The Tasgall Group

From the latest weekly musings of John Hussman:

The current bounce was fueled by a combination of deteriorating but ?less bad than expected? economic reports (therefore counting as ?upside surprises?), as well as what can only be considered misleading and semi-fraudulent earnings reports from distressed financial companies (the CEOs of these companies should be careful, because Bernie Ebbers is their poster child). Overall, the picture looks a lot like the bounce we observed in May 2001 (just before unemployment shot up and the market plunged again to fresh lows)…

As for the bank ?earnings? that we observed last week, it is worth repeating that operating earnings exclude what happens on the balance sheet. Moreover, we’ve seen some really fascinating accounting distortions in these numbers. Witness Goldman Sachs’ missing month of unreported losses. As the WSJ noted ? Goldman Sachs, for instance, announced earlier that it would change its fiscal year to end in December, unlike previous years when Goldman’s year-end was in November. The move effectively eliminated a very ugly month from Goldman’s official annual financial results for both 2008 and 2009.? As for Citigroup, the Journal reported Saturday that Citi’s $1.6 billion reported earnings benefited from ?a little-followed accounting adjustment under Financial Accounting Standards Board rule 159, which governs how banks value their debt? (note that this is separate from the FAS 157 ?mark-to-market? provision). The effect of the adjustment was to boost Citigroup’s earnings by $2.4 billion, because the value of its debt declined. So Citi reported earnings strictly because its bonds lost value. This would be funny if it was not so insidious.

Think about those last statements… Goldman Sachs made an entire month disappear, and Citigroup made an operating profit because it was able to lower the value of money it has borrowed from other people.

It takes a special kind of moral flexibility to run a big bank these days…

From a recent email…

…a few more signs of the times: Could 2009 be the year of the ?survivalist?? Signs of this, from USA Today:

• Stockpiling. When the stock market drops, orders surge for freeze-dried food, survival kits and emergency supplies, says Nitro-Pak president Harry Weyandt. One best-seller: a $3,375 food reserve that feeds four people for three months
• Gardening. Sales of vegetable seeds and transplants are up 30% from 2008 at W. Atlee Burpee, the USA’s largest seed company. The National Gardening Association says 7 million more households will grow food this year than in 2008 — a 19% rise. A book on building root cellars is the top seller at Johnny’s Selected Seeds in Winslow, Maine, supervisor Joann Matuzas says
• Canning. Jarden Corp. says sales of its Ball and Kerr canning and preserving products are up more than 30% from 2008. Sonya Staffan, owner of The Jam and Jelly Lady commercial cannery in Lebanon, Ohio, is offering twice as many classes this year
• Sewing. More people are learning to sew so they can mend clothes and make home decor, says Rachel Cohen, spokeswoman for SVP Worldwide, owner of sewing products makers Singer and Husqvarna Viking
• Relocating. Steve Saltman, general manager of LandAndFarm.com, a national real estate company, says more customers want to ?live simply in a less-expensive place.? Jonathan Rawles of SurvivalRealty.com says more people moving to rural areas ?are specifically worried about economic and social instability.?

As Chart of the Day points out, “a home buyer who bought the median priced single-family home at the 1979 peak has actually seen that home lose value (1.6% loss). Not an impressive performance considering that nearly three decades have passed.”

Where has the AIG bailout money gone?

From Nicolas Rapp.

Interesting news tidbit:

U.S. House Set to Vote on 90% Tax Targeted at Executive Bonuses

U.S. House Democratic leaders have set a vote for today on a proposed 90 percent tax on executive bonus payments by companies receiving more than $5 billion in federal bailout funds.

The move is obviously targeted at AIG, but will include many other companies receiving bailout money.

One thing that people tend to forget is that Congress makes the rules, and if you screw people over badly enough, even if what you did was technically legal, you will be the target of political backlash and revenge.

Congress is effectively saying, when all else fails, change the rules.

In my opinion, it’s about time.

Making the rounds…

Shortly after class, an economics student approaches his professor and says, “I don’t understand this stimulus bill. Can you explain it to me?”

The professor replied, “I don’t have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I’ll be glad to explain it to you.”

The student agreed.

At the agreed-upon time, the student showed up at the professor’s house. The professor stated that the weekend project involved his backyard pool. They both went out back to the pool, and the professor handed the student a bucket.

Demonstrating with his own bucket, the professor said, “First, go over to the deep end, and fill your bucket with as much water as you can.”

The student did as he was instructed.

The professor then continued, “Follow me over to the shallow end, and then dump all the water from your bucket into it.”

The student was naturally confused, but did as he was told.

The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool. The confused student asked, “Excuse me, but why are we doing this?”

The professor matter-of-factly stated that he was trying to make the shallow end much deeper.

The student didn’t think the economics professor was serious, but figured that he would find out the real story soon enough. However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad.

The student finally replied, “All we’re doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you’ll really have accomplished is the destruction of what could have been truly productive action!”

The professor put down his bucket and replied with a smile, “Congratulations. You now understand the stimulus bill.”

Take a look at the 27 Visualizations and Infographics to Understand the Financial Crisis for several takes on explaining current events… there’s some great eye-candy in there…

From Hussman:

Meanwhile, the excitement of investors last week about Citigroup posting an operating profit in the first two months of the year simply indicates that investors may not fully understand the term ?operating profit.? Citigroup could burst into flames while Vikram Pandit sells lemonade in the parking lot, and Citi would still post an operating profit. Operating profits exclude what happens on the balance sheet.

Something humorous for a Sunday evening…

Amusing, what does one trillion dollars look like?

The above picture is what $100 million in US$100 bills would look like… click on to see what a billion and trillion look like…