Connelly on Commerce

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

This week we will see the whites of the eyes of third quarter GDP: again, the number itself will almost certainly be wrong by a factor of 10% to 25%, owing to the fact that it will contain mostly proejctions for the month of september rather than hard data. Nevertheless, it may clue the next turn in the financial markets, more so than various consumer confidence and other measures expected by Friday.

That said, which way would a “good” number turn the markets in terms of the US currency, oil, bonds and stocks?

At week’s start, stocks were under stress due to a snap-back of the US dollar (since almost the whole world was short, this should be no surprise and is probably interim). Bonds suffered a bit due to the overhand of huge Treasury issues in the next few days. Gold traded off along with hard commodities (but sugar and coffee stayed sweet and perky).

So let’s say GDP comes in at 3% or better: does this encourage the stock market that the rally over the past six months is somewhat more justified than many believe (especially those sitting on the sidelines waiting for a chance to come in and dress up their portfolios)? Or does it foretell an earlier than expected increase in the Fed funds rate and thus a panic out of stocks? Could go either way on the same data. Practically everyone would discount the sustainability (if not the credibility — see above comment) of a number with a “3″ on it; perhaps, then, there will be less panic about the Fed moving more quickly.

It is also evident that hedge funds that have missed the rally will be trying to drive the market south in advance of Thursday’s GDP announcement in anticipation of getting some stocks on the cheap by nightfall Wednesday, ahead of a GDP-induced run-up.

Also on deck this week are Senate action on extending or phasing out the new homebuyers tax credit..look for this by mid-week or not at all. First inklings of a stretched out “compromise” on this sent bank and homebuilder stocks reeling. We do love ou own bailouts but not the others guy’s.

Also coming will be weekly unemployment numbers, with perhaps a clue to where the monthly report wil come out Friday November 6.

Meanwhile the Congress and the Fed will also progress their work on financial institution reform and banker pay limits, and the Yankees will be in at home in the World Series against some pretty tough pitching from the left-side (and featuring a couple tough lefty hombres of their won): perhaps there is someting to this rise of Socialism theory of Rush Limbaugh’s; but only rich traders can afford World Series tickets, so let’s hope they are not disappointed by the Yankees, the Congress or the Fed (the latter two, however, lack a Derek Jeter as captain).

And speaking of banker pay: remember, Warren Buffett tried to rein that in single-handedly (I believe he’s a lefty, too)  when he ran Salomon  Brothers in 1991-1992; but in his own words he failed to do so, because the other firms took  out his best talent rather than follow his lead. No wonder then that only the Government can serve as the great equalizer and save these institutions from themselves.

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

“Change We Can Believe In”

Here is what President Obama should do to get Health Care Reform done:Unclog your vetting process and admit some experienced business professional to your government, not just academics, DC lawyers, think tankers and former affiliations congressional staff. Not everyone who worked on Wall Street is an untouchable

Confront the negativity, don’t add to it; folks are  overdosed on pessimism.

It’s time to stop appearing to demonize business, insurance companies, banks and corporations: there are real demons out there, mostly in Fox News, but you need a successful and growing economy to reform healthcare. 

Simplify: a PowerPoint chart could put your HC opposition on the spot, not off the hook .

Don’t just laugh off the absurd call it what it is (death panels, concentration camps, etc.)

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

What passes for conventional wisdom from CNBC, Fox and multiple radio commentators these days on the economy is reflecting more politics and ideology than hard analysis.

For example — Obama has failed because he hasn’t secured passage of  comprehensive health care legislation in his first six months in office: what utter nonsense. Whether or not legislation passes later this year, the idea that a he should be written off because in that short a time he hasn’t accomplished what 11 Presidents before him failed in the their full terms to do  is preposterous except on cable TV.

The stimulus package has failed: if so, then why is 2nd quarter GDP down only 1% while the previous two quarters were down by over 5% each?

The “cash for clunkers” program is a Katrina-like failure of Federal government intervention: then why were the appropriated funds exhausted in on only the first week of eleigibility?

The Chinese and other foreign central banks are going to stop buying US Treasury securities: then why were the vast majority of recent Treasury note auctions quite successful from the US taxpayers’  standpoint?

Warren Buffett was a fool to take an option on Goldman Sachs at $115/share: enough said, with Goldeman now at $160 or so.  And his GE is climbing in share price as well.

The government has no business involved in the auto industry, and will surely botch the bankruptcies of GM and Chrysler: then why are both already out of bankruptcy succesfully, faster than any airline in history, and why are auto sales up? (See “cash for clunkers”, above, as well.) And what do these commentators suggest the Government do with its equity interests in the compnaies — sell them now and deprive the taxpayers of any upside?

If the Government fails to step in to save CIT, it will be another Lehman Brothers with dire consequences for small business: but CIT lives on and obtained private credit and bridge financing.

TARP is a failure, a waste of taxpayer money  and a boondoggle: then why have the biggest and best banks already paid their TARP loans back, with profitable interest, to the US taxpayer?

Ken Lewis was an idiot to buy Merrill Lynch, and the Government was a knave for forcing him to do so: then why is Ken crying all the way to the (pardon the expression) bank with the flush of cash generated by the folks at Merrill this fiscal year?

Carol Bartz should do a deal with Microsoft; but when she does a deal, she shouldn’t have — let’s wait maybe a week to see how things sort out!

The Obama Adminstration is spending too much money and Bernanke is printing too much money and neither will be able to stop runaway inflation: OK, so let’s go back to the Hoover  approach and and adopt an austerity budget and contract the money supply — worked before, right?

Those who want to use ideology as a basis for stock trading are welcome test the returns that type of focus brings. But let’s not replace the “efficient market”  hypothesis with another fantasy version of real economic behavior.

 Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

 Rarely has there been a Fed meeting proking more market anxiety when the the chance of an interest rate increase is absolutley nil than the ongoing meeting that will end Wednesday June 24.

Rarely has the role of the Fed as market psychiatrist-in-chief been more front-and-center in the market’s consciousness — or unconsciousness, for that matter.

The market would, it thhinks, like the Fed to tell it when it will get concerned enough about potential inflation to take the wraps off interest rates; whether and when it will continue to buy Treasury securities and government agrency paper; whether and when the nation’s bansk will collecively no longer present a “systemic rsik’ without direct governmental aid; what the ‘top’ willl be in unemployment and the “bottom’ will be of housing; whether tit sees “green shoots” in the economy or ‘”ellow weeds”?

The honest answer to each of these questions is “We’ll see.” And Chairman Bernanke will probably find a way to say just that and not much more — the good doctor found out long ago that a placebo works just as well as Valium when it comes to market anxiety, and he must bear in mind that he is running for re-eelction in a primary where there is only one Voter-in-Chief.

Besides, if the Fed actually could answer those questions with precision and did so, the market would quickkly remeber the phrase “Be careful what you wish for”. The markets eyes want answers, but its stomach surely does not — precisley because the fed would lose all credibility if it actually tried to forecasrt beyond the macro numbers it ususally deals in.

We will have to be satisfied with a “steady as she goes” statement even if where she is going isn’t all that clear yet. What is more or less clear is that we have dodged Armageddon — whether that fact drives the US dollar’s relative value up or down in the wake of expanded fiscal deficits remains to be seen, and will be the first signal of how the market views what the Fed has to say — the markets for oil, commodities, and yes even fertilizer, not to mention banks (which have been dealing in fertilizer of sorts over the past couple years) will follow.

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

Can a State qualify for TARP assistance; would its financial collapse threaten to create a “systemic risk”?

For the municipal bond market, the answer to the latter question is probably yes. The situation in the Golden State bears an uncanny resemblance to AIG last fall:  financial mismanagement; floundering leadership; profligate spending and risk-taking with it’s balance sheet; excessive leverage. And, perhaps most importantly, no good tools available to the Federal government for an orderly restructuring of its affairs.

FDIC receivership is of course out of the question as the State is not a bank. And under our bankruptcy laws, municipalities can file for bankruptcy, but not states. Nor does the new legislation making its way through Congress to provide a framework for winding up the affairs of financial holding companies like Lehman and AIG and Citigroup will apparently  not apply to states, either. GM and Chrysler can get their  contracts reshaped in Chapter 11 to preserve their “wasting assets” and keep their workforces alive as going concerns, but not California.

What’s a Governator to do? Perhaps by cutting expenses  wherever he can by declaring a state of “disaster” and going over the legislatures heads. Perhaps by trying to substitute Federal stimuklus money for currently budgeted California’s own budgeted  expenditures.

But the guess here is that, just when you thought that TARP was being shunted at least to the recycle bin by the post-”Stress Test” rush by the systemic risk banks to raise capital “on their own”, along comes yet another systemic risk petition, this time from Sacramento. Maybe not today or tomorrow, but July 4? — then we’ll know what it cost to prop GM and Chrysler to their next lives post-bankruptcy, and a few banks may have even met the terms for repaying the TARP. But California, like it or not, will then be the next systemic shoe to drop on Washington’s table.

We are not likely to see an analogy to the famous New York Daily News headline in the mid-70’s  “Ford to NYC — Drop Dead”  — but we may well see similar intervention to what eventually occurred in New York by way of the State government– a sort of ad hoc receivership of California’s government in exchange for a Federal Aid package — like a domestic IMF loan. What a comeuppance for the world’s seventh-largest economy. But if it could get disciplined about its finances, what an engine of change it could once again be for the country. This could be a TARP loan worth the effort.