Just yesterday (Monday), in fact, U.S. heavy-equipment giant Caterpillar Inc. (CAT) announced it was cutting executive compensation by as much as 50%, because of weakening global demand.

But let’s be very clear: U.S. corporate leaders still have a long way to go, and many lessons to learn.

In fact, American executives could learn a thing or two from some of their counterparts abroad. Just look at Haruka Nishimatsu, CEO of Japan Airlines Corp for example (OTC ADR: JALSY).

Each morning, Nishimatsu gets down to business immediately after his morning commute to the office – on a city bus.

His desk – like those of all the other Japan Airlines employees – sits in the middle of an “open office.” I know this from personal experience, having sat at a desk just like that when I’ve worked in Japan over the years. He eats lunch in the company cafeteria and hopes – like all Japanese employees – that he’ll have time to eat his meal before it gets cold as he stands in line waiting to pay, says CNN’s Kyung Lah.

This hardly sounds like the life of a corporate CEO, especially when you consider that JAL is one of the world’s top airlines. Nor does the fact that when JAL cut back and asked many of its employees to take early retirement, Nishimatsu first eliminated every one of his own corporate perks, including his own pay – which, at a mere $90,000 (U.S.), is below what JAL’s pilots get paid.

Nishimatsu noted in the CNN interview that many of the affected employees were about his age, 60, so he “thought he should share the pain with them.”

Obviously, that’s very different than in the United States, where top executives regularly make tens of millions of dollars a year, and where some compensation packages actually eclipse the hundred-million-dollar threshold. And some of the top earners are the very same executives who “managed” their companies into financial oblivion – and who took their trusting shareholders along for the ride.

If you want to see the latest example, just watch the parade of corporate-jet-riding, custom-suit-wearing corporate “beggars” that have been appearing (hat in hand) before the House Financial Services committee lately and you’ll see what I mean.

The pay gap between the boardroom and the factory floor – already a longtime topic of controversy here in the United States – has widened to the point that it’s become absolutely staggering. According to a survey conducted by the non-profit group, United for a Fair Economy, CEOs of large corporations made an average of $10.5 million in 2007, which is 344 times the wages of the average U.S. worker. The Economic Policy Institute puts it at only 275 times higher, which is still outrageous when you consider that the average working stiff won’t see in his lifetime what these guys have made in a year lately.

[To see how that disparity has grown over the past four decades, look at the accompanying chart, “Leaders vs. Workers”]

Capital One Financial Corp. (COF) CEO Richard D. Fairbank took home a cool $73.1 million last year, which is 1,456 times the median household income of $50,233 for taxpayers footing Capital One’s $3.55 billion bailout, according to The Corporate Library.

In Japan – and throughout much of Asia, for that matter – there’s a much more balanced approach, with CEOs more commonly making only 10 times to 15 times more than their base level employees.

“Businesses that pursue money first fail,” Yoshichika Terasawa, a Singapore-based managing director for the Japan External Trade Organization (JETRO) told me when we spoke at his home in that Southeast Asia city-state earlier this year. “Companies that have their employees in mind tend to do better longer and recover faster. We learned that in Japan during our own bubble economy.”

The numbers seem to bear out Terasawa’s assertion. According to a USA Today study, the 10 best-paid CEOs made more than half a billion dollars collectively. Yet, half the members of this stratospheric club were actually heading companies whose profits shrank dramatically.

The poster boy for this club could well be General Motors Corp. (GM) CEO G. Richard “Rick” Wagoner Jr., who closed four plants and posted a $39 billion loss in 2007, a period in which his company’s stock cratered 19%. But in the face of this financial mess, Wagoner’s compensation jumped 64% to reach $15.7 million.
And GM apparently had a little something set aside; after all, Wagoner was able to take a corporate jet to Washington to plead for a taxpayer-funded bailout.

[For a breakdown on the top-earning CEOs of 2007, take a look at the accompanying graphic, “Top of the Charts.”]
.

The numbers, when they’re in for 2008 will probably be more egregious.

JAL’s Nishimatsu clearly understands what his U.S. corporate brethren do not. As the global economy has worsened in recent months, the Japanese executive recounted how he’s dug into his savings like the rest of us have had to, in order to deal with life’s challenges.
“The air conditioner broke, the water heater … and my car,” Nishimatsu said. “My wife is still telling me this is all your fault.”

We can certainly sympathize with him. But clearly, he can sympathize with us. Making the effort to relate to what employees and customers are feeling during such a difficult stretch is very important: It fosters pride in the work force, loyalty from customers and in long long-run, will also win over investors. My guess is that we’ll all be the most sympathetic and supportive of companies led by CEOs like Nishimatsu.

And that might be just what’s needed to get out of this mess.

Source: U.S. CEOs Could Learn From Their Asian Counterparts

This sell-off lasted until noon, then lo and behold, the price took off again, but it was capped just before the NYMEX close. But all in all, it wasn’t a very exciting day, as everyone just wanted to get the heck away from work and enjoy the long weekend. I’m sure there weren’t a lot of people around after lunch.

Thursday’s open interest showed that gold o.i. rose 497 contracts (probably more shorting) and silver dropped 1,390 contracts.

The Commitment of Traders report for positions held as of May 20th are as follows. The bullion banks in the Commercial category went net short by an additional 3,187 contracts and the Non-Commercial/Tech funds went net long by an additional 3,028 contracts…so the bullion banks matched the tech funds almost contract for contract. The bullion banks went short against every long that the tech funds placed. The ‘8 or less’ traders (bullion banks) in the Commercial category are now net short 77.2% of the entire Comex silver market…a small increase from the previous week’s report.

In gold, there were some really big changes. The Commercial/bullion banks increased their net short position by a monstrous 37,584 contracts while the Non-Commercial/tech funds went net long 29,181 contracts. Not only have the bullion banks matched every change by the tech funds, they’ve also added a bunch of new shorts on top of that. And since Tuesday’s cut-off, Ted Butler feels that the bullion banks have added another 10-15,000 contracts to their net short position during the last three trading days of the week. The ‘8 or less’ traders (bullion banks) in the Commercial category are now net short a new record amount…an absolutely grotesque 81.4% of the entire gold short position on the Comex.

None of this warms the cockles of my heart one iota. Nothing has changed on this week-old rally, as the bullion banks continue to go short against all longs in both gold and silver…although the deterioration in silver wasn’t anywhere near as bad as it was in gold.

Since it’s a long weekend, I’ll really stretch the outside of the envelope with three stories. The first one is a front page story from Friday’s Wall Street Journal…the last place that one would expect to find a story such as this. It’s about the shortage of silver eagles…and without doubt, this story will help fan the flames of desire even hotter than they already are. It’s entitled “Losing a Mint: Curb on Coin Sales Anger Collectors” and it’s linked here.

The second story is one that I promised yesterday about JPMorgan and the woes in Jefferson County, Alabama. I wonder if it will be the first county to declare bankruptcy…as Vallejo, CA was the first city to do so. The item is from Bloomberg and is entitled “JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County”…and the whole ugly mess is linked here.

And lastly, another story involving JPMorgan. Their CEO, Jamie Dimon, definitely had some unhappy thoughts to share at a UBS financial conference in New York earlier this week. This is one of the first indications I’ve seen, from a large American financial firm, that this will be no garden variety recession…and things, as he said, could get “really bad”. (Note to J. Dimon: Jamie, why don’t you just tell the truth and say that this “really bad” recession you talk about is a ‘best case’ scenario…not the worst case. – Ed) The link is here.

I got a request from a reader in Britain for ’something classical’ rather than the ‘pop’ music I’ve been putting up. I didn’t know if youtube.com carried that sort of thing, but it didn’t take me long to discover that they did…and lots of it. The piece I’ve picked was determined more by the artist, than the music itself. I met 15 year old violin prodigy, Joshua Bell, when he came to play with the Edmonton Symphony Orchestra. I think he played the Sibelius violin concerto. He performed for the ESO twice…and after that, we couldn’t afford his fee.

He’s playing in a hall I don’t recognize, and with a first rate chamber orchestra that I don’t recognize either. I’m sure some reader will happily provide the details. Here is (a lot older) Joshua Bell playing the final movement of Beethoven’s Violin Concerto in D minor – Op. 61. I thank Percy L. for the suggestion…and I hope you like my choice…despite the fact that I’m not wild about the cadenza. The link is here.

Now get as far away from a computer as possible for the rest of the weekend, and I’ll see you here bright and early on Wednesday morning.
Source: And Then There’s This…Saturday, May 24, 2008

The culprits: write-downs linked to failed home-equity loans, subprime mortgages and leveraged buyouts that cost the bank upwards of $5 billion.

Net revenue fell 52%, while investment-banking fees fell 30% and debt-underwriting fees declined 58%.

Its investment-banking division posted a net loss of $87 million in the first quarter, down from its record $1.5 billion net income a year earlier. Retail finance services posted a net loss of $227 million, down from an $859 million gain in 2007.

In other words, it wasn’t a good quarter.

“Our earnings this quarter were down significantly as market conditions and the credit environment remained challenging. The Investment Bank had markdowns related to leveraged lending and mortgages and increased loan loss reserves. Retail Financial Services again increased loan loss reserves related to home equity and subprime mortgages, as performance in these portfolios continued to deteriorate,” Jamie Dimon, Chairman and Chief Executive Officer, said in a statement.

Somehow, one stockholder sees that as good news.

“In this environment, being able to post earnings as they did is I think all-in good news,” Charles Bobrinskoy, vice chairman of Ariel Capital Management LLC in Chicago, which owned more than 611,000 JPMorgan shares as of Dec. 31, told Bloomberg.

If that wasn’t bad news to him, Dimon was clear about the near term outlook.

“Our expectation is for the economic environment to continue to be weak and for the capital markets to remain under stress,” he said. “These factors have affected, and are likely to continue to negatively impact, our firm’s credit losses, overall business volumes and earnings – possibly through the remainder of the year, or longer.”

To prepare for it, JPMorgan added $2.5 billion to credit reserves, including $1.1 billion related to home equity loans.

It also has its merger with The Bear Stears Cos., Inc. (BSC), a deal Dimon said “provides a unique opportunity to enhance our ability to serve clients by adding new capabilities in prime brokerage and clearing and by improving strength in equities, mortgage trading, commodities and asset management.”

Trouble for the Titans

On Tuesday, Washington Mutual Inc. (WM) reported a $1.14 billion loss due to a growing number of customers that have fallen behind in their mortgage payments. A week earlier, the Seattle-based lender announced it raised $7 billion in capital, while slashing its dividend and cutting 3,000 jobs. Ironically, the capital raise was a last-ditch effort to stave off a takeover bid from JPMorgan.

U.S. Bancorp (USB) announced Tuesday that first-quarter earnings fell 4% as a result of losses connected to the mortgage market.

Bear Stearns said Monday that profit fell 79% in its fiscal first quarter, Reuters reported.

Also on Monday, General Electric Co. (GE) shocked the market when it announced a 6% drop in net income for the first quarter of 2008.

“Our primary shortfall was a decline in financial services earnings,” GE Chairman and CEO Jeff Immelt said.

And though Wells Fargo & Co. (WFC) beat analysts’ estimates in its first-quarter earnings release today (Wednesday), net income dropped 11% to $2 billion, the company said in a statement.

National City Corp. (NCC) will report its earnings tomorrow (Thursday).

“Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain.”

-Fed Chairman Ben Bernanke

“Was this a justified rescue to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout for a Wall Street firm while people on Main Street struggle to pay their mortgages?”

- Senate Banking Committee Chairman Christopher Dodd

From where I sit, far away from Washington, it seems like the bailout was both. Yes Mr. Bernanke is correct, had Bear Stearns gone under, there would have been massive panic in the world’s financial markets, not just the U.S. market.

Is it a bailout at the taxpayers’ expense? You bet it is. There is no way J.P. Morgan agrees to this deal without the Fed taking on the risk. Well, after the uproar of JPM paying just $2 per share for BSC and not taking on any of the $30 billion in bad assets, the deal had to be revised to $10 per share and now JPM is taking on the first billion of the risk with the Fed taking on the other $29 billion. Jamie Dimon, the CEO of J.P. Morgan, said in his prepared remarks that JPM would not have done the deal if the Fed had not agreed to take on the risk.

This sounds like a low down payment mortgage. I buy a house and put three percent down, the bank puts up the other 97 percent. If I go into default on the mortgage, I lose the three percent I put down and the bank is left with the rest of the risk. If it goes to auction, they might make money on it, but not necessarily.

The Fed believes that it will eventually make money on these assets, but as you and I both know, there is no certainty in investing.

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I was just on a radio interview with WMMB, the CBS radio affiliate in Chicago. They asked me what I thought of the Fed’s involvement with the JPM/BSC deal. My answer was that “I’m glad I didn’t have to make that decision.” Think about it, if you are Bernanke and don’t do anything, the world’s financial system goes into an all out panic. Or you can stick the U.S. taxpayer with a potential $29 billion bailout.

I still think JPM got a steal, even after so generously agreeing to take on the responsibility of one billion in losses should they occur.

I still can’t say whether or not the Fed should have done this deal. It might take several years to tell whether or not it was the right decision. For now, it was the right decision in that it kept stability in the U.S. and world financial systems. But if the assets they agreed to take on as part of the deal end up costing the taxpayer $29 billion down the road, then it was a bad decision.

The part that worries me is now that there is a precedent for the Fed to step in like this, when will the next time be? I read some comments from Todd Harrison, the founder of Minyanville.com, and I like how he put it. Mr. Harrison said it was like the situation in Iraq in that the Fed is engaged and can’t pull out now without some serious consequences.

I could not agree more. I know my colleague Rusty McDougal is usually the one railing on the government for getting involved in the market, and I usually agree with him, I just don’t usually express it here in the pages of IDE. But the words Laissez Faire mean nothing anymore. There is no such thing as a free market anymore.

I will wait to pass judgment on this particular Fed decision. Whether or not it was a good business decision is one thing and that will take time to figure out. But interfering with a supposed free market system is a no-no in my book.

Good luck and good trading,

Rick

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

[Ed. Note: Subscribers to Rick’s KISS Investing service recently closed out gains of approximately 150% on Continental Airlines and 175% on the Diamonds Trust. Click here to learn more about KISS Investing]