I am of course describing the result of 9/11. Flying is not fun, I am amazed there are as many flying as there are, count me out in the future.  I just got back from the American Accounting Association meeting in Oklahoma City. 

Warren Buffet has posted his annual letter to shareholders. for 2008.  

Tom Sowell

wonders what it would take to get us to surrender. He muses that it took two nuclear bombs to finally turn Japan. This is true but the vote was actually 3-2 with the Emporer casting the deciding vote to give up. The generals incredibly wanted to fight on. This was their  conclusion after seeing tenthousands of Japanese  citizens incinerated in a moment, without I would add knowing how many more such bombs we had. That is truly a terrifying enemy.

Sowell points out that a nuclear Iran or Korea could supply a weapon that could wreak such havoc on a major US city, this as he says is a far worse tragedy than John Thaine making several million dollars while Merril Lynch melts. Unlike the rest of the land linked world, we have had the luxury of the Atlantic and Pacific oceans to keep hordes of Visigoths, Huns, Mongols, Vikings, you name the century, from simply marching here and overrunning us.  Now the spectre of a backpack nuke changes all that, which of course is why N Korea and Iran want such a weapon. 

I have mentioned the show 24 in class as being the right to the moment example of ethical challenge. Last night was no exception. The mole at the FBI shot and killed his lover after she erased the computer files which would reveal their complicity, he killed her rather than get caught, when captured moments later he of course wanted an attorney. Would you give him an attorney or waterboard the truth from him to hopefully learn what was about to happen next, surely he cared more for his own skin than anyone else. As the female President's husband lies dying on the operating table form wounds from our enemies, it makes one think….

how does one ethically deal with a group like Japan in WW II or terrorists now who will sacrifice untold numbers of their own to kill us?  Your thoughts?  If we heard this afternoon that Wall Street was toast ( Nicole Kidmand and George Clooney made a movie where that just almost happened) what would be our reaction?

Okay I am making it official, I am predicting
that Warren Buffet will soon lose his legendary status

Has anyone
noticed that Berkshire Hathaway has lost half its value, since October? . 
Since September 2008, BRK/A has dropped form $145,000 to a low of $75,000. It
rallied along with the banks on more bailout promises this week.  Warren has gone from being a critic of
Credit Default Swaps CDS to an owner to a rescuer of those dealing in such
contracts.

Credit
default swaps are insurance contracts without the bother of insurance
regulation. An insurance contract requires an insurable interest, something to
lose, on the part of the purchaser. 
Insurance originally grew out of the desire to protect the receipt of
cargo in then risky ocean voyages in the 1700s. Parties that had no interest in
the cargo were barred from buying such contracts. They were gambling  on a disaster not protecting an
insurable interest.

J P Morgan
Chase re invented the concept of betting on default in 1997 with CDS.  Our own Phil Gramm exempted such
contracts from regulation with the Commodity Futures Act of 2000. So the stage
was set for unlimited betting on whether XYZ firm would default on a payment.
Unlike an insurance contract there is no supervisory or regulatory agency, no requirement
of insurable interest, and no regulated exchange for such instruments.  If this sounds like off track betting,
you are getting the right idea. Berkshire Hathaway (Warren Buffet) has admitted
to owning some $4.5 B in CDS.

Hmm, just
how many of these is BRK/A involved in?  Apparently the market thinks
quite a few, no wonder Warren likes the bailout idea. Historically BRK/A has
maintained it would not invest  in
‘turnarounds.’  Rather it wanted
sound companies with good track records. 
Yet, that is not the recent track record. BRK/A put $5 billion into
Goldman Sachs after it fell form $200 to $50 a share.   Buffet came to the rescue of a Swiss Reinsurance to
the tune of $2.6 B. The stock price of Swiss Re is down 49% in 2009.
Interestingly Swiss RE bought the GE Reinsurance unit in 2005.  General Electric stock has fallen in the
same pattern as CITI and other banks, and for the same reason. When will
someone ask Jack Welch what he really did transforming this once proud
industrial company to a financial shipwreck?

In each
instance Buffet got preferred stock with a hefty 10% dividend, so the firms
just took on more debt.

The
backbone of BRK is actually the re insurance business.  Ambac ABK and MBIA
MIA  are  re insurers, and
 trade for less than a five dollars. 
Buffet is an financial advisor to President Obama. Buffet is also an
advocate of the Federal Bailout. Can we connect these dots now?

,

I suspect
these are not investments by Berkshire  but attempts to plug the dike. The dike so to speak ,is
holding back a flood of CDS without the ability to pay off their obligation.
And those obligations may well lead to BRK/A.  Is BRK/A a counterparty ( to use Warren’s phrase) to more
CDS than it can cover?  Why else
would he be making investments in firms apparently in such difficulty?

Berkshire Hathaway  has  legions of
hero worshipping shareholders who make the annual trek for a shareholder
meeting  to Omaha, NB. Could their
faith  be headed for the ultimate
test?

I have distributed a list of posts on this blog about the Dallas Independent School District.  The reason was to demonstrate just how out of hand a large district could become both finanically and ethically.

Well, now Mayor Tom Leppert may want to take the DISD over. This was a surprise to DISD and the City of Dallas. NYC and other large cities have taken similar actions, but not on an unannounced basis.

Folks, I cannot make up stuff like this.

Well well well

Price earnings ratios are falling. And earnings are falling faster. This means that since the denominator is going down, the stock price is going down as well.

Dividend yields are about 6% at market bottoms. but as firms cut dividends, this means it is harder and harder to find a 6% yield. This means, yes, stock prices are falling as there is more demand for yield to induce someone to buy the stock, read on. See this is why we study accounting.

Comments in yellow from Bob Bronson Associates.

S&P 500: $16.6 billion in dividend cuts in first quarter

Dow Jones Industrial Average has worst weekly loss since Oct. 10

By Kate Gibson, MarketWatch
Last Update: 4:45 PM ET Feb 20, 2009

NEW YORK (MarketWatch) — The stock market's fall Friday had the S&P 500 Index near its bear-market low as companies listed on the broad-market index engaged in another record-breaking quarter of slashed dividends.

After lapsing more than 200 points, the Dow Jones Industrial Average recovered some to end at 7,365.67, down 1.3% for the day and 6.2% from last Friday's close, its worst week since Oct. 10. Earlier, the blue-chip index fell to an intraday low of 7,249.47, its lowest level since October 2002. The S&P 500 also pared losses, falling 8.89 points, or 1.1%, to end at 770.05, down 6.9% from a week ago. The Nasdaq Composite declined 1.59 point, or 0.1%, to 1,441.23, leaving it down 6.1% on the week.

After leading losses earlier on, financials fronted sector gains in afternoon trade, which also had gold futures closing above $1,000 an ounce. Read Metals Stocks.

"Given the uncertainty with corporate earnings, gold is one area investors should be looking at to hedge themselves against the perception that the dollar decline is somewhere on the horizon," said Dan Greenhaus, an analyst at Miller Tabak.

Gold is often purchased as a hedge against inflation, which is not an immediate concern, with consumer prices flat for the past 24 months. Read Economic Report.

While inflation could be on the more distant horizon, it is an unlikely cause for concern for near-term investors, analysts said.

"The rational investor is hiding, not investing in gold, money markets and Treasurys — those harbors of safety represent pent-up demand for stocks," said Art Hogan, chief market strategist at Jefferies & Co.

Dividend reductions within the S&P 500 in the fourth quarter of 2008 came to a record $15.9 billion, according to Howard Silverblatt, senior index analyst at Standard & Poor's.

"Now, 50 days into the quarter, the record has already been broken, with 26 issues cutting $16.6 billion," the analyst said, adding that further cuts are expected.

Those cutting dividends in February included motorcycle maker Harley-Davidson Inc. (HOG), retailer Macy's Inc. (M) and institutional money manager State Street Corp. (STT).

Conversely, agricultural giant Archer-Daniels Midland Co. (ADM), beverage giant Coca-Cola Co. (KO) and paint supplier Sherwin-Williams Co. (SHW) all boosted their payouts to investors during the month.

The S&P, trading near its Nov. 20, 2008, [closing] low of 752.96, has shed $7.02 billion — more than half its value — since its Oct. 9, 2007, highs, said Silverblatt.

Still, he managed to find a silver lining in the losses: "We've already lost more than is left, so things have to be better ahead than behind." [A variation on the glass is half empty versus half full]

Another positive, according to Jefferies & Co.'s Hogan, is that the once-wide gap between top-down and bottom-up estimates of corporate earnings for 2009 has narrowed, with consensus estimates effectively adjusted to a level "that is probably attainable." [not a chance: even bullish S&P has their bottom-up, or aggregate of individual analyst’s, estimate for 2Q ’09 operating EPS at $52.42 and their top-down, or investment strategist(s), estimate for 3Q ’09 operating EPS at $42.03, and these constantly being revised estimates are triple their estimate for “as reported” GAAP EPS for 3Q ’09 at $14.15]

A $60 estimate for 2009, multiplied by 12.5 times, yields a 750 target on the S&P, which is "extremely fairly valued," said Hogan.[who was unrepentantly bullish all the way down in the dotcom mania bust, and still remains disingenuous in his utterings]

Greenhaus instead opted to use an 11 times multiple in light of a more disruptive-than-usual economic contraction, saying $60 times his now-reduced multiple puts the S&P's "fair value" at 660, assuming the multiple and price target hold.

Kate Gibson is a reporter for MarketWatch, based in New York.

Price earnings ratios are falling. And earnings are falling faster. This means that since the denominator is going down, the stock price is going down as well.

Dividend yields are about 6% at market bottoms. but as firms cut dividends, this means it is harder and harder to find a 6% yield. This means, yes, stock prices are falling as there is more demand for yield to induce someone to buy the stock, read on. See this is why we study accounting.

Comments in yellow from Bob Bronson Associates.

S&P 500: $16.6 billion in dividend cuts in first quarter

Dow Jones Industrial Average has worst weekly loss since Oct. 10

By Kate Gibson, MarketWatch
Last Update: 4:45 PM ET Feb 20, 2009

NEW YORK (MarketWatch) — The stock market's fall Friday had the S&P 500 Index near its bear-market low as companies listed on the broad-market index engaged in another record-breaking quarter of slashed dividends.

After lapsing more than 200 points, the Dow Jones Industrial Average recovered some to end at 7,365.67, down 1.3% for the day and 6.2% from last Friday's close, its worst week since Oct. 10. Earlier, the blue-chip index fell to an intraday low of 7,249.47, its lowest level since October 2002. The S&P 500 also pared losses, falling 8.89 points, or 1.1%, to end at 770.05, down 6.9% from a week ago. The Nasdaq Composite declined 1.59 point, or 0.1%, to 1,441.23, leaving it down 6.1% on the week.

After leading losses earlier on, financials fronted sector gains in afternoon trade, which also had gold futures closing above $1,000 an ounce. Read Metals Stocks.

"Given the uncertainty with corporate earnings, gold is one area investors should be looking at to hedge themselves against the perception that the dollar decline is somewhere on the horizon," said Dan Greenhaus, an analyst at Miller Tabak.

Gold is often purchased as a hedge against inflation, which is not an immediate concern, with consumer prices flat for the past 24 months. Read Economic Report.

While inflation could be on the more distant horizon, it is an unlikely cause for concern for near-term investors, analysts said.

"The rational investor is hiding, not investing in gold, money markets and Treasurys — those harbors of safety represent pent-up demand for stocks," said Art Hogan, chief market strategist at Jefferies & Co.

Dividend reductions within the S&P 500 in the fourth quarter of 2008 came to a record $15.9 billion, according to Howard Silverblatt, senior index analyst at Standard & Poor's.

"Now, 50 days into the quarter, the record has already been broken, with 26 issues cutting $16.6 billion," the analyst said, adding that further cuts are expected.

Those cutting dividends in February included motorcycle maker Harley-Davidson Inc. (HOG), retailer Macy's Inc. (M) and institutional money manager State Street Corp. (STT).

Conversely, agricultural giant Archer-Daniels Midland Co. (ADM), beverage giant Coca-Cola Co. (KO) and paint supplier Sherwin-Williams Co. (SHW) all boosted their payouts to investors during the month.

The S&P, trading near its Nov. 20, 2008, [closing] low of 752.96, has shed $7.02 billion — more than half its value — since its Oct. 9, 2007, highs, said Silverblatt.

Still, he managed to find a silver lining in the losses: "We've already lost more than is left, so things have to be better ahead than behind." [A variation on the glass is half empty versus half full]

Another positive, according to Jefferies & Co.'s Hogan, is that the once-wide gap between top-down and bottom-up estimates of corporate earnings for 2009 has narrowed, with consensus estimates effectively adjusted to a level "that is probably attainable." [not a chance: even bullish S&P has their bottom-up, or aggregate of individual analyst’s, estimate for 2Q ’09 operating EPS at $52.42 and their top-down, or investment strategist(s), estimate for 3Q ’09 operating EPS at $42.03, and these constantly being revised estimates are triple their estimate for “as reported” GAAP EPS for 3Q ’09 at $14.15]

A $60 estimate for 2009, multiplied by 12.5 times, yields a 750 target on the S&P, which is "extremely fairly valued," said Hogan.[who was unrepentantly bullish all the way down in the dotcom mania bust, and still remains disingenuous in his utterings]

Greenhaus instead opted to use an 11 times multiple in light of a more disruptive-than-usual economic contraction, saying $60 times his now-reduced multiple puts the S&P's "fair value" at 660, assuming the multiple and price target hold.

Kate Gibson is a reporter for MarketWatch, based in New York.

Credit crunch may only have just begun, S&P warns

By Alistair Barr, MarketWatch
Last Update: 5:18 PM ET Feb 20, 2009

SAN FRANCISCO (MarketWatch) — The credit crunch may only be in its early stages and a bigger contraction in lending in coming months could have "serious implications" for the U.S. economy, Standard & Poor's Rating Services said Friday.

While politicians and others have complained that banks aren't lending, the data on credit outstanding credit in the U.S. only tenuously supports this idea, the rating agency said. See related story.

"What's behind the apparent difference between perception and reality?" Standard & Poor's credit analyst Tanya Azarchs said. "It may be that, while growth in overall credit was positive through at least third-quarter 2008, it has risen at a slower pace than at any time since 1945 — far below the 8%-10% rate in most years."

Banks are replacing loans as they mature, but there's little net new loan growth, she noted.

"That could mean that the slowdown in lending is just an opening act, and a true credit crunch may yet take the stage," Azarchs warned.

Banks are making fewer and fewer commitments to lend, and new issues of bonds and securitized assets have slowed to a trickle, the analyst said.

"This portends a contraction in total credit available in the coming months," she wrote. "Since this lack of lending may have serious implications for the economy, the U.S. government has been devising policies that would encourage banks to lend."

Given such pressure, S&P is focusing more on whether banks are free to make loans they think are prudent and on the health of the overall economy, Azarchs said.

Alistair Barr is a reporter for MarketWatch in San Francisco.

In  a never ending quest to get more of your money, the Transportation Secy has suggested taxing us on the miles we drive, in addition of course, to the gas taxes we already pay. This would require all cars and trucks be equipped with a gps, a transponder, a clock and other stuff. This would tally how much tax you dowed depending on your road use. As if cars did not cost enough already.

They are serious about this, Obama rejected the idea but I suspect this is just a trial balloon to see just how far they can go.

Now to the critical thinking part. Why is this a great idea in Washington DC?

Answer

Because they will not be paying this tax. Like the 55 mph speedlimit, another lousy idea, this is a tax on particularly the western states where distances are great.  It takes less time to drive 50 miles in West Texas than it does to drive 10 miles in Houston. And no one drives in Washington DC as there is public transportation via subways that of course you and I pay for but do not get to ride. And of course there is no where to park in DC anyway. A parking space there in a building costs thousands of dollars.  And so the tax is all paid but those of us with miles to go before we sleep so to speak. Oddly the dim bulb governor of Idaho was for this, good grief he is a Republican, no wonder they are losing elections. This sounds so Ralph Naderish.

Yes this articleis on page 5A of today's SA Express news.