Thursday, April 21, 2005

NAIC Online - So You Want To Start An Investment Club?

Wednesday, April 20, 2005

Did the Easter Bunny cause inflation?

No, but he may have caused the market to wrongfully be worried about strong inflation on the rise. Last week was horrible for the major averages. Just plain lousy. Over the weekend I heard many comparisons to the crash of 87`. I heard fear about a crash on Monday. The fear lingered in the air. Look at the P/E ratio of the SPX (the s&p 500) 18x earnings. We are not in an overvalued market here people!

What we are experiencing is a change of tides. A fulcrum point. A Rotation. This recent "rotation" has been due to the Federal Reserve's recent increase in the short rates to fight inflation and perhaps "cool" the housing market. Yesterday, the Producer Price Index (PPI) was released with a core increase of .01%. This was great news for the equity markets as this alluded to very minimal core inflation (ex food & energy as they traditionally are very volatile)

The more popular indicator of inflation, the Consumer Price Index (CPI) struck a nerve. This morning's release of the CPI was not as peachy. The CPI rose 0.6% in March, slightly higher than expectations. But the core index rose 0.4%, double expectations (The key metric the market is watching). The culprit behind the surprise increase in core prices was a 3.9% surge in lodging costs. Economist Mr. Shepherdson makes a great observation, "It is possible that the early Easter explains the March leap, hotels may have raised rates earlier than usual," says Shepherdson. "Either way, this is not a sign of impending stagflation." Ah ha!

The Easter Bunny's egg definitely skewed our perception of everyone's favorite inflation indicator. Although, I don't think the market is aware of this factor or at least the market doesn't think the Fed will realize inflation is not as big of an issue as it seems!

Another key problem causing the core CPI to rise was Airline ticket prices. They rose by 2.7 percent, the largest increase in nearly four years, reflecting efforts to deal with surging fuel costs. This is a serious cost to many travelers, this is more correlated with energy costs and I don't believe raising rates will lower our demand for energy. The strong marginal demand for energy I believe is in China/India keeping prices high.

Food prices were basically flat as, food costs rose by 0.2 percent in March, following a gain of 0.1 percent in February. Although, prices for pork and fresh fruit fell.

When all is said and done, some consumer prices are rising but the numbers really aren't as scary as they seem. I think there should have been more seasonal adjusting for the good ole Easter Bunny and perhaps investors wouldn't have been selling off like they did this afternoon.

Students of today in the job market of tomorrow.

The world of financial services is boundless. Each day that passes brings so much innovation and demand for new and specialized skill sets. I wonder when a young undergraduate like me enters the workforce; what would be the ideal path to ensure your skills are in demand in the future?

I am a student of Rutgers University, not of the business school. This brings me to one of my pivotal beliefs I have regarding undergraduate education. I believe students with an interest in the world of business should stick to a broad subject with extensive tradition. (Mathematics, Philosophy, and somewhat Economics although Econ as we know it is slightly more of a modern study) I didn't have an interest in the business school with the majors of (Accounting, Finance, and Management). In my personal opinion, and let me just say this may be controversial, I feel these majors are more vocational and less the kind of solid fundamental skills undergrad should offer you. I believe anyone who was a master of mathematics could quickly learn finance in a very sort time BUT not vice versa.

What about after you finish undergrad; what path would most expand your human capital and best prepare you for the realm of Financial Services in the 21st Century? For a lot of business focused undergrads Investment Banking has long been the route of choice, perceived to be the most prestigious, rewarding, and lucrative path. Without a doubt entering an Investment Banking group as an analyst is intense, demanding, and challenging. It has the possibly of giving the analysts the opportunity to develop a very useful and broad skill set. Although, that of course depends on what each particular person makes of the experience and the type of projects you are assigned. Many analysts I've spoken to as of late are thinking about getting in 2-3 years in banking, perhaps a quick stint on the buy-side with a private equity firm and then leveraging their experience and past academics to be accepted into an Ivy business school. This sounds like a great route particularly with all the talk of private equity in the marketplace in the past year. I would imagine this route would give a professional a true understanding of the markets and what makes a company really tick. Should this be the most desired route for young business undergrads?

What about the other crazed phenomenon of the 1990s, hedge funds. Would starting your years out of undergraduate in research, S&T, or on a security desk at a buldge be your path of choice if your goal was working for a big money making hedge fund? Is this even a path you should pursue if you want more opportunities to work at a hedge fund or even START one? Hopefully a successful one.

The arena changes so much, even by day. It is a big choice for some students to decide upon an initial direction. Sometimes your first step can leave you trapped in a certain flavor of financial services. I would be interested to hear from professionals in the industry; in what areas of financial services do you see the job growth in the next 10-20 years? Hedge Funds seem HOT now but I've read in the economist magizine, many hedge fund managers saying things like, "If my son were to be entering the world of business today, I would steer them away from getting involved with Hedge Funds". It seems as though some folks today may know some directions the job demand is heading.

Hopefully someone can leave some good feedback, I would appreciate it.

Link: Jeff Nolan's Blog "Spitzer should resign"

Very well said blog on the Spitzer topic by Jeff Nolan.

Spitzer should resign

Tuesday, April 19, 2005

"Crusader of hypocrisy" - New York Attorney General Eliot Spitzer

Eliot Spitzer has been on a mission to set a new standard for CEOs in corporate America; a standard of high morality and less conflict of interest. He has been effective in regulating and bringing justice to much corporate scandal. I believe the inflection point was the unveiling of a 55-page lawsuit against the former chief of the New York Stock Exchange, Richard "Dick" Grasso. In this lawsuit, Spitzer charged Grasso with deception, conflict of interest and the receipt of excessive pay. Grasso fired back with a defense with an op-ed page in The Wall Street Journal. Grasso, I believe, correctly accused Mr. Spitzer of playing politics as he was becoming less of a crusader for the "little guy" and more of a cowboy with tunnel-vision sight set on Albany.
In Fall 2004, the Spitzer crusade made its way to Marsh & McLennan to remove powerful, republican, CEO Jeffrey Greenberg. Cherkasky, who was Spitzer's former boss as investigations chief for the New York County district attorney, was named chief executive of the company's Marsh Inc. risk and insurance services unit shortly after. Most recently and shameless, Spitzer threatened AIG with an indictment if longtime chairman, Maurice "Hank" Greenberg, continued at the company's helm. Hank Greenberg stepped down as chairman 48 hours after Spitzer threatened AIG with an indictment. "As long as Hank's still the chairman, AIG is still accountable," Spitzer told AIG's outside lawyers. Following this, Spitzer went on television to pronounce that the transactions at AIG were "wrong" and "illegal."
William J. Holstein, editor in chief of Chief Executive magazine, says it best, "the New York attorney general both charges and convicts in the court of public opinion. The pattern of overcriminalization is of deep concern to many chief executives....Too much publicity can be deem prejudical"
After all this is said and done, I realize my view is a controversial one. The irony is too great to ignore. Spitzer's crusade to stand up for the "little guy" has turned into a hypocritical, take out political enimies at all costs with the resources of New York State. I am not defending any of the people or entities that Spitzer has brought charges against but I feel Spitzer is too quick to make a media spectacle of a situation and convict in the press instead of a defendant's right of due process.
In the case of Dick Grasso, what ever happened to this lawsuit? Was Spitzer's goal to kick him out of the NYSE, convict him in the media, tarnish his image, and move on to his next victim? Very possible.
Grasso was a great leader of the NYSE. Grasso, a 35-year veteran of the exchange, climbed through the NYSE ranks and was appointed chairman and CEO in 1994. He was one of the greatest leaders of the NYSE in one of the hardest times during September 11th, 2001. After 9/11, many financial-industry executives doubted the reopening was possible in such a short period of time. But Grasso wouldn't take no for an answer. Somehow, working around the clock, he managed to get the job done.
Hank Greenberg, created one of the best companies in the history of the United States. AIG, a triple A rated firm with pristine track record. Spitzer has publicly claimed fraud and illegal activies regarding an area of insurance with extremely vague and little regulation. It is obnoxious to cry criminal activty regarding such loosely regulated and vague insurance operations. Where is the due process? There is none in the state of New York with Spitzer on his Crusade! He is the biggest abuser of his office of them all! Spitzer should look in the mirror and look at the gigantic conflict of interest running rampid through the office of the New York State Attorney General. Mr. Spitzer, you drew a new line of high morality and less conflict of interest; it applies to everyone, including you.