Economics, Finance & Investments

Kodak files for Chapter 11

2012-01-19T13:12:00.000-05:00

http://www.marketwatch.com/story/kodak-files-for-bankruptcy-2012-01-19

Sears Holdings will not survive

2011-12-27T11:43:00.000-05:00

Just goes to prove that if you merge two weak companies, you get an even weaker larger company.

* At a time when holiday season sales overall have turned out better than expected, Sears Holdings was an exception. It will close 100 to 120 Sears and Kmart stores after disappointing holiday sales.

* Its stock, having already lost 37% of its value this year, tumbled 20% to $36.61 in early trading.

* Sears plans to take as much as $2.4 billion of charges in the fourth quarter on asset write downs and other items.

* Comparable sales in the eight weeks through December 25 fell 4.4% drop at Kmart and 6% at Sears. In contrast, the National Retail Federation holiday forecast was a 3.8% increase.

* Fourth-quarter EBITDA is now expected to be less than half the year-earlier fourth quarter's.

* Adjusted pre-tax profit is down to about 10% of its five-year peak.

http://www.marketwatch.com/story/sears-holdings-to-shut-up-to-120-stores-2011-12-27

I was at a Sears on December 24 (through no fault of my own). Sears stores suck. No big surprise in any of these numbers.

AMR Bankrupt

2011-11-29T14:38:00.001-05:00

American Airlines parent AMR, the only major US airline operator to not file for bankruptcy during the last decade, surrendered to the stark realities of a souring global economy on Tuesday and sought Chapter 11 protection from creditors today. The filing came as AMR gave in to the burden of the industry's highest labor and operating costs. The company’s shares plunged to 26 cents, down 84%. (MW)

AAPL to plummet tomorrow

2011-08-24T22:08:00.002-04:00

Steve Jobs resigns

HP

2011-08-18T16:24:00.002-04:00

Hewlett Packard may follow IBM and dump its PC division. It's also discontinuing its WebOS operation (even though I saw an ad about how awesome WebOS is just earlier this week). Translation: the $1.2 billion Palm purchase just vanished like a fart in the wind.

Follow-up 8/19: As of noon today, HP is down 20% today on a generally flat day, as the market absorbs how bad this news really was.

Market News

2011-07-18T12:30:00.001-04:00

Borders inches closer to liquidation

Yesterday's bidding deadline passed without offers to keep the second largest US bookstore operator in business.

Netflix, LinkedIn highlight tech losses

Netflix fell 3.74% after Pacific Crest Securities analyst Andy Hargreaves cut his rating to sector perform from outperform. [...] LinkedIn gave up $4.73 a share, or 4.3%, to fall to $105.23 after J.P. Morgan analyst Doug Anmuth cut his rating to neutral from overweight. I think both of these are still way overpriced and have a long way farther to fall.

29 of 30 DJIA components down

Decline lead by Bank of America which fell 3.6% to $9.64.

Citigroup gives up on its stock price

2011-03-21T14:14:00.000-04:00

Citigroup (currently trading at $4.41) on Monday announced a 1-for-10 reverse stock split of its common shares effective after markets close on May 6. Separately, the banking giant said it plans to reinstate a quarterly dividend of a penny a share in the second quarter.

AT&T to acquire T-Mobile for $39B

2011-03-21T14:12:00.000-04:00

AT&T, the #2 US wireless carrier is purchasing T-Mobile USA from Deutsche Telekom for $39B, with $25B in cash and the remainder in AT&T common stock, which will give Deutsche Telekom a roughly 8% stake in AT&T. Regulatory approval is expected to take at least a year due to concerns about market share and price-competition for consumers. If the acquisition is approved, AT&T would have about 130 million wireless subscribers, vaulting it above Verizon Wireless, currently the #1 wireless carrier with a little more than 100 million subscribers. Sprint Nextel Corp., the #3 wireless carrier, was immediately seen as a big loser. The company was said to have been in talks of its own to acquire T-Mobile, and now there are concerns about the company’s status as a weakened player among the carriers with nationwide footprints.

Verizon stock was essentially unaffected by the news. Sprint Nextel on the other hand is down over 15%.

Borders files for bankruptcy

2011-02-16T11:50:00.004-05:00

Borders, the 40-year-old retail chain that helped define the age of the book superstore, filed for bankruptcy today. The company will close some 200 of its 650 stores.

The troubles of Borders are rooted in a series of strategic missteps, executive turnover and a failure to understand the digital revolution — problems in many ways of Borders’ own making. But as those in the volatile industry digested the news that most saw coming, they were acutely aware of the bigger picture: that in a fast-evolving bookselling environment there is slim margin for error.

Southwest to buy Airtran

2010-09-27T21:32:00.003-04:00

That was unexpected. A sign of even more consolidation coming to the industry? Maybe the industry as a whole can actually become profitable in the long-term? Is this bad news for consumers?

A Review of Jimmy Stewart is Dead by Laurence Kotlikoff

2010-06-25T12:59:00.001-04:00

I loved the author's The Coming Generational Storm, so I was really looking forward to reading this. I was sadly disappointed. Perhaps Professor Kotlikoff suffered blunt trauma to his head in the intervening years? Because I cannot believe that the insightful author of The Coming Generational Storm could produce this nonsense. This is the kind of ivory tower, pie-in-the-sky, impractical, oversimplified tripe that gives academics a bad name.

Where to start? Perhaps the most important criticism is that the scheme outlined in this book provides no replacement for the fractional reserve system, which generates 97% of the money circulating in our economy. Individual entities functioning as lenders cannot create money through fractional reserve accounting. Only banks as they exist today can do that. If only individual entities loan money (which by the way would require them to take time away from whatever specialized work allows them to make money and become experts on lending - another catastrophic failure of Kotlikoff's idea), we could only create 3% of the loans that currently exist. The real economy would have to shrink by 97%!

In light of a failure so abysmal, perhaps it's not necessary to say anything else, but the other flaws in his system while perhaps not as catastrophic do illustrate how little thought he's given this conception.

* Without risk-taking banks can only make a profit through the fees they charge on the pass-through products he proposes. Many of them would be completely unworkable. As the most obvious example: who would PAY to have a bank hold their cash? DUH!

* His idea that people would buy pass-through products that would replicate credit default swaps and life insurance would require everybody to become a PhD quant. What makes him think this would work any better than the current system?

* Finally, our system failed because of human's intrinsic nature to find and take advantage of the misincentives and flaws that are endemic to any human enterprise. The idea that smart guys won't find the holes in his system and exploit them just like the current parade of criminals did with our existing system is naive to say the least.

In short, the premise of this book is irreparably broken. The book is not worth the paper it's written on.

SAP to buy Sybase

2010-05-13T16:57:00.001-04:00

SAP has agreed to pay $65 a share for Sybase ($5.8 billion in cash) handing the maker of mobile and database software a premium of more than 55%.

United and Continental approve merger

2010-05-02T21:44:00.000-04:00

Will be world's largest airline.

Directors at Continental and United airlines have approved a stock-swap deal that would combine them into the world's largest airline. The deal values Continental at some $3.2 billion. The Sunday board actions were described by a person with knowledge of the votes, who declined to be identified because the companies plan an announcement on Monday. The combined airline will be called United, based in United's hometown of Chicago, and run by Continental CEO Jeffery Smisek. United CEO Glenn Tilton will be chairman.

HP to buy Palm

2010-04-28T15:06:00.001-04:00

HP and Palm announced that they have entered into a definitive agreement under which HP will purchase Palm at a price of $5.70 per share of Palm common stock in cash for an enterprise value of approximately $1.2 billion. The transaction has been approved by the HP and Palm boards of directors.

Two thoughts:
1) This is a great plan for HP because we all know how well the acquisition strategy worked out for Fiorina.
2) At least it's a good buy at $5.70 a share for a company that IPO'd at $38, moving to a high of $165 and closing at $95 on its opening day.

China's Geely to Buy Volvo From Ford for $1.8 billion

2010-03-28T20:37:00.000-04:00

http://www.foxnews.com/leisure/2010/03/28/chinas-geely-buy-volvo-ford/?test=latestnews

Not again!?

2010-03-12T10:09:00.002-05:00

Lehman used Repo 105 for no articulated business purpose except "to reduce balance sheet at the quarter–end." Rather than sell assets at a loss, "[a] Repo 105 increase would help avoid this without negatively impacting our leverage ratios." Lehman’s Global Financial Controller confirmed that "the only purpose or motive for [Repo 105] transactions was reduction in the balance sheet" and that "there was no substance to the transactions."

But the decision not to disclose the effects of those judgments does give rise to colorable claims against the senior officers who oversaw and certified misleading financial statements – Lehman’s CEO Richard S. Fuld, Jr., and its CFOs Christopher O’Meara, Erin M. Callan and Ian T. Lowitt. There are colorable claims against Lehman’s external auditor Ernst & Young for, among other things, its failure to question and challenge improper or inadequate disclosures in those financial statements.

Ernst & Young was advised by Lee on June 12, 2008 that Lehman used $50 billion of Repo 105 transactions to temporarily move assets off balance sheet and quarter end. The next day ‐ on June 13, 2008 ‐ Ernst & Young met with the Lehman Board Audit Committee but did not advise it about Lee’s assertions, despite an express direction from the Committee to advise on all allegations raised by Lee.

http://lehmanreport.jenner.com/

Top 25 Market Cap Companies

2010-03-10T12:45:00.002-05:00

1 Exxon Mobil XOM $316B
2 Microsoft MSFT $253B
3 Wal-Mart WMT $204B
4 Apple AAPL $203B
5 Procter & Gamble PG $183B
6 Johnson & Johnson JNJ $176B
7 General Electric GE $175B
8 Bank of America BAC $172B
9 JPMorgan Chase JPM $170B
10 International Business Machines IBM $162B
11 AT&T T $150B
12 Wells Fargo WFC $152B
13 Cisco Systems CSCO $148B
14 Chevron CVX $147B
15 Pfizer PFE $138B
16 Google GOOG $138B
17 Berkshire Hathaway BRK $136B
18 Coca-Cola KO $124B
19 Oracle ORCL $124B
20 Hewlett-Packard HPQ $121B
21 Intel INTC $116B
22 Merck MRK $114B
23 Citigroup C $113B
24 Pepsi PEP $100B
25 Philip Morris PM $94B

Wow! This is HUGE!!

2010-02-25T13:01:00.001-05:00

Coca-Cola's (KO 52.75, -2.41, -4.37%) is acquiring all the assets and liabilities of Coca-Cola Enterprises (CCE 25.54, +6.36, +33.16%) North American business (KO currently has a 34% equity ownership in CCE). This reverses a business strategy of keeping bottling separate that has been in place for over a century.

Mathematica Links

2010-02-11T13:18:00.000-05:00

Economics

Econometrics

Financial Engineering

Financial Risk Management

Moral Hazard: Reforming the Financial System

2010-02-02T11:37:00.001-05:00

http://www.cfawebcasts.org/modules/Catalog/CourseDetails.aspx?ProductGroupID=7252

Why do we buy stuff from China again?

2010-01-11T18:50:00.002-05:00

US product safety authorities plan to launch an investigation into the presence of the toxic metal cadmium [a known carcinogen] in children's jewelry imported from China after lab tests showed some pieces were made almost entirely [i.e., as much as 91% in some cases] out of the dangerous substance. (Source: CBC News)

I've said this before, and I'll say it again. There's no such thing as an economic free lunch. If it's cheaper to make in China, it's because they cut corners that we don't. Everybody thinks it can be done because labor in China is cheaper. If the exact same product could be produced in China for less, then every firm would do it ... which would bid up the cost of labor in China (and bid down the cost of labor in the US) to the point where the profit opportunity would disappear. Labor in China and labor in the US don't even need to come close to parity, since there are so many additional expenses associated with manufacturing abroad. It's basic economics.

AAPL overpriced again

2009-12-30T10:27:00.001-05:00

Back at year-end 2007, I called a peak in AAPL when it hit $203 a share. It's been quite a roller coaster since then (down to $125 in spring 2008, rebounding to $190 in summer 2008, plunging to $78 early this year with the rest of the market) and is now around a 52 week high of $214. I believe it's peaked again.

Greece

2009-12-08T14:53:00.001-05:00

Greece became the first country in the euro zone to see its debt rating cut to below A- as worries mounted over its ability to fix its deteriorating finances, sending Greek shares and government bonds sharply lower and weighing on the euro.

1 in 7 mortgages behind

2009-11-19T10:53:00.000-05:00

Job losses caused more Americans to fall behind on their mortgage payments in the third quarter, leading to a record 14.41% of loans with at least one payment past due, the Mortgage Bankers Association's chief economist said on Thursday.

Risk and Time (John Norstad)

2009-11-12T11:06:00.000-05:00

A very well written article on the fallacy of time diversification (i.e., the claim often made by financial planners that risk decreases over a longer time horizon). In fact, risk INCREASES. Everyone should read this.

http://homepage.mac.com/j.norstad/finance/risk-and-time.html#fallacy

US in trouble?

2009-10-19T21:14:00.003-04:00

For the first time since I made my first 403(b) investment allocation in 1992, I've rebalanced my portfolio with the specific intent of protecting myself against a fall in US assets, rather than just diversifying. One fifth of my 401(k) account is now in TIPS (although even there, I am afraid the US Treasury won't make good on those) and foreign stocks.

Outright corruption at Moody's

2009-10-18T13:13:00.003-04:00

http://www.mcclatchydc.com/politics/story/77244.html

Quote:

As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into a financial crisis.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk.

....

"The story at Moody's doesn't start in 2007; it starts in 2000," said Mark Froeba, a Harvard-educated lawyer and senior vice president who joined Moody's structured finance group in 1997. "This was a systematic and aggressive strategy to replace a culture that was very conservative, an accuracy-and-quality oriented (culture), a getting-the-rating-right kind of culture, with a culture that was supposed to be 'business-friendly,' but was consistently less likely to assign a rating that was tougher than our competitors," Froeba said.

After Froeba and others raised concerns that the methodology Moody's was using to rate investment offerings allowed the firm's profit interests to trump honest ratings, he and nine other outspoken critics in his group were "downsized" in December 2007.

[Thanks to MPC for the link]

The falling dollar

2009-10-15T14:14:00.002-04:00

The Great Courses: Economics

2009-09-17T12:32:00.000-04:00

In order to try to make my daily commute a tad more pleasant, I just purchased an Economics course on CD from The Teaching Company. Heard the first lecture on the drive in today; sounds good so far.

Consumer debt is out of control

2009-07-31T13:30:00.002-04:00

According to figures released by Equifax and reported by the WSJ, household liabilities in delinquency or default rose to $1.15 trillion in June representing 10% of liabilities, up from 9% in March and 8% in December 08. That is quite an alarming rate of increase!

GM Bankruptcy

2009-06-01T10:00:00.001-04:00

GM filed for bankruptcy this morning. The reported total assets of $82.3 billion on a consolidated basis, with total debt of $172.8 billion. A member of the Dow 30 Industrial Average, GM will be replaced by Cisco Systems Inc.

GM at lowest price since 1933

2009-05-12T20:13:00.002-04:00

Picking at the carcass?

2009-05-06T13:10:00.001-04:00

Three WSJ stories:
Renault interested in Saturn
China's Geely Auto bidding for Saab
Fiat is stepping up plans to buy Opel

The Single Biggest Destruction of Wealth Nears End

2009-04-29T12:42:00.002-04:00

Time Warner shares were up as much as 7% Wednesday after the company said in a regulatory filing that it expects to spin off one or more parts of AOL to stockholders, which would remove the biggest piece of uncertainty for investors in the world's largest media company. "Although the company's board of directors has not made any decision, the company currently anticipates that it would initiate a process to spin off one or more parts of the businesses of AOL to Time Warner's stockholders, in one or a series of transactions," Time Warner said in a filing with the SEC. CEO Jeff Bewkes said on a conference call that the company plans to announce its plans for AOL "very soon."

Opel likely to be sold with GM getting no cash

2009-04-21T20:46:00.001-04:00

GM is getting ready to give up its controlling interest in Europe's Opel in return for a promise that the buyer would put equity into a new company formed to own the operations. The acquirer would be expected to pay at least $652 million for the automaker, but all of the money would be invested in Opel with GM getting none of it. [Source: Financial Times]

Oracle Buys Sun

2009-04-20T10:27:00.003-04:00

Oracle said it will buy Sun Microsystems, creator of widely used Java software, in a cash deal worth $5.6 billion that unites two of Silicon Valley's most storied technology companies. The total market value of the deal is $7.4 billion, or $9.50 per share, including Sun's debt and cash on hand. The deal with Oracle comes shortly after IBM ended its own bid to buy Sun. For Oracle, the acquisition fills a crucial gap in the company's so-called middleware business. The inclusion of Java as well a Sun's Solaris operating system for mainframe computers will enable Oracle to offer corporate customers a full suite of software and hardware products to address virtually all their technology needs. CEO Larry Ellison says Java is the "most important software we've ever acquired."

Edited to add: At its peak Sun Microsystems was valued at $121 billion

Brother, can you spare $27?

2009-04-19T14:44:00.001-04:00

In November 1996, I made an IRA contribution of $1100 and purchased shares in two mutual funds in the amounts of $600 and $500. Those shares with all earnings reinvested are today worth $591 and $482.

1 in 9 homes empty ... NO, NOT REALLY

2009-04-12T21:17:00.005-04:00

A widely disseminated story illustrates just how math-illiterate our reporters and editors are.

1 in 9 housing units vacant

The actual statistics (FROM THE SAME STORY) are...

Fourth-quarter 2008 vacancy rates for all types of housing:
Rental: 2008: 10.1%
Homeowner: 2008: 2.9%

First of all, this includes RENTALS. Secondly basic arithmetic would point out the fact that the real number would have to fall somewhere between 10.1% and 2.9%, which can't possibly be 1 out of 9. But in any event 1 in 34 is the true headline, but I guess that wouldn't have quite the same shock value. No wonder the press is dying.

Ten principles for a Black Swan-proof world (Nassim Nicholas Taleb)

2009-04-08T10:27:00.002-04:00

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. It is the asymmetry of the bonus system that got us here.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products.

6. Do not give children sticks of dynamite, even if they come with a warning. Complex derivatives need to be banned because nobody understands them and few are rational enough to know it.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html?nclick_check=1

[Thanks to MPC for the link]

Muni Bonds May Face Downgrade

2009-04-08T09:40:00.001-04:00

Moody's assigned a negative outlook to the creditworthiness of all local governments in the US, the first time it had ever issued such a blanket report on municipalities.

[Thanks to MPC for the link]

Mark-to-fantasy

2009-04-02T09:48:00.002-04:00

Reports are coming in that FASB, as expected, has voted to relax the fair-value accounting rules, essentially allowing banks to mark securities to a model rather than to market prices. This is being done in response to a blatant threat by Congress that if FASB did not relax the rules, Congress would do so by legislation.

Macy's Loses $11.40 per share

2009-03-31T17:49:00.000-04:00

Macy's revised its fiscal 2008 results to a net loss of $4.8 billion, or $11.40 a share, from a net income of $280 million, or 66 cents a share. The dramatic revision is due to a pre-tax goodwill charge of about $5.5 billion which it had previously detailed in its fourth-quarter earnings report. The department store company said the goodwill impairment estimate may be further adjusted in the first quarter. "The non-cash write-down of goodwill is expected to have no impact on the company's business, bank credit agreement or bond indentures. The primary causes for the goodwill impairments are the deterioration in the general economic environment and the resulting decline in the company's share price and market capitalization," Macy's said in a statement.

Ticking Time Bomb

2009-03-26T09:35:00.000-04:00

From today's WSJ: Commercial real-estate loans are going sour at an accelerating pace, threatening to cause tens of billions of dollars in losses to banks already hurt by the housing downturn. The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month, according to data provided to The Wall Street Journal by Deutsche Bank AG. While that's low compared with the home-mortgage delinquency rate, it's just short of the highest rate during the last downturn early this decade.

BE to sell off substantially all of its business

2009-03-23T14:59:00.003-04:00

BearingPoint (the former KPMG Consulting), which had submitted its required quarterly financials late for six consecutive quarters and filed for Chapter 11 bankruptcy protection on February 18, 2009, announced that it reached an agreement to sell most of its Public Services practice to Deloitte. It also signed a non-binding letter of intent to sell most of its Commercial Services practice to PricewaterhouseCoopers. For those unfamiliar with BearingPoint's business, those are the two largest of the company's three operating units. Only global services remains, and it will probably be carved up between the Big Four.

Berkshire Hathaway and General Electric lose AAA ratings

2009-03-16T15:10:00.003-04:00

Fitch lowered Berkshire's rating and S&P lowered GE's rating (which it had held since 1956!) last week. There are only four untainted AAA ratings left: ADP, Johnson & Johnson, ExxonMobil, and Microsoft. (Pfizer's rating is on review for possible downgrade due to borrowing related to its purchase of Wyeth).

I don't think "thriving" means what they think it means

2009-03-16T14:53:00.003-04:00

More than 24 million Americans shifted in 2008 from lives that were "thriving" to ones that were "struggling," according to a massive study by Gallup and Healthways. At the start of 2008, as the recession was beginning, slightly more people were "thriving" than "struggling." By the end of the year, after an economic meltdown that began with the subprime mortgage crisis, Americans by an overwhelming 20 percentage points were "struggling" rather than "thriving," 58%-38%. The remaining 4% were "suffering," in more dire straits.

[Source: USA Today]

World Economy Will Shrink

2009-03-09T22:15:00.002-04:00

The World Bank predicts the global economy will shrink this year for the first time since World War II and sees trade at its lowest point in 80 years.

Edited to add a second story on the same theme:
http://www.marketwatch.com/news/story/Global-economy-shrink-2009-World/story.aspx?guid=%7BA4197684%2D5183%2D4E8C%2D8436%2D8F5E9EC99F1B%7D

Scholes Advises ‘Blow Up’ OTC Contracts

2009-03-08T11:26:00.000-04:00

Myron Scholes said regulators need to “blow up or burn” over-the-counter derivative trading markets to help solve the financial crisis. The markets have stopped functioning and are failing to provide pricing signals, Scholes, said. Participants need a way to exit transactions and get a “fresh start.” The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over. One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.”

[Thanks to CP for the link.]

No Gains for 43 Years

2009-03-08T11:24:00.002-04:00

Adjusting for inflation, the Dow is basically where it was in 1966.

S&P forecasts biggest dividend cuts since 1938

2009-03-03T20:40:00.001-05:00

Standard & Poor's said dividends paid to U.S. equity investors are likely to decline at least 22.6% this year, marking the severest drop since the 36.3% fall in 1938. Analysts expect a 3.49% dividend payout for the S&P 500 this year.

S&P heads to first quarter ever of negative earnings

2009-02-13T13:16:00.003-05:00

As of today, 390 of the S&P's 500 companies have reported 4th quarter earnings and reported a collective loss - even excluding financials. "After the sixth quarter of negative growth, it will be the first quarter ever of negative earnings," said Howard Silverblatt, senior index analyst at Standard & Poor's. A sixth quarter of negative growth ties the prior record set from the 1Q1951 to 2Q1952. "And next quarter we're expected a new record of seven quarters of negative growth," Silverblatt said. S&P earnings-per-share are reported at a loss of $10.44 for the quarter. If financials were taken out of the equation, that EPS deficit would drop to $2.35. "The majority of it is financials, but the biggest issue to hit was ConocoPhillips. That one charge accounted for $3.66," said Silverblatt.

Subprime's plague infects "Alt-A" mortgages

2009-02-06T21:50:00.000-05:00

Economic concerns are shifting as "Alt-A" mortgages sour at an alarming pace. While credit-rating agencies play catch-up to the dismal reality, bankers are realizing that more trouble may be on the horizon. With US unemployment heading toward 8%, even more loans, including prime-mortgage loans, are expected to go bad. (Source: The Economist)

GDP Contracts 3.8%

2009-01-30T12:43:00.001-05:00

The US economy contracted at a 3.8% annualized rate in the fourth quarter, a decline that would have been worse except that the Commerce Dept counts an unwanted buildup of goods on store shelves as growth. A clearer picture of the scope emerges if the inventory buildup is excluded. Adjusted GDP contracted at a 5.1% pace in the final three months of 2008, the weakest since 1981. Even with inventories, the performance is the worst since 1982.

Today's News

2009-01-23T10:01:00.003-05:00

Bank of America

Shareholder Steven Sklar charged in a complaint in US federal court that Bank of America failed to disclose about $15.3 billion in losses by Merrill Lynch before shareholders voted to approve the acquisition of Merrill. The complaint states that Bank of America CEO Kenneth Lewis never revealed Merrill's problems "despite his knowledge of Merrill Lynch's staggering losses." [Source: Bloomberg]

Merrill Lynch paid out billions in employee bonuses a full month early, three days before its sale to Bank of America closed. At the time, Merrill's losses were piling up rapidly, and Bank of America CEO Kenneth Lewis asked the US government for money from TARP to help finance the acquisition. [Source: Financial Times]

Only three weeks after its acquisition of Merrill Lynch was officially completed, Bank of America ousted former Merrill CEO John Thain. [Source: International Herald Tribune]

Other Headlines

Microsoft's second-quarter profit declined to $4.17 billion, or 47 cents per share, down 11% from a year ago and missing Wall Street forecasts of 49 cents per share. The software firm blamed a weaker PC market and economic troubles for the result and also said it plans to cut 5,000 jobs during the next 18 months.

Northrop Grumman expects to record a loss when it releases its fourth quarter results. The defense contracting giant cited $3 billion to $3.4 billion for impairment of goodwill. The company expects 2008 earnings per share from continuing operations before the charge to meet the upper end of $5.20 per share for its forecast. Wall Street analysts expect earnings of $5.21 a share, according to a survey by FactSet Research.

Ugly day for financials

2009-01-20T16:27:00.000-05:00

STT 14.89, -21.46, -59.0%
BAC 5.10, -2.07, -28.9%
WFC 14.23 -4.45 -23.8%
JPM 18.09 -4.73 -20.7%
C 2.80, -0.70, -20.0%

FHLBs in trouble

2009-01-11T10:54:00.002-05:00

When banks take loans from a Federal Home Loan Bank, besides paying interest, they have to buy FHLB stock, based on how much they borrowed and the credit quality of the collateral they posted. The system was set up as a way to support the FHLBs’ capital as banks borrow against it. When a member first signs on, the Home Loan bank sets up a clearing account that works like a checkbook; when member banks borrow money, the FHLB takes cash out of this account and in return gives the borrowing bank stock that pays a dividend. As a bank pays off the loan, the FHLB credits back their cash account by repurchasing the stock. At least, that’s how it usually works. Now, reports are surfacing that suggest that the FHLBs themselves are running into their own problems, from owning billions in toxic mortgage bonds that are becoming worthless.

Moody’s said in a report earlier this week that the FHLB System’s $76.2 billion MBS portfolio contained $13.5 billion in unrealized losses at the end of Q3; values have likely fallen [A LOT] further since that time. At least five Home Loan banks have already notified members as early as mid-December that they will not pay dividends and will stop buying back the excess FHLB stock members hold. Citigroup holds $4.7 billion, JP Morgan Chase holds $4.1 billion, Bank of America holds $2 billion, and Wells Fargo holds $1.6 billion.

Jobs, Jobs, Jobs

2009-01-07T09:47:00.002-05:00

They had been preparing us for over a week. Financial journalists kept telling us that when jobs data were released they could show that "as many as" 500,000 jobs were lost in December. Well, as scary as the "worst-case scenario" previews were, the actual number was much worse ... 693,000!

Turning Japanese?

2008-12-18T10:52:00.000-05:00

Fed cuts rates to 0%

2008-12-16T15:15:00.001-05:00

That's it, all done, close up and go home, there's nothing left to do.

The Federal Open Market Committee today agreed unanimously to cut the Fed Funds rate to a target range of 0% to 0.25%.

Read the FOMC statement.

CPI falls by largest amount since 1932

2008-12-16T10:47:00.001-05:00

US consumer prices fell in November at the fastest rate since 1932. The CPI fell by a seasonally adjusted 1.7% and by 1.9% on a non-seasonally adjusted basis, the biggest decline since January 1932, at the nadir of the Great Depression.

Full-on deflation is here. All the bullshit you've heard all your life about how another Great Depression can't happen because of circuit breakers in the system is just that ... bullshit.

Bernard Madoff arrested over alleged $50 billion fraud

2008-12-15T22:24:00.001-05:00

Bernard Madoff, a quiet force on Wall Street for decades, was arrested and charged on Thursday with allegedly running a $50 billion "Ponzi scheme" in what may rank among the biggest fraud cases ever. The former chairman of the Nasdaq Stock Market is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he launched in 1960. But he also ran a hedge fund that U.S. prosecutors said racked up $50 billion of fraudulent losses. Madoff told senior employees of his firm on Wednesday that "it's all just one big lie" and that it was "basically, a giant Ponzi scheme," with estimated investor losses of about $50 billion, according to the U.S. Attorney's criminal complaint against him.

Dilbert

2008-12-13T16:19:00.001-05:00

Trump Organization in Bankruptcy

2008-12-08T23:11:00.002-05:00

AGAIN!

Trump Hotels & Casino Resorts and related operations sought a Chapter 11 restructuring after reaching agreement with most of its creditors on a new financial structure for the business. Trump's stake would be slashed to 27% from 47%, even after he plows $72 million into the new operation. Other common shareholders would be mostly wiped out, and bondholders would control about two-thirds of the equity in the reorganized company under the proposed restructuring plan, which is subject to court approval.

Their last bankruptcy (in which Trump also made out like a bandit) was reported in this blog just 3.5 years ago.

Tribune Files for Bankruptcy, Stock Falls 94%

2008-12-08T15:57:00.002-05:00

Tribune, the owner of several of the nation’s largest newspapers, has filed for Chapter 11 bankruptcy protection. The company cited a $13 billion "heavy debt load" as the reason to seek protection. The media giant, which owns The Chicago Tribune, The Los Angeles Times, the Orlando Sentinel, 23 television stations and the Chicago Cubs, was battered in the past year. Their stock is now trading at $1, down 94% from yesterday's $18 closing price.

0% Interest Rates are Here!

2008-12-05T07:44:00.000-05:00

Worldwide!

In the US, the Fed funds rate may be 1%, but 3-month Treasuries are currently yielding 0.01%.

The Bank of England dropped its rate from 3% to 2%, the lowest rate since the central bank's founding in 1694.

Japan-style near-zero interest rates are here and may be here for a while. I predict a lost decade, for the entire world this time rather than just Japan.

Jobs, Jobs, Jobs

2008-12-04T12:51:00.006-05:00

This is bad, and getting worse very very quickly

AT&T cutting 12,000 jobs
Credit Suisse cutting 5,300 jobs (mostly in the US)
Dow Chemical cutting 5,000 jobs (and 6000 contractors)
UBS cutting 4,500 jobs
DuPont cutting 2,500 jobs (and 4000 contractors)
Belden cutting 1,800 jobs
3M cutting 1800 (more) jobs
Anheuser-Busch InBev cutting 1,400 US jobs
Nomura cutting 1,000 jobs
Viacom cutting 800 jobs
Adobe cutting 600 jobs

Retail sinking ... fast

2008-12-04T08:29:00.004-05:00

Abercrombie Same-store Sales Down 28%
Kohl's same-store sales fell 17%
Nordstrom's same-store sales fell 16%
Macy's Same-store Sales Down 13%
Limited Brands same-store sales fell 12%
J C Penney same-store sales fell 12%
American Eagle Outfitters Same-store Sales Down 11%
Saks Fifth Avenue same-store sales fell 11%
Target same-store sales fell 10%
Dillard's Nov. Same-store Sales Down 9%
Children's Place same-store sales fell 7%
Costco's same-store sales fell 5%
Aeropostale same-store sales fell 5%

(all this news was reported today)

4% Mortgage Delinquency Rate

2008-12-02T10:24:00.001-05:00

For the quarter ended September 30, 3.96% of people holding a mortgage were at least 60 days behind in payments, compared with 2.56% in the 2007 third quarter. "It's nothing short of staggering," said Ezra Becker, principal consultant in TransUnion's financial services group. Becker noted the rate had hovered at about 2% for years, until the second quarter 2007, when it started climbing. Moreover, the climb is not likely going to slow, he said. "Our projections are that it's not only going to be increasing but it's increasing at a faster pace," he said. The fourth quarter of 2008 could see the percentage of mortgages past due jump as high as 4.6 to 4.7%, he said, an estimate that reflects the recession and rising unemployment rates. "This is more pessimistic than what we would have forecast a quarter ago," he acknowledged. The highest delinquency rates continue to be in Florida, at 7.8%, Nevada, at 7.7%, California, at 5.8% and Arizona, at 5.5%.

Goldman To Post Loss

2008-12-02T09:55:00.001-05:00

Goldman Sachs Group is likely to report a fiscal fourth-quarter loss of as much as $2 billion, or $5 a share, five times the current analyst consensus, The Wall Street Journal reported. The expected loss for the quarter ended Nov. 28 would be the firm's first quarterly deficit since it went public in 1999. The company will write down the value of assets in private equity, commercial real estate and more.

Sears Holding Posts Loss

2008-12-02T09:26:00.002-05:00

Sears Holdings Corp reported a wider-than-expected quarterly loss Tuesday as sales fell at its US Kmart and Sears Roebuck divisions and said it would close additional stores. The loss was $146 million, or $1.16 a share, for the third quarter ended Nov. 1, compared with profit of $4 million, or 3 cents a share, a year earlier.

US sales at stores open at least a year declined 11% at Sears and 7% at Kmart.

Sears Holdings is now trading at 33.00; it was trading above $100 as recently as two months ago. Merging Kmart and Sears Roebuck was a marriage made in hell from the beginning.

Dow down 7.7%

2008-12-01T16:53:00.004-05:00

Dow down 678 points (7.7%) to 8149, its 10th worst day in history, bumping 10/9/2008 from the top 10 list.

Oct. 19, 1987	-22.60
Oct. 28, 1929	-12.80
Oct. 29, 1929	-11.70
Nov. 6. 1929	-9.90
Dec. 18, 1899	-8.72
Aug. 12, 1932	-8.40
Mar. 14, 1907	-8.29
Oct. 26, 1987	-8.00
Oct. 15, 2008	-7.87
July 21, 1933	-7.84
Oct. 18, 1937	-7.75
Dec. 1, 2008	-7.70
Oct. 9, 2008	-7.33

From the Department of the Bleeding Obvious

2008-12-01T13:48:00.000-05:00

The US economy entered a recession in December 2007, a committee of economists at the private National Bureau of Economic Research said Monday.

Don't Blame The Quants

2008-11-26T16:32:00.000-05:00

by Steven Shreve, PhD (founder of the computational finance program at Carnegie Mellon)

The investment banks created mortgage-backed securities with payoffs that depend on the performance of hundreds or even thousands of mortgages. Many of these securities received investment-grade ratings, and their returns were significantly greater than investing in a comparably rated bond. The law that higher expected return means higher risk seemed to have been repealed. The practice of "ratings arbitrage," getting a better-than-merited rating and selling securities based on that rating, was born.

It is easy under these circumstances to point an accusing finger at the "quants" on Wall Street, that cadre of mathematics and physics Ph.D.s who crunch numbers in esoteric models. Without the quants, the complicated mortgage-backed securities that fueled the housing bubble and led to the freezing of credit might not have been created. The models used by the quants determine the prices of those securities and steer the traders who make markets in them. Without this guidance, the banks might not have touched them in the first place. To prevent a recurrence of financial crises, some call for a return to a simpler time, before derivative securities and the quants who analyze them--a time when investors bought stocks and bonds and little else.

Such complaints miss the point. When a bridge collapses, no one demands the abolition of civil engineering. One first determines if faulty engineering or shoddy construction caused the collapse. If engineering is to blame, the solution is better--not less--engineering. Furthermore, it would be preposterous to replace the bridge with a slower, less efficient ferry rather than to rebuild the bridge and overcome the obstacle.

Before the collapse, Carnegie Mellon's alumni in the industry were telling me that the level of complexity in the mortgage-backed securities market had exceeded the limitations of their models. The bridge was cantilevered out way too far, and the quants knew it. But in most banks, the quants are not the decision-makers. When they issue warnings that stand in the way of profits, they are quickly brushed aside. Furthermore, in addition to better engineering, the bridge must not be built this time with the shoddy construction material of no-documentation mortgage applications and a network of unscrupulous mortgage originators.

The quants did not create derivative securities. The quants help us understand them, price them, trade them and manage the risk associated with them. The quants know better than anyone how their models can fail. For banks, the only way to avoid a repetition of the current crisis is to measure and control all their risks, including the risk that their models give incorrect results. On the other hand, the surest way to repeat this disaster is to trust the models blindly while taking large-scale advantage of situations where they seem to provide trading strategies that would yield results too good to be true. Because this bridge will be rebuilt, the way out of our present dilemma is not to blame the quants. We must instead hire good ones--and listen to them.

Source: Forbes [Thanks to DL for the link]

Blame the Quants

2008-11-26T16:30:00.000-05:00

(Scientific American editorial)

If Hollywood makes a movie about the worst financial crisis since the Great Depression, a basement room in a government building in Washington will serve as the setting for a key scene. There investment bankers from the largest institutions pleaded successfully with Securities and Exchange Commission (SEC) officials during a short meeting in 2004 to lift a rule specifying debt limits and capital reserves needed for a rainy day. This decision, a real event described in the New York Times, freed billions to invest in complex mortgage-backed securities and derivatives that helped to bring about the financial meltdown in September.

In the script, the next scene will be the one in which number-savvy specialists that Wall Street has come to know as quants consult with their superiors about implementing the regulatory change. These lapsed physicists and mathematical virtuosos were the ones who both invented these oblique securities and created software models that supposedly measured the risk a firm would incur by holding them in its portfolio. Without the formal requirement to maintain debt ceilings and capital reserves, the commission had freed these firms to police themselves using risk tools crafted by cadres of quants.

[more]

Existing home prices hit 40-year low

2008-11-26T01:12:00.000-05:00

No, not really.

Not at all, actually. But that's how the press keep reporting it. Even the Financial Times, which usually is very good about accuracy.

What they really mean is that the price of previously owned homes in the US fell in October by the biggest amount in 40 years, which although alarming news is completely different.

Borders trading under $1

2008-11-26T00:51:00.000-05:00

Shares of Borders Group headed south, losing more than 40% after the bookseller reported massive losses and dwindling sales, said it was no longer contemplating a sale of the company, and learned it would soon be booted out of the S&P MidCap 400. Borders said that its third-quarter loss ballooned to $172.2 million, or $2.85 a share, from a loss of $40 million, or 68 cents a share, in the same period of last year. The loss includes non-cash, non-operating charges totaling $133.2 million in the quarter, consisting primarily of deferred tax and fixed asset impairments.

Citi is dead too

2008-11-23T20:26:00.003-05:00

The federal government was nearing an agreement to rescue Citigroup by helping to remove billions of dollars in toxic assets from its balance sheet. The agreement, which was still under discussion and could fall apart, would mark a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to absorb bad assets, on a targeted basis, from specific institutions. The talks centered on the creation of what is sometimes called a "bad bank" - an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets. Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold. The U.S. government would then absorb any additional losses. One person said the new entity is expected to hold about $50 billion of assets. That would mean taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour. It was unclear Sunday night whether the government would take an equity stake in Citigroup in return for the support. Also uncertain was whether Citigroup would get a government loan to finance the facility. [...] It wasn't known if Citigroup will have to make changes to its executive ranks, board or elsewhere inside the company in return for government assistance. After weekend discussions, the parties were hoping to unveil an agreement Sunday evening.

Citi's fate

2008-11-21T18:07:00.004-05:00

As I first mentioned when Citi lost out on the Wachovia acquisition and accompanying sweetheart deal from the government, Citi is TOAST!

This time last year, Citigroup (C: 3.77 -0.95 -20.13%) was valued at about $180 billion. As of market close today, its market capitalization stood at $16 billion. Its once-proud share price has shriveled to $3.77 (a 16-year low) after dropping more than 60% this week, and analysts are starting to wonder just what the future holds. There are several options facing Citigroup as it tries to stem the decline. It could sell some of its business units or even sell itself whole - both are under consideration, according to a WSJ report - or it could try to buy itself time and gain market confidence by firing Pandit. In a worst-case scenario, a government bailout along the lines of that handed to AIG could be used to rescue Citigroup. In a call with senior managers Pandit reportedly said he intends to keep the bank whole and independent, but events appear quickly to be overtaking the former Morgan Stanley executive and hedge-fund manager who took over as CEO last year. Citigroup's board was meeting to discuss its options and may decide to overrule Pandit and sanction sell-offs.

Citi's fate?

2008-11-20T18:18:00.001-05:00

As Citigroup's share price sinks, investors are wondering if the US government will have to help the bank. Some ideas thrown out in a recent Fox Business article.

More preferred shares - rinse and repeat until the federal government owns all of Citi
A loan with ownership stake as was done with AIG - Would wipe out most of the earlier $25 billion investment in preferred shares, plus it would hurt investors in Citigroup's bonds as well as bank bonds in general which would make it harder for some banks to fund themselves
Guarantee all of Citigroup's debt and derivative obligations
Buy Citigroup's worst assets perhaps at a discount and allow an asset manager such as BlackRock to manage them for taxpayers - isn't that what TARP was supposed to do in the first place?
Instituting a new short-selling ban, loosening mark-to-market accounting rules for bank assets, or halting trading in credit default swaps - too brilliant for words
FDIC liquidation - This is a little like saving the patient from cancer by shooting him in the head with a bazooka, but may be the best option at this point. Too big too fail, my butt.

Can someone please educate the financial media

2008-11-19T11:11:00.000-05:00

...to quit saying "inflation is down 1%." That would mean that inflation went from 4% to 3%. What actually happened is that we had deflation, PRICES are down 1%.

Yahoo CEO Yang is out!

2008-11-18T07:02:00.003-05:00

Good riddance. Moron. Refusing a $45 billion offer because it was "too little." Company is worth less than 1/3 of that now.

Citigroup Laying Off 50,000+ Employees

2008-11-17T09:25:00.003-05:00

Over 1/7th of their remaining workforce, above and beyond all previously announced layoffs. So many different thoughts:

1) Last week some Citi bigwigs made a big deal about buying large chunks of Citi stock for their personal accounts, presumably to shore up confidence in the stock. They must have known this layoff was in the works. How is this not insider trading?

2) These 50,000 (52? 53? I keep seeing different numbers in the press) people were doing some sort of work yesterday. Apparently that work does not need to be done tomorrow? Why not? It's not like Citi's revenues have gone down by 1/7th. Did it not need to be done yesterday? Then why were these folks warming a desk? It doesn't make any sense.

3) The bottom line, as I've said before, is that it appears fairly certain that Citi is not going to make it. I guess that will prompt the MOAB (mother of all bailouts).

Market News

2008-11-15T10:18:00.002-05:00

Teasury may have to pump more than the planned $200 billion into Fannie Mae and Freddie Mac to keep the mortgage giants afloat. Deterioration of the housing market and the broader economy have put the corporations into deeper trouble than they were in when Treasury announced their takeovers. (Source: The Washington Post)
Follow-up: Freddie Mac has a net worth of NEGATIVE $13.7 billion; FNMA still has a positive net worth but said it may be negative by year-end.

Delinquency on subprime mortgages set an all-time record in October as unemployment soared and interest rates reset, driving monthly payments higher. The increase is spreading to the entire mortgage market, as well as auto loans and credit cards. (Source: CNBC)

A further $103 billion of synthetic CDOs are vulnerable to catastrophic losses based on defaults involving underlying derivatives. Defaults by Lehman Brothers and other institutions have already touched off $24 billion in synthetic CDO losses. There is about $750 billion of synthetic CDOs outstanding that are tied solely to corporate-debt derivatives. (Source: Financial Times)

Amex becomes bank

2008-11-10T22:34:00.000-05:00

American Express is the latest US firm granted approval to become a bank holding company, which allows it access to the Federal Reserve’s discount window as well as the opportunity to apply for Treasury assistance if needed. Citing the “unusual and exigent circumstances” weighing on the financial markets, the Federal Reserve Board waived the standard 30-day waiting period.

Circuit City Files for Bankruptcy

2008-11-10T11:03:00.001-05:00

Not much to add to that, other than it's about time.

LTCM II in BIG trouble

2008-11-07T12:03:00.001-05:00

No, not Meriwether's hedge fund, although it's still in trouble too. I'm talking about Scholes' hedge fund. When will these guys learn that having a Nobel Prize does NOT exempt you from the basic economic fact that greater returns are ONLY possible with greater risk. Highly leveraged bets are great when the market is up, but they will trash you on the way down.

Platinum Grove Asset Management, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29% in the first half of October. The decline left Platinum Grove Contingent Master fund with a 38% loss this year through October 15. Funds employing a similar approach of exploiting differences in the value of related securities fell 14% last month and 30% this year, according to data compiled by Chicago-based Hedge Fund Research. Scholes, winner of the 1997 Nobel Prize in economics, was a founding partner in Long-Term Capital Management. He started Platinum Grove in 1999 with Chi-fu Huang, Ayman Hindy, Tong-sheng Sun, and Lawrence Ng, who had all worked at LTCM.

Jobs Data

2008-11-07T11:07:00.000-05:00

The US labor market has shed 651,000 jobs and driven the unemployment rate to 6.5%, its highest point in more than 14 years. Nonfarm payrolls fell by 240,000 in October, worse than expected. Payrolls losses in September were revised down sharply to 284,000, the largest job loss in seven years. Unemployment surged by 603,000 in October to 10.1 million, the highest level in 25 years. In the past six months, unemployment has leaped by 2.45 million, the largest increase since 1975. So far in 2008, a total of 1.18 million jobs have been lost, according to the survey of work sites. Payrolls have fallen for 10 straight months.

More Bad News at Blackstone

2008-11-06T14:35:00.002-05:00

Shares of Blackstone Group fell sharply (-9.88% as of the time of this post) after the large private equity fund reported heavy third-quarter losses as the value of its holdings were battered by the ongoing financial crisis. The company said its quarterly loss jumped to $340.3 million from $113.2 million during the same three-month period in 2007. Blackstone is now trading at $7.75.

Source: FoxBusiness

Credit Card Backed ABSs are next

2008-11-06T09:57:00.000-05:00

Faced with rising consumer credit-card delinquencies, buyers are not interested in bonds backed by credit-card payments. Top-rated card-backed securities maturing in three years traded at a spread of 475 basis points more than Libor during the week ending October 30, compared with 50 basis points higher in January. Sales of credit-card bonds hit zero in October, the first time since 1993.

Source: Bloomberg

HA HA

2008-11-03T15:43:00.001-05:00

Blackstone is trading at $8.55, down an amazing 72% from its IPO price. It's underperformed the DJIA, the S&P500, the Wilshire5000 and pretty much every other stock out there.

Another one for the DUH files!

2008-11-03T09:27:00.000-05:00

A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant AIG may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

"From each according to his abilities..."

2008-10-31T10:46:00.001-04:00

The Treasury and the FDIC are considering a program that may offer about $500 billion in guarantees for troubled mortgages to stem record foreclosures, people familiar with the matter said. The plan, which might put as many as 3 million homeowners into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay.

So these folks get to own a house WORTH MUCH MORE THAN MINE (I know this because if their mortgage were the size of mine, they could pay it with an unemployment insurance check) and PAY LESS for it. George Bush - member of the US Communist Party? Who knew?

GDP Contracts

2008-10-31T01:45:00.000-04:00

GDP fell 0.5% in the third quarter, in line with expectations.

Delta acquires Northwest

2008-10-30T05:30:00.001-04:00

It's called a merger, but really it's an acquisition. Delta closed the deal today and became the world's largest airline.

Big Surprise

2008-10-29T15:34:00.000-04:00

Fed lowers fed funds rate 50 bp to 1%. Who didn't see that coming?

Another form letter from my senator

2008-10-28T21:43:00.005-04:00

Thank you for contacting me regarding H.R.1424, the Emergency Economic Stabilization Act. I appreciate your thoughts and the opportunity to respond.

The House and Senate approved this bipartisan financial package designed to stabilize credit and restore confidence in U.S. financial markets. This legislation is critical to allowing us to unclog the financial markets, free up credit to the average American and over time restore the American economy to what it has been and always will be - the best entrepreneurial capitalistic system in the world.

This is like the converse of a statement that Fidel Castro made a few years ago: "We are going to use capitalism to destroy capitalism." Now our idiot senators and representatives are telling us that they are going to destroy capitalism in order to save capitalism. Government owning 20% of the largest banks in the country is not "entrepreneurial" or "capitalistic."

While this legislation will not be a quick fix, it does address the core problem of mortgage-backed securities. As it is implemented, it will begin to stabilize the market and free up capital for the credit markets. The legislation authorizes the Treasury Secretary to immediately use up to $250 billion to purchase distressed assets from institutional investors.

Except we've already spent hundreds of billions, and not ONE MBS has been purchased yet.

If needed, the Secretary may then access an additional $100 billion to purchase these distressed assets but only with presidential approval. An additional $350 billion may be accessed if the president first wins approval from Congress.

The legislation includes a number of provisions to ensure oversight by Congress and accountability to the taxpayers, including prohibitions on executive compensation to ensure bad actors are not rewarded. Specifically, companies that receive more than $300 million from this plan will have limits placed on their top five executives. These limits include a ban from receiving a "golden parachute" as well as limits in the tax deductions executives may take on compensation over $500,000.

Who cares about the top five executives when everybody downstream of them is getting billions. At Goldman Sachs the average bonus is $216K, at Morgan Stanley it's $138K. You are taking MY money (I don't make $138K in total compensation, let alone bonus) and giving it to GS and MS employees. How dare you, you socialist? If I wanted a socialist to represent me, I would have voted for a socialist.

The legislation also continues the suspension of "mark-to-market" accounting rules that is already in place today. The bill does not allow bankruptcy judges to restructure the terms of existing mortgage loans. Additionally, it does not provide funds for affordable housing community organizers such as ACORN.

This bill does precisely the one thing that we can do to help unlock the credit markets and help the average working Georgian, the average Georgia retiree, and the average Georgia child who is looking to the future to benefit from what right now is a very difficult situation. This financial crisis has cost people their jobs and put small businesses at risk. It has ransacked individual retirement accounts and frozen the credit available for businesses, home purchases and car purchases. The people affected by the legislation sent us to Washington to make these kinds of tough decisions. I am glad the majority of the members of Congress did not simply turn a blind eye and hope for the best.

Sincerely, Johnny Isakson

Truly The End of Days

2008-10-28T18:15:00.000-04:00

Barclays is seeking investments from two state-backed Russian banks in an effort to boost its capital. The British bank has spoken to OAO VTB and OAO Sberbank about potential capital injections, but it wasn't clear Monday if Barclays' efforts had been successful. Barclays said it would raise £6.5 billion ($10 billion) from private sources to meet government capital benchmarks.

Didn't know state-backed Russian banks were considered private sources these days.

Dow up 889 points

2008-10-28T16:10:00.003-04:00

Dow up 889 points, its sixth (NOT its second like the press are reporting, points don't matter, only percents matter) largest increase in history...

March 15, 1933: 8.26 points, or 15.34%, to 62.10
Oct. 6, 1931: 12.86, or 14.87%, to 99.34
Oct. 30, 1928: 28.40, or 12.34%, to 258.47
Sept. 21, 1932: 7.67, or 11.36%, to 75.16
Oct. 13, 2008: 936.42, or 11.08%, to 8,387.61
Oct. 28, 2008: 889.35 or 10.88%, to 9,065.12
Oct. 21, 1987: 186.84, or 10.15%, to 2,027.85
Aug. 3, 1932: 5.06, or 9.52%, to 57.22
Feb. 11, 1932: 6.80, or 9.47%, to 78.60
Nov. 14, 1929: 18.59, or 9.36%, to 217.28

Today's News

2008-10-28T15:11:00.003-04:00

Foreign ministers, finance ministers, and central bank presidents from Argentina, Chile and Venezuela and others attended the meeting to discuss a crisis which is threatening to severely hurt regional and global economic growth. Foreign Minister Celso Amorim of Brazil said at a press conference that there was a general consensus for the need for reform in "the architecture and the procedures of the international financial system." He did not elaborate on what kind of changes the officials were in favor of or exactly what they had discussed. But he stressed the importance of the region's states pulling together to better weather global financial storms that may lie ahead.

The IMF may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money. IMF's work in countries such as Turkey is only just beginning. The Fund is already close to committing a quarter of its $200bn reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia.

Five straight quarters of losses and a 70% slide in its stock this year haven't stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses. Goldman Sachs and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down only 28% from a year ago. Even some employees at Lehman Brothers, which declared the biggest bankruptcy in US history last month, will get the same bonus they received a year ago. The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won't deter Wall Street from offering year-end rewards. Goldman, the biggest and most profitable Wall Street firm, has set aside about $6.85 billion for bonuses, or an average of $210,000 for each employee, down 32% from $339,000 a year ago. Morgan Stanley, the second-biggest securities firm, has $6.44 billion for bonuses, or $139,000 per person, down 20% from last year. The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.

Iceland's central bank on Tuesday unexpectedly hiked its key lending rate by six percentage points to 18% in a massive reversal of policy. 15%? Down to 12%? Up to 18%? We don't have a freaking clue what we're doing.

Boeing-IAM Deal

2008-10-28T14:32:00.003-04:00

Boeing, on the heels of a tentative agreement to settle a strike with its machinists, immediately faces contract negotiations with its engineer and technical workers union, an effort promising to be just as heated and contentious as the one that prompted the machinists to walk out for seven weeks. Boeing and the IAM tentatively agreed to settle the strike by 27,000 employees in Washington, Oregon and Kansas.

The union said it endorsed the deal that includes no additional cost-shifting to workers for healthcare benefits[*], preserves the company's pension plan, and guarantees a 15% pay increase for each member over the life of the four-year agreement. They will also receive yearly lump-sum payments that could total up to $8,000. Further, the union was able to extract an agreement from Boeing to protect nearly 2,200 facility jobs and an additional 2,920 jobs related to materials delivery and inventory process, as well as expand the scope of its subcontracting review.

For Boeing's part, the manufacturer said it was able to retain flexibility to manage its business, a hint to its increased reliance on outsourcing. It was also able to secure a longer-term contract than in prior years, crucial for a company with a poor record of suffering production halts during labor-contract negotiations.

[*] Sweet deal. I just did open enrollment and my HMO premium went up 16%!