Traders,
I got lots of responses to my opening remarks about CEO compensation, let me clarify – I write this in 30 mins every morning and it is really a stream of thoughts. Lots of it is my opinion and you may not agree with it. However, if I have spurred conversation, debate, or thought – I have done my job.
Let me review and clarify my thoughts (after I had a night to sleep on it) - First – let me say – I am not supporting or defending any CEO’s pay – that should be up to the company, the board, and the shareholders. Not the government.
Here are my points (hopefully they are clear and to the point):
1. The success of a company is a simple formula: Revenue – Cost = Margins. It is the margins that determine profit, nothing more or less. The EXEC pay is NOT why these companies are failing, the problem is on the balance sheet and the business plan. If the business plan doesn’t make sense, firing staff, cutting Exec pay, and borrowing money isn’t going to solve or fix the problem.
2. We already KNEW, have KNOWN, and will KNOW what CEO’s pay is and will be. It is no surprise – no one seemed to care when stock prices were going up, but when they are going down everyone is crying. So their pay should not be shock to anyone – it is there for anyone to see. The companies report a quarterly report 10k/q and if anyone bothered to pick it up they could learn a lot about the company – but the masses are too lazy.
3. These are PUBLIC companies. Just like citizens of this country, the shareholders have rights and can vote. They have a board, they can fire people and hire people, they can vote in compensation deals, they vote on mergers and take-overs, they can VOTE – the shareholder has a voice. In my 20 years in the financial market I have met very few shareholders that have ever voted – I talked to a broker (30 years experience) he said he has never voted, nor has any of his clients. They don’t seem to care as long as the stock goes up. Just like voting for your Congress person, Senator, or President – you can vote if you own a share in the company. Just like with political elections – not EVERYONE votes – but everyone complains. If the CEO sucks – vote him out, cut his pay, etc.
4. Not just vote – but take action. If you are a shareholder and you don’t like how the company is run, how much the CEO gets, and you did vote but you didn’t like the result then you can SELL YOUR STOCK! In fact if you think the company SUCKS or the CEO is getting paid too much you can even SHORT the stock, buy puts, or buy the competitive company. No one is forcing you to own or buy shares in the stock.
5. If the CEO does suck and is getting paid $5 million dollars, cutting his pay to $500k is not going to change the fact that he sucks. Cutting his pay is just less incentive for him to do anything. The COMPANY (shareholders and board) should fire him.
6. We have something called Bankruptcy and Courts – we should be using it. If these companies suck, their CEO’s suck, their business models suck – and the company can NOT figure out how to fix the problem they should fail – that is the whole purpose of bankruptcy!
7. We should NOT be bailing out these companies with YOUR (taxpayer) money! Why are we spending Billions and Trillions to bailout these failed companies? The government doesn’t KNOW how to run business, just look at the government’s balance sheet. Imagine the government a business – it has over $10 trillion in debt, with $2 trillion budget deficit, and is borrowing more money – but the margins go deeper into the read – you would say that is a FAILED business. Well – that is our government. You don’t have to look any further than Freddie and Fannie. They were government mandated companies, with more oversight by Congress than any company in the history of this country. They got caught in one of the biggest accounting scandals but no one got fired or arrested, they leveraged their balance sheet 50:1 – which no bank would ever be able to do, then they fully failed. The government nationalized them and they are still operating – still losing money, and the hole is getting deeper. Do you really think the government KNOWS how to run business? If the business can’t survive it needs to fail – we the people – should not be spending our money to keep them in business. We have more important things to spend our money on – then a failed bank! We also have FDIC as well – what’s the point of FDIC if we are not going to let anyone fail?
8. So IF the government is going to invest our money (which I think it should not) then it NEEDs to invest (a loan) in companies with a business model that can work and a staff that can manage it. If the government is investing in a company with a crappy CEO and feels the need to intervene on pay, union, business plan, etc – then WHY did it invest in the first place? I thought we were loaning them money, not taking them over. That is nationalism and one step closer to socialism, one step closer to communism and/or fascism (pick a side – because that is a REAL fore in the road)
At the end of the day, the CEO pay is not the problem. Sure it may seem too much, even disgusting – even I think some get paid way too much! So shareholders and board should fire him or cut his pay. If you don’t like it, then sell the company. That is the point of a publicly traded company. You don’t have to buy their goods, you don’t have to buy their stock – in fact you can even bet against them. You have the right to buy the stock and vote. You even have the right to take over the company and fire the CEO. All this complaining about CEO pay is rather moot – because at the end of the day it is YOUR tax dollar that is being spent on a failed business model.
I got lots of responses to my opening remarks about CEO compensation, let me clarify – I write this in 30 mins every morning and it is really a stream of thoughts. Lots of it is my opinion and you may not agree with it. However, if I have spurred conversation, debate, or thought – I have done my job.
Let me review and clarify my thoughts (after I had a night to sleep on it) - First – let me say – I am not supporting or defending any CEO’s pay – that should be up to the company, the board, and the shareholders. Not the government.
Here are my points (hopefully they are clear and to the point):
1. The success of a company is a simple formula: Revenue – Cost = Margins. It is the margins that determine profit, nothing more or less. The EXEC pay is NOT why these companies are failing, the problem is on the balance sheet and the business plan. If the business plan doesn’t make sense, firing staff, cutting Exec pay, and borrowing money isn’t going to solve or fix the problem.
2. We already KNEW, have KNOWN, and will KNOW what CEO’s pay is and will be. It is no surprise – no one seemed to care when stock prices were going up, but when they are going down everyone is crying. So their pay should not be shock to anyone – it is there for anyone to see. The companies report a quarterly report 10k/q and if anyone bothered to pick it up they could learn a lot about the company – but the masses are too lazy.
3. These are PUBLIC companies. Just like citizens of this country, the shareholders have rights and can vote. They have a board, they can fire people and hire people, they can vote in compensation deals, they vote on mergers and take-overs, they can VOTE – the shareholder has a voice. In my 20 years in the financial market I have met very few shareholders that have ever voted – I talked to a broker (30 years experience) he said he has never voted, nor has any of his clients. They don’t seem to care as long as the stock goes up. Just like voting for your Congress person, Senator, or President – you can vote if you own a share in the company. Just like with political elections – not EVERYONE votes – but everyone complains. If the CEO sucks – vote him out, cut his pay, etc.
4. Not just vote – but take action. If you are a shareholder and you don’t like how the company is run, how much the CEO gets, and you did vote but you didn’t like the result then you can SELL YOUR STOCK! In fact if you think the company SUCKS or the CEO is getting paid too much you can even SHORT the stock, buy puts, or buy the competitive company. No one is forcing you to own or buy shares in the stock.
5. If the CEO does suck and is getting paid $5 million dollars, cutting his pay to $500k is not going to change the fact that he sucks. Cutting his pay is just less incentive for him to do anything. The COMPANY (shareholders and board) should fire him.
6. We have something called Bankruptcy and Courts – we should be using it. If these companies suck, their CEO’s suck, their business models suck – and the company can NOT figure out how to fix the problem they should fail – that is the whole purpose of bankruptcy!
7. We should NOT be bailing out these companies with YOUR (taxpayer) money! Why are we spending Billions and Trillions to bailout these failed companies? The government doesn’t KNOW how to run business, just look at the government’s balance sheet. Imagine the government a business – it has over $10 trillion in debt, with $2 trillion budget deficit, and is borrowing more money – but the margins go deeper into the read – you would say that is a FAILED business. Well – that is our government. You don’t have to look any further than Freddie and Fannie. They were government mandated companies, with more oversight by Congress than any company in the history of this country. They got caught in one of the biggest accounting scandals but no one got fired or arrested, they leveraged their balance sheet 50:1 – which no bank would ever be able to do, then they fully failed. The government nationalized them and they are still operating – still losing money, and the hole is getting deeper. Do you really think the government KNOWS how to run business? If the business can’t survive it needs to fail – we the people – should not be spending our money to keep them in business. We have more important things to spend our money on – then a failed bank! We also have FDIC as well – what’s the point of FDIC if we are not going to let anyone fail?
8. So IF the government is going to invest our money (which I think it should not) then it NEEDs to invest (a loan) in companies with a business model that can work and a staff that can manage it. If the government is investing in a company with a crappy CEO and feels the need to intervene on pay, union, business plan, etc – then WHY did it invest in the first place? I thought we were loaning them money, not taking them over. That is nationalism and one step closer to socialism, one step closer to communism and/or fascism (pick a side – because that is a REAL fore in the road)
At the end of the day, the CEO pay is not the problem. Sure it may seem too much, even disgusting – even I think some get paid way too much! So shareholders and board should fire him or cut his pay. If you don’t like it, then sell the company. That is the point of a publicly traded company. You don’t have to buy their goods, you don’t have to buy their stock – in fact you can even bet against them. You have the right to buy the stock and vote. You even have the right to take over the company and fire the CEO. All this complaining about CEO pay is rather moot – because at the end of the day it is YOUR tax dollar that is being spent on a failed business model.
The company needs to fix the business model and the balance sheet. If the CEO sucks – fire him, don’t cut his pay. If you want a rock star CEO to come in a fix a company (like a Jack Welch) – you need pay for that and not handcuff him. He may want a hefty bonus of $1 million or $10 million or $100 million. So what – if the share holders and board want to pay him a $100 million bonus and he can fixed the balance sheet and bring the company back to profitability – then let the shareholders decide to pay him what they want to pay him. That is the point of being a shareholder – to SHARE in the RISK and REWARD – to have a SAY in how a company is run! Public companies should not be dictated to by the government – that is SOCIALISM and COMMUNISM.
Government intervention in these companies is a dangerous road – the problem is that our government doesn’t want ANY one to fail – but we need to let people fail. Life is about accountability, responsibility, and liability – not having Mommy Government come in every time we cannot fix it ourselves.Socialism simply sucks because it breeds mediocrity, complacency, and stagnation. It strips us of CHOICE and FREEDOM. There is no incentives in socialism to do well.
I don’t think the government should be pouring our tax payer money into these companies and if it decides to, it should do it in an arm’s length transaction with very high interest rates and notes. If they don’t think the CEO, board, or shareholders can turn it around – no intervention by the government will turn it around and we (the government) should NOT invest.
At the end of the day the CEO Pay Cap was nothing more than a political stunt - because when you start reading the fine print you start to realize that it is not really enforceable and that everyone that already got TARP money is grandfathered in at their current compensation – and future TARP money recipients will be a case-by-case basis. It was silly and is silly.
http://www.bloomberg.com/apps/news?pid=20601109&sid=azVLk.22AkLI&refer=exclusive
The problem is the balance sheet and if the CEO is a chump – fire him!
The bigger problem is where is all the billion and trillion we are dumping into these companies coming from, cause it sure in hell isn’t coming from the tax payer – we don’t have that kind of money even at 50% tax rate to cover this in our life time.
“All fiat currency returns to its intrinsic value – zero!” – Voltaire….
Enough said….I hope….
Boy did I open a can of worms – hopefully this will spark debate and interest in what is going on.
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Ford may need money
Initially, Ford said it didn’t need government money – yeah right. Now after the need to contribute $4 billion to its pension plan (after a massive short-fall) – the cash drain will be too much to stay afloat. It looks now like a visit to the government for some bailout money is needed. It is questionable if they are able to go it alone. It is only a matter of time before they go to the government for a handout – they’ll not survive without it.
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Job numbers
7.6% unemployment (598,000 job losses) for Jan. The biggest drop since WWII. Expectations were for 7.5% (about 530k) – it came in worse than expected. It is pretty shocking and even surpassed the higher estimate average of -560k. Some estimates for net year end are for close to 10%.
If we count in “discourage workers” and TOTAL unemployment (of employable workers) – we have reached 13.9% - those numbers are getting pretty high.
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Toyota looking worse
Toyota announced that its losses this year may be 3 times their earlier estimates – also a stronger yen is hurting trade and bringing negative pressure to earnings.
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Futures Pre-Market
The futures were up slightly and are holding in fairly well (so far) after the employment numbers. We are seeing some good volatility after the numbers. For now the spread is fairly week and if it remains we could see some ARB traders coming in to short the futures to buy the cash – however – many may remain sidelined – not wanting to risk getting long the basket at the opening after the job numbers.
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Support / Resistance
INDU 8000 / 8500 (We got our head above the 8000 level again and are holding fairly well in this range. The question is how will the job numbers be absorbed into the market. Note, back in Nov last year we spiked down HARD to the 7500 level. Not saying that will happen again – but with news like those job numbers – I would be surprise to see a fundamental shift to the upside.)
NDX 1100-1150 / 1200-1250 (We are at the upper band of the resistance range. 1300 is in the cards and the futures are remaining strong – despite the horrid job numbers. Watch the close – below 1200 is weak – holding up towards the 1250 line is strength. The rest of the market has not really made the move up like the NDX)
SPX 800 (850) 900 (We are up near that pivot point of the 850 area – do we hold in here – move up towards 900 or back down to 800. The economic news was fairly negative. However the market moves on perception.)
RUT 400 (450) 500 (Still at 450 – the pivot point. If this stays at the 450 line, but the narrower indices move higher – I think it could be a short-term upside move. If we can get this index up towards 500 we could see some “optimistic” strength.)
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Gold YG = 850 / 900 (We seem to be in a resistance area – really I think there is a lot of USD watchers right now. The pound rallied against the Euro and Dollar after the Bank of England cut. 800 would be a surprising low area and I think we could see support at 850 – if we pull back.)
Silver SI = 11 / 13 (We may see a pull back to 12, but it is moving higher. Good luck getting those prices in the small physical market – or even getting any quantity.)
OIL CL = 35-40 / 50 (That 40 is seeing volatility contract HARD and hidden volatility is ramping. We could head to the 35 level – but I think anything in the 35-40 level is a big support area.)
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Conclusion
I am surprised with the job numbers – it looks fairly bad. However – even more surprising is the pre-market futures are holding up very well. However – I think people are just accepting the very bad news – the next BIG THING – is to hear new U.S. Treasury Sec. Tim Geithner’s strategy – which we should hear about on Monday. It also seems the “Bad Bank” idea has lost favor – especially with Geithner. He seems to be focused on a backing of the banks with guarantees of toxic assets. Only $350 billion is left of the TARP and a review of how the first half was spent is coming under fire as Paulson’s investments seem off by over $70 billion (short changing the government) – of course it’s all mark-to-myth (he said / she said) values. Regardless, Geithner has started the tough talk and if Obama can get the Stimulus plan through the Senate - it may give Geithner some negotiating muscle. Right now – it’s about how well does the stimulus package make its way through all the political hands (the pork is seriously being loaded into it – for those that are following it). If the Dems get a victory with this plan and shove it through – it could bring some perceived optimism – at least for now.
Let’s see how we close today – after the job report sinks in. We may not see any reaction in the market today, but those numbers WILL be felt in the economy.
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