Cruise Control

I love Tom Cruise. From his acting to his toothy grin and yes, even his crazy antics; he is one of the most recognizable faces and bankable talents in the world. He was an inspiration to entrepreneurs in Risky Business, an ace pilot in Top Gun and a secret agent in the Mission Impossible franchise. Now, he is set to go out on his own.

I cannot state enough how much I love the man, but I must question the wisdom behind his latest move. Yes he was wronged by Sumner Redstone—publicly nonetheless—but still—producing, directing and managing productions is a different animal altogether.

The beautiful thing for Mr. Cruise is while his reputation in the industry may be at stake—his money surely isn’t. His business partner and he have enlisted the help of several hedge funds to the tune of $100 million to finance future products.

About a year ago I wrote an entry taking private equity to task for attempting to buy out the National Hockey League (NHL). Just as that was a bad move for private equity, this is a bad move for the hedge funds involved. Perhaps there is too much money sloshing around the system, perhaps these players are tired of chasing returns with strategies akin to their competition—I don’t know. What I do know is that history suggests this is a bad move.

Remember the mad scramble to sponsor ballparks (think Enron and CMGI)? Remember when it was in vogue to buy sports franchises (think AOL/TWX and Disney)?

When you move away from your core competency as a corporation, your risk grows exponentially. So as much as I love Tom, if I were an investor in one of these funds, my redemption would have already been submitted.

Stick a Fork in Them

It appears that interest rates and the economy have peaked in tandem. A multitude of indicators, ranging from the 10yr Treasury bond yield to Leading Indicators and automobile sales suggest a contraction or recession is underway.

Just for the record, there has been much ballyhoo surrounding the “soft-landing” that the Fed has supposedly engineered. As we say in New York, “ain’t gonna happen.”

In recent times there has only been one soft landing to speak of in 1994. Soft landings are the exception, not the norm.

One of the most reliable indicators of contractions and recessions is the annual change in auto dealer sales, which has been frighteningly accurate for the better part of 40 years. To make a long story short, this indicator suggests we are headed for trouble.

From the NY Times:

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And the 10 yr Treasury bond yield:

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Short Squeeze or Rally?

With all the adverse news affecting the market over the past month or so, its no surprise that the major indexes have been extremely volatile and managed to probe the lows. Yesterday’s blow-out rally has many market watchers scratching their respective heads, trying to discern whether this is merely relief from the sell pressure the market has been under, or the beginning of an end-of-summer rally to come.

The S&P 500 and Dow look the best from a technical perspective, but if the NASDAQ’s 45 point rally is indicative of things to come, the money may soon find its way chasing some familiar tech names. Snakes on a Plane. Keep in mind we are in the heart of August, which typically means we are stuck in the doldrums until after the Labor Day Holiday at the beginning of September.



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Morgan Stanley High Tech Index catches a substantial bid during Tuesday’s session.

Soft Patch or Recession

Long before the most recent Middle East conflict and exposed terror plot, the market had been exhibiting tell tale signs of an impending economic contraction. High commodities prices (most notably energy), reduced consumer confidence/spending and a dimmer outlook on the part of small business owners have been fairly reliable indicators of what may be in store.

The most important thing (to me at least) hinges on the Fed. If there are few signs that inflation is abating, combined with slower growth, will the Fed raise rates?

Unfortunately, no one knows the answers besides the FOMC, however their most recent statement referenced the fact that they may be faced with a similar situation—and may be forced to continue the tightening cycle.

While it is impossible to look at the data in a vacuum, one could see how this could very well become reality. With inflation pressures mainly stemming from higher commodities prices (as opposed to wages/ unemployment) it is fairly simple to construct a scenario where the US demonstrates continued weakness, while China and India maintain their healthy appetites for oil and raw materials.

Not too many fed watchers and economists have discussed this hypothetical state of affairs, which I believe is a huge mistake. The more China trades with Russia, Japan, the Middle East and its Asian neighbors, the more conceivable this becomes that the US economy could contract without necessarily impacting some of its major trading partners.

Could be very grim, indeed.

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Make No Mistake

Make no mistake, we are at war. Our enemy is a fifth column with its hooks in every nation spanning the globe, with one thing in common—a firm commitment to ending our way of life.

Yesterday, British, American and Pakistani authorities announced they have foiled what may have been the largest terrorist attack since 9-11. Let this be a chilling reminder to those that compromise our national security by leaking intelligence gathering techniques to the press, demonize our leadership and weaken our resolve to confront those hell-bent on bringing about our demise as not only a country, but as a civilization.

Intercepting wire taps, tracking terror finances, the re authorization of the patriot act, training our foreign counterparts in intel gathering and basically anything designed to give us a leg up on our adversaries have all played a key role in protecting the homeland—which has not been attacked in the past 5 years.

Politics should end at the water’s edge. Hopefully yesterdays events will remind people how grave the threat we face everyday is. This is not about the war in Iraq, nor is it about Guantanamo Bay. They declared war on us decades ago, lest we forget how this began.

The Buck Stops Here (in Baghdad)

“If President Truman were alive today, he would be a republican.”

This statement borders on political cliché, regularly rearing its head in tandem with the election cycle. Admittedly I have always seen a kernel of truth in the above, but have nonetheless viewed this with a fair degree of skepticism until now. Look no further than the Connecticut democratic primary—and Joe Lieberman losing the fight of his political career.

This primary turned out to be a litmus test on which direction the Democratic Party is headed. Senator Lieberman’s loss to Ned Lamont, a businessman with no political experience to speak of and a questionable grasp of the issues, demonstrates how far left the Democratic Party has moved in recent times.

The reason behind the defeat? Senator Lieberman’s steadfast, yet unpopular support of the war in Iraq. His opponent has no platform sans opposition to the war, but has become a darling of the “net roots,” the group popularized for catapulting Howard Dean onto the national scene.

Senator Lieberman is a throwback of sorts—socially liberal but understands that protecting the homeland often requires using our military to preserve our way of life. Senator Lieberman has been a champion of women’s and civil rights his entire career, harkening back to his positions as a State Senator and Attorney General for the state of Connecticut. Yet somehow he has drawn the ire of quite a few prominent social activists, which are actively campaigning for his opponent, ignoring a career of dedication and service to his constituency.

President Reagan, a democrat (self described in the Harry Truman mold) that later switched allegiances to the Republican Party once remarked, "I didn’t leave the democratic party. It left me."

Senator Lieberman can take solace in the knowledge of the gipper, as he is clearly an endangered species, both as a politician and as a democrat. The fact of the matter is this—the democratic party is not the “big tent” it has always purported to be.

This Senate race has become a referendum on the Iraq war. In my opinion, not only would Harry Truman be a republican today; other notable democratic presidents like Franklin Roosevelt, Lyndon Johnson and John F. Kennedy would have trouble finding a home amongst the left-of-center in this country. The democrat hawk is an endangered species

War of the Worlds

In war, the first casualty is always the truth. When the war is fought using guerilla tactics, often time the truth is the largest casualty as well.

I am not exactly sure what is happening on the ground in many of the globe’s hot spots, but I am sure that the media cannot be trusted (for the most part) to relay impartial, objective information from the field. With pressure mounting as ratings slide, many networks have sacrificed accuracy for the sake of expediency—something that is totally unacceptable. I can personally attest to staying up many a night watching coverage of operations that didn’t exist and many times turned out 180 degrees from the initial reports.

As it goes financially, the point is this—the market is driven by events, information, politics, economics, earnings—you name it. In the information age, many times reports are disseminated without being confirmed by independent sources. This is not only dangerous for those involved in the equity and debt markets, it is damaging to the body politic as a whole. It depresses consumer confidence, it adjusts spending habits, and undoubtedly leads to a huge increase in market volatility.



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The summer has proved to be extra unstable as the The CBOE Market Volatility Index recorded over a 100% rise from May to mid-June