"Our Children and Grandchildren are not merely statistics towards which we can be indifferent" JFK

Sunday, January 30, 2011

The HOG speaks: “We expect that 2011 will be a challenging year, as far as the economy is concerned"

"Company management is continuing to
take a “measured approach” in its
overall business strategy due to ongoing
concerns about the economy and
the pace of the recovery"
Harley Davidson stock up 69% since 1/28/10 and
up 7.3% after reporting a better than expected Loss

The Business Journal
by Rich Rovito
Friday, January 28, 2011
The Business Journal

Harley-Davidson Inc.’s top executive expects overall economic conditions to remain a challenge throughout 2011 for the Milwaukee heavyweight motorcycle manufacturer.

“We expect that 2011 will be a challenging year, as far as the economy is concerned,” Harley-Davidson chief executive officer Keith Wandell told The Business Journal.

Wandell noted that key economic indicators, including home equity values, remain depressed. But rising prices for used motorcycles and strong sales of new Harley-Davidson motorcycles aimed at younger riders and women provide reasons for optimism, he said.

Nonetheless, company management is continuing to take a “measured approach” in its overall business strategy due to ongoing concerns about the economy and the pace of the recovery, Wandell said. This includes the ongoing implementation of a major restructuring plan that has included a revamping of the company’s manufacturing operations in Wisconsin and Pennsylvania. Complete article

36 Harley Davidson Storefronts Closed in 2010 while stock price soars (yes, HOG's can fly...for awhile)

Journal Sentinel
By Rick Barrett

Downshifting with the economy, 64 Harley-Davidson stores have closed in the United States in the last two years as sales fell and the world's largest maker of heavyweight motorcycles throttled back production.

Last week, Harley-Davidson Inc. executives said 36 storefronts closed in 2010, not a reason to panic as the company has more than 650 primary U.S. dealerships and 162 secondary locations - dealers with multiple storefronts. That compares with 644 primary dealerships and 132 secondary storefronts in 2002.

Yet the 36 closings caught some in the motorcycle industry by surprise since, not long ago, it was unusual for a Harley dealership to go out of business.

"To me, it's an incredibly high number," said Chaz Hastings, owner of Milwaukee Harley-Davidson and a former district sales manager for the motorcycle company.

Harley-Davidson would not say how many of the closings were dealership shutdowns or store closings where a dealer had more than one location. The number was in line with expectations, according to the company, and it places the number of U.S. dealerships at about the same level as in 2002.

As recently as 2006, Harley-Davidson Inc. had a profit of $1 billion. It had a $55 million loss in 2009 and a $146.5 million profit in 2010.

Some dealership closings were necessary to protect the overall health of the dealer network, according to Harley.

The closings were a mix of primary dealerships and alternate locations, said company spokesman Bob Klein. No new dealerships were opened in the U.S. in 2010, he said.

Since the dealers are independent businesses, Harley-Davidson would not say where store closings took place in 2009 and 2010. But dealer checks confirmed closings in Wisconsin, Michigan, New Jersey, North Carolina, Florida, Louisiana, California and Washington.

This week, Harley dealers will attend an annual dealership meeting in Orlando, Fla. Some of them may be relieved that stores have been shuttered in markets saturated with motorcycle dealerships.

"I can't call it a good thing because it is somebody's livelihood that has been lost. But the world has changed," Hastings said.

Losing a franchise
In Wisconsin, Harley stores have closed in Green Bay and Hartford. It's upsetting to lose a Harley-Davidson franchise, said Ken McCoy with the former Green Bay dealership.

McCoy still has a motorcycle shop with two locations, although it no longer sells new Harley-Davidsons. He blames the recession for the loss of the franchise that he had operated for more than 40 years. "Lenders weren't helping us much," he said.

West Bend Harley-Davidson closed its Hartford store in the recession, saying it no longer made sense to have two locations less than 20 miles from each other. The Hartford store had operated for about nine years.

"Looking back, it was a real good decision because it would have been pretty tough having all of that overhead," said Louie Lauters, co-owner of the West Bend dealership, which has been in business since 1946.

It's easier not having to stock motorcycles, parts and accessories for two locations, in addition to providing dealer services at two locations. It's also good that Harley-Davidson ratcheted down the number of bikes it shipped to dealerships, Lauters said.

"All of the dealers are not getting as many motorcycles as they were used to getting," he said. "That's created a little sense of urgency for people to buy early this year. It seems as if things are on the upswing."

The costs of becoming a Harley-Davidson dealer depend on the opportunity available, according to the company. Minimum requirements include a net worth of $1 million and $600,000 in unencumbered funds, such as cash, stocks and bonds.

There's no specific distance for how close dealerships can be to each other, although Harley-Davidson has policies to address the issue and does its own marketing study when considering an expansion of the dealer network.

In the 1980s, when the company struggled badly, it may have opened too many dealerships including locations in rural communities.

"I never want to see anybody go under," said Hastings, who in 1996 was Harley-Davidson's district sales manager of the year. "But I know that Harley-Davidson and other dealerships definitely felt there were too many locations."  In some corn belt states, "We had bikes stuck between weed whackers and tractors," Hastings said.

Familiar with hard times, Hastings became an owner at Milwaukee Harley-Davidson in 2005 when the dealership was on the brink of closing. It was encumbered in debt and struggled from some previous decisions.

Hastings, who also owns three taverns and a limousine service, recast Milwaukee Harley-Davidson's image to one of endless parties and special events such as mud wrestling, cage fighting, a soapbox derby and a polar bear plunge.  The dealership, once one of the smallest in the state, is now one of the biggest.

It took renegotiating with lenders, previous partnerships, and Harley-Davidson to keep the business going. "We just had our best year since 2003," Hastings said. "I think that most of us feel that we have weathered the storm."

Impact on H.O.G.
A dealership's closing can be personal for motorcycle enthusiasts since Harley Owners Group chapters are tied to the dealers that sponsor them.

Mary Baker, director of the former H.O.G chapter in Shreveport, La., said she was shocked to learn that the Shreveport dealership was closing last spring to merge with a location in Bossier City, La. "They pretty much blamed it on the economy but also said Harley-Davidson had lowered its production so the shops weren't going to get as many motorcycles as in the past," Baker said.

The Shreveport H.O.G chapter has since merged with the Bossier City chapter. Many members dropped out because the new chapter had a different feel to it, Baker said.

"But like anything in life, you adapt to change," said chapter member Ron Delaney. "You hate to lose a dealership that's been in business a long time. But, in essence, we didn't lose anything. We just consolidated and made things better," he said.

Some areas are saturated with dealerships, said Laurence Richardson, editor of Clutch & Chrome, an online motorcycle magazine based in South Florida. "I have seen where one guy had three locations within 20 miles of each other. And you had to wonder what some people were thinking when they built these huge dealerships," Richardson said. Motorcycle shops that did not expand much probably had an easier time weathering the recession.

"Some of these mega-mall stores have a lot of space to fill," Richardson said. "If you are limiting the number of new motorcycles they can have, then that's going to hurt them when they are trying to put product on the showroom floor."

Harley plans to ship 5% to 8% more motorcycles to dealers this year to bolster inventories drawn down in 2010. Harley is shedding millions of dollars in costs while, at the same time, planning for the future and the health of its dealership network.

"I think Harley-Davidson has knuckled down with a long-term plan and is starting to reap the benefits," Richardson said.

The Journal Sentinel's Rick Barrett is the proprietor of this blog for Harley enthusiasts and anyone else interested in the motorcycle industry and culture

The GDP Joke (Michael Pento)

Friday, January 28, 2011

By: Michael Pento

The Main Street Media is running around today applauding our 4th quarter GDP report, which increased at a 3.2% annual rate. However, the current dollar or nominal GDP growth rate was 3.4%. That’s correct; the BEA is suggesting that inflation grew at just over a .2% annual growth rate in Q4 2010! Does anybody that’s not a politician or central banker really believe that the rate of inflation for goods produced domestically was growing at a .2% annual rate?

To make matters worse, personal consumption expenditures were up 4.4% and final sales surged 7.1%. I say worse because the savings rate is dropping as consumers and business ramp back up their borrowing. Household purchases, which account for about 70 % of the economy, rose at a 4.4% pace last quarter, the most since the first three months of 2006. The increase added 3 percentage points to GDP.

To be able to consume one must first have produced. If you consume without having produced, you are spending either borrowed or printed money. And the money that is being spent isn’t used to purchase capital goods, which can expand the productive output of the economy. Consumer credit is up two months in a row and we are spending borrowed and printed money, not money earned from growing real incomes.

The Fed’s preferred inflation metric, which is tied to consumer spending and strips out food and energy costs, climbed at a 0.4% annual pace, the smallest gain in data going back to 1959. So we should expect more borrowing and more Fed printing, as Mr. Bernanke feels inflation is perilously low.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

A Mockery of a Sham (Peter Schiff)

By: Peter Schiff
Friday, January 28, 2011

Back in October of 2009, when Congress first announced the formation of a commission to investigate the cause of the 2008 financial crisis, I knew immediately that their ultimate conclusions would support the agendas of their respective political parties. (Watch the video blog I recorded that day) Particularly, I knew that the commission's Democrat majority would use the crisis to justify more government involvement in the financial markets. These concerns have now been fully validated.

Given that I was one of the few people who had accurately predicted the magnitude of the housing bubble, and had laid out in my 2007 book Crash Proof the specific consequences for the banking system and the economy when it burst, I immediately contacted the commission offering my services as a witness. In particular, I assumed that the Republicans on the panel would appreciate hearing from someone who thought that the crisis resulted from too much rather too little government regulation. (see my 2008 Washington Post op-ed)

To burnish my credentials, I sent the commission a list of articles I wrote between 2004 and 2008. Much of that pre-crash critique is summarized in a speech I gave in 2006 to The Western Regional Mortgage Bankers Association.

However, despite these supporting materials, my repeated outreach to the commission bore no fruit. At that point, I realized that they had no interest in giving any visibility to the narrative that I favored, namely that the ultra-low interest rates engineered by the Greenspan-Bernanke Federal Reserve were the primary factor behind the financial crash of 2008.

Ignoring how low rates created the crisis is like blaming the crash of the Hindenburg on bad weather, poor piloting, lazy ground crews, and overly emotional broadcast journalists, while ignoring the 200,000 cubic meters of flammable hydrogen gas that the airship held in its structure.

The Democrats clearly wanted to place the blame squarely on “greedy” bankers and “derelict” regulators who had fallen under the spell of the "laissez-faire" impulse favored by Republicans. These conclusions would sanction Democrat plans to garner even greater government power.

Yet, even the Republican minority opinion widely missed the mark. In their dissenting opinion, three Republican commissioners blame the crisis on global factors beyond the ability of US policymakers to control. While it is true that other nations suffered housing bubbles, they did so because their own central banks also kept interest rates too low.

The best result was a third minority report, authored by Peter J. Wallason. He correctly blamed government-insured mortgages and government-mandated loans to non-creditworthy minority borrowers for the housing bubble, yet omitted the key role played by the Federal Reserve in making those loans “affordable.”

The government has been subsidizing housing since the Roosevelt administration, and we never had a bubble of this proportion. It was not until these guarantees were combined with a 1% federal funds rate that they became supercharged. It was the unfortunate combination of government guarantees and cheap money that produced such a toxic brew.

During the bubble, a large percentage of loans, particularly those in high-priced markets like California, had adjustable rates. These rates were popular as a direct result of the ultra-low fed funds rate, which made them significantly cheaper than traditional thirty-year fixed-rate mortgages. Some of the most popular subprime loans were of the "2/28" variety, where borrowers enjoyed artificially low "teaser" rates for the first two years only. For conforming loans, Fannie and Freddie actually guaranteed mortgages based solely on borrowers' ability to afford the teaser rate, even if they could not afford the resets. Therefore, without low rates from the Fed, most of these ARMs never would have been originated.

Most importantly, it was low rates that made overpriced homes seem affordable. Buyers paid attention to monthly payments, not home price. These mortgages were tailor-made for real estate speculators and home flippers, whose only intention was to make quick profits on the resale. Higher rates would have put a lid on home price appreciation, as potential borrowers would not have been able to swing the higher payments.

Meanwhile, the low rates themselves created investor demand for mortgage debt. With Treasuries and CDs offering pitiful returns, investors were encouraged to look elsewhere for (seemingly) low-risk investments with higher yields. This created unprecedented demand for Fannie- and Freddie-insured debt as well as new varieties of mortgage-backed securities.

Since Wall Street needed additional mortgages to package, lending standards steadily eroded to meet the demand. Much of the demand came from foreign sources looking to recycle large trade surpluses, which would have been much smaller had the Fed not kept rates so low.

The reality is that no one wants to blame the crisis on loose monetary policy because monetary policy is even looser now then it was then. If the commission had correctly blamed the housing bubble on easy money, then it would have called into question current Fed policy. Given the fragility of our economy and its continued dependence on low rates, no one has the guts to open that can of worms. If so much economic damage was done by a 1% fed funds rate, imagine how much damage is being done by 0% rates, supercharged by quantitative easing.

Neither Democrats nor Republicans want the Fed to turn off the monetary spigots for fear of the short-term shock. That is why even the most vigilant government regulators would not have prevented the financial crisis. Any official who tried to rain on the real estate parade would have been out of a job.

Of course, the fact that three separate reports drew three separate conclusions – strictly along party lines – shows that politics was the driving motivation behind the entire farce. Even with the benefit of hindsight and $9 million taxpayer dollars, this commission still came up empty.

The conclusion that should have been drawn is that we do not need more regulation. Government interference has done enough damage already. We simply need to return to a sound monetary policy and get the government out of the mortgage and housing markets. Unfortunately, that’s not going to happen.

Friday, January 28, 2011

Geithner: Inflation on a global level is “not high on the list of concerns”

Geithner expressed confidence that the recovery
has taken root in the U.S.,
pointing to clear increases in private investment
and job creation over the last 12 months

The Wall Street Journal
By Geoffrey T. Smith

Inflation on a global level is “not high on the list of concerns,” even though emerging markets across the world are certainly “feeling some pressure,” U.S. Treasury Secretary Timothy Geithner said Friday.

Mr. Geithner told the World Economic Forum in a one-on-one interview that emerging markets could manage their inflation problems better if they loosened their currencies’ links to the dollar, a measure that economists say would lead in most cases to an appreciation against the greenback.

Mr. Geithner also said he’s “very confident that the euro will survive, but argued that Europe needs time to put in place the fiscal and structural reforms that will make that possible.

As for the U.S.’s own fiscal problems, Mr. Geithner admitted that the current position is “unsustainable in the long run” and said the government needs to lay out a credible, multiyear path to sustainability. He bemoaned the fact that the U.S. political system lacks any mechanism to enforce this.

Mr. Geithner expressed confidence that the recovery has taken root in the U.S., pointing to clear increases in private investment and job creation over the last 12 months. Without explicitly endorsing them, he referenced consensus forecasts of between 3.5% and 4% annualized growth for the U.S. for the near term, and a “tighter consensus” that the jobless rate will fall to below 8% by the end of next year, from around 9.6% at present.

He noted, though that the U.S. was consigned to a “tragically moderate” recovery and an accordingly slow decline in joblessness. Mr. Geithner acknowledged the need not to jeopardize the recovery by cutting spending too fast, but warned that there is “no alternative” in the long term to tackling the liabilities that the U.S. faces from its social and health-care spending.

He took comfort from that fact that, although the U.S.’s overall public debt has risen sharply as a result of the crisis and of years of deficits before 2008, the U.S. remains better positioned than many other large economies to deal with the problem, owing to its demographics.

Geithner's Solution
Just dump it on the grandchildren

“We’re a younger country…we have a more open economy,” than many others, Mr. Geithner said.

Thursday, January 27, 2011

Pending Home Sales: NAR magically converts a negative 19.8% figure to positive 2.0%

Caution: You are about to read
Seasonally Adjusted (SA) Data
You are advised to wear protective eyeware
and do not look directly at the light

Washington, January 27, 2011

Pending home sales improved further in December, marking the fifth gain in the past six months, according to the National Association of Realtors®

The Pending Home Sales Index,* a forward-looking indicator, increased 2.0 percent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2 percent below the 97.8 mark in December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, credits good affordability conditions and economic improvement. “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions. Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favorable environment for buyers with good credit,” he said.

“In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory,” Yun said. “The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

Vigilant Grandpa on NAR's Real Figures
(a.k.a. Not Seasonally Adjusted)
The National Association of Realtors headline, seasonally adjusted December 2010 index number was 93.7 and 2% greater than November. The Not Seasonally Adjusted (NSA) Index was 60.9 or 35% less than the smoke and mirrors headline number. In addition, the December 2010 NAS figure decreased 19.8% from November.

By region, NAR reported an increase of 11.5% month over month for the SA South Region however the NSA figure was -7.5%. They reported a -13.2% reduction month over month when in fact the non pretend and non-manipulated figure was -34.3% month over month.

Lawrence Yun starting his Santa Claus impersonation in November when he reported a 91.9 SA pending home index while the NSA figure was 75.9 (17% less). This enabled the jolly one to report a 3% increase month over month while the Grinch, NSA figure was in fact -9.6 month over month.

Santa Claus' seasonally adjusted monthly figures indicate 3 consecutive months (Oct., Nov. & Dec. 2010) of increasing pending home sales when in fact the NSA figures show 3 consectutive months of declines!

Come on Santa, time to come clean as we never bought that entire "down the chimney" thing Either!

Jobless Claims: Dept of Labor Adjusts out 1.1 mil jobless claims

Welcome to Secretary Solis' World of Calculations

Department of Laughter Lies Labor

In the week ending Jan. 22, the advance figure for seasonally adjusted initial claims was 454,000, an increase of 51,000 from the previous week's revised figure of 403,000. The 4-week moving average was 428,750, an increase of 15,750 from the previous week's revised average of 413,000.

The advance seasonally adjusted insured unemployment rate was 3.2 percent for the week ending Jan. 15, an increase of 0.1 percentage point from the prior week's unrevised rate of 3.1 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Jan. 15 was 3,991,000, an increase of 94,000 from the preceding week's revised level of 3,897,000. The 4-week moving average was 3,975,500, a decrease of 39,750 from the preceding week's revised average of 4,015,250.

The advance number of actual initial claims under state programs, unadjusted, totaled 482,399 in the week ending Jan. 22, a decrease of 67,491 from the previous week. There were 502,710 initial claims in the comparable week in 2010.

The advance unadjusted insured unemployment rate was 3.7 percent during the week ending Jan. 15, unchanged from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 4,593,535, a decrease of 58,900 from the preceding week. A year earlier, the rate was 4.3 percent and the volume was 5,602,357.

The total number of people claiming benefits in all programs for the week ending Jan. 8 was 9,410,977. Complete Dept of Deception Report

Collectively, DOL Seasonally Adjusted out
1,094,242 initial jobless claims since 12/4/10

Week Ending           SA            NSA           Diff
1/22/11               454,000       482,399       28,000
1/15/11               404,000       549.890     145,890
1/8/11                 445,000       770,413     325,413
1/1/11                 409,000       578,727     168,727
12/25/10              391,000       525,710    134,710
12/18/10              420,000       495,548      75,548
12/11/10              423,000         90,276      67,276
12/4/10                438,000       585,678    147,678

Debt and the Fed (Michael Pento)

Wednesday, January 26, 2011
By: Michael Pento

The salient news of today is undoubtedly the new estimate for the 2011 deficit. The Dow Jones Industrial average has crossed above the 12k mark once again and the MSM is busy clamoring over that. However, the real news of the day is that the Congressional Budget Office (CBO) raised its deficit projection for this year’s shortfall to $1.48 trillion from $1.07 trillion. That’s an increase of over $400 billion!

Maybe not so coincidentally, President Obama vowed to cut spending by $400 billion over 10 years during last night’s State of the Union Speech. I say big deal! Even if he was successful in cutting red ink by that entire amount immediately, the deficit would still be over $1 trillion. It is only a matter of time before the bond vigilantes turn their eyes away from Europe and over to America.

The CBO’s update also indicated that the U.S. economy will expand 3.1 percent this year and 2.8 percent in 2012, with real gross domestic product growing an average of 3.4 percent in 2013-2016. CBO Director Douglas Elmendorf also indicated that "…debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011."

But the really bad news here is that their estimate for growth is most likely way too high. The Fed has now kept interest rates at near 0% for 25 months. And government debt is growing at well over a trillion dollars per year. The process of returning to a market based economy instead of one based on inflation and debt is very painful in the beginning. The end of debt monetization—if such a strategy is ever implemented—will bring asset prices much lower. And balancing the budget will temporarily bring down GDP growth and government revenue in a significant manner. Therefore, the CBO has most likely overestimated GDP or grossly underestimated inflation and deficits.

The Fed’s decision to keep interest rates unchanged didn’t surprise anyone. However, what was a surprise is that Messrs Plosser and Fischer didn’t dissent from the Fed’s zero interest rate policy. In addition, the Fed continues to concentrate on the core rate of inflation and ignore rising commodity prices and a falling dollar. Their statement indicated that they will complete the $600 billion in bond purchases even though it is causing long term yields to rise. And that the central bank will keep rates “exceptionally low for an extended period of time.”

It’s should now be clear to everyone by now that their intention is to facilitate government deficit spending by monetizing the debt.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Tuesday, January 25, 2011

Merrill (Bank of America) Pays $10 mil to hop over the Chinese Wall

Remember the Chinese Wall, you know, the wall that separates Wall Street proprietary traders and those placing client orders. Like when you call your financial advisor to place a trade assuming it is between you and the advisor. Yeah right! Oh your order was filled, however you paid more than you had to because the information was shared with the proprietary traders so they could buy ahead of you, make a few pennies and sell you their shares at a higher cost.

Remember though, these are the fine folks that received a TARP bailout in order to prevent financial armageddon and it was good for we Main Street folk. When they get caught with their hand in the cokkie jar, just write out a check and admit to NOTHING!

By Jonathan Stempel

(Reuters) - Bank of America Corp's Merrill Lynch unit agreed to pay $10 million to settle U.S. Securities and Exchange Commission charges that it fraudulently misused customer orders so it could trade for its own benefit.

The settlement stemmed from SEC charges that Merrill used the order information to place proprietary trades on a desk it no longer operates. The SEC also accused Merrill of charging hidden trading fees to institutional and wealthy customers.

Merrill did not admit wrongdoing in agreeing to settle.

"It's a slap on the wrist," said David Robbins, a partner at the law firm Kaufmann, Gildin, Robbins & Oppenheim LLP in New York and a former compliance chief at the American Stock Exchange. "This penalty is like a traffic ticket. If the desk had still been around, you can be sure the sanction would have been to close it down."

According to the SEC, from February 2003 to February 2005 Merrill operated a proprietary trading desk on its equity trading floor in New York known as the Equity Strategy Desk.

It said that while Merrill told customers their orders would generally be kept private, traders on the Equity Strategy Desk would learn information about orders from institutional clients and use it to place trades with Merrill's own money.

"Investors have the right to expect that their brokers won't misuse their order information," Scott Friestad, associate director in the SEC enforcement unit, said in a statement. "The conduct here was clearly inappropriate."

The SEC also found that from 2002 to 2007, Merrill charged undisclosed fees to some institutional and high-net-worth customers when filling orders for "riskless principal trades."

Such trades occur when a broker-dealer receives a customer order, conducts a contemporaneous offsetting trade, and then "allocates" the securities to the customer, the SEC said.

Bill Halldin, a Bank of America spokesman, said in a statement that Merrill has adopted "a number of policy changes" to separate proprietary trading from other trading, and has improved training and supervision related to principal trades.

The SEC said the $10 million penalty took into account remedies taken by Merrill after Charlotte, North Carolina-based Bank of America acquired the company at the beginning of 2009. Bank of America is the largest U.S. bank by assets.

"The fact Merrill didn't self-regulate is the bigger problem," Robbins said. "I hope other firms will see this as a signal to stop trading on confidential customer information."

Harley Davidson: Time for Wilbur the HOG to visit the bacon factory

How Charlotte the Analyst Quietly Saved
Wilbur the HOG from the Bacon Factory
For fiscal year 2010, the consensus estimate among experts was $.99 on a $36+ stock. Ninety days ago the estimate was for HOG to earn $1.26 and a mere 7 days ago the estimate was reduced to $1.05. Typical analyst games continue as the annual earnings estimate was reduced to $.99 during the past 7 days. During this 90 day period, consensus earnings estimates were reduced 21% while the stock price launched 18%.

Harley Davidson Earnings Press Release
MILWAUKEE, Jan. 25, 2011 -- Harley-Davidson, Inc. (NYSE: HOG) reported full-year 2010 income from continuing operations of $259.7 million, or $1.11 per share, compared to income of $70.6 million, or $0.30 per share, from continuing operations in 2009. For the fourth quarter of 2010, Harley-Davidson recorded a loss from continuing operations of $42.1 million, or $0.18 per share, which includes the impact of a one-time, $85.2 million charge from the Company's early repurchase of senior unsecured notes during the quarter.

The Company's financial services unit, Harley-Davidson Financial Services, was a key contributor to 2010 earnings, with operating income from financial services of $181.9 million for the full year, including $43.5 million in the fourth quarter. Operating income from motorcycles and related products was $378.8 million for the full year, including an operating loss of $6.8 million in the fourth quarter. VG: HOG's financial unit represented 32% of total operating income.

Full Year: For the full year 2010:
  •  worldwide retail sales of Harley-Davidson motorcycles decreased 8.5 percent compared to 2009.
  •  U.S. retail sales of Harley-Davidson motorcycles decreased 11.7 percent for the full year,
  • while the U.S. heavyweight market segment was down 14.6 percent, compared to 2009.
  • In international markets, retail sales of new Harley-Davidson motorcycles decreased 1.9 percent for the full year compared to 2009.
  • For the full year, dealers sold 222,110 new Harley-Davidson motorcycles worldwide at retail, including 143,391 in the U.S.
Gross margin was 29.6 percent in the fourth quarter, compared to 20.3 percent in the year-ago period. Fourth-quarter 2010 gross margin benefited from favorability on product mix and foreign currency, while fourth-quarter 2009 gross margin was adversely affected by higher fixed costs spread over fewer units and the impact of exiting the Buell product line. The Company had an operating loss in the fourth quarter from motorcycles and related products of $6.8 million compared to an operating loss of $221.8 million in the year-ago period.

Full Year: In 2010, the Company shipped 210,494 Harley-Davidson motorcycles, in line with its target range of 207,000 to 212,000 motorcycles. Full-year 2010 shipments were 5.6 percent lower than 2009, when the Company shipped 223,023 units.

Revenue from Harley-Davidson motorcycles for the full year was $3.14 billion, a 1.2 percent decrease compared to 2009. Full year P and  A revenue was $749.2 million, a 2.4 percent decrease from the year-ago period. General Merchandise revenue was $259.1 million, an 8.2 percent decrease compared to 2009. Gross margin for the full year 2010 was 34.2 percent and operating margin was 9.1 percent, compared to 32.3 percent and 7.3 percent respectively in 2009.

Financial Services Segment
Fourth Quarter: The financial services segment recorded operating income of $43.5 million in the quarter, compared to an operating loss of $7.1 million in the year-ago quarter. The improvement in year-over-year operating income is largely the result of higher net interest income and lower provision for credit losses. Full Year: For the full year 2010, operating income from financial services was $181.9 million, compared to an operating loss of $118.0 million in 2009. Full-year 2009 results were affected by two non-recurring, non-cash charges totaling $101.1 million.

In 2011, the Company expects to ship 221,000 to 228,000 Harley-Davidson motorcycles to dealers and distributors worldwide, an approximate five percent to eight percent increase compared to 2010. The Company expects to ship more motorcycles to U.S. dealers than it anticipates dealers will sell at retail in 2011, to return aggregate U.S. dealer inventory to what the Company believes is an appropriate level. In the first quarter of 2011, Harley-Davidson expects to ship 51,000 to 56,000 motorcycles. VG: Company neglects to specifiy the number of HOG's deemed inventory stuffing.

Monday, January 24, 2011

Whack a Mole Helps UBS Analyst Pick Price Target on Harley Davidson

UBS Analysts Robin Farley Maintains a Neutral Rating
on the HOG during a 228 Day Period Even Though She
Raised and Lowered the Stock Price Target from $28.80 to $37.
Keep Whacking Robin, It Just Takes Practice.

Earnings Preview: Harley-Davidson
by The Fly On The Wall
Harley-Davidson (HOG) is expected to report Q4 earnings before the market open on Tuesday, January 25, 2011 with a conference call scheduled for 9 am ET. Analysts are looking for a loss of (30c) on revenue of $863.03M. The consensus range is (39c) to (17c) for EPS, and revenue of $807.95M to $895M, according to First Call.

In October, Harley-Davidson narrowed its 2010 shipments view to 207,000-212,000 and cut its CapEx view to $190M-$210M due to lower costs for restructuring. The company said it was gaining market share with riders ages 18-24 and said the economy had yet to turn around in a "convincing way".

In November, UBS said Harley's November retail sales were in-line with the industry, down 18% year-over-year. In December, Harley reached an agreement with its exclusive dealer in Brazil, HDSP/Grupo Izzo, that will enable the company to expand its presence and its network of dealerships in Brazil in the future.

Rumors have been swirling for well over a year that Harley will be taken over, perhaps by a private equity company, but Barron's said the good news about Harley-Davidson is already in the stock. Wells Fargo sees several positive catalysts for the company in 2011.

HOG Closed 1/21/11 $35.99

Jan 24, 2011 (Reuters) - Harley-Davidson Inc: * UBS raises Harley Davidson Inc-price target to $37 from $31; rating neutral. Vigilant Grandpa (VG): 46 days earlier, Robin lowered earnings estimates and maintained $31 price target. Now, the DAY BEFORE earnings announcment, Robin raises stock price by 19%! Hey Robin, were you able to get your largest clients out of the stock this morning or was your trading desk simply holding too much inventory?

46 Days Earlier
HOG Closed $33.51

Equities research analysts at UBS AG (NYSE: UBS) lowered their earnings per share estimates on shares of Harley-Davidson, Inc. (NYSE: HOG) in a research note to clients and investors on Wednesday. The analysts currently have a “neutral” rating and a $31.00 price target on the stock. VG: 50 days earlier, UBS raises price target and earnings estimate. What happended Robin?

50 Days Earlier
October 20, 2010
HOG Closed $30.95 

UBS maintains a Neutral on Harley-Davidson (NYSE: HOG), raises Price Target to $31.

UBS analyst says, "Q3 continuing operations EPS $0.40 vs. Street $0.35 (including some restructuring). Excluding ~$0.19 restruc. charges adj. EPS of $0.58 vs. UBS $0.43 and reflects true beat. Shipments in line with UBS estimate and guidance, tho rev/unit higher because of mix of product within bike family...Believe Implied Guidance for Q4’10 Gross Margin Conservative...Used Market Firming, But Pricing Still Inconsistent."

91 Days Earlier
July 21, 2010 
HOG Closed $26.68

UBS maintains a 'Neutral' on Harley-Davidson (NYSE: HOG), raises price target from $28.80 to $29.50. UBS analyst increases FY10 EPS estimates from $1.22 to $1.65 and FY11 from $1.61 to $1.93. VG: 41 days pass and it's time to raise price target and earnings estimate. WOW, in 41 days, the worst is deemed over.

41 Days Earlier
HOG Closed $27.32

Harley-Davidson: UBS Securities equity analyst Robin Farley maintained a neutral rating on shares of Harley-Davidson (HOG), the largest U.S. motorcycle maker, on June 10. She lowered a price target on the shares to $28.80 from $32.

In a note, Farley said that she believes Harley-Davidson's U.S. retail sales at dealers declined around 15 percent year-over-year in May vs. an industry decline of around 11 percent. While the company's quarter-to-date sales decline of 7 percent is an improvement over the first quarter's year-over-year decline of 24 percent, "it also signifies that the worst may not be over" for Harley's dealer-level sales, Farley said.

Sunday, January 23, 2011

York County Judge to Rule on Harley Davidson's Dirty Dirt

Harley contends that the contamination
it inherited when it purchased the property
nearly 40 years ago should be
factored into the land value.

By Lauren Boyer
Daily Record/Sunday News

York, PA - A dispute over the property taxes Harley-Davidson pays to the Central York School District will come before a York County judge Monday.

A ruling in Harley's favor could cost the district hundreds of thousands of dollars.

Harley contends that the contamination it inherited when it purchased the property nearly 40 years ago should be factored into the land value. The company also contends the fair market value of the land has been less than its assessed value for the past seven years. Typically, assessments are lower than the fair market value.

Court documents filed Jan. 10 show that Harley's 230 acres along Route 30 in Springettsbury Township were assessed at $26 million in 2010. Harley will testify that the fair market value for the land that year was, at most, $12.5 million. Therefore, the company contends, the assessment and the taxes owed should have been much less.

Harley owed $461,760 in school taxes in 2010. If the assessed value had been in the $12.5-million range, it would have owed about $220,000, less than half of what it paid.

If the court rules that Harley has overpaid taxes since 2003, the company expects to be refunded, Bob Klein, a Harley-Davidson spokesman, said Friday.

"We would be looking to recoup that," Klein said. "We would work with the district on how to best deal with repayment of amounts that have been overpaid. "

The school district's attorney, business manager, superintendent and school board president could not be reached for comment.

This isn't the first time Harley has argued its tax assessment.

In June 2004, the company appealed in court its 2003 assessment change from $10 million to $39.2 million. While the case was pending, a countywide assessment in 2006 listed the property's assessed value at $46.1 million.

A judge later ruled in 2007 that Harley-Davidson would pay taxes based on a $26 million assessment, a figure that has been on county records since 2006.

The environmental issues at the Harley site pre-date its operations. Before the motorcycle company moved to the property in 1973, the land was used by contractors and the U.S. Navy to manufacture guns, rocket launchers and bombs.

Saturday, January 22, 2011

FDIC closes 7 banks year to date with a $641.2 mil hit to deposit insurance fund

The FDIC closed 4 banks on Friday, January 21st bringing the year to date total to 7. According to the FDIC press releases, the estimated total cost to the Deposit Insurance Fund (DIF) from 2011 closings is $641.2 million. As of 1/21/2011, one bank closing occured in CO, NC, SC, AZ and Fl. Two banks have been closed in GA.

The FDIC closed a total of 15 banks during January 2010 and 157 for the entire year. For all of 2009, the FDIC closed 140 banks.

Credit Suisse is launching a trading venue that will keep HFT traders at bay (Jim McTague)

High-frequency trading firms love to buy from
and sell to "dumb" individual
and institutional investors.

By Jim McTague 

Yummy, yummy! The good news for high-frequency traders is that juicy retail sheep again are grazing in the domestic equities market, just waiting for the slaughter.

The latest data show the first major weekly inflow of retail investment money into domestic equity funds since the flash crash this past May. These investors plunked down $3.8 billion into the equity funds the week ending Jan. 12, according to the Investment Company Institute. During 2010, they withdrew an estimated $82 billion, in part because they were spooked by the flash crash, when the Dow plunged more than 700 points in 10 minutes and then climbed 300 points in the next 10. That thrill ride was aided and abetted by high-frequency traders using over-clocked computers to front-run panicked retail investors.

These traders program their computers to buy and sell millions of shares of stock every minute, based on short-term trends, not the underlying fundamentals of the companies. Risk-averse to an extreme, their goal is to make a penny or so on each trade. It's easier for a machine to predict correctly if it is looking ahead only by a second or two. If the traders execute the same trades simultaneously, they can trigger dramatic market swings.

High-frequency trading firms love to buy from and sell to "dumb" individual and institutional investors. Individuals tend to place market orders rather than using limit orders at or below the bid price. Thus, they pay the maximum. As for mutual funds and other institutional investors, they are easily front-run by the new trading operations, which have faster access to market data as well as faster trading computers. If the funds are buying a particular stock, the traders' computers can detect this activity, buy up shares ahead of the fund and sell it back to the fund for a profit of a cent or two. This runs up the costs for mutual fund investors.

THE SECURITIES AND EXCHANGE COMMISSION has been mulling some curbs on high-frequency trading to shield long-term investors. But the plodding agency likely will take a year or two to enact any changes, and by then the math whizzes at the trading firms will have figured out another way to make chops out of the retail and institutional lambs.

Fortunately, there is a promising free-market response. Credit Suisse in March will launch what it calls the Light Pool, a trading venue for mutual funds and institutional investors that purposely puts high-frequency traders at a disadvantage. This is revolutionary. High-frequency traders are courted by the 13 major stock exchanges because they deliver trading volume and pay big bucks for concierge services, like the direct data feeds from the exchanges that give them a crucial informational head start of several milliseconds. Dan Mathisson, managing director of Credit Suisse's advanced-execution services, says the trading firms will have to route trades to the Light Pool through an outside stock exchange. "That extra hop could add 100-to-200 milliseconds to a trade, enough time to be very discouraging to high-frequency traders," he says.

High-frequency firms claim they bring benefits to the market, such as liquidity, and thatcritics exaggerate their alleged abuses. Yet Light Pool is getting strong indications of interest from institutional investors. Sal Arnuk of Themis Trading in Chatham, N.J., compares the new venue to the "tipping of a hat" to criticisms of the new traders that he and colleague Joe Saluzzi raised in 2008.

Too bad there's no Light Pool for individuals yet. Out among the wolves, they're apt to get eaten up again and again. Add'l good articles from Jim McTague

Friday, January 21, 2011

Jeff "the jobs butcher" Immelt to chair Council on Jobs

Announcing a New Council on Jobs
and Competitiveness
(GE's U.S. headcount down 31,000 under
Jeff "the butcher" Immelt)

Posted by Kori Schulman on January 21, 2011
The White House Blog

This afternoon, in Schenectady, New York, President Obama will announce the President’s Council on Jobs and Competitiveness – a board to get Americans back to work and strengthen our economy that will be chaired by Jeff Immelt, the CEO and Chairman of General Electric.

For the past two years under the leadership of Paul Volcker, the President’s Economic Recovery Advisory Board (PERAB), has provided outside advice and counsel as the administration has taken bold steps to recover from the worst economic crisis since the Great Depression. On February 6, 2011, the PERAB two-year mandate will expire, as scheduled.

As we enter a new phase in our economic recovery, the President’s Council on Jobs and Competitiveness will have a new composition and new mission. The Council will focus on finding new ways to promote growth by investing in American business to encourage hiring, to educate and train our workers to compete globally, and to attract the best jobs and businesses to the United States.

Here’s what President Obama said about the new Council:
Over the past two years, my Economic Recovery Advisory Board has provided this administration with support and expertise as we worked to bring our economy back from the brink and start recovering from an economic crisis that cost millions of American jobs. We still have a long way to go, and my number one priority is to ensure we are doing everything we can to get the American people back to work. As we enter a new phase in our recovery, I have asked the new Council to focus its work on finding new ways to encourage the private sector to hire and invest in American competitiveness.

Adding that Jeff Immelt is the right person for the job
and thanking Paul Vockler for his service:
Jeff Immelt’s experience at GE and his understanding of the vital role the private sector plays in creating jobs and making America competitive makes him up to the challenge of leading this new Council. I also want to thank my friend Paul Volcker, whose service not just during this difficult period but for decades has been invaluable to me and the American people. I will continue to call on him for his counsel and he will always be a member of my team.

Let's check in and see what others have to say about Jeff Immelt's job creating qualilfications:

Machinists question Immelt jobs agenda (1/21/2011):
WASHINGTON--(BUSINESS WIRE)--In the past five months, General Electric CEO Jeff Immelt eliminated scores of U.S. jobs when he closed GE plants in Virginia, Massachusetts and Ohio. The International Association of Machinists and Aerospace Workers (IAM) is asking if this is the record that inspired President Obama to name Immelt to be chairman of the new Council on Jobs and Competitiveness.

.“We are rewarding the guy who is turning off America’s lights, literally,” said IAM International President Tom Buffenbarger. “Two of the plants on Immelt’s hit list made incandescent light bulbs. Replacement bulbs will be made in – you guessed it – China.”

Zero Hedge calling it like it really is:
Congratulations to Jeff Immelt - the uberhead of the soon to be former head propaganda financial station has been appointed to chair the White House's job panel. That said, we wonder just whose leg he had to hump to get that particular job: after all any small business job CEO in America is infinitely more qualified than Immelt to create jobs (unless the jobs in question are 1,000 prop trading positions at Goldman Sachs - since we are rubbing it in in Volcker's face why not go all the way). Dow Jones (Link) has created a brief compilation of Immelt's simply tragic job creation track record:

[Immelt] runs a big company, but Immelt has shown more skill at cutting jobs, frankly, than creating. GE finished 2009 with 18,000 fewer US workers than it had at the end of 2008, and US headcount is down 31,000 since Immelt's first full year in 2002. During his tenure, GE workers based in the US as a percentage of total employees has fallen to 44% from 52%.

Does anyone really believe President Obama and Jeff Immelt did not have a discussion about GE's earnings before today's Kumbaya? Would have been devastating PR had GE missed!

Thursday, January 20, 2011

Initial Jobless Claims: Dept. of Labor eliminates 1 mil filers since 12/4/10

Labor Secretary Hilda Solis once again waived her magic wand and seasonally adjusted out 146,594 first time filers of unemployment claims. Since the week ending 12/4/10, Hilda's seasonally adjusted wand (SAW) eliminated over 1 million Americans filing claims from the headline number.

January 20, 2011
Department of Labor
Unemployment Insurance Weekly Claims Report

In the week ending Jan. 15, the advance figure for seasonally adjusted initial claims was 404,000, a decrease of 37,000 from the previous week's revised figure of 441,000. The 4-week moving average was 411,750, a decrease of 4,000 from the previous week's revised average of 415,750.

The advance seasonally adjusted insured unemployment rate was 3.1 percent for the week ending Jan. 8, unchanged from the prior week's unrevised rate of 3.1 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Jan. 8 was 3,861,000, a decrease of 26,000 from the preceding week's revised level of 3,887,000. The 4-week moving average was 4,006,250, a decrease of 52,250 from the preceding week's revised average of 4,058,500.

The advance number of actual initial claims under state programs, unadjusted, totaled 550,594 in the week ending Jan. 15, a decrease of 212,504 from the previous week. There were 652,327 initial claims in the comparable week in 2010.

The advance unadjusted insured unemployment rate was 3.7 percent during the week ending Jan. 8, a decrease of 0.1 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 4,609,826, a decrease of 167,288 from the preceding week. A year earlier, the rate was 4.5 percent and the volume was 5,791,080.

The total number of people claiming benefits in all programs for the week ending Jan. 1 was 9,607,423. Complete DOL Report

States with an increase of more than 1,000
(data that will not be discussed on CNBC)
  • OH   +2,523   Layoffs in the automobile industry
  • IN     +5,311    Layoffs in the automobile and trade industries
  • MO  +6,259    Layoffs in the transportation, warehousing, service, and manufacturing industries
  • IL   +11,211    Layoffs in the construction, trade, and service industries
  • WA   4,108     Layoffs in the finance, insurance, trade, and service industries.

Wednesday, January 19, 2011

JPMorgan violated the law, but hey, it was a simple mistake...yeh right

JPMorgan Refunds $2 Million to
Military Families for Mortgages
($2 million represents .000416 of the most recent quarter
that will not leave a mark on JP Morgan...too bad the
same can't be said for the military families
they raked through the coals)

By Dawn Kopecki
and Margaret Cronin Fisk

Jan. 18 (Bloomberg) -- JPMorgan Chase and Co., the second- biggest U.S. bank by assets, said it is mailing $2 million in refunds to military families who were overcharged on mortgages or wrongfully lost their homes.

“We made mistakes here and we are fixing them,” Kristin Lemkau, a spokeswoman for the New York-based bank, said today in a telephone interview. JPMorgan’s mortgage unit is refunding excessive interest and fees charged to 4,000 active-duty personnel and reimbursing or reversing foreclosures for 14 other families who lost homes while on active duty, she said.

Marine Captain Jonathon Rowles, a pilot flying missions in South Korea, filed a lawsuit against JPMorgan July 6 in U.S. District Court in South Carolina. He claims military personnel were overcharged and subjected to aggressive collection practices. He accused the bank of violating the Servicemembers Civil Relief Act, which protects active-duty personnel from foreclosure and prohibits banks from charging more than 6 percent for a mortgage. NBC News reported the lawsuit and JPMorgan’s refunds on Jan. 17.

Rowles said in the complaint that Chase Manhattan Mortgage Corp., a subsidiary that serviced his loan, didn’t adjust the interest rate on a $255,000 loan for his Colorado home even after Rowles repeatedly provided proof of military service. The bank “began to pursue aggressive collection methods,” calling his mother’s home, his workplace and his home up to three times a day, after midnight and sometimes at 4 a.m., he said.

Internal Review
JPMorgan conducted an internal review and has since put into place a team of mortgage specialists dedicated to servicing military loans, Lemkau said. “They deserve nothing less,” Lemkau said. “While any customer mistake is regrettable, we feel particularly bad about the mistakes we made here.”

Rowles is still pursuing his case, seeking damages, attorney’s fees and other costs, said Richard Harpootlian, Rowles’ lawyer in Columbia, South Carolina.

“Chase not only charged them too much, but harassed them,” Harpootlian said. “We’re looking for our day in court.”

Senator Jack Reed, a Rhode Island Democrat who sits on the Senate Banking Committee, asked Attorney General Eric Holder in a letter yesterday to investigate.

“JPMorgan Chase was violating the law, and I am concerned other banks may also be wrongly overcharging our troops or taking unfair advantage of their situation,” Reed said in a statement. “I urge all the banks to review, acknowledge, and rectify any and all violations.”

The Rowles lawsuit has been stayed pending a decision by the U.S. Court of Appeals in Richmond, Virginia, in a case on whether private individuals can bring actions under this law.

The case is Rowles v. Chase Home Finance LLC, 9:10-cv- 01756, U.S. District Court, District of South Carolina (Beaufort).

 Dylan Ratigan on JPMorgan's Actions-Vigilant Grandpa Post