Invisible Hand Smackdown: Cry me a River…

Read this and hear how the world sounds when you are utterly, completely, beyond-comprehension, “tone deaf”. Link was courtesy of Paul Kedrosky’s ever relevant (and must read) linkfest.

Listen to the sounds of their world of entitlement and presumed privilege here… unbelievable.


More on Kinder, Gentler (albeit more expensive) Coup

Financial times columnist Martin Wolf commenting on Simon Johnson’s great piece in the May Atlantic Monthly regarding how America has been hijacked by banking/finance oligarchs. Seems that he agrees with most of what Johnson says and disagrees on the transparency of the corruption, stating, “…Yet do these weaknesses make the US into Russia? No. In many emerging economies corruption is egregious and overt. In the US, influence comes as much from a system of beliefs as from lobbying (although the latter was not absent).”

He is right, there is a much more refined system to obtain and lobby for your policies than in emerging market countries.

I especially thought Wolf’s comments on how the scramble to preserve Wall Street as we know it is driven by policy makers fears. I also agree that in essence this is more subtle than overt corruption and a coup. However, I maintain that these are all arguments in the fringe rather than the core of Johnson’s Atlantic Monthly piece.

We must wrest back control of our policy apparatus from the finance/banking oligarchs or else we become socialism rather than capitalism. No small irony that the vanguards of capitalism have somehow become the harbingers of a perverse sort of socialism whereby profits are privatized and losses are socialized and the bonus of the elite is a sacred cow.

One thing that Wolf and Johnson seem to agree upon, that without the real consequences of bankruptcy, reform will remain incomplete and largely cosmetic. And even more disheartening, a presage of worse crises yet to come.

“A Store of Value”

When I took the intro course on money and banking I still recall the paragraph related to the definition of what money is… especially the sentence that stated… “a store of value.”

That has stayed with me. What I have since been continuously surprised by are the “values” I see reflected in the manner we go about acquiring, storing and using money. It has also got our national financial statement into a very tenuous position and even impacted our national security. I would like to believe that things will change going forward in how the financial world conducts its business… but I am skeptical. So I am taking a fall back position that hoping that perhaps our government can constrain the excess practices without stifling innovation. However, I see the utter compromised position that many advisors and political actors have in current or prior financial relationships with the financial services community and I doubt that as well.  So it will have to be grass roots that change things. Rats. That is usually pretty slow, disorganized and uncoordinated. But if it sticks… then it can be the most effective, but in my estimation, the least probable.

Frank Rich says it so well in his article here in the NY Times. He is so well spoken here and in my view hopeful. Perhaps we will take some steps forward and reconnect with core, free market values that reward us based upon value creation rather than value capture. One thing is certain, we will see.

Alternative Energy Revenue Displays Rewards of Taking Market Share

Last time I wrote about alternative energy stocks I looked at the basic business model and we saw how rapidly it became a money loser in 4Q08. This time I am going to look at the revenue dimension of the industry and see which company is winning or losing market share. By way of reminder, the companies that I looked at are included in Table 1.

Table 1. Select Alternative Energy Stocks


Recall that the total revenue for these 12 suppliers over the last 8 quarters has shown remarkable quarter over quarter growth until 4Q08 when there was a dramatic 16.7% decline (See Figure 1.)

Figure 1. Revenue Drop off in 4Q08


Source: Chris Montaño, CFA; Gridstone Research

I looked at the revenue composition to see which companies are gaining market share and which are losing. Sometimes a revenue shortfall is an opportunity to see which company has committed and financially capable buyers and which have a weaker sales channel that evaporates quickly. Along these lines, one very interesting metric I look at is the relative percentage contribution of industry total revenue by each company over the 8 quarter period. Among these percentages, I found one very interesting comparison that I thought chartworthy. It is the relative revenue percentage contribution by two companies, First Solar (FSLR) and Suntech Power (STP) (See Figure 2.)

Figure 2. Suntech Power and First Solar Relative Revenue Contribution


Source: Chris Montaño, CFA; Gridstone Research

You may say, “well that is interesting but how do I make money from it?” In order to answer that, I thought it might be good to look at the two stocks relative performance as well. So I went to Google finance and brought up a chart of relative performance over the same 8 quarter time frame. While both stocks show the scars of the bear attack, there is a distinct reward for winning market share (See Figure 3.)

Figure 3. Relative Performance over 8 Quarter Period for STP and FSLR


Source: Google finance

Does market share matter in growth markets? It seems that there is a 433%+ premium attached to it in this case. That is significant.  The only challenge is making the determination in the first place. And for this, you will not usually find the answers in a set of financial statements.

Business is War… or the War of Business?

Even the pentagon is getting into the financial business now. Perhaps they will be more successful than the bankers have been? There was a recent “war game” involving an economic attack against the U.S. We did not fare too well according to this article.

Glad to see that our national security apparatus is on the case… but it does make me wonder a couple of things…

  1. If there is a linkage between national security and economic security, what are the implications for those that cost the U.S. $12.8 trillion and thereby weakened our national security?
  2. If there has been reckless profiteering (a polite way of saying piracy), then why do institutions and people get a free pass?

… seems that there needs to be some careful thought on this. But there probably will not be. It seems that the Obama administration is inclined toward the policy of incrementalism from the base the Bush administration left. Too bad. The more things change, the more they stay the same…

The Lost Opportunity of Obama’s Administration

Banking/finance oligarchs: $12.8 trillion

New Obama administration: 0

U.S. Taxpayer: -$12.8 trillion

Missed opportunities tend to act likes ghosts that linger long after the event is gone. I read this excellent opinion note this morning and wanted to do a “retweet.” It points out that the Obama administration had a golden opportunity to clean up the banking system and do some desperately needed house-cleaning. Nothing worse than “disasters masters of the universe” that have long since outlived their usefulness.

But Obama missed it. Instead, he put on his party sombrero and headed straight for the punchbowl and spent like a soon to be drunken sailor. Not that this was necessarily a bad thing, but it was the ripe time to clean up the smarmy pit of modern finance and he let it slip by. Too bad. When we get to reelection time, and the hangover hits even harder, there is no way he cannot say anything other than that he owns this mess now. For better or worse (and I suspect it will come back even harder down the road), this crisis is now his. I wonder if I have just seen the shortest time to failure by an administration?