HP to buy Palm

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

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

Not again!?

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

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!!

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

Economics

Econometrics

Financial Engineering

Financial Risk Management

Moral Hazard: Reforming the Financial System

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

Why do we buy stuff from China again?

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

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

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

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)

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?

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

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

The Great Courses: Economics

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

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

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

Picking at the carcass?

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