42% of first-time home buyers put 0% down

Today, the typical first-time home buyer might finance the entire cost of the house and pay only the interest owed on the loan for the first several years. The latest option? A monthly "minimum payment" that doesn't even cover the interest. [...] buyers have been experimenting with more aggressive financing in the best of all times, when interest rates remain low and home prices continue to appreciate.

Source: Money

Buick and Pontiac strive to avoid Oldsmobile's fate

More bad GM news...

At an analysts' conference last week, GM Vice Chairman Bob Lutz said both lines are "damaged" and that dropping one of the venerable names - both date back more than a century - was possible unless there's a turnaround. Lutz said closing a brand, as it did with Oldsmobile after the 2003 model year, was something that GM hoped to avoid. But he said that, if the carmaker's brands don't hit sales targets, "then we would have to take a look at a phase-out. I hope we wouldn't have to do that. What we've got to do is keep the brands we've got." GM officials have tried to backtrack somewhat on Lutz's comment, saying there are no plans to drop a brand and that he was only answering a question about a hypothetical. They say they're confident the brands will get the investment needed to grow.

But auto experts look at GM's continued slide in market share along with the financial problems caused by its current cost structure, and say the possible end of another GM brand isn't as much a surprise as the fact that a top GM executive would raise the possibility. "It's a signal to folks that it's going to happen," said Walter McManus, director of the Office for the Study of Automotive Transportation. "They're very careful not to speculate about things that aren't going to happen." Buick had 1.8% of the U.S. market in 2004, just ahead of the 1.7% share that Oldsmobile had in 2000, when GM announced the end of that line. Pontiac had a 2.8% share.

SunGard Acquired by group of private firms

A consortium of seven private investment firms is paying $10.8 billion to acquire financial data powerhouse SunGard Data Systems in the nation's second-largest leveraged buyout ever. Under the terms of the agreement, SunGard stockholders will receive $36 in cash for each share of SunGard common stock they hold. Also $500 million in bonds will remain outstanding, so the total transaction is valued at $11.3 billion.

The deal would be exceeded in size among takeovers of public companies by private investors only by the Kohlberg Kravis Roberts $29.4 billion purchase of RJR Nabisco in 1989.

SunGard creates a variety of financial software, including products that manage complex stock trades, insurance holdings, mutual funds and corporate finances.

(SunGard purchased an employer of mine back in 1999.)

Most people "above average" financially

According to a Money poll conducted February 11-15, when asked "How do you rate your financial status?" Americans answered:

• 53.7% feel they are better off than other people of the same age and education level
• 36.3% say they are on par
• 9.9% believe they have fallen behind

54-10. Wow! How can people's perception be this far off from reality?

The "Please don't hurt me" Defense?

Scott Sullivan, the former CFO chief of WorldCom testified Tuesday that CEO Bernard Ebbers repeatedly ignored evidence that company finances were deteriorating and simply said, "We have to hit our numbers." Scott Sullivan said he told Ebbers the only way to meet Wall Street estimates for the third quarter of 2000 would be to book improper accounting entries to boost revenue and cover up expenses. "He looked at the information, and he didn't say a lot," Sullivan said. "He looked up and said, 'We have to hit our numbers."' Sullivan said he interpreted the remark as an instruction to go ahead with the improper entries.

I don't buy this defense, which has been / will be used by other CFOs and CAOs in the recent spate of fraud trials. If you are the CFO or CAO and the boss tells you to cook numbers, you grow a pair and refuse. That's all there is to it. Take away all the fancy business-speak, and it really is THAT simple. I mean, c'mon now, this defense boils down to, "He told me to to commit a crime, so I did." If a mugger tried that defense, we'd throw his butt in jail, right? Same for these guys, as far as I'm concerned.

The Parade of Shame

In addition to the Ebbers trial which ended yesterday with a guilty verdict, other C-level executives currently or soon-to-be on trial:

• Richard Scrushy, former CEO of HealthSouth
• Dennis Koslowski and Mark Swartz, former CEO and CFO of Tyco
• Ken Lay and Jeffrey Skilling, two former CEOs of Enron
• Richard Causey, former Chief Accounting Officer of Enron
• Joseph Nacchio, former CEO of Qwest

IAM Local 709: "Never mind!"

One for the "D'OH!" files . . .

Striking Lockheed Martin machinists began going back to work at midnight, just hours after they had overwhelmingly approved a new contract, just one week after launching a walkout. By a vote of 1532 to 537, IAM Local 709 ratified the contract. Union members rejected the same basic terms February 27, although the deal was approved at Lockheed facilities elsewhere. Opponents in Marietta said they objected to rising health care and retirement insurance costs. But those concerns seem to have diminished during a week on picket lines in which workers had no insurance coverage at all. The company said it made no significant changes to its offer before Tuesday's second vote. "There were some minor modifications that were specific to Marietta," corporate spokesman Tom Greer said. "But the economics were exactly the same." Stevens [president of IAM Local 709] attributed the change of heart to more information. "People have a better overall understanding of the contract than they did the first time they voted," he said Tuesday. "The company didn't move on the economic terms." Outside the Cobb Galleria Centre, where Tuesday's balloting took place, it was hard to find Local 709 members who said they voted to ratify the contract, even though it passed by a 3-to-1 ratio. "This is the same thing we turned down two weeks ago," said Jerry Worley, a 23-year Lockheed employee who works on the F/A-22 assembly line. "I don't know why they even brought us back." In 2002, the union's walkout also ended with no major changes in the deal that was initially turned down.

Source: Atlanta Journal-Constitution

Ebbers guilty over $11bn WorldCom fraud

A jury had found Bernie Ebbers, the former head of WorldCom, guilty of the biggest accounting fraud in history over his role in the firm's $11 billion collapse. After deliberating for eight days, the New York jury found Ebbers guilty on nine counts, one each of conspiracy and securities fraud and seven of false regulatory filings. He faces a possible 85 years in jail when sentenced on June 13. Ebbers had claimed that he knew nothing of the fraud going on in his company and had little knowledge of financial matters, something Assistant US Attorney William F Johnson called the "aw shucks" defense.

GM slashes earnings estimate

General Motors warned its 2005 earnings will be as much as 80% [and at least 50%] below its prior forecast due to slumping North American auto sales, sending its shares down 12% to a 13-year low. GM said it now sees full-year earnings of about $1 to $2 per share, excluding special items, down from its previous target of $4 to $5 a share.

GM said its previous outlook was based on North American vehicle-production volume of 1.25 million vehicles, but since then production schedules have been reduced by about 70,000 vehicles and pricing competition has been tougher than expected in North America. "One of the issues we've had for North America is the increasing drag of health-care costs on North American profitability," said GM CFO John Devine.

[Possibly more important that the earnings is...] The company said it also expects negative operating cash flow in 2005 of about $2 billion, before its settlement with Italian automaker Fiat and its GM Europe restructuring, versus the previous target of positive $2 billion.

S&P affirmed its long-term ratings on GM and GMAC at BBB-, one step above junk status, and their short-term [commercial paper] A-3 ratings. But it said in a statement, "We now view the rating as tenuous. The rating could be lowered at any point if we came to doubt that GM was on a trajectory to improving its financial performance to more satisfactory levels in 2006 and beyond."

[Thanks to DVD for the link.]

Iger to succeed Eisner as Disney CEO

The Walt Disney Co. announced today that its president, Robert Iger, will succeed Michael Eisner as Chief Executive Office and that Eisner will leave his post one year earlier than previously announced.

Jetsgo, Canada's third-largest airline, ceases operations

Jetsgo grounded its fleet after jet-fuel prices rose by two-thirds in the past year and the company became the target of safety investigations from federal regulators. The shutdown stranded 17,000 customers. "Passengers are advised to make alternative travel arrangements prior to going to the airport as there will be no Jetsgo staff or aircraft available," Jetsgo said in a statement released at two minutes after midnight.

Jetsgo, which employed 1350, will seek permission from a Quebec court to consider options for reorganizing. Jetsgo, led by President Michel Leblanc, spent "big" on ads and expanded too quickly beyond its flight bases in Montreal and Toronto, Raymond James analysts said in January. Leblanc, who started Jetsgo in June 2002, is the former head of Royal Aviation, which he sold for C$84 million in 2001 to Canada 3000 before it went out of business after the 9/11 attacks in New York and Washington.

WestJet [Canada's second-largest airline] stock climbed C$4.33 to C$15.50 after earlier touching C$16.90 [at which peak the shares had risen 51%]. Shares of ACE Aviation [parent company of Air Canada, the nation's largest airline] climbed C$3.26, or 10%, to C$35.50.

Source: Bloomberg

[Thanks to DVD for the link]

Unhappy Fifth Anniversary

Today is the fifth anniversary of the top of the bull market, at least as indicated by the Nasdaq composite index (the DJIA had peaked a couple of months earlier).

On 3/10/2000 the Nasdaq stood at 5049. By the time the bear market saw its worst day (10/9/2002), the index had dropped to 1114 (a gut-wrenching 78% plunge). Today it closed at 2060 (up 85% from its low, but still down 59% from its high).

Yup

Strike at Lockheed. Forget finance; what really ticks me off is the darned rubber-neckers who added 10-15 minutes to my commute this morning.

More on the Real Estate Bubble

Pop! That is the sound of the real estate bubble bursting. [...] One piece of evidence is the Dinner Party Index. The boom is over when more people are bored by real estate anecdotes ("My next-door neighbor got three times her asking price before she even put it on the market.") than have got new ones. Another reason the value of your house is about to plunge is that the Los Angeles Times, The New York Times and The Washington Post all say that it isn't.

Possible Strike at Lockheed Plant

Story 1: Machinists at Lockheed Martin's aircraft plant in Marietta GA are preparing to strike next week after rejecting a tentative contract agreement that was backed by union leaders. It would be the second walkout in three years if the union follows through on its threat. Machinists shut down production for 49 days before signing their current contract in 2002. Union members voted 1240-602 on Sunday to reject a tentative deal that had been endorsed by union leaders, and about 70% cast strike ballots. IAM locals at Lockheed facilities in California, Mississippi and West Virginia ratified agreements with virtually identical terms. Local 709 members are 54 years old on average, which makes retirement issues critical in negotiations.

The elements of the deal in question:

• 10% wage increase over three years.
• $1,500 signing bonus.
• 17.8% increase in company's pension contributions.
• Increase in amount of 401(k) contributions company will match.
• Company pays 87% of employee medical plans, down from 100%.
• Company caps payments to retirees' Medicare Supplemental Insurance.
• New hires not eligible for retiree medical plan.

Story 2: Machinists gave Lockheed Martin formal notice Tuesday that they intend to strike next week at the Marietta plant. "I personally hand-carried a letter" to plant management, said Cornell Stevens, president of IAM Local 709. Lee Rhyant, the Lockheed executive vice president who oversees the plant, wasn't there at the time, but the two men later spoke by phone. "We had a good conversation, and there were no hard feelings at all," Stevens said. The union's letter starts a countdown to a strike that could begin Tuesday at the earliest [since five days notice is required].

Story 3: Federal mediators are trying to avert a machinists strike at Lockheed Martin's Marietta plant that could begin as soon as Tuesday. "Anytime there's a possibility of a work stoppage that could have this much impact on the economy and national defense, it's on our radar screen," said Jack Buettner, regional director for the Federal Conciliation and Mediation Service.

(I drive past the Lockheed plant on my way to work.)

Housing

New home sales fell 9.2% nationwide in January from the month before. Sales ran at a rate of 1.1 million units a year, 4% below the same month a year earlier, and the lowest rate since July.

German economy in worse shape than previously stated

More than 5.2 million Germans were out of work in February, new figures show. The figure of 5,216,000 people, or 12.6% of the working-age population, is the highest jobless rate in Europe's biggest economy since the 1930s. The news comes as the head of Germany's panel of government economic advisers predicted growth would again stagnate. Speaking on German TV, Bert Ruerup said the panel's earlier forecast of 1.4% was too optimistic and warned growth would be just 1% in 2005.

[Thanks to DVD for the link]