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?You can check the post for the answer and the give and take in the comments section.
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.
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.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:
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.
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.Well that sounds big!
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 Kastljós in the evenings, which might help shed some light on the matter] — but it’s sure to be 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.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?
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.
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.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?
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."
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.
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.