Wednesday, June 16, 2010

Now I am the One Asking Questions

Well the Celtics really laid an egg last night! I went to bed at halftime knowing full well that game was over. I figured the Celtics were a 2:1 favorite going into last night's game but after the debacle of their performance would not put them about 3:1 underdogs to win game seven. Makes me think of that game 6 of the New York Knicks vs the Houston Rockets in the title series a long time ago. It was all there and they let is slip away.

Now I am the One Asking Questions
I was inspired by this post over at The Illusion of Prosperity last night which just asked simply:
Q: What Do These Five Commodities have in Common?
1. Gold (the ancient metal?)
2. Silver (imaging?)
3. Copper (wiring?)
4. Lead (bullets?)
5. Iron (swords?)
There are many valid correct answers, but I have one particular answer in mind.
You can check the post for the answer and the give and take in the comments section.

I know this may be very hard to believe, but this author does not know everything. In fact I am well aware of the many things I either do not know or cannot predict. This may surprise you as in your daily reading it seems many KNOW almost everything and can predict what will happen in the future. It's a dirty little secret. All writers are pretty much just like you; doing the best they can with what they have. Some are more talented than others, but in the end all one has is their mind, their gut, and some kind of way to express their opinions.

I had quite a few questions on my mind about several stories today and of course I have a few ideas about all of them. Then I figured, why not just ask the audience? Brilliant! The readers here are the best anywhere and so I will open up what I am puzzled about to the board and see what comes out.

Fannie Mae and Freddie Mac Delisted
Two wards of the state, both FNM and FRE have been sub dollar stocks for a long time. FNM was a HFT favorite, making the top 25 most heavily traded stocks for the high frequency crews. Why now? Even the Wall Street Journal had a hard time finding a reason:
Many analysts for months have maintained that the companies’ shares aren’t worth anything because Fannie and Freddie have run up such spectacular losses as a result of the housing bust. To become profitable again, the companies would have to stop losing money and pay back the $145 billion that they’ve taken in government aid just to get back to a break-even point. From there they’d have to recapitalize themselves before shareholders could see any gains.
Given that the companies’ circumstances haven’t changed much, “it somewhat raises the question why it wasn’t done earlier,” says Jim Vogel, an analyst at FTN Financial.
You think so, Mr. Vogel? Thanks for the insight. Someone may have wanted to talk to Investment Technology Group Inc who in a Businessweek item mused:
Two companies removed from the Russell 1000 last year because their share prices were less than $1 -- Freddie Mac and Sirius XM Radio Inc. -- are likely to rejoin the benchmark, according to ITG.
Guess not.

I have an idea as to what this is leading to and the WSJ piece even hints at it:
The big issue now is what happens to the companies moving forward, and Wednesday’s delisting helps clear the pathway a bit towards doing something completely new as opposed to taking steps to restore the value of the current companies. And it’s also a sign that the common shareholders “don’t play a role in that future structure,” says Bose George, an analyst at Keefe, Bruyette & Woods Inc.
I have a really bad feeling about this. What is the deal here?

Euro Bank Stress Tests: What is with the Delay?
Spain wanted banking stress tests to be made public, Germany was opposed but as they have been likely to do as of late, caved right in under any pressure and have agreed. But we will have to wait two weeks to see any results:
ECB Says We Have To Wait 2 WEEKS For Any Stress Test Data
Why the wait? Presumably these tests are done and should be ready to go. What is the hold up? Can you think of anything off the top of your head? It's more than the first thing that pops into your mind I think.

Convoluted Court Ruling
I am not a lawyer. I have zero understanding of cross-border banking regulations. I have no idea if one country can compel a business based in another country to do anything. That said, I am clearly puzzled by this news which Calculated Risk covered today:
Iceland: Court Rules Foreign Currency Indexed Loans Illegal
CR links this Iceland Weather Report site which offers:
The Icelandic supreme court ruled this afternoon that Icelandic loans indexed to a foreign currency are illegal.
This is hugely significant for thousands of people in this country.
As many of you will know, the foreign currency loans were one of the most serious consequences of the economic collapse for normal people in Iceland. Thousands of Icelanders had taken out these so-called “currency basket” loans to buy homes and cars, and when the Icelandic currency plummeted, their loans doubled, tripled and even quadrupled in value, with disastrous effects.
And now, they’ve been deemed illegal. Exactly what the implications of this are I’m not entirely sure [the World Cup dominates everything these days, so we don't even get Kastlj├│s in the evenings, which might help shed some light on the matter] — but it’s sure to be big.
Well that sounds big!

I really cannot offer much on this one. In the CR comments section some voices (smart folks) thought maybe this would mean Icelandic borrowers would be given back money after being overcharged in this, now illegal, type of loan arrangement. I have no idea how this would work. If that is the case there will be more loan losses for banks that made these loans, though how large that number is is open to question. Any thoughts?

England's Version of the SEC is Dissolved
The very agency tasked with financial regulation was a failure, which in that it is hardly alone. From the Clusterstock piece:
Last year David Cameron said that Gordon Brown's financial regulation system, the FSA, was to blame for the entire country's financial problems.
He made plans do something about it: either get rid of the FSA or give someone the job of better supervising them.
Now George Osborne is disbanding the FSA altogether and giving the job of supervising and regulating to the Bank of England, says the Guardian.
The new king of regulation is Mervyn King, who will exercise ultimate control over the supervision.
This is rich! Imagine the government getting rid of the inept SEC (great news!) and giving enforcement over to the FED (WHAT????). A puzzling move indeed. Again, any ideas?

BP Going Down but PIMCO Likes The Odds
Things are not looking good for oil spill culprit BP. To start they will have to set aside $20 Billion dollars in an escrow account for various payments. The CDS markets do not like their chances, but Bill Gross of PIMCO sure does:
Bill Gross, the co-chief investment officer of PIMCO, said on Wednesday that he recently bought $100 million of short-maturing BP Plc (BP.L) (BP.N) notes and some Anadarko Petroleum (APC.N) paper.
Gross told Reuters via email that he purchased BP paper and "some Anadarko, which is a 20 percent owner," in recent days.
He earlier told CNBC television: "BP 5-year bonds yield 6 to 7 percent, BP 12-month paper yields 10 to 11 percent. This is either a double-A company or a triple-C company depending upon the caps and the ultimate cost."
Gross said on CNBC: "At this point, if you can get 10 percent on one-year paper on BP, we think it's closer to double-A than triple-C. That's a significant (thing). We started to buy some."
I will defer to Mr. Gross about the particulars but I think there is something else going on here. Remember, PIMCO likes to "shake hands with the government" and it is this line of questioning that I think leads to a better reason for the purchase. What do you think?

Best Move of the Recovery?
A nagging question after today is what has been the best move of the recovery? Your choices, amongst so many, are:
A - General Motors (GM) ramping up production, especially of SUV's, due to the Toyota scam, I mean boom in sales signaling a new long term uptrend and gas long term under $2.50 a gallon.
B - Toll Brothers (TOL) getting back into land purchases and looking to expand as they "focus on growth" just last month and already they are thinking things over.

Tough call!

Last night in the LABEL line I left:
Get up and get down financial reform is a joke in your town
Which was a borrowed from the old Public Enemy song "911 is a Joke in Your Town". There, one question answered!

Have a good night.


Kid Dynamite said...

FNM and FRE were delisted based on the price rule - I'm guessing you already know this - but NYSE requires stocks to trade above $1. After 30 days below $1, they get a delisting notice.

did they trade below $1 for 30 days last year? i'm guessing not...

Jake said...

you asked a lot of questions, but not who do we think will win game 7...

lets just say i'd take the green side of the bet if you were offering those 3:1 odds.

Stagflationary Mark said...


"This may surprise you as in your daily reading it seems many KNOW almost everything and can predict what will happen in the future. It's a dirty little secret. All writers are pretty much just like you; doing the best they can with what they have."

Yes! We all offer our opinions, but no matter how much we know or even think we know there will always be much more we don't. Browsing the New York Public Library's Desk Reference shows me how much I don't know. It's just one book too. I've never been in a library that big, but it sure would be a humbling opportunity.

"We live on a placid island of ignorance in the midst of black seas of infinity, and it was not meant that we should voyage far.” - H.P. Lovecraft

We have voyaged so far. There's a bull market in black seas these days though, even in the literal sense (oil in gulf). Sigh.

GawainsGhost said...

I don't know what is going on with Fannie and Freddie. But I do know this. The foreclosure process is expensive, and there is little to nothing, mostly losses, to be gained in a resale.

That said, I sure hope they don't go under, because we get a lot of listings from them. 15 this month alone. (At a minimum commission of $2000 each, that's at least $30,000 for us.)

I don't know what to make of this housing market anymore. Look. I got this house listed, had numerous calls and a lot of interest. Offers were made and a sales price was agreed upon. And addendum was prepared.

On the day the buyer was supposed to sign the papers, her idiot realtor called and asked if she could roll over the closing costs. I told him, no, that was not part of the original contract. The seller has not agreed to it. The only way you can do that is to cancel the contract and resubmit another offer. Do you want to cancel the contract?

No. He brought in the signed final contract and addendum and earnest money later that day. This was all forwarded to the title company, and lawyers began working on the closing.

Well, a week after that this idiot realtor came in with an ammendment, wanting to roll over the closing costs. I told him, you have an agreed upon contract in escrow. The seller is not going to agree to change the terms and conditions after the fact. But he insisted. "My buyer wants to roll over the closing costs!" (This because her lender had convinced her that it was "free" money and that she could use the extra money for rennovations.) I submitted the ammendment.

Two minutes. That's how long it took for the asset manager to cancel the contract and void the escrow account. The whole deal blew up in this idiot realtor's face! Just like I knew it would.

Long story short, he submitted another offer. Surprisingly it was accepted. Then it had to be extended. And had to be extended again. Until finally it fell apart. Why? The buyer couldn't get approved for a loan because her credit rating was 650. (How she got pre-approved to begin with is beyond my ability to comprehend.) Then she said, oh, that's my sister's credit rating. So they removed her sister, and her credit rating dropped to 500. Go figure.

The whole deal fell apart. This took several months. I could have sold this house several times over during that time. In fact, I just put it back on the market last week and already have two cash offers on the table.

This is what people don't understand. It's not just Fannie and Freddie, as horribly mismanaged as they are. It's idiot loan officers, idiot buyers, and idiot realtors mucking up everything. No wonder the GSEs are going broke.

Anyway, I wanted to get my request for Friday Night Entertainment early. The Faces, "Stay With Me."

Now, that's some mean, down and dirty rock and roll.

getyourselfconnected said...

Gee KD, I had actually no idea about that rule, it must have escaped my mind. I would wonder then why FNM was under $1 from Dec 2008-Aug 2009 but I guess that was a book keeping slip up. Thanks for the info!

3:1 is being nice I should think, Game 7 is a home teams best friend, we had our shot!

Thanks for the inspiration!

I dont know how you do it day and day out.

Lurker said...

Please remember Jimmy Dean this Friday,and play "Big Bad John". Mr.Dean Passed away on Sunday at age 81. He will be inducted into the Country Music Hall of Fame later this year. My rock music request for this week is "Da Ya Think I'm Sexy" by Rod Stewart.

Kid Dynamite said...

GYC - i just found a story that said that the NYSE suspended the $1 listing requirement for several months last year because so many companies were under the threshhold! so yeah - they probably did trade below previously, but the rule was suspended

getyourselfconnected said...

Kid D,
I am not sure if you are joking here or if you are serious. I saw the same info on the susupension and FNM strill does not make it. Of course this is besides the point. Their stocks are being delisted even though there are about a million tricks to stay above $1 should that be a desire (you are aware of reverse splits, buybucks, etc??). In this case I should have included an extended excerpt as I know some folks like to focus in on small details other than the big picture. Consider from the article:
"But the Federal Housing Finance Agency decided it wasn’t worth taking the steps necessary to avoid the delisting—by submitting a plan to bring the share price above $1—because it wasn’t clear that such a plan would work, or that it would even be in the interest of shareholders and the government to do so."
So they could have avoided this but did not. The question is why. But maybe that is not as important.

sedintary state said...

There's something funny going on over there at the bank.

-Jimmy Stewart
It's a wonderful life.

crisis garden said...

Here's a Friday suggestion. This band just came on my radar. Of course I blame the insanely corrupt and incompetent radio industry for being 8 years late on this find.

C'est la vie. Idiocy abounds.

Kid Dynamite said...

GYC - you need to use your SARCASM font then.

i don't get all the hubbub about FNM and FRE. they stocks should have gone to zero a year ago. this is all past due. there is not great story about why the stocks weren't manipulated with reverse splits to maintain listing requirements - it's because they are worthless, and everyone knows it, except the Yahoo Message Board jockeys who think that it's great that FNM/FRE are so cheap because it means that they can buy more of them for the same price.