Tuesday, April 8, 2008

Irreconcilable Differences

That was a wild finish to the college basketball title game last night. I missed the live game but caught a replay of the final two minutes. It is not over till it's over indeed.

Irreconcilable Differences
The very character of things financial as of late can best be described as "hard to reconcile". Stock behavior, market analyst commentary, and public officials (present and former) seem to be at odds with hard facts and common sense. Today even saw Alan Greenspan basically refute the entire Paulson expansion of regulation plan as useless. Lets take a look at some amazing contradictions presently at work;

Washington Mutual Dilution Plan: I had a post on the WM cash "infusion" last night. This morning the infusion became even bigger and some more details were released. Suffice to say that this deal basically halves the company's value to existing shareholders. The convertible price for the stock is set at $8.75, the dividend was slashed to 1 cent from 15 cents, and the bank will cease and desist all wholesale mortgage business, cutting 3000 workers. Of course this cascade of rough news was good for over a 30% rise in the stock yesterday, and today it held most of it to close at $11.81, quite a ways from $8.75. So is this doubling of the market cap of WM a good move, or is it more like the last ditch efforts by CFC before they gave up? Time will tell, but certainly WM is a heavily impaired company going forward. It is hard to reconcile the idea that the interest in WM from private equity is a positive sign when the private equity guys are getting WM stock cheap, a board seat, cessation of most mortgage lending exposure going forward, and a reasonable expectation of a FED bailout to $10 should this all go south.

Alan Greenspan and Anything Resembling Reality: At some point, Greenspan's friends or anyone that cares for the man is going to pull him aside and forcefully shut him the hell up. The more he speaks, the more he buries his credibility permanently. The man says so many opposing things and things that make no sense I can only submit that he has lost his mind. In a forthcoming exclusive interview with CNBC (exclusive? Greenie is talking to anyone, even high school papers if they will listen!) Greenspan makes the observation that, get this, interest rates made NO DIFFERENCE in home buying during the low rate years of late 200o to 2003. If interest rates make no difference to home buying, then the rushed rate cutting frenzy the current FED has been on seems pretty dumb indeed. Greenspan blames investors for aggressively buying bad mortgage paper, and even begging to buy more. Greenie may have a point there, but then it becomes impossible to reconcile the current FED bailout bonanza with terrible decision making by investors does it not? Greenie also balks at increased regulations, and say that they would not have, and will not make any difference. Take that Hank Paulson and the reform package horse you rode in on. Either Greenie is still "the Maestro" and the current FED is retarded, or monetary policy was run by a delusional madman for years. You cannot have it both ways. As a tiebreaker, Greenspan also says we are in the "throes of a recession" at the same time he predicts home prices will stabilize in 2008. OK bro! Say hi to Andrea for me.

UPS and Alcoa Versus the Recession is Over Idea: UPS was out this evening with a lowered guidance going forward as they perceive the economy to be "rapidly deteriorating". Alcoa missed earnings last night on high fuel costs. The recession that never happened and is now over crowd is going to have a tough time with these bell weather companies saying things are not that good going forward. Of course if you just extrapolate stock prices out far enough, the recession will indeed be over. Why not just price stocks today at a price where the companies will be making huge dollars like 150 years into the future, and then these short term blips will smooth out.

There are many more. Reality and perception are diametrically opposed right now. Something has to give. Some think the return of money through bank deals (WM, CFC, BSC, C) means something. I might caution it is the same folks that pushed to buy all the crap mortgage paper to start with now are trying to buy back in lower. Dollar cost averaging I guess. If the past few years has shown anything, it is that there may not be a thing called "Smart Money" anymore. Maybe there never was.

Have a good night.

1 comment:

Anonymous said...

The Federal Reserve is mulling further steps to address liquidity problems in financial markets should measures taken to date fail to gain traction, a Fed official confirmed on Wednesday.

Among steps under review would be for the Treasury to borrow in excess of requirements and deposit the overage at the Fed, according to the central bank official.

Other potential actions include issuing debt under the Fed's name and seeking authority to immediately pay interest on commercial bank reserves, the official said


Warming up the helicopters and firing up the printing presses.