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How expensive do you think it is for a fast food chain to switch to sea salt on its french fries? Even if we assert that sea salt costs twice as much as the competitor (dirt salt?), it's easy to see that the impact on the cost of making each order of fries is tiny, since salt is probably 1% of the cost of the item.
That means that upgrading a high-leverage component of your product might not have any real impact on your costs. It just feels that way to the purchasing department.
On the other side of the 'twice' coin, you might discover that you're falling behind the competition. So you spend twice as much on ads, or twice as much time on social media, or devote twice as many of your resources to a problem.
The challenge, of course, is that twice as much of your time or money is irrelevant. Who cares where you started? The correct comparison is to what the competition is investing, and how well.
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Mish's Global Economic Trend Analysis |
Former Moody's Senior Vice President Accuses Rating Agency of Fraud, Corruption, and Greed Posted: 19 Aug 2011 01:59 PM PDT In good times, no one wants to end a party and everyone is willing to turn a blind-eye to fraud, corruption, and excessive greed. Bear markets, however, expose the truth. Massive fraud at Moody's now coming to light. Business Insider reports MOODY'S ANALYST BREAKS SILENCE: Says Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core.More Highlights That was just a small sample of highlights. Here are 30 more highlights of Harrington's accusation against Moody's. The Business Insider article confirms what I said earlier today about the rating agency corruption. The difference is we now have a whistle-blowing insider telling the story. In this case, the SEC cannot sweep it under the rug as they did with fraud investigation of banks: SEC Destroys 9,000 Fraud Files Involving Wells Fargo, Bank of America, Citigroup, Goldman Sachs, Credit Suisse, Deutsche Bank, Morgan Stanley, Lehman For my take on the rating agency whores and more importantly what should be done to fix the problem, please see In Praise of Timely, Blatant Incompetence Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Posted: 19 Aug 2011 10:34 AM PDT The CFTC and Wall Street are upset about a leak by Bernie Sanders that shows exactly who held what positions when crude futures topped $140 in 2008. Yahoo!Finance reports U.S. oil speculative data released by Senator sparking ire. However the article does not disclose the participants. Senator Bernie Sanders, a staunch critic of oil speculators, leaked the information to a major newspaper in a move that has unsettled both regulators and Wall Street alike.From Bernie Sanders' Website August 19th, 2011Oil Speculator Scapegoats Many debate whether speculators can influence the price of oil. I think they can. However, blame should not go to oil speculators, but rather to the Fed for injecting massive amounts of liquidity seeking a home. The Fed wants to support housing prices and foster jobs creation. However, the Fed can only supply liquidity, it cannot dictate where it goes or if it goes anywhere at all. Another piece of the blame goes to public unions and their ludicrous pension plan assumptions. Most public pension plans need 8.5% annualized returns and they are not going to get it from US treasuries or US equities. This encourages the funds speculate in commodities, accumulating a rising number of oil futures over time. Looking back to the Greenspan era, one can blame the Fed for the holding interest rates too low, too long. On a continual basis, one can blame both Congress and the Fed for actively debasing the US dollar, thereby fueling the desire of market participants to hold hard assets. In this sense, increased speculation is not a cause of rising oil prices but rather a symptom of other fundamental problems. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Yet Another 2.5 Hours, 2.3% Hour Rally, This Time on Silly Rumors Eurobonds Back in Play Posted: 19 Aug 2011 09:10 AM PDT If someone woke up at 10:00 AM Central and looked at a stock market quotes, they would have seen the stock markets essentially flat. Once again appearances would be deceiving. US Futures and Select Equities Approximately 10:15 Central click on chart for sharper image At roughly 10:00 Central things were essentially flat. Yet the ride in the S&P 500 futures shows a 26 point move from bottom to top (from 1117.50 to 1153.25) S&P 500 Futures click on chart for sharper image Notes: The purple circle is roughly 10:00 AM. The first green bar in the second frame is today's open. For such action to occur occasionally is perfectly normal. That such action is now typical is not. There are massive distortions in the markets where every tiny piece of news, some of it complete nonsense, sends shares in whatever direction. European Stocks Reverse 3.6% Decline Volatility is the norm globally. Bloomberg reports European Stocks Resume Earlier Decline; Stoxx 600 Retreats for Second Day The Stoxx Europe 600 Index lost 0.1 percent to 226.42 at 3:30 p.m. in London, paring an earlier drop of 3.6 percent. The gauge has tumbled 22 percent from this year's peak in February amid concern that Europe will fail to contain its sovereign-debt crisis and that the economic recovery in the U.S. will falter.Someone is going to write a feasibility study and that caused a reversal? I do not know what if anything caused today's glorious reversal, but if it is a "feasibility study" then prepare for more down because such a study is meaningless as long as Germany and France will not go along. Heck, the nature of the proposal is such that all Eurozone members would have to approve it so even Finland could reject it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
In Praise of Timely, Blatant Incompetence Posted: 19 Aug 2011 02:10 AM PDT Tonight I am going to do something different, openly praise blatant incompetence. I will list my reasons later but first let me sing the praises of sheer incompetence at Moody's, Fitch, and the S&P (the big 3 rating agencies). Downgrade of U.S. Debt Long Overdue Many are in shock that the S&P downgraded debt of the US from AAA. Not me. It was long overdue. However, the S&P proved it was incompetent in the way it made the downgrade. Pray tell how can a rating agency make a $2 trillion error? The answer is obvious: sheer incompetence. The irony is Moody's and Fitch proved they are incompetent by not downgrading U.S. debt. If you need a myriad of reasons, I highly recommend Issues and Solutions for Restoring Credibility to the Credit Rating Agencies and Rehabilitating the Alternative Banking System by Janet M. Tavakoli, President, Tavakoli Structured Finance, Inc. Also note that Egan-Jones downgraded US debt on July 18 from AAA to AA+ and nobody batted an eye. "We are taking a negative action not based on the delay in raising the debt ceiling but rather our concern about the high level of debt to GDP in excess of 100% compared to Canada's 35%." NRSRO Certification The SEC certifies Egan-Jones as one of 10 NRSROs "Nationally Recognized Statistical Rating Organizations". The "Big 3" NRSROs are Moody's, Fitch, and the S&P. Most have never heard of Egan-Jones or any rating agencies but the big 3, and that explains why nobody howled when Egan-Jones did its downgrade, yet everyone howled like rabid wolves over the S&P's action. The wolves demanded action and action they got. S&P Under Justice Department Investigation The Associated Press reports Justice Department investigating Standard and Poor's mortgage securities ratings . The Justice Department is investigating whether the Standard & Poor's credit ratings agency improperly rated dozens of mortgage securities in the years leading up to the financial crisis, The New York Times reported Wednesday.S&P Investigated for Insider Trading The Wall Street Journal reports SEC Asking About Insider Trading at S&P The post-downgrade backlash against S&P seems to be gathering strength.Nearly universal sentiment was that treasury yields would rise on a downgrade. I said "no effect". Yields plunged in spite of the downgrade, so clearly the decision had no effect. Rumors float all the time. The S&P gave a date as to when they would announce. They even hinted at a downgrade in my opinion. So, how tough is it for someone to start a rumor that had a 50% chance of being correct? Excuse me for asking, but as long as prostitutes are under investigation, what about an investigation of the other two whores, Moody's and Fitch, or better yet all of them for reasons far more serious than unfounded witch-hunts, like outright fraud. AAA Rated CDOs, CDOs-Squared, and Other Garbage By now nearly everyone realizes Moody's, Fitch, and the S&P were grossly incompetent and fueled the mortgage crisis by rating pure garbage mortgages in numerous forms as AAA. But was it gross incompetence or purposeful fraud by the big 3 to see who could collect the most "paying johns", damn the consequences? Regardless, why is only the S&P under investigation? The answer is the big three whores are supposed to do what the government says they are supposed to do, and the S&P didn't. So the S&P is under investigation. And that serves as a warning to Moody's and Fitch. Explanation of Whores I have used the term "whores" twice now so it needs an explanation. What I mean is the big 3 rating agencies arguably sold themselves to the highest bidder, essentially granting an AAA rating to damn near anything for a fee. The Rating Agency Model, as it now exists, pays raters on the basis of how much volume they do, not on how well they rate anything. If you are willing to rate pure garbage as AAA no matter what it is really worth, you get a lot more "action" and make a lot more money. And action the "big 3" got. And everyone, turned a blind eye to the process, because no one likes to end a party, especially a party that whores are throwing with Greenspan and Bernanke cheerleading like a pair of pom-pom girls at the big game. The SEC Caused this Mess There is just one more detail I need to point out before we get to the proper solution. That detail pertains to the question "Who Caused this Mess?" I have talked about this on numerous occasions actually, but perhaps now is the time someone will listen. Flashback September 28, 2007: Time To Break Up The Credit Rating Cartel The rating agencies were originally research firms. They were paid by those looking to buy bonds or make loans to a company. If a rating company did poorly it lost business. If it did poorly too often it went out of business. Spotlight on Prostitutes There is nothing new here. I have been talking about this for years. But finally rating agencies are in the spotlight of Congress, of foreign governments, of investors, and of pension fund managers stupid enough to buy AAA rated garbage stamped by paid prostitutes. Solutions Some of the proposed solutions to this mess are horrific. There is a massive 400 page bill in Congress to address the problem. Tavakoli's report, cited above, is 50 pages long. I agree with most of her analysis. I cannot endorse the ending paragraph. The solution is to raise one or more rating agencies up to standard to merit the NRSRO label. Meanwhile, rating agencies can continue to issue ratings but must commit to coming up to standard. Those that cannot should have the privilege of issuing ratings completely revoked. The second part of the solution is to develop global third party benchmarks and global third party rating scales and make accurate ratings the only measurement of success.No, that is NOT the Solution The government does not have and never has had a need to have a NRSRO label. Moreover, there is no need to require all debt be rated. Indeed, the act of mandating that all debt be rated by designated rating agencies is what led to the escalating problem of everything being rated AAA in the first place. Finally, it is complete silliness to suggest some committee can determine who merits NRSRO and to wait until rating agencies come up to standard. THE Solution
People buying debt will have to do homework, but that is far better than trusting an AAA rating placed on garbage by prostitutes paid to place a label. Over time, Moody's, Fitch, and the S&P will do a better job, or they will cease to exist. Simply put, those who rate debt accurately will flourish, those who don't will go out of business. What's wrong with that? So Why Do I Praise Blatant Incompetence? I praise blatant, timely incompetence because it takes massive force (in this case universally recognized blatant incompetence at precisely the right time), before there is any chance of getting change. There is a small window of opportunity here. The time to take advantage is now. Instead of silly Congressional investigations of the S&P in regards to the timing of their announcement, Congress simply needs to write a bill eliminating the NRSRO label and the requirement that debt be rated. Yes, it's as simple as that. S&P, I salute your gross incompetence. Your timing was perfect. Whether anything sensible happens remains to be seen, but at least there is a small chance for reasonable voices to be heard. Contact Congress Please send your congressional representatives an email or fax and tell them to scrap the NRSRO "Nationally Recognized Statistical Rating Organizations" rating entirely, ending the monopoly of Moody's, Fitch, and the S&P. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
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Horsemaning From Around The World Posted: 19 Aug 2011 02:51 PM PDT Originated in America, horsemaning, more and more people around the world now adopt the new entertainment activity as a Horsemaning which is the same sh*t as planking, owling etc but it looks more fun. Here are the most weird and shocking pics of horsemaning from all around the world. Related Post: Horsemaning is the New Planking In Paris In Belgium In Budapest In Holland In Melbourne, Australia In Turkey In Thailand Still In Thailand At The Nike Store In Fischamend, Austria On Google+ At Cold Stone Cremery At The Exotic Huffington Post Offices (NYC) At The MTV Offices (Times Square, NYC) At A Deli (Location Unknown) On The Beach (South Of France) On The Radio In The Style Of The 18th Century At NBC Studios (NYC) At BuzzFeed HQ (Soho, NYC) On The Planet Kamino? In A Basement, While Playing Call Of Duty: Black Ops (Location Unknown) In A Pool (Location Unknown) In An Office…With A Giant Knife Rural Nebraska? |
American People Vs. Japanese People Posted: 19 Aug 2011 02:46 PM PDT Fun comic introducing some curious differences between the Japanese and the Americans. I'm sure it was created by someone from Japan. Click on Image to Enlarge. Source: 9gag |
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