Who Is Worse? Cramer or a $500 Per Hour Psychic?

I seldom struggle for words. Fortunately, this video clip from Jim Cramer's TheStreet.con (not a typo) speaks for itself. At least we now have a better idea where Jim's investment ideas come from.

There are many potential anecdotal signals of an impending secular bull market. One would be for CNBC to be taken off the air. Another would be for Cramer and TheStreet.con to simply disappear. My crystal ball tells me this will eventually happen. That prediction was free.

link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Zambian Monkey Urine

This was too good not to pass along. Perhaps we could offer to house these chaps at CNBC World Headquarters.

From Bloomberg:
Zambian Monkeys Banned After President Urinated On, BBC Reports

Sept. 1 (Bloomberg) -- About 200 monkeys are being moved from the grounds of Zambia’s presidency to a botanical garden after one of the primates urinated on President Rupiah Banda during a press briefing, the British Broadcasting Corp. said.

About 61 monkeys have already been moved to the Munda Wanga Botanical Gardens in the capital, Lusaka, the broadcaster said, citing an unidentified official.

Banda suggested that being urinated on by the monkey may bring him good luck, the BBC said, without elaborating.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Financial Innovation At Its Worst

Ah! Financial "innovation" lives on.

From a TimesOnline article:

Britain’s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market.

Royal Bank of Scotland (RBS), which is part-owned by the Government, has set up West Register to buy properties taken over by RBS after borrowers had fallen into default.

So, what will West Register do when it comes time to mark these "assets" down? Sell them back to RBS, of course!

The strategy of our leaders (here and abroad) is clear. The problem is to be kicked down the road as far as possible. They have unfortunately chosen to gradually recognize losses (and hope for a rebound) over many years rather than dealing with the problem of nonperforming loans in one fell swoop. This is one of many headwinds we will face over the next few years. We clearly learned nothing from the Japanese experience of the last 20 years.

Furthermore, this specific activity is clearly not a sale. I would go so far as to call it fraud. This type of activity should result in firings for some while others should be made bunkmates of Madoff.

The same company executives who drove their firms to technical insolvency are still in charge. The same regulators who couldn't foresee or detect the credit crisis are still in charge. The same Washington elite that continues to waste taxpayer money, pick the winners, destroy the dollar, inflate the money supply, and exponentially boost our debt are still in charge. Nothing constructive seems to have been learned from this crisis. We will not adopt prudent financial policy until it is inevitably forced upon us.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

With Leaders Like These...

Another wonderful example of the brain trust leading our country to financial ruin. Is it any wonder that Stark represents the great and bankrupted state of California? Stark must be thrilled with the massive "wealth" increase we've experienced this last year.





link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

While Rome Burns

I have to admit to being torn about the following article. On the one hand, it's simply outrageous that the Senate is actually spending time on such a ridiculous issue with all of the real problems this country faces. On the other hand, the more time they spend on such ridiculous issues, the less time they have to further screw up the economy.


From a CNN article:

A Senate subcommittee Tuesday tackled one of the most contentious issues in U.S. sports: the fairness of the Bowl Championship Series that decides the top college football team each season.

Convened by Republican Sen. Orrin Hatch of Utah, the hearing by the Antitrust, Competition Policy and Consumer Rights subcommittee provided a sounding board for his state's disappointment over the inability of the undefeated University of Utah to qualify for the BCS national championship game last January.

Full article here.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Crop Circles Explained!

A quote from Lara Giddings, the attorney general for Tasmania:

"We have a problem with wallabies entering poppy fields, getting as high as a kite and going around in circles. Then they crash. We see crop circles in the poppy industry from wallabies that are high."


Link to BBC article

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Iran: Quote Of The Day

From a New York Times piece:

Quoted by Press TV, Abbas Ali Kadkhodaei, the spokesman for the authoritative Guardian Council — a 12-member panel of clerics charged with certifying the vote — denied claims by another losing candidate, Mohsen Rezai, that irregularities had occurred in up to 170 voting districts.

“Statistics provided by the candidates, who claim more than 100 percent of those eligible have cast their ballot in 80 to 170 cities are not accurate — the incident has happened in only 50 cities,” Mr. Kadkhodaei said.


Rubbernecker:
C'mon guys! What's the big deal? Only 30% of the vote was a fraud. Amazing. Best of luck to the Iranian people. It's nice to see some group stand up for themselves and their rights. The American taxpayer could learn a thing or two from our Iranian friends.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Investment Banking Brain Trust

Almost all large corporations involved in a merger, acquisition, or divestiture hire investment bankers to help with the process. These are the experts who help to value businesses, drum up buyers or sellers, and help ensure that the process runs smoothly. In exchange, they are paid handsomely for their efforts. Now, I understand that the sale of Lehman to Barclays was consummated in a rather hasty fashion. Still, it seems that Wall Street's best and brightest should have been capable of clarifying who owned the furniture and umbrellas.

From Bloomberg: "Lehman to Pay Barclays $6 Million for Its Own Desks, Chairs"

Lehman Brothers Holdings Inc., nine months after selling its brokerage to Barclays Plc while in bankruptcy, is still in disputes with the British bank over who owns what, including the investment bank’s own furniture.

Lehman, once the fourth-largest investment bank, asked a bankruptcy judge in New York last week to let it pay Barclays $5.9 million to buy back desks, chairs, tables, cubicles, audio- video equipment and security paraphernalia it currently uses in a building at 1271 Avenue of the Americas in Manhattan.

The repurchase is necessary because “Barclays has asserted that certain of the office furniture, fixtures and equipment that is located in the building and used by the debtors was previously sold to Barclays,” Lehman said in a June 4 filing in U.S. Bankruptcy Court in New York.

The New York-based investment bank’s disputes with Barclays have ranged from whether the liabilities assumed by Barclays were less than what the parties assumed in setting the purchase price to who owns Lehman-logoed umbrellas.

Lehman, which filed the biggest bankruptcy in U.S. history in September with assets of $639 billion, is trying to cut its overhead including lease costs as it liquidates. Its landlord has agreed to cut Lehman’s rent by $305 million to $21 million on an existing lease, partly in exchange for getting the furniture, according to the filing. Lehman first has to buy it back from Barclays, the third-biggest U.K. bank by assets.

The lease will be shortened and Lehman will rent less space under the proposed arrangement, a court filing shows.

Brandon Ashcraft, a Barclays spokesman, declined to immediately comment. Kimberly Macleod, a Lehman spokeswoman, declined to comment.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

AIG: Americans Investing in Graft

There's the ridiculous and the absurd. Then there's AIG. AIG paid $165 million in bonuses last week to select employees. How can a company that needed $170 billion in bailouts (taxpayer money) possibly justify bonuses of any amount? Perhaps they had budgeted for a $200 billion bailout and are now rewarding themselves for their $30 billion outperformance.

To add to the absurdity, these payments have been deemed retention bonuses. 73 individuals were given retention bonuses in excess of $1 million. 11 of these individuals are no longer with the firm! You read that correctly. 11 individuals who were given bonuses that were designed to keep them at the firm are no longer with the firm. Apparently, they only had to be retained through 5:00 p.m. on the day the bonus was announced. Perhaps this was a stroke of genius, and these people were actually paid to leave before they could do billions more in damage.

The leadership at AIG seems to be unaware that if the U.S. taxpayer hadn't stepped in to bail the company out, AIG would no longer exist. A company that doesn't exist is quite unlikely to pay your salary, let alone a bonus.

By all accounts, some of the people receiving the bonus were involved in the poor decisions that nearly brought the global financial system to a halt. It boggles the mind that people who should have long ago been fired are now receiving retention bonuses. What about those whose hands are clean? We're in the deepest recession since the Great Depression with a finance industry that's firing thousands of very experienced and intelligent people every month. I imagine many of those people would be happy to go to work for AIG with no bonus and less pay than the people currently at AIG.

The argument that the people responsible for creating the mess at AIG are now needed because only they can unwind the mess borders on insanity. These people were either idiots or crooks. Do we really need idiots, crooks, or idiotic crooks managing anything more sophisticated than a gumball machine?

Flash: It just crossed the tape that AIG CEO Edward Liddy is "asking" executives to return half of the bonus money. He's half right.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

"Sign" Of The Times

Thanks to Ryan for sending the following article about psychics and financial advice to me. For the record, I knew he was going to do that.

From the Daily Tar Heel: "Local psychics seeing more financial questions"

You can't beat the beginning of the article:

For Chapel Hill psychic Millie Wallace, business is booming.

As the economy worsens, more people line up to have their palms read and cards interpreted to anticipate their financial future. For some, the advice offered by stock brokers and investment bankers just isn’t cutting it anymore.

“We see things,” Wallace said. “Some accountants just guess at what kind of stock to invest in­, but people come to psychics because we know.”

The psychics know! Such conviction. If I made that kind of statement, I'd likely end up spending a good deal of time explaining my business practices to a bitter team of regulators looking for redemption for the Madoff miss. And which accountants are out there making stock recommendations? I always wondered who would go to a psychic for investment advice. Now I know -- anyone who had been getting stock-picking advice from an accountant.

Not to pick on Millie, but I'd love to know what she was invested in last year. She probably had her money tied up in crystal balls, tarot cards, incense, and scrying bowls. Ok. She would have beaten the market, but she probably just got lucky.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Geithner: 1040 Good Buddy

Tim Geithner is Obama's pick for Treasury Secretary. Tim has been the President of the Federal Reserve Bank of New York since 2003. Prior to that, Tim had worked at the Treasury Department. Tim also once worked at the International Monetary Fund. Tim can't figure out his own taxes.

This is just too precious. The man who has been working side by side with Paulson and Bernanke to "save" our financial system apparently wasn't aware that you have to pay your Medicare and Social Security taxes if you work for an employer that does not. The "discrepancy" arose during his time at the I.M.F.

According the the New York Times:

The I.M.F., as an international organization, does not withhold payroll taxes for Social Security and Medicare from its American employees’ paychecks. Those workers are required to pay the roughly 15 percent tax themselves, as if they were self-employed.

However, the I.M.F. does pay its American workers an amount equal to an employer’s half of the payroll taxes, with the expectation that they will use that to pay the I.R.S. The organization also gives them quarterly wage statements that include United States tax liabilities.

Mr. Geithner fully paid his state and federal income taxes. In failing to pay his payroll taxes, he in effect kept the money the I.M.F. had contributed toward his liability. However, Mr. Geithner’s accountant told him he was exempt from self-employment taxes, according to Obama transition officials.

To be fair, I am no fan of the U.S. tax code. It is ridiculously overburdening and complicated. Hire ten different accountants to do your taxes, and you'll get ten different answers. At the same time, I'm self-employed and have to pay my own Social Security and Medicare taxes. It's not that difficult. Tim could have shelled out less than $100 on TurboTax and got this right. The I.M.F. even gave him a quarterly statement that included this tax liability! Still, Mr. Geithner and his accountant (hopefully ex-accountant) thought that he was exempt for some reason. I hope there was better rationale than, "Hey, Tim. You're rich and powerful, so you don't have to pay that. Taxes are for losers."

Does anyone remember Zoe Baird? Bill Clinton nominated her for attorney general back in 1993, but she was shot down because she hired some illegal aliens and neglected to pay their social security taxes. Tim may not have hired any illegals (though someone should verify the status of his accountant), but the situation is pretty similar. This time, however, Congress is rushing to Tim's defense and proclaiming this matter is "a lot to do about nothing." This guy is up for Treasury Secretary! The IRS falls under the purview of the Treasury Department. The guy who will likely run the whole shebang doesn't know what taxes he owes or what constitues child care (see article). Poor Zoe was born 15 years too early.

I have a strong feeling our economy would be better off in the years to come if we just turned it over to TurboTax.

The full article can be read here.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Suing The SEC Over Madoff

In my Madoff post of one-week ago, I concluded with the following:

As for the regulators, they clearly and spectacularly failed -- again. Unfortunately, this will lead to calls for broader and deeper regulation. Regulation fails? Then we must need more! I imagine a number of Madoff investors took some comfort in knowing that the SEC had investigated Madoff and signed off. Perhaps if the SEC didn't exist, investors would have spent a little more effort themselves looking into his operation. Alas, the SEC is likely to benefit from its amazing failure by being given even greater funding. Perhaps the defrauded investors will sue the SEC for negligence.

Perhaps Phyllis Molchatsky is a Rubbernecker reader. From the WSJ:

A New York woman who lost nearly $2 million investing with Bernard Madoff has filed a claim against the Securities and Exchange Commission alleging the agency was negligent in failing to detect an alleged decades-long fraud.

The administrative claim for relief was filed with the SEC on Monday and is believed to be the first attempt by an investor to recover lost money from regulators. Phyllis Molchatsky, a 61-year-old retiree from Valley Cottage, N.Y., is seeking $1.7 million in damages from the agency.

The SEC's "statutory purpose is to protect the public interest. We feel they fell down on the job in this instance," said Howard Elisofon, the lawyer representing Ms. Molchatsky and a former SEC enforcement attorney.

The SEC declined to comment.

What a wonderful deal for the U.S. taxpayer. We pay $1 billion a year to fund the SEC which somehow manages to miss a $50 billion fraud that it was warned about. Then we're potentially on the hook for the losses from said fraud. We'll probably be rewarding this SEC incompetence with a doubling of its budget - another $1 billion of taxpayer money down the drain. It's hard to figure out just who the biggest crook is these days.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Say What You Will, Bush Has Good Reflexes

All those slippery years of flip-flopping and ducking the issues must have had the President really pumped up. Will the secret service get the boot for being such loafers and leaving it to the other journalists to sock the guy?

Link to Reuters video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Gov. "Prod" Blagojevich - Sitting It Out

[I was just in the process of sending this post out when news crossed the screen that the Illinois governor has been arrested on federal charges. More at the end of the post.]

You may have heard about the laid-off factory workers in Chicago who are staging a sit-in. I don't know all of the details about the claims of the workers or the circumstances surrounding the closing of the company, but the latest twist is disturbing. Illinois governor Rod Blagojevich has ordered all state agencies to stop doing business with Bank of America due to the shuttering of this business and the resulting sit-in.

According to news reports, the workers are simply asking for severance and the vacation pay they're owed. The governor's action, however, seems to have a "loftier" goal. Governor Prod made a cameo appearance at the plant and said, "We hope that this kind of leverage and pressure will encourage Bank of America to do the right thing for this business. Take some of that federal tax money that they've received and invest it by providing the necessary credit to this company so these workers can keep their jobs."

Nobody has claimed that Bank of America did anything wrong or illegal. They apparently canceled their financing of the company, but that's hardly surprising in the current environment. Let's keep in mind here what this company does (did). The name of the company is Republic Windows and Doors. They make windows and doors! Is anybody really surprised that this company didn't make it? We're in the midst of a national housing bear market, new and existing home sales are plummeting, residential construction is grinding to a halt, and foreclosures are skyrocketing. I'm impressed that the company stayed afloat this long.

Now the governor is threatening Bank of America with the loss of state business in order to try and force the bank to lend to a door and window company during the worst housing crisis since the Great Depression. You can't make this stuff up. Furthermore, he claims that the bank should use the Federal bailout money, which is another way of saying that the bank should use funding from all Americans throughout the country to keep this clearly defunct business on life support so its 200 employees can keep their jobs in Illinois.

This is a shameless publicity stunt on the part of the governor. The workers aren't asking for a loan for the company. They just want severance and vacation pay. Let's hope that Bank of America doesn't bite. The last thing we need are politicians throughout the country threatening banks with lost business (or other sanctions) for failing to lend to failing businesses. Good viable businesses will hopefully soon have more ready access to reasonably priced funding. Failing businesses should be allowed to fail.

UPDATE:
In light of the governor's actions in the above instance, I can't say I'm shocked at the following news that just crossed the tape. Another "reformer" bites the dust. From USA Today:

Illinois Gov. Rod Blagojevich was arrested Tuesday on charges of conspiring to get financial benefits through his authority to appoint a U.S. senator to fill the vacancy left by Barack Obama's election as president.

According to a federal criminal complaint, Blagojevich also was charged with illegally threatening to withhold state assistance to Tribune Co., the owner of the Chicago Tribune, in the sale of Wrigley Field. In return for state assistance, Blagojevich allegedly wanted members of the paper's editorial board who had been critical of him fired.

Blagojevich also was charged with using his authority as governor in an attempt to squeeze out campaign contributions.

Blagojevich's chief of staff, John Harris, also was arrested.

Federal agents were in Blagojevich's office in the Thompson Center in downtown Chicago on Tuesday morning.

Corruption in the Blagojevich administration has been the focus of a federal Operation Board Games involving an alleged $7 million scheme aimed at squeezing kickbacks out of companies seeking business from the state. Federal prosecutors have acknowledged they're also investigating "serious allegations of endemic hiring fraud" under Blagojevich.

The Chicago Tribune reported Tuesday morning that the federal investigation had spread to Blagojevich's efforts to fill the U.S. Senate vacancy left by the election of Barack Obama as president.

Political fundraiser Antoin "Tony" Rezko who raised money for the campaigns of both Blagojevich and Obama is awaiting sentencing after being convicted of fraud and other charges. Blagojevich's chief fundraiser, Christopher G. Kelly, is due to stand trial early next year on charges of obstructing the Internal Revenue Service.

Blagojevich, a Democrat, took the chief executive's office in 2003 as a reformer promising to clean up former Gov. George Ryan's mess.

Ryan, a Republican, is serving a 6-year prison sentence after being convicted on racketeering and fraud charges. The decade-long investigation began with the sale of driver's licenses for bribes and led to the conviction of dozens of people who worked for Ryan when he was secretary of state and governor.

Disclosure: The Rubbernecker is long comeuppance and just deserts.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Pucker Up...Or Maybe You Shouldn't

Isn't it bad enough that we have to deal with the worst bear market and recession since the Great Depression? Jobs are disappearing. Retirement is being pushed out. Business are going under. Banks aren't lending. Homes are being lost. Now this?

From the BBC:

A young Chinese woman was left partially deaf following a passionate kiss from her boyfriend.

The 20-something from Khuhai in Guangdong province arrived at hospital having completely lost the hearing in her left ear, said local reports.

The incident prompted a series of articles in the local media warning of the dangers of excessive kissing.

"While kissing is normally very safe, doctors advise people to proceed with caution," wrote the China Daily.

The doctor who treated the girl in hospital was quoted in the paper explaining what had happened.

"The kiss reduced the pressure in the mouth, pulled the eardrum out and caused the breakdown of the ear."

The chorus of warnings was echoed by the Shanghai Daily, which wrote: "A strong kiss may cause an imbalance in the air pressure between two inner ears and lead to a broken ear drum."

The young woman is expected to regain her full hearing within about two months.

Disclosure: The Rubbernecker is long passionate kissing but short necking with a plunger.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Thain's Inflated Sense Of Self-Worth

He's not going to get it, but I can't get over the fact that Merrill Lynch chief John Thain actually thought he deserved a $10 million bonus for the year. Apparently, a few months ago it was suggested to the compensation committee that Thain's bonus be north of $30 million. From Thain's perspective, he must have felt he was making quite a sacrifice by only asking for $10 million.

To accurately evaluate Thain's request of $10 million we need to look at his accomplishments during the year. For starters, Merrill Lynch stock has fallen 71% this year. In addition, Merrill has reported losses of over $12 billion year-to-date. According to my trusty abacus, Thain apparently thinks he's worth $1 million for every 7% decline in the stock and every $1.2 billion in net loss. I don't want to brag, but I would have been willing to generate half those losses for a mere $5 million bonus.

According to people at the firm, Mr. Thain says he deserved the bonus "because he helped avert what could have been a much larger crisis at the firm." I find that simply incredible. He's basically saying, "Look guys. Sure the stock is down 71% due largely to a lot of poor risk management and decision-making under my watch, but if I hadn't acted boldly in selling the firm to Bank of America, we might have ended up in bankruptcy! Clearly, I deserve $10 million for only losing $61 billion of market value." It's kind of like a kidnapper demanding freedom for not having murdered.

Asking for a $10 million bonus in light of the facts demonstrates either a massive ego or a complete detachment from reality (the two often go hand in hand). And it doesn't matter that he only joined Merrill in late 2007. He came to the firm with a fresh set of eyes and had every opportunity to examine the firm's balance sheet, risk exposures, and risk management practices. This guy is lucky to still have a job (as is the rest of senior management though I'm sure many of them will soon be "leaving" following the merger).

Let's also not forget that Thain is pulling down a base salary of $750,000. He might not be happy with that, but I can think of about 533,000 recently unemployed folks who would kill for a piece of that.

Disclosure: The Rubbernecker is short overpaid company-killers.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

"Hall"f Baked

I have nothing against Glenn Hall of TheStreet.com personally. I know nothing about him. I'm sure he's a nice guy, but I can't believe some of what he writes. I'm starting to think that TheStreet.com doesn't have an editing staff.

Glenn writes a piece for TheStreet.com that he calls "Today's Outrage." As you can probably surmise, Glenn proceeds in each article to rant, complain, or disgrunt about his topic-du-jour. My turn. I recently read a couple of his pieces that made my jaw hit the floor.

The first one is from today's article entitled "Today's Outrage: Sears Isn't Worth $4 Billion." Glenn writes:

How can Sears be worth $31.84 a share? Target fetches only $29.54, and JC Penney is down to $16.55.

At the other end of the retail spectrum, investors are only paying $6.41 for Macy's, and at the low end, Family Dollar Stores are only trading at $26.

Wal-Mart is one of the few higher-valued competitors, with its shares at $53.

So I have to ask: Who thinks Sears is better than Target or even JC Penney for that matter?

The outrageous spread between Sears' share price and better-positioned retailers may be due for a correction after investors digest today's earnings report from Sears. The company reported a loss of $146 million for its third quarter, which ended Nov. 1, and said sales fell at both its Kmart and Sears chains in the U.S.

This is scary. We're talking Stock Investing 101. Trying to compare the value of different companies by looking at only their stock prices is beyond absurd. Price alone is irrelevant. If you're going to compare equity values of different companies you need to consider how many shares of stock are outstanding. Sears isn't "worth" $31.84 a share. Sears is worth $4 billion (market value). Sears trades at $31.84 a share because Sears has a market value of $4 billion, and the company has 126.4 million shares outstanding.

What would happen if Sears did a 2-for-1 stock split tomorrow? The share count would double to 252.8 million shares, and the price of the stock would decrease by 50% to just under $16. I suppose that this would satisfy Mr. Hall since SHLD would then have a lower stock price than Target, JC Penney, and Family Dollar Stores. Nothing fundamental would change, however. Sears would still have a market value of $4 billion, but for some reason Mr. Hall would be more satisfied with the "spread" between the various share prices. This is the kind of mistake someone completely unfamiliar with stocks might make.

For the record, the following are the market values of the companies mentioned by Glenn:

• Target: $21.7 billion
• JC Penney: $3.6 billion
• Family Dollar Stores: $3.6 billion
• Macy's: $2.7 billion
• Wal-Mart: $208 billion
  

The second piece by Hall that caught my attention is entitled "Today's Outrage: Google-O-Meter Signals Doom." Glenn writes:

The true sign of how bad it's going to get comes from Google, which is throwing its contract workers to the wolves.

The Internet search giant and ultimate barometer of consumer behavior says it will significantly reduce the number of its roughly 10,000 contractors in anticipation of a worsening economy.

No problem here. Clearly, this is yet another anecdotal sign of a weakening global economy. At the same time, good for Google. One of the knocks on the company has been its free-spending ways. If business is slowing, costs need to be cut, and reducing contract workers strikes me as a logical and reasonable place to slice. Glenn continues:

It may be the right thing to do from a fiduciary perspective, but the folks at Google don't seem to realize how damaging it is to the psyche of consumers and investors alike to see the ultimate growth machine scaling back.

He should have quit after "perspective." It's most certainly the right thing to do from a fiduciary perspective. Why in the world should Google be worried about the damage "to the psyche of consumers and investors?" This is investment analysis that only Dr. Phil and Karl Marx could like.

Is Google owned by shareholders, or is it a federal agency? Why is it up to Google to single-handedly repair investor psychology? Maybe Glenn would like Google to ramp up spending and hiring to the point at which net income will be wiped out and the stock completely destroyed (more so than it has already). I wonder what that would do to investor psyche?

I had bought some Google just before their last earnings report and sold it shortly thereafter, so I have no current position in Google. I do, however, applaud the company for getting serious about the cost side of its income statement. This will certainly help them to sustain strong free cash flow generation during the downturn. The day Google or any company starts basing its decisions on "investor and consumer psyche" is the day I short that stock.

Disclosure: The Rubbernecker is long simple math and short Dr. Phil.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Stock Options: Here We Go Again

A recent Wall Street Journal article has my knickers in a knot again. The article, "Technology Options Sink", deals with the fact that many of the stock options issued by technology firms in recent years are now worthless.

Let me jump right to the punchline. Employee stock options are a form of incentive compensation. In today's environment, management and employees should just be grateful to have a job. The fear of being called into a human resources meeting and then having security walk you out of the building as you carry a cardboard box filled with a picture of your kids, your "Employee of the Month" plaque, your cactus, and a pamphlet on COBRA benefits should be more than enough incentive.

Let's look at a few passages from the story.

At chip maker Advanced Micro Devices Inc., the situation has gotten so extreme the company is planning a shareholder meeting to ask permission to reprice 99% of its outstanding options. AMD, whose stock price had fallen about 76% over the past 52 weeks to $3.16 a share at Friday's close, said this is necessary to prevent key employees from leaving.

Leaving? To go where? Yahoo may be looking for a new CEO, but who else is hiring these days? They're going to quit their jobs and do what? Unless they have an in with the Obama administration or would be happy repossessing iPods for a debt collection agency, they'd be better off keeping their heads down and mouths shut. Most firms are letting people go these days, and these firms would be happy to take volunteers who are unhappy with their compensation. I say let 'em go. It's never been easier to replace any employee, even a "key" employee.

More than 80% of Silicon Valley's 150 largest publicly traded companies had some employees holding options that had fallen below the strike price as of Oct. 24, according to Equilar, an executive-compensation research firm. Equilar said about 90% of chief executives at those companies had underwater stock options.

Ah ha. 90% of these chief executives have underwater options. The clouds have parted and all is clear. The major beneficiaries of stock options are the senior managers of companies. And where does the call for repricing these options come from? Senior management. They dress it up and pitch it in terms of helping to keep their key employees from leaving, but they're really just trying to cut themselves a better deal. "Sure, my 1,000,000 options would also be repriced, but this is really about helping the engineers with their 100 options."

Some companies are trying to pre-empt shareholder opposition, designing "value-neutral" plans that allow employees to exchange existing options for a smaller number of new ones at lower exercise prices. That will help protect part of an employee's grant but avoid large-scale dilution or additional accounting charges, said compensation specialists.

Value-neutral? You gotta love consultants. If by value-neutral you mean exchanging a lot of essentially worthless options for a smaller number of valuable options then, sure, let's call it "value-neutral." Isn't that the kind of math that led to CDOs?

RiskMetrics' Mr. McGurn said investors will be much more sympathetic to plans that don't include executives and directors, many of whom are seen as overpaid. Shareholders also may want to see vesting schedules, the length of time employees have to work at a company before getting their grants, extended in order to entice employees to stay longer.

This almost sounds reasonable. No argument with the part about leaving out executives and directors, but I doubt it would work so smoothly. If the executives needed to be excluded to get approval for the rank-and-file, I wouldn't be surprised to see the issue dropped altogether. Or I imagine we'd see an even larger "catch-up" award for the execs the next time options were issued.

The idea of extending vesting schedules is fine, but that can be done on a going-forward basis with new option awards. There is no good reason to retroactively change the terms of stock option awards. Everyone knew the potential risk and reward when the options were granted.

"I would probably lean toward [repricing] if it would help keep employees," said Ryan Jacob, chief investment officer at Jacob Asset Management, which holds shares in many major technology companies, including Google, Apple and Yahoo.

Ryan Jacob? They're interviewing Ryan Jacob. This is the kid who managed to parlay some incredibly dumb luck during the internet bubble ("investing" in companies with no business plan, no cash flow, and insane valuation) into opening his own "investment" firm. He then proceeded to lose 90% of his investor's money over the ensuing three years. That would have been bad relative performance even during the Great Depression. Does anyone really give a flying stock option what Ryan Jacob thinks about this? How is he even still in business?

The situation is similar at Google. A third of Google's 20,000 employees hold underwater options, according to an estimate by Sandeep Aggarwal, an analyst at Collins Stewart. If Google doesn't deal with the problem, it could lose key staff, he said.

So, even the mighty Google has employees with underwater options. This is supposed to be the place where everyone wants to go and work, but the stock option game is struggling here as well. Where exactly are Googlers going to go if they're already at the best place to work? Ikea? Right now, Googlers should be thrilled that they work at a growing firm with an impeccable balance sheet. For any employee that leaves Google, management will probably have 1000 resumes to pour over.

I would encourage everyone to vote against any repricing of stock options for any reason. The risk and potential reward of these options grants and the trade-off between cash salary and incentive compensation were accepted by all parties when granted. Options are not a form of guaranteed deferred income. They are "option"al.

Management is simply looking to dilute existing shareholders to its own benefit. Don't fall for the "key" employee excuse. There are thousands of "key" employees on the market and many more to come. Furthermore, these "key" employees are often equally likely to be value-enhancing or value-destroying. The senior executives of every failed company and business venture in history were once considered "key" employees.

Disclosure: The Rubbernecker is short Ryan Jacob, "key" employees, and self-serving executives.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

The Alaska And Minnesota Senate Races

It's a crazy world. After election day passed, we were left with a few too-close-to-call Senate seats still up for grabs. One of them, Alaska, was just decided. Senator Stevens just barely lost his re-election bid by a mere 3,724 votes despite being convicted on felony charges. Alaskans almost elected a convicted felon! What do you have to do up there to lose an election by a wide margin -- kill Bambi? Oh yeah, that gets you the Vice Presidential nomination.

Another close Senate race is still underway in Minnesota between comedian Al Franken and Republican incumbent Norm Coleman. I have no dog in this fight (aside from not wanting any party to achieve a filibuster-proof 60-seat majority). I just find these tight contests fascinating. Franken currently trails by about 200 votes heading into a recount. A recent Sam Stein article for The Huffington Post discussed an analysis of voting patterns in Minnesota by Dartmouth professor, Michael C. Herron. Professor Herron believes that Franken will ultimately win the seat, but what I found more interesting was the following:

According to Herron's analysis, of the 2.9 million people who went to the polls in Minnesota, there were approximately 34,000 residual voters in the Senate race. In other words, there were 34,000 more ballots cast than total number of recorded votes for all the Senate candidates.

Why the difference? A good portion of voters, Herron concludes, voted in the presidential election but deliberately did not vote for a Senate candidate. These people won't matter when it comes to a recount.

There is, however, a portion of the 34,000 who intended to vote for one of the Senate candidates but messed up. Voters were supposed to fill in the circle next to the name of the candidate they supported. Some, however, marked X's. Others circled the name itself or crossed out the names of candidates they didn't like.

This group is key to determining the Minnesota Senate victor.

Basically, the Senate seat will be decided by the subset of the Minnesota population that was too ignorant, lazy, confused, or illiterate to follow directions. I'm not sure I'd want to win that race.

Disclosure: The Rubbernecker is long incredulity and short lazy gophers.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

A Quick Note On Employment

The headlines have covered the big picture. We lost another 240,000 jobs last month, and September's figure was revised lower by 125,000. These are terrible numbers but not surprising given the sharp fall in economic activity in recent weeks. Plenty of companies have been announcing layoffs (right-sizing), and the management commentary on the conference calls that I've heard makes it clear that more cuts are coming.

One of my favorite components of the employment report is the birth/death model. A review of this model is available here. Remember that this model is responsible for about 1/3 of the total nonfarm payroll figure. For September, the birth/death model continued to spit out some absurd figures. Despite a fall of 240,000 jobs in the headline number, the birth/death model assumes that a net 71,000 jobs were created.

This means that if the birth/death model had conservatively predicted that no jobs were created or lost, the headline figure would have been a loss of 311,000 jobs. If the birth/death model had actually calculated a net loss of jobs (which was almost certainly the case), then the headline number would have been even worse. This model is notorious for being way off at turning points. These figures will be revised in a big way at a later date.

It makes me wonder how many people we pay to sit at the Department of Labor and churn out this misleading random data.

Disclosure: The Rubbernecker is short useless models and 4 out of 5 statisticians.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.