Jeff Bell Blog

I would say that my outlook is mixed. I believe that the panic has passed for investors. I believe that there is technical momentum in the market. But I am also concerned about the fundamentals of the economy -- commercial and credit card debt default, unemployment and finally, de-leveraging by households and its negative impact upon consumer spending. The financial marketplace has gone way up, but why? Earnings have exceeded expectations. But I worry about the quality of the earnings, and especially the impact of lower demand will have on declining revenues. With that said, here are some thoughts on why we might want to be more positive: 1. The 2nd quarter of this year was better than the 1st...in every measure save unemployment. 2. All the data is historical, so the real question is whether we have hit bottom. I think the answer is either yes, or we are very close. 3. The stock market is a barometer for economic activity. The cost-cutting has been aggressive and this has led to p...

April was good for stocks and generally for investors. The markets continue to move higher in early May as we get more information about housing, unemployment and the financial sector. Are we seeing light at the end of the tunnel? Is it a train? Yes, there are those who argue that this is "going to be ugly for some time." There are arguments to be made supporting their position. 1. Banks may need to write off $4 trillion globally -- bad loans and worse investments. They could earn $400 billion in profit annually and we would still see a 10 year recovery period (source: Financial Times of London). 2. Consumers have radically increased savings by reducing spending and credit usage. When you strip away Medicaid/Medicare and other funny elements of Consumer Spending, you find that true discretionary spending is down 20%. If this lasts then yes, we are in for a prolonged recession or stagnation (no growth) for 3-5 years. At that time, net worth/income to debt ratios wil...

As bad as the news is, should we be optimistic about the future? Yes. When we read about massive job losses, and individual companies deciding to lay off thousands, should we be confident in the future? Yes. Why would I say such a thing? Four reasons: 1. Cut fast and cut deep. The worse thing any company can do in an economic downturn is ignore and put off what must be done. We should hope that the cuts announced are overly aggressive, and that they will not all be needed. We should want the biggest possible cuts to insure that they are not only realistic, but overly pessimistic. Trust me; the investment markets want realism and clarity. Honesty that sales will decline will be better received than false optimism in forecasts. By over-doing it, favorable comparisons of sales, and operations and profits will come sooner, thereafter leading to more employment, investment and growth. 2. Inventories are not a problem. This thing started in 2007. Even the automotive ...

My friends, we are indeed in a severe recession. But should we call into question all of our beliefs in capitalism? No. The issue we face is one of financial market collapse. The collapse was not caused by the complex but rather by the simple. Many pundits will talk about the “CDO with ABS,” and yes, there was excessive financial engineering. But the real root cause of our troubles rests with institutions which lent money poorly. In my last blog post, I discussed my own observations as a young MBA graduating with a degree in finance from Wharton. We believed we should use advanced mathematics and some of the new learning’s from physics to “measure and eliminate risk.”” As the Financial Times recently noted, we thought we could “complete the markets.” What would be an example of the “slicing and dicing” of traditional investment vehicles? I have discussed the dismemberment of bonds. The other interesting case study is mortgages. Perhaps it is now self-evident, but for my par...

I want to connect two seemingly unrelated intellectual points: evolutionism and Nobel Prizes in financial economics. What do they have in common? They both are founded on a belief in reason; a belief that math and science can explain everything. Let’s start with evolutionism. In Darwin’s Dangerous Idea, Daniel Dennett takes a philosophical and mathematical journey. This book is not for the faint of heart, but contains a couple of really challenging ideas as they pertain to faith and evolution. To begin, Dennett’s epistemology is Charles Darwin. This is the rail that his train runs upon. Darwin’s theory of natural selection posits that organic life is continually interacting with its environment and adapting to survive. To prove that humans evolved through this process, Dennett makes the following argument: Life is a near infinite mathematical game of chance. Just as it is possible to produce a winner of a contest to correctly “call heads or tails” 1,000 times, the Homo sapiens is indee...

In my opinion, blogging is the first and one of the earliest forms of social media. Blogging is the first phase of “the wisdom of the crowd.” As I have written before, the first websites were brochure-ware, controlled by Webmasters. After the “Dot Com” bubble burst, the web came back much improved. Some people call it Web 2.0, and some dispute whether it improved that much, but it certainly enabled anyone to participate, and to publish. Participation came with bulletin boards and forums, and participation came with blogs. Blogs let anyone sign up and start publishing. Of course for most blogs, no one knew they existed and did not read them (like mine). But even at their best, blogs are a form of “one to many” publication. Some blogs have "comments" but they are hard to use, hard to follow. They read like the dead sea scrolls...literally. With Facebook or MySpace, you see the next evolution. Anyone can publish themselves, and others can comment or post or share photo...

I love movies. Grew up on them. Cannot imagine how many I have seen in my life. For the past few years, we have tried to see all the major nominees for the Oscars prior to the awards show. Last year I predicted No Country for Old Men, Daniel Day-Lewis, Tilda Swinton and Javier Bardem. I completely disagreed with Marion Cotillard. This year I have seen all 5 films nominated for "best." I believe Slumdog Millionaire is the best of the lot. Frost/Nixon is a close second, and should win Best Director for Ron Howard . Milk was too one-sided in its portrayal of history. The Reader was a very good, but not great film. And Benjamin Button now looks like a novelty compared to the rest. The snub was Gran Torino . For best actor, I have seen all the nominees performances and think that Mickey Rourke is the best. Some wonderful performances, but Mr. Rourke brings you in, holds you close and plays the most honest and real of all the actors. For best actress, I go with Anne H...

My fellow citizens: I stand here today humbled by the task before us, grateful for the trust you have bestowed, mindful of the sacrifices borne by our ancestors. I thank President Bush for his service to our nation, as well as the generosity and co-operation he has shown throughout this transition. Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because we, the people, have remained faithful to the ideals of our forbears, and true to our founding documents. So it has been. So it must be with this generation of Americans. Serious challenges That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly w...

In our first discussion of happiness, I rooted my argument squarely in Christianity, with the teachings of Jesus Christ and Mother Teresa (See below Part 1). Suffice it to say that the point was that humans are never happy being selfish, and only happy when they give to others. Now I would like to turn some attention to what some might view as the other extreme -- the legacy of Sigmund Freud and the writings Ernest Becker. As we know, Freud became an atheist during his lifetime. Becker was not an atheist, but attempts reconciliation of some of Freud's concepts on happiness in life. My good friend, Gerry Zyfers reminded me that in Becker's work we find a similar concept to one of "giving to others leads to happiness." Gerry wrote me, "I think Becker's basic point was that human beings have a mythology about their own independence, but we are radically dependent on others to give us a sense of meaning and even sense of self. To have meaning you need a mean...

In my humble opinion, the two most distinctive elements of the United States of America's economy are freedom and entrepreneurialism. The First Amendment of the U.S. Constitution states, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances." What is so striking about this, and quite frankly all of the U.S. Bill of Rights is the negative language. "Congress shall make no law;" or "shall not be infringed" (2nd); or "No Soldier shall" (3rd); all are written to limit or forbid the Federal Government from entering into the lives of its citizenry. This is one of the most profound statements of freedom in the history of politics, society and I will argue, economy. The Declaration of Independence is more positive in its tone, calling ...

U.S. Interest rates Over the next two years, rates will be low by historical standards. This will be bad news for fixed income investors, and good news for borrowing costs. In the 5-10 year time frame, there will be pressure for U.S. interest rates to rise due to the size of the U.S. government budget deficit. In addition, as the economy rebounds (and trust me, it will rebound), then the Federal Reserve will raise interest rates to hold inflation in check. So when the government spends more than it collects in taxes, who pays the difference? Today, the shortfall caused by taxes collected being less than government expenditures, has been funded by foreign government purchase of Treasury bonds of various durations. Indeed, of all of the "savings" in the world, the U.S. consumes 85% of it to finance its borrowing. Mind you, the shortfall could be funded by US citizens buying government bonds, and if investors become more risk averse over the next two decades, this may occur. But...

I wanted to write optimistically about our nation's democracy and capitalism. But before I address what I see in the next 3-5 years, I should start with my underlying assumption, and why I believe it to be true:. The United States of America is an incredibly unique social, economic and political construction, and it is the best the world has ever known. Not perfect, but perpetually driven towards auto-improvement. Natural Resources : which other country has the vast amounts of natural resources, in quantity and diversity, as the United States? None. The USA has 30% of the world's natural gas, 22% of its coal, 8% of its oil, copper 15%, Gold 15%, Silver 13%, Aluminium 17%, Magnesium 29%... Go to www.allcountries.org/uscensus/natural_resources.html to see the entire data set. Human Resources : which country has the size, scale and scope of the US education system? None. The USA has 4,140 colleges and universities with 17,500,000 undergraduate and graduate students? No o...

A sound plan from Tom Epley's Bold Exec Blog. I agree with this 10 point plan. Worth reading... http://www.boldexec.com/boldexec/2008/11/show-me-the-plan-gm-part-i-items-15.html

Perhaps it is a consequence of middle age, but more and more of my friends are pondering the meaning of life. To be fair, the terrible economy is also a causal factor, as far too many of my friends have lost jobs or fear losing them shortly. I have friends who are atheists. I have friends who are agnostic. I have friends who are both committed and causal Christians , Jews , Hindus and Muslims . I find, however, that the questions are very much the same. What is the purpose to my life? Am I loved? Do I love others? Does my life matter? Can I be happy? Today, I was reminded of words of wisdom from Mother Teresa. As we approach the second most important Christian holiday, Christmas, we find that one of the key lessons from Advent is the discovery and pursuit of JOY. First and foremost, I should clarify that joy is not pleasure. Pleasure is sensory-based. Joy is spiritual. Due to the fact that I graduated from Kenyon, and majored in the history of ideas or philosophy, most of my friend...

As we get closer to an agreement for supporting General Motors, Chrysler and Ford, I continue to press for structural reforms. What concerns me is the lack of discussion around several issues: 1. Rationalization of brands and dealer networks: whoever becomes the Car Czar will rue the error of not being granted sweeping powers to supersede state franchise laws. GM had to pay millions to dealers when they retired Oldsmobile. This cannot be the case going forward. Furthermore, continued consolidation of GM, Chrysler and Ford dealer networks is required -- and speed and low cost is the key. 2. We need to incentivize consumers to "Buy American." I am perplexed by the failure to address this requirement. It should be a hallmark of the Obama- Biden stimulus program. I favor tax credits, like those for hybrid vehicles. 3. There are two meta-goals above this issue. President-elect Obama should use the U.S. auto industry crisis as a "laboratory" for fixing Medicaid/Medicar...

I agree with my good and respected friend, Don, who kindly left a comment. We need to accelerate the pace of de-consolidation or break-up of the parts of the Big 3 Automakers. How fast we can move is limited by socio-political structures. The key here is the UAW. Either they exist in a radically modified sense or they may not exist at all. Clearly the import manufacturers in the USA are not unionized, and they are much better off. I believe politics (especially for the Democrats) will necessitate that the UAW must exist, but with concessions and modifications. Hence, I think we evolve to Don's vision of a new approach to auto manufacturing through either Chapter 11, or a government guaranteed loan program with concessions. Why do I favor a 1979-type of approach? The answer is two-fold: Chapter 11 will kill consumer demand. I was riding in a cab in San Franciso, and the driver, an African immigrant, said, "Hey, I'll ride in a plane of a company in bandruptcy, but ...

I am hopeful that my proposal for government-guaranteed loans and credit lines for the Big Three, in exchange for the meaningful structural changes, will soon become reality. Without knowing it, I was in some ways recounting what happened under President Jimmy Carter in 1979 with Chrysler. Check out this wonderful article from Time Magazine’s archives: http://www.time.com/time/magazine/article/0,9171,947356-1,00.html To summarize, The government guaranteed loans to Chrysler totaling up to $1.5 billion Chrysler had to secure another $1.43 billion in private financing at reduced rates from banks Chrysler had to gain concessions from suppliers on cost and financing Chrysler committed to $462.5 million in concessions from the company’s union employees, plus another $125 million from salaried workers. Chrysler shed unattractive assets (wholly owned parts and components factories), cut the workforce. The US government also extended the deadline by two years for Chrysler to meet C.A.F.E. req...

Well, because I spent 17 years in the auto industry, I am getting a great number of inquiries about "what should we do with the Big 3?" What I share here are my own opinions. I do not suffer from naivete about how hard this will be. But I do wish for a sustainable resolution, and not just another short-term fix, which inevitably leads to more pain and hardship in the near future. Here are my thoughts for beginning to truly address the Big 3 issues. I believe that there should be no "free lunch." I do not support a "no strings attached" plan for the Big 3. They need support and encouragement to make the changes they have discussed for decades. If our government supports the domestic-owned industry with loans or grants, then in exchange, it must seek to create a viable business for employees, and a return for investors. The only way to guarantee employment is to create an ongoing and viable business model that can compete and win. To survive, and in the futu...

What do Glen Campbell, Seal and James Taylor have in common? They have all put out cover albums in the past month. Is it co-incidence? Maybe, but mark my words, as the economy continues to suffer, people are going to be going for nostalgia . We will see it in music, in movies and TV shows. We will see it in fashion. People will want to reflect and reminisce about the past as they struggle in the present.

While I have posted on what I think the country must do to succeed (see below..."8 points"), I would like to continue with a humble open letter to our President, who is facing a very difficult environment. But he is the leader who can indeed make the right things happen for all of us. So what should President Obama do? Perhaps two recent articles provide a little guidance. The first was in Businessweek by Michael Porter: http://www.businessweek.com/magazine/content/08_45/b4107038217112.htm In it, he outlines what has made America successful. The second piece appeared in the Wall Street Journal. It is an editorial by Henry Olsen published yesterday called "What would Reagan do?" In it, the key theme was "focus on freedom." httphttp://online.wsj.com/article/SB122637470965416637.html:// Both Porter and Olsen have as a foundational element this theme of freedom. Let's reflect and explore upon where our great nation must go to continue to be great. What ma...