World’s Worst Strategic Decision.

I really don’t know what Blockbuster hopes to accomplish by purchasing Circuit City.  Full story here.

What does the executive team at Blockbuster sees in this proposal?  At first glance this appears to be a Hail Mary!, but there has to be something there.  I mean these guys are C-level executives for a reason right?  Its like Kmart/Sears the remix.

Blockbuster should be focusing on shutting down B&M sites not acquiring 655 more of them.  I understand that physical stores will provide some of the media stream but a trimmed-down, lean and mean operation seems like a better bet than tripling overhead.  I would not want to compete with Best Buy, Apple Stores/iTunes, Amazon.com, NetFlix and On Demand.  Call me crazy, but that sounds like challenging Tyson to a friendly game of punch for punch.

This raises an interesting question: when a company is at the end of its relevant life span, what is management supposed to do?  The practical answer is bring in a turnaround team, but I’m not talking about that.  Is there a point when a company should board up voluntarily?  Like GM.  “Hey guys, we had a great run for the last 60+ years, but lets face it, we’re obsolete.  Good game.”  High fives all around.

In my opinion, I think the challenger needs to be innovative and ahead of the trend to take on the powerhouse incumbent.  Blockbuster buying Circuit City is like trying to bail the Titanic with a keg cup.  Stupid boardroom bullshit that doesnt do anything more than shuffle the deck.  Amen.

 

No bueno amigos

U.S. Home Loan Demand Plunges as Interest Rates Soar 

“The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Feb. 15 fell 22.6 percent to 822.8, the lowest level since the week ended Jan. 4.”  Full article here.

 I think this might be more storm clouds on the horizon.   This could mean that another round of nasty write-offs are coming down the pipeline.  My initial feelings about Project Lifeline are all but confirmed.  It was never intended to actually help those in need, homeowners, it was pushed so that banks and anyone else on the Street caught with their pants down could scramble for cover.

A moratorium on foreclosure proceedings is in the best interest of anyone holding MBS’s anyways.  Calling a cease fire for 30 days just puts the potential shit-storm off for a month.  You can’t change the fact that people got into properties that they couldn’t/can’t realistically pay for.  Joe Homeowner can’t refi a house when the first mortgage is more than the falling market price.  Joe Homeowner couldn’t afford it in the first place.

Sucks to be so bearish right now but I’m feeling another round of bad news coming real soon.

“Federal Reserve officials project about 2 million homeowners face higher mortgage rates over the next two years as their loans reset higher. Economists at the Federal Deposit Insurance Corp. estimate foreclosures this year will be about 1 million more than average, a level that FDIC Chairman Sheila Bair has said “is just too high.” They average about 600,000 in a typical year.”

And I haven’t even started on Credit Default swaps yet…

All of that said, I feel comfortable telling anyone that wants to listen to get out of the market and wait until this shit plays out.  Just my $.02.

Weird Search Traffic of the Day: How to Become an Ambassador

I don’t know why, but this search term is the biggest traffic generator on the powerhouse that is TheAvidPenguin.  At least once a day, someone enters that query and reads my post from Nov. 19 of last year.  Again, I am a targeted traffic god. 

Fear not little boys and girls, it takes only one qualification to be the political face of this country abroad.  Donate or raise six-figure contributions to a political campaign(s).  You don’t have to be smart.  You don’t have to be an upstanding citizen.  You can build your fortune through white-collar crime.  Doesn’t matter.

Cut a check.  Pick a country.  Enjoy first-class treatment paid for by US taxpayers.

“I don’t have lobbyists running my campaign.”- M. Romney

You can’t be serious? 

“The AP story that Johnson filed yesterday afternoon said that Washington insiders are on Romney’s senior staff and registered lobbyists are top advisers. Kaufman, chairman of the Washington-based Dutko Worldwide, regularly sits across the aisle from Romney on his campaign plane and participates in debate strategy sessions, the story said.”  Full story here.

I don’t understand why Romney would try to make the distinction between lobbyshits “running” his campaign and lobbyists on his campaign.  I mean I do understand, politically, why he would try to make that distinction, but someone’s getting high off their own stuff if they think they can slide that by.  On the other hand, lobbyists may not be running his campaign (by the strict defintion).  And god bless strict definitions…

“It depends on what the meaning of the words ‘is’ is.”– Atta-boy Willie, show ‘em what good lawyering…is.

I applaud the reporter for making a big deal out of that statement.

It doesn’t matter if lobbyists are not running your campaign or getting paid by you.  You see Mitt, the way this whole thing works is they do favors for/make contributions to you, like “advising” without “pay”, and then if you get elected, they remind you of those favors. 

Political Lesson for the Day: Irrelevant and misguiding statements are money in the election-bank…unless you get called out.  Then you just look like a liar.  Liars don’t get elected. Right?  Shit.

Afterthought: is there really a difference between a wealthy businessman and a lobbyist?
 

Ministry of Truth: Records Department?

Is this the beginning of the end?

This question instantly crossed my mind when I heard about the Kindle.  I always knew Bezos had a totalitarian streak in him. 

In other news, George Orwell recently suffered the first ever post-mortem heart attack.

 

Credit: Chris Weston’s take on Orwell’s Big Brother from 1984

Another great bedtime story.

Ambassadorship for sale/sold.

Just in case you missed the first lesson, here is a refresher for “How to become an Ambassador”.

Can you sue the President for breaking the law?  No?  Lame.

Reminds me of a show the other night on PBS, Cheney’s Law.  Interesting stuff on AG scandal, signing statements etc etc.

 ”Excuse me, Mr. Bush, did you know that it is illegal to appoint an ambassador as a kickback for campaign fundraising or donations?”

“You see, that’s what the terr’ists want.  God bless America.”

“I didn’t ask anything about terrorists…”

“Listen, people love America.  The world loves democracy.”

“That’s lovely, but you can’t…”

“They have weapons of mass destruction.”

“What?  Were not talking about terrorists, or nuke-uler weapons or national security!”

“Listen here Judge, I’m above the law.  I’m the decider!”

The Most Important Political Question?

Had an interesting conversation while driving a couple friends to the airport the other day.  We started talking about the primaries and politics and different candidates.  Eventually ended up talking about who we were actually going to vote for and it looked something like this: Paul-3, Obama-2 and Giuliani-1.  My friend’s fiancee was apalled by Paul’s victory– “How could you vote for Paul, he’s pro-life!?!”

Almost in unison, the Paul supporters chimed back with something like, “Who cares?  I don’t care what his personal opinion is.  He will let the States decide where they stand.”  And it hit me.  This is the most important political issue warranting both positive/conceptual analysis and constitutional analysis. 

The most important question is this: big Fed or big States?  Federalist or Anti-Federalist?  If I recall correctly, those classifications are  now counter-intuitive– Federalist being in support of stronger States.  This, to me, is more important than any gum-flapping about the hot-button political issues du jour: pro-life/pro-choice, universal health care, social security reform, immigration, jobs, the economy, tax reform– these are all distracting window-dressing.  Responses to these questions can almost literally be translated to “This is what my people tell me test the best and will get me elected”.  I just heard the perfect example on the news- “I will not rest until Michigan is back on top!” both McCain and Romney said almost the same thing.  Are you kidding me?

In addition to being beside the point, politicians’ answers are often meaningless.   Candidates flip-flop.  They lie.  They spin.  They skirt the issue to avoid revealing an unpopular opinion.  They say one thing on the campaign trail and do the opposite once elected .  It may sound stupid to say this but a politician’s job is to get elected.  I’d love to see a study of campaign positions/promises versus post-election performance but I digress.

The state of the political system is depressing.  More than once in the last couple months I’ve heard something like this, ” I don’t really care who gets elected, they’re all the same.  I just tried to pick the least-bad one of the bunch.”  It sucks and  I feel the same way.

Politicans lie.  The revolving door between government and big business continues to spin.  Foreign policy continues to head in the wrong direction.  The common thread as I see it is that the Federal government has become the sole domain of the elite and special interest groups.  The common citizen doesn’t know what they don’t know.  Even if they did know, they don’t have the time to think about macro-political concepts like Federalism v. Anti-Federalism and which way the Constitution should be interpretted; they have to worry about the stuff that politcians pretend to care about: jobs, taxes, the economy, healthcare… 

I don’t know how the system got to its current state.  Or maybe the current state is the historical status quo.  Federalist Paper No. 10 tackles this very issue: special interests groups.  Did the Anti-Federalists’ (now Federalists) loss 200 years ago set the table that we now sit at?

Madison trumpted the strength of a Republic with an emphasis on Federal power as protecting against the very group (special interests) that seem to dominate contemporary politics.  Was this an error in analysis or the case of a politician doing what politicians doing best?  I haven’t spent enough time reading Madion’s work but based on what I have read and my natural tendency to classify politicians as such, it appears to be the latter.

 More on this topic later…fo sho! 

Tacoma’s Kiss of Death?

Russell Company considering relocating Tacoma, WA headquarters. 

Article here.

 ”The chance that Tacoma could lose Russell has triggered a civic commotion best described as both scramble and strategy with one goal: Keep Russell in Tacoma.”

I should hope so.  My question: what the eff are those JO’s on the council and the EDC AND the City Manager doing?  This is what happens when you get a bunch of fat, 0ld, rich dudes entrenched in political ex machina whom are either complacent or, worse, actively opposing development for the sake of some romanticized bull-shit about “the way the city should be preserved”. 

Whatever the case, they dropped the ball and it is going to result in nuclear fallout to Downtown Tacoma IF Russell leaves.  Which I happen to think is likely for one simple fact: Tacoma drastically lags behind Seattle in vibrancy.  Perhaps if the founders were still at the helm, Tacoma might have a chance, but their not and it doesn’t.  But fear not Tacomans (??), your council was quick to recently cut a $180,000 check to an out of state consulting firm to analyze this problem.  Not only did they drop the ball, but now they’re dropping 200G’s on a study?  Good work guys.  Everybody wave good-bye to 1,100(!!!) local, high-paying jobs (est. $70mm in wages and income to Tacoma and those employees) and wave hello to a glut of empty office space that local brokers estimate will take 5+ years to clear.  Wow.

“Further, building heights downtown, now limited to 400 feet, might have to go higher to accommodate Russell’s growth, Baarsma said.”

Tacoma development groups have been blowing all this hot air about economic redevelopment for years yet there is still a 400 feet building height limit?  Heads need to roll.  Tacoma has so much potential that it actually pains me to see this kind of news.  You’d think someone would have learned from history (Weyerhaeuser relocated from Tacoma in the 70’s).  I guess its too much to ask for politicians to get off their ass to work on meaningful things that are critically important.

In the short term, Tacoma’s growth hopes are f*cked without Russell.  Perhaps the long term.  Easily avoidable tragedies are the hardest to watch.

The House of Cards that American Financial Habits Built

This is why I am cautiously, and increasingly, bearish.  I just  don’t think that this kind of stuff (along with everything else see “Market, Trades & Watches 12/18/07″) can be ignored forever– there HAS to be a correction.  Doesn’t there???  I don’t want to be a downer-bear, but more stories like this and I’ll soon be shitting in the woods.

Part of me thinks that this house of cards HAS to come down and will come down soon.  But another part of me says, who cares–don’t worry about trying to catch it before it happens; just party till the keg runs out and be ready to change direction as soon as the proverbial-shit hits ze fan.  This second strategy would be fine if I could avoid, potentially catastrophic, losses if I were in substantial positions when the market takes a hard look at the data and realizes “Uhh…Houston, (*psscchhh*)we have a problem.”

 I don’t want to see people lose money or the economy slip into a negative state but I think the longer data/behavior like this is ignored, the greater the damage is going to be.  I don’t really care which way the market is moving as long as I feel comfortable in taking an educated guess.  Anywho, just thought that was a cheery story for the holidays.

Hmmm

Poll from CNBC here.  When I cast my vote, there were around 1800 votes and I’m trying to figure out what to take from the survey results and how much weight to give it.

One way to look at it is that 80 out of 100 voters see flat or “surprising” gain.  The other way to look at it is that 58% see flat or negative for the YEAR–meaning a loss of at least 7% to drop into negative for the year.  By the numbers, bulls win.  Buttttt, how much weight should be given to the results? 

On one hand, the poll is a blunt instrument and who knows what Springer-fans pried themselves away from the tube to cast a vote.  On the other, 1800 people could be a roughly accurate representation; there has to be some value in a sample size of 1800 CNBC readers.

 Two things I can take away.  First, a flat/lame duck market seems to be on the market’s mind.  Second, these last few trading days of ‘07 will likely have a large impact on market psyche and how ‘08 kicks off.  Fourthly, I need to go to bed.

Personally, I’m short Christmas.  Bah-humbug!

(Update: 10:30 am Friday, 2400 votes counted now with the exact same distribution.  Hmmm???)