The L4yer Cake

You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the Layer Cake.

2011 Year in Review

As I kill time today waiting to celebrate the New Year tonight, I thought I would take the time to look back in the year that was and then look ahead to 2012.

 

Looking back, 2011 went by pretty fast. I finished my first year of my MBA program and started my second year, spent the summer in Connecticut working for GE, started my career search  and did a lot of traveling. It still feels like I started my MBA program not too long ago. In a couple of weeks I will be returning to Virginia to finish school and hopefully find a job by the time I graduate. But this MBA program has been great for me. It has allowed me to break out of my shell and try new things. I’ve worked on teams with people from Japan, India and China; worked on developing a fixed-income fund, be apart of an equity fund at school; work in Admissions and much more. It has been a lot of work but it has been great. Now I’ll take on forecasting, strategy and hopefully more golf as I continue my job search!

 

Where will I be in six plus months? I do not know, but I am sure something with turn up. It always does. Where do I want to be? Most definitely in Boston, but I am looking in Connecticut, New York City and Richmond as well. Getting into investment management as an analyst in the equity or fixed-income markets and working my way to PM or go into the corporate route and get into FP&A.

 

But what do I want to do for myself!? It is about continuing self-improvement and growing as a person. Of course like a majority of our country, I want to lose more weight. But how can I do that? First of all stop ordering out so much food, then start cooking more often and finally going to the gym more often. It is a difficult task while in business school, spending 10-12 hours a day at school, attending classes, working on projects, doing homework, applying to jobs, going to the pub; but it is something you have to work on. It is learning how to be discipline and developing a routine. Picking up new hobbies like kayaking and biking. This will help bring in more exercise and more outdoor activities.

 

This is the guide I have set up for myself. I plan to sticking to it! Though the next chapter in my life appears cloudy and have no clue where I will be, it is still exciting that a new step is coming up and going to take it head on. I will all of our new readings the same, whether your a new chapter is coming up or your continuing to work on the current one. I hope all of you had a good 2011 and a better 2012!

Economic Reports This Week

ECONOMIC REPORTS Data will include the ISM nonmanufacturing index for November and factory orders for October (Monday); consumer credit for October (Wednesday); weekly jobless claims and wholesale trade inventories for October (Thursday); the trade deficit for October and the Thomson Reuters/University of Michigan consumer sentiment index for December (Friday).

 

CORPORATE EARNINGS Companies reporting results will include Dollar General (Monday); Toll Brothers (Tuesday); and Costco Wholesale and Smithfield Foods (Thursday).

 

IN THE UNITED STATES On Tuesday, the Senate Banking Committee will conduct a hearing about the oversight of the Wall Street Reform Act, the House Financial Services Committee will conduct a hearing about legislation aimed at preventing members of Congress from making investments based on insider knowledge, and a Senate judiciary subcommittee will conduct a hearing about the merger of Express Scripts and Medco. On Wednesday, a Senate banking subcommittee will conduct a hearing about supervision of large financial institutions. On Thursday, the House Agriculture Committee will conduct a hearing about the MF Global bankruptcy.

 

IN EUROPE On Monday, Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France will meet in Paris to discuss the euro zone crisis. On Thursday, the European Central Bank and the Bank of England will issue decisions about interest rates. On Friday, European leaders will meet to discuss fiscal integration of the euro zone and potential changes to treaties.

Your Weekend Links

Got your fantasy rosters set? Want something to read before the NFL games? Your weekend links!

Thursday Morning Links

Put down the Journal, grab a coffee and enjoy your morning links…

 

 

American Airlines Files for Chapter 11

With rumors swirling since October, American Airlines finally files for bankruptcy. Though not a surprise, the chart below shows it caught people off guard. We all knew they would eventually file for bankruptcy, when they would was the unknown. And without warning, American Airlines’ management shoot the announcement out of the blue sky!

 

This is Chapter 11, which means restructuring. During the restructuring period, the airline will have protection from the court and can reduce its cost structure in order to move out of bankruptcy. The firm continues operating and claim holders receive new financial claims in exchange for their old ones. All old claims (including equity) are null and void afterwards, so unless the old shareholders get some piece of the new plan, they are out in the cold. Chapter 11 is pretty common the airline industry: US Airways, Delta and Continental have files twice before and United has filed once.

 

So who are the winners? Clearly the competition but also American Airlines, they will now be able to break free from their debt obligations and work their way back to profitability just like General Motors did. They can potentially operate more efficient and not have so much debt on their balance sheet. However,the cost of capital will surely be much higher with a default on their credit ratings. Then again, this is an airline and they have been bailed out before and American Airlines still went into bankruptcy.

 

“The implications for the industry are positive; airlines in Ch. 11generally shrink, and AMR likely comes out of Ch. 11 a merged airline with US Airways (friendly or hostile). A restructured industry is clawing back pricing power, however, with 34% of AMR’s (and the industry’s costs) continuing to get whipsawed 30-50% from excessive volatility in commodity markets, the industry needs to cut yet more capacity and park more planes, and we would expect that to be part of AMR’s restructuring plan. It’s premature, but we would argue UAL, DAL, LCC, JBLU, and LUV should all be the largest direct and indirect beneficiaries from the reduced capacity.”

-Daniel McKenzie, Rodman & Renshaw

 

The losers are: smaller airports, the unions, the employees who will be laid off and the companies that supply American Airlines. The firm will have to become leaner, which means dropping some routes. Smaller airports, especially the ones that operate American Eagle, will be affected if these routes do not get picked up by AMR’s competition. Unions will get crushed when concessions get negotiated in bankruptcy court.

 

Flyers should expect the same continued service while the firm is in bankruptcy court. The firm announced that flights will continued as schedule and in the past, airlines usually honor their frequent flyer programs coming out of bankruptcy. However, you should expect service to be a little lacking.

New Site, New Domain

Welcome to our new look and address!

 

We here at The L4yer Cake are very excited about our sleek new look and address. We have been working to find an address and host and we were successful this past week.

 

We hope this new site and address will be able to bring in more traffic and allow people to find us on the search engines. We also have more power, finally having the ability to add more widgets and interactive charts. As you can see we have a new scrolling ticket at the top and market data on the right. If you click on the Interactive Chart tab in the heading, it will bring you to a free interactive chart! Plug in any stock you like and it will bring you a candlestick charts for the stock of your choice!

 

We hope you enjoy the new features and look and keep coming back!

Review: Margin Call

Independent drama outlines the chain of events over a 24 hour period after a startling discovery is made at a global financial services firm. Timely production utilizes the background of the actual 2008 financial crisis and fashions a fictional account of what happens when an analyst discovers sensitive information that threatens to derail the future of the fiscal institution -- not Lehman Brothers, mind you, but an enterprise very much like them. Basically the company has discovered that they’re riddled with financial assets whose value has fallen so significantly as to be essentially worthless.

The economic meltdown of a bank is not a typical subject for entertainment. At times the drama can be a bit studious. The feature unfolds through conversations in boardrooms, staring at computer screens. I’ll confirm the script was sufficiently intelligent to keep me interested and the high powered cast added significantly to the material. The subject has a current relevance given the recent Occupy Wall Street movement that has emerged nationwide. The subject couldn’t be more well-timed. But the crisis depicted doesn’t seem intense or savage enough to generate the necessary enthusiasm. As an indictment of corporate greed, Margin Call is an instructional account that generates little more than restrained admiration.

 

 

Frankly I thought the ending was a bit odd. I do not want to ruin the ending for you but it was one of those “They ended it like that?” endings. I will give it 3 out of 5 stars, I was entertained by it but I would not want to watch it again. What I have been waiting for is a good movie or documentary that depicts the collapse of Bear Stearns. What I would love to see is something about what went on inside in those final weeks and week of the firm. Everyone loves to focus on Lehman brothers but I have not found one for Bear yet!

Congressman: US came within hours of economic collapse; Banks saw $550 billion withdrawn in 2 hours

An old YouTube video I found, posted on Feb 14, 2009.

 

 

“The Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two. If they had not (acted) their estimation was that by two o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.”

Thanksgiving Break

We here at The L4yer Cake would like to thank you all for joining us as we get off the ground as a new blog about the market and economy. It has been a struggle and been learning a lot as we progress and we would like to thank our loyal followers.

 

We are sending everyone home for a few days so we will be offline for a few days. But continue to look out for me time to time over this Thanksgiving break on Twitter @TheL4yerCake.

 

All of us here wish our followers a safe and happy Thanksgiving. May you be with friends and family, with lots of booze and turkey. Keep your minds away from business and recharge your minds, as this business takes a toll on us all over the year.

The Week Ahead: November 20th

Last week we saw a strong pullback in the market, the biggest pullback since mid-September. Most technical analysis is proving to be of little use as the European news is dictating this market. There have been some good earnings reports coming out lately but most stocks are moving with the market. Any news about Greece, Italy, Germany or the Euro Bail-Out fund pushes this market. It will continue to be the driver of this market until the back and forth of dealing with this crisis settles down. Also news coming out of D.C. that the Super-Committee has failed to reach on an agreement, making cuts across the board.

 

Below is a weekly chart of of the S&P 500. A new downward-trend has formed and proving to be strong resistance. 6 Week ago, this upward-trend was created and formed a wedge with the down-trend line. This wedge was finally broken last week so we should see some continued downward pressure.

 

Week of Nov 21 (Weekly)

 

Next up is the daily chart of the S&P 500. Here you can clearly see the wedge formed and broken by the market. With the follow through on Thursday and Friday. The support from 1120 has been broken and now is resistance going forward. It appears the 200-day moving average is still holding the market down, coupled with the trend line crossing with some resistance levels, we will see a lot of technical resistance. Below are the Resistance/Support levels:

 

Resistance:

 

1260; 1272; 1288; 1120

 

Support:

 

1180; 1155; 1120; 1100; 1078

 

On the Bar: Woodford Reserve

 

After a long day on the trading floor, at the desk or meetings; we here at the L4yer Cake will always reach out to Woodford Reserve.It is a great drink to have to unwind the day, sit by the fire or out at the bar for an after work happy hour.

 

Overall, I find Woodford Reserve to be a solid bourbon. It has a medium complexity with high woody notes, yet it remains fairly smooth. It’s not too sweet, but it’s also not too spicy. In my mind, Woodford Reserve has a nice balance that lends well to mixed drinks, and is often a go-to for me at Derby time when I’m mixing up mint juleps — which seems fitting given its Kentucky Derby sponsorship.

 

If a bar or restaurant carries any upper-shelf bourbon, this is very likely to be one of them (Brown-Forman definitely has the distribution game down). I would say I’ve seen it in 4 out of 5 major airport bars I have been to in the U.S., so it is a good one to get to know if you travel much.

Guest Post: MBA Class Visits Richmond

As part of the Career Accelerate Modules (CAM), each class partakes in two field trips. On these trips, students get to visit companies and meet top level executives that are William & Mary graduates. The presenters talk about their line of work and luncheons give the students an opportunity to network with alumni at these institutions.

 

Last week my Financial Markets CAM visited Dominion and Capital One in Richmond. At Dominion, we got to meet the CFO, Vice President and several managers. They gave my class a presentation about how important their hedging operations and risk department is to the company. Dominion wants to provide a steady cash flow and income to their shareholders, and with the wild swings of heating oil, natural gas and crude oil; the only way to achieve this goal is through heading. The risk department then works behind the scenes to ensure there is no proprietary trading being conducted on the trading floor and ensure the checks and balances are in place. Next, we were taken in groups through Dominion’s trading floor to observe and talk with the traders about their day to day work. Some discussions included what their daily routine was, how Dominion needs to purchase their natural gas and heating oil at 10AM for next day delivery, then submit their prices at noon and find out what their prices are at PM. Wholesale, retail traders; meteorologists and managers are all present on the trading floor 24 hours a day, 7 days a week. Finally Dominion treated our class to a lunch with some William & Mary alumni and managers and gave my classmates the opportunity to talk with them on a casual setting.

 

The next stop on our trip was the Capital One campus. Their campus truly has a college campus feel. The campus has an athletic center and sports fields, and each of the five buildings have lounges, art work, coffee & juice stands, and cafeterias. We got to meet a manager, two Vice Presidents and a CFO of Line of Business who were all William & Mary MBA graduates. The presentation included discussions about Capital One’s line of business, how they grew to being a credit card issuer to becoming the 5th largest bank in the country, about securitization of credit card debt and risk management.

 

It was a very enjoyable trip and my class certainly learned a lot. It is a great change of pace to get outside of the class room and away from our Bloomberg terminals to see what we learn being done in real life. We are certainly looking forward to our next trip to New York City coming up.

Market Tanks Yesterday

So far this week the market has rallied and wiped out the the head-and-shoulders pattern that was forming, but like I said on Sunday, watch out if the upward trend line is broken, that could be the catalyst of something bigger. Well yesterday that trend was broken and the market took a big old dump yesterday.

Thur 11-10 (Daily)

Granted the drop was fundamentally influenced, not technically, but the graphs shows that the technical break might of accelerated the drop. Looking at the past week (15 minute bars) you can see the market drop yesterday and the trend line tried to hold the market up but failed in the mid-afternoon and continue the drop. This trend line has turned a line of support and into a line of resistance. Watching the markets react to this drop, we have found another line of support which is holding today as well, that support is at 1230 on the S&P500. We’ll continue to monitor the situation.

The Week Ahead – Nov. 7th

The market continues to rally since the October 4th low that was set in from the previous correction, an upward trend on the S&P 500 has been created for support starting on October 7th. This trend was tested a couple of times on November 1st and 2nd. A small head-and-shoulders formation is starting to be created in the late October movement. Though the second shoulder is lower than the first shoulder, this formation will probably play out of the support at 1,1220 is broken. We will keep an eye on this formation and  trend. Here are your support and resistance levels for the week:

Week of Nov 7 (Hourly)

Resistance:

  • 1260; 1272; 1288

Support:

  • 1120; 1190; 1155; 1120; 1100; 1078

Week of Nov 7 (Daily)

The market has tested the 38.2% Fibonacci Retracement level twice (from the 2009 low to the 2011 high). It was tested slightly on August 9th, after the sharp down move in late July-early August. the market opened around 1120 and fell to the 38.2% level (1100 on the SP500) and rallied to a close 1171. It was again tested and broken on October 2nd, the S&P opened below the and sank down to 1080 but then rallied, holding this key support level, this is when the current rally began. Technically we only have two or three resistance levels and a possible head-and-shoulders holding the market back. Fundamentally we have Greece and Italy updates all week, which has been the main driver of this market as of late.

Guest Post: My Green MBA

Entering my second year, I decided to conquer my classes and job search in a different way. I don’t know if it was the influence of our Net Impact and IT clubs or but I decided to make my MBA a greener MBA. To do so, I swore off using notebooks, printing all of my readings and embrace technology. You are probably asking yourself, how is he going to do this? Well here is my game plan:

 

Instead of having a notebook for every class, I am using a program called Evernote. It is basically Microsoft OneNote on steroids! Evernote allows you to download the program onto your PC and/or Mac, use the web-based version on any computer and access your notes through your smartphone and iPad! No matter what device you use, Evernote continuously synchs to the Cloud. Did I mention it is free? My job search is now more organized and centralized in one place. Instead of saving my old notebooks in my attic for future reference, I will always have them on me wherever I go. You can follow along with my Corporate Finance CAM here.

 

Evernote and my iPhone are even helping me with my networking effort as well. After I meet someone new and have their business card, I can take a picture of the business card with Genius Scan app on my iPhone and then upload the picture to my Evernote account wirelessly. Now I have all of my business cards in one location and write whatever notes I can about that contact. This is also another free app!

 

For class there is a lot of readings outside of the textbook and cases from the HBR. I used to go through reams of paper to read and highlight these readings which became costly and a waste. Not to mention I had to carry around folders that held all of these readings. Instead of this, I am using Note Taker HD on my iPad. Note Taker allows me to highlight, add objects, write by pen or text, and search all of my PDFs. I can even merge files together for the low price of $4.99

 

Last but not least, Dropbox.com has become a life saver for me. Recently Windows 7 crashed on my MacBook and I had to reinstall the operating system onto my computer. Luckily I had all of my assignments, readings, cover letters and resumes uploaded onto my Dropbox account and it was an easy download to retrieve it all. Dropbox has also made sharing files with my team members easier and I can access my files from any computer, my iPad, and smartphone. Again, this is also free.

 

These four changes have drastically lightened my footprint on the environment and on my backpack, while only costing $5.00! My school notes, job search material, and networking contacts are now in one centralized location. My way is only an example; there are many other apps and sites out there to help you architect your own Green MBA.

Rethinking the Strong Dollar Debate

Last week, Christina Romer wrote an article in the New York Times called Needed: Plain Talk About the Dollar. In her article, Ms. Romer talked about how the Foreign Exchange Rate works and the benefits/shortcomings of a strong dollar.

 

The two examples she gave for the strong dollar were the 1990′s and the 1980′s. The 1990′s saw a strong dollar because there was a high demand for U.S. products and investment in U.S. companies. Demand increased thus pushing the dollar higher as more foreign money came into the U.S. for these products. The 1980′s was a different story. During the Reagan administration, interest rates were high. With high interest rates, foreign countries sought out American bonds for the higher yields. With high demand in American bonds and foreign money flooding the market, the dollar was again pushed higher.

 

The difference between these two stories was the affect on the American consumer. In the 1980′s the consumer faced high interest rates, making borrowing expensive, and expensive foreign products. As foreign products flooded the stores, it was an expensive period to live. However, in the 1990′s; the U.S. economy was booming. American products were “cheap” to the world and foreign consumers wanted our products. U.S. companies ramped up production and hired more Americans to keep up with demand. With unemployment declining and salaries rising, Americans were living well and could afford the “expensive” foreign products.

 

How does this relate to us? With Congress and the big heads on TV arguing for a strong dollar, we need to think if this is really a good idea. We need to stop thinking about how a strong dollar looks politically and need to starting thinking about how it affects us economically. Our economy is growing slowly, our markets are flooded with foreign products (i.e. China), and interest rates are at record lows.With low interest rates, we are not going to see many foreign countries rushing in to buy American bonds and with a strong dollar, foreign nations are not going to be buying out products (thus decreasing exports). A strong dollar with also will also dampen consumer spending because with many people unemployed or underemployed, they cannot afford the “expensive” products. What is the answer to this dilemna?

 

A Weaker Dollar!

 

With a weaker dollar, American products will be cheaper to the rest of the world. This will help spur demand from foreign nations to buy our products. Higher exports means higher demand. With higher demand in U.S. products, companies will need more employees to keep up with demand, thus lowering the unemployment rate and increasing salaries. With more money in American pockets, demands in other goods and services will also increase spurring the economy.

 

Will this work?

 

Well in a vacuum it would, but we are not in a vacuum are we? I’m not saying a weaker dollar is the answer to the economy woes, what I am saying is this is another tool to help spur the economy. We need to stop thinking about how it makes America look strong and complaining about the Chinese Reminbi (which is on a variable rate like the U.S. dollar, it is a fixed to the dollar). There are many factors that go into the exchange rate and other ramifications of a weak dollar (like higher commodity prices), but we need to think about this strategy more instead of screaming “we need a strong dollar!”.

This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.

This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.