993, we raised it to 39.6% from 36% and one of the greatest periods of prosperity in U.S. history followed. Then in 2001, under President George W. Bush, we cut the top rate to 35% from 39.6% and . . . well, you know what followed.

Where do I begin?

His “greatest periods of prosperity” was really just a BUBBLE! A bubble fueled by two things: Y2K preparedness and the explosive growth of the internet. Correlation is NOT causation! High taxes NEVER lead to growth.

So, Blinder thinks stimulus is the answer. What happened with the first stimulus? What happened to all the “shovel ready” infrastructure projects the first stimulus was supposed to bring?


Over the next few days I’ll be installing a new theme for AFM. I’m sure there will be some kinks along the way so please be patient. I do think the end result will be a new and improved AllFinancialMatters.

I’m a little leery of moving away from the 3-column layout. It has served me well.

This is some good stuff from Peter Elkind and Doris Burke: The Last Days of MF Global. I will warn you: it’s long.

Bottom line: John Corzine sunk MF Global. Yep, you read that right.

Read this over the weekend:

Reviving Real Estate Requires Collective Action

What does he mean by “collective action”? Well, here’s one idea, which I find scary:

ROBERT C. HOCKETT, a Cornell University law professor, has outlined another approach, which uses the principle of eminent domain, to solve this collective action problem. Eminent domain has been part of Western legal tradition for centuries. The principle allows governments to seize property, with fair compensation to owners, when a case can be made that such seizure serves the public interest.

Traditionally, we think of eminent domain law as applying to land and buildings. For example, a government can use eminent domain to seize real estate along a proposed new highway route so the highway can be built in a nice straight line. It would be absurd to expect the government to bargain with each property owner to buy a strip of land along the proposed highway route and to have to redirect the highway around a farm whose owner refused to sell. That is common sense.

But eminent domain law needn’t be restricted to real estate. It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.

Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners. Taxpayers are not involved, and no government deficit is incurred. Since homeowners are no longer underwater and have good credit, they are unlikely to default, so the new investors can expect to be repaid.

The original mortgage holders, the investors in the new mortgages, the homeowners and the nation as a whole will generally be better off. There will surely be some who may not agree, like the holdout farmer opposing the highway, but eminent domain ought to be able to push ahead anyway.

So if eminent domain can move from land and buildings to mortgages, where else could it move to? I don’t know about you guys but this scares me.

But, beyond that, how would such a strategy work? Seems like a confusing mess once you consider the fact that we don’t know who owns the mortgages in the first place. And, who are these new investors going to be?

I have said it many times but we should have just let the people’s homes go into foreclosure and let the market it work it out instead of all these “fixes” to try to get people to stay in homes they can’t afford. Let’s get these people out of their homes, let the prices fall to a point where people will buy them again and start over that way. Of course, my way won’t get any votes for politicians.