Hello all loyal readers, as well as anyone else that stops by. Last week was a very difficult time. It is hard sometimes to try and get back into your routine after losing anybody in your life. Everything can seem unimportant. But alas, we all must go on. I enjoy posting my ideas and thoughts on the economic issues facing us today, so back at it!
Last Week Wrap-up
There was a ton of action last week, and I cannot possibly recount it all here. Technical levels were breached. Talking heads finally were exposed as silly as they were changing their tunes almost daily from "the worst is over" to "second half recovery is a bust". The best full on wrap of the major issues going on right now can be found at Mish's site, this article in particular:
http://globaleconomicanalysis.blogspot.com/2008/06/deflationary-hurricanes-to-hit-us-and.html
Yes, I am on board with Mish in the Deflation camp. His logic is sound and the evidence overwhelming. While oil, gold, and other commodities may rise even higher in price, the definition of deflation is a collapse of credit. That is exactly where we are going.
Indymac Bank Will Win the Dead Pool
In the last poll Indymac Bank (IMB) got two votes for most likely to go bye bye. One of those votes was mine, so there is one other genius out there that voted. The structural issues facing IMB are too serious to overcome. It is now endgame time. Can the FED prop up IMB? It is doubtful with most of their balance sheet already gone. Can some kind of merger be forced? Maybe, but what entity can take on IMB? JP Morgan is already looking pretty smug about their Bear Stearns gift, and Bank of America is going to have to litigate lawsuits for years over CFC. Who is left?
Perhaps the FED may have learned their lesson and will allow a terrible bank to go bust. This bears watching to see how the situation is handled. IMB will not be the last to go, so how the close out is done will be of value information wise.
Grasping at the Last Few Threads of Fabric from a Debt Based Economy
It has long been a central theorem here at Economic Disconnect that last summer the FED, the banks, the home builders, and the entire financial system tried to take a deep breathe and hold it as long as possible in a vain attempt to ride out a collapsing real estate debacle. I can kind of understand. The major players are well aware how ridiculous 80% of the mortgages written over the past 3 years are, they know how bad things will get now that prices are not rising. rather than attack the issue at the roots, everyone tried to pretend a miraculous 2nd half recovery would somehow, someway reignite the housing bubble.
Well, time is up. The FED is empty this summer. IMB is going down, and many others are not far behind. The stock market seems to finally caught a clue and is trending down. Home foreclosures are still accelerating. You know the drill. So what does this mean?
This summer will be a season of many firsts. Creative bank closures. Deleveraging of monoline useless insurance. Massive bank losses. Even more bone head moves by the US Congress.
There are still some out there that think continuing on in the same way that got us here is the answer. Even Robert Shiller, an early housing bubble caller, feels that stimulus plans should just be a perpetual thing to keep demand for junk artificially high. The US financial system is near a crisis because too many people felt they were entitled to live like a celebrity. For some time credit was easy enough to make a stab at it. Now too many are so deep in debt, there cannot be any reasonable expectation of debt payback. Exhaustion has finally been reached by the consumer.
And this will hurt. It will hurt everyone. Nobody likes a mess. I am not happy about what is going on. But the process must happen. It was delayed after the 2000 market bust, and now there is nothing to replace home equity. Nothing. What we need are grown ups that will steer the country through this mess and back to sustainable growth based on solid fundamentals. I have no idea where those people are going to come from, but rest assured none of them are in positions of power today!
I am looking for post ideas and topics as I settle back into writing, so leave a suggestion if interested.
Have a good night.
Monday, June 30, 2008
Monday, June 23, 2008
Intermission
Intermission
I will not be posting this week. A very good friend of mine lost his 2 year battle with cancer on Saturday June 21st, 2008. Help is required by his fiancee, understandably, during this difficult time.
From the initial hit the diagnosis took on him, through multiple chemo therapy rounds and finally surgery and more chemo, things looked well controlled. Even very positive. The type of tumors that came back were as virulent and aggressive as anything I have heard of, and I am in the biotech field. Sad times indeed.
Until next time, have a good night.
I will not be posting this week. A very good friend of mine lost his 2 year battle with cancer on Saturday June 21st, 2008. Help is required by his fiancee, understandably, during this difficult time.
From the initial hit the diagnosis took on him, through multiple chemo therapy rounds and finally surgery and more chemo, things looked well controlled. Even very positive. The type of tumors that came back were as virulent and aggressive as anything I have heard of, and I am in the biotech field. Sad times indeed.
Until next time, have a good night.
Friday, June 20, 2008
Glad The Worst Is Behind Us
I tried once again last night to get the wireless booster thingy I bought to work, but no dice. I must be honest when I say I HATE computer related stuff. It always seems to me that the design of all of it is complicated, not because it has to be, but because the loser geek types that make this crap like to make it that way. Whatever. I will have to decide this weekend what to try because my patience level is at absolute ZERO with this spotty internet deal. For only $120 a month you too can have useless internet usage! Thanks Comcast.
Richard Bove Still Making Sure He Stays in the News
There is a school of thought that any publicity, even bad, is good if it gets your name out there. While one can debate such thinking, one of Economic Disconnect's favorite analysts was out again today with a call on Citigroup (C):
UPDATE 1-Ladenburg's Bove widens 2008 loss view for Citigroup
Ladenburg Thalmann analyst Richard Bove widened his 2008 loss estimate for Citigroup Inc and cut his price target on the stock, after the largest U.S. bank said it could have substantial subprime write-downs in the second quarter.
Bove widened his 2008 loss estimate for the company to 36 cents a share from 19 cents and lowered his price target on the stock to $25 from $31.
The analyst said he sees another multi billion write-downs of Citigroup's super senior CDO (collateralized debt obligations) portfolio, which was marked down by about $6 billion in the first quarter, due to widening of spreads
More marks are expected on the subprime portfolio," Bove said, adding the $1.5 billion write-down due to the rating downgrades of monoline bond insurers might be matched by a similar write-down in the second quarter.
"Finally, there will be higher losses on the credit card portfolio and these losses will mount all year," said Bove, who maintained his "buy" rating on the stock based on the improved performance of Citigroup's core business and positive longer term outlook.
Richard Bove, welcome to reality. Mr. "financials are the at a generational buy" is singing a new tune. If the BSC guys can get indicted for lying, why not this dude? I have no idea. Compare the new Bove with the old Bove here:
http://economicdisconnect.blogspot.com/2008/03/fed-cannot-spawn-qualified-borrowers.html
Israel and Iran; What is Going On?
The buzz over the last week or so has involved a possible strike by Israel on Iranian nuclear facilities. What is my position on such a thing? Glad you asked! While I really do not understand why countries like Iran (or the former Iraq, Pakistan, North Korea) think a nuclear weapon is some amazing thing. Perhaps as a bargaining chip I guess they could be. Iran is run by crazies, is full of crazies, and is crazy after that. So my position is if it is at all possible, they should not have a nuclear bomb. So is it possible?
Iran must have known that a US or Israeli strike would be forthcoming when building their reaciors, centrifuges, bomb centers, etc. These structures are likely hardened and underground. I fail to see a way that an air strike can get rid of them. On top of that, with the US intelligence agencies so great at getting things correct (joke obviously) how in the world are they gonna know where to hit? IS the Israeli intelligence THAT much better? Who knows. I say hit it if possible, but I don't see how it is possible. All this is likely noise and bluster. Lets hope so. I used to use the Stratfor page ans the Strategy page for military analysis, but both sites are so heavily full of adds and require subscriptions to view the good insider material that I hardly check them any more.
Glad The Worst Is Behind Us
Another rough one for the stock market today. The DOW fell below 12,000 again and this was a big fear for those technical analysis types. Aren't ypu glad the worst is behind us? I am kicking myself for not putting money to work on several short funds I wanted to try, I would have been up pretty good. Oh well I am a chicken, I mean I am good at CAPITAL PRESERVATION.
So what does this mean? Well, with the monoline insurer downgrade, there stands to be another 100 Billion to be written down in the near future. The housing situation is going to get worse over the summer. Banks are goingf to have a tough time of it. We know all of this, though it is fun to see some in the mainstream finally getting a clue! What is the action going forward?
I would hazard a guess that things may be sort of stuck for the summer. I would say range bound between 11,500-12,300 on the DOW seems about right. Certainly there is no reason to be in stocks, but there is way too many people that will want to play bottom catcher for a big downside risk. The upside will be capped as news flow will be just terrible. Volatility will continue to be high, but I feel pretty good about those ranges. If the DOW gets to the 11,500 area, I will buy some upside bets.
Friday Night Entertainment
It is the weekend, so let's get relaxed, or excited, or just entertained, yes?
Great BBQ Smoking Site
I came across this guy's smoker site today, and his process is so simple and the food looks so good it makes me want to buy a smoker and get to work. Check it out here:
http://www.kickassbbq.com/index.html
I wonder what smoked prime rib tastes like? Anyone ever try it?
Science Corner
Cornstarch and water make a cool non-newtonian fluid that can behave as a solid under impact force, but liquid as ground phase. Check out these crazy guys:
Recombinant DNA technology is my job, it is what pays the bills for me. Here is a quick little video sombody made that is pretty good at shoing what I do:
Have a good night.
Richard Bove Still Making Sure He Stays in the News
There is a school of thought that any publicity, even bad, is good if it gets your name out there. While one can debate such thinking, one of Economic Disconnect's favorite analysts was out again today with a call on Citigroup (C):
UPDATE 1-Ladenburg's Bove widens 2008 loss view for Citigroup
Ladenburg Thalmann analyst Richard Bove widened his 2008 loss estimate for Citigroup Inc and cut his price target on the stock, after the largest U.S. bank said it could have substantial subprime write-downs in the second quarter.
Bove widened his 2008 loss estimate for the company to 36 cents a share from 19 cents and lowered his price target on the stock to $25 from $31.
The analyst said he sees another multi billion write-downs of Citigroup's super senior CDO (collateralized debt obligations) portfolio, which was marked down by about $6 billion in the first quarter, due to widening of spreads
More marks are expected on the subprime portfolio," Bove said, adding the $1.5 billion write-down due to the rating downgrades of monoline bond insurers might be matched by a similar write-down in the second quarter.
"Finally, there will be higher losses on the credit card portfolio and these losses will mount all year," said Bove, who maintained his "buy" rating on the stock based on the improved performance of Citigroup's core business and positive longer term outlook.
Richard Bove, welcome to reality. Mr. "financials are the at a generational buy" is singing a new tune. If the BSC guys can get indicted for lying, why not this dude? I have no idea. Compare the new Bove with the old Bove here:
http://economicdisconnect.blogspot.com/2008/03/fed-cannot-spawn-qualified-borrowers.html
Israel and Iran; What is Going On?
The buzz over the last week or so has involved a possible strike by Israel on Iranian nuclear facilities. What is my position on such a thing? Glad you asked! While I really do not understand why countries like Iran (or the former Iraq, Pakistan, North Korea) think a nuclear weapon is some amazing thing. Perhaps as a bargaining chip I guess they could be. Iran is run by crazies, is full of crazies, and is crazy after that. So my position is if it is at all possible, they should not have a nuclear bomb. So is it possible?
Iran must have known that a US or Israeli strike would be forthcoming when building their reaciors, centrifuges, bomb centers, etc. These structures are likely hardened and underground. I fail to see a way that an air strike can get rid of them. On top of that, with the US intelligence agencies so great at getting things correct (joke obviously) how in the world are they gonna know where to hit? IS the Israeli intelligence THAT much better? Who knows. I say hit it if possible, but I don't see how it is possible. All this is likely noise and bluster. Lets hope so. I used to use the Stratfor page ans the Strategy page for military analysis, but both sites are so heavily full of adds and require subscriptions to view the good insider material that I hardly check them any more.
Glad The Worst Is Behind Us
Another rough one for the stock market today. The DOW fell below 12,000 again and this was a big fear for those technical analysis types. Aren't ypu glad the worst is behind us? I am kicking myself for not putting money to work on several short funds I wanted to try, I would have been up pretty good. Oh well I am a chicken, I mean I am good at CAPITAL PRESERVATION.
So what does this mean? Well, with the monoline insurer downgrade, there stands to be another 100 Billion to be written down in the near future. The housing situation is going to get worse over the summer. Banks are goingf to have a tough time of it. We know all of this, though it is fun to see some in the mainstream finally getting a clue! What is the action going forward?
I would hazard a guess that things may be sort of stuck for the summer. I would say range bound between 11,500-12,300 on the DOW seems about right. Certainly there is no reason to be in stocks, but there is way too many people that will want to play bottom catcher for a big downside risk. The upside will be capped as news flow will be just terrible. Volatility will continue to be high, but I feel pretty good about those ranges. If the DOW gets to the 11,500 area, I will buy some upside bets.
Friday Night Entertainment
It is the weekend, so let's get relaxed, or excited, or just entertained, yes?
Great BBQ Smoking Site
I came across this guy's smoker site today, and his process is so simple and the food looks so good it makes me want to buy a smoker and get to work. Check it out here:
http://www.kickassbbq.com/index.html
I wonder what smoked prime rib tastes like? Anyone ever try it?
Science Corner
Cornstarch and water make a cool non-newtonian fluid that can behave as a solid under impact force, but liquid as ground phase. Check out these crazy guys:
Recombinant DNA technology is my job, it is what pays the bills for me. Here is a quick little video sombody made that is pretty good at shoing what I do:
Have a good night.
Thursday, June 19, 2008
Thursday Bomb Dropping
This is going to be short. For the past few days my wireless connection has seriously degraded, disconnecting so many time that a blog post is taking me close to 2 and a half to 3 hours to complete because of how hard it is to have multiple windows open, etc. Very annoying. I am going to research my options. The wife bought a new laptop, and that thing works all over the house. I may just upgrade my entire computer. Who knows.
A New Way To Screw Yourself; Any Takers?
Came across this article today on CNBC:
http://www.cnbc.com/id/25246270
The key excerpt:
"But they didn't want to get into a costly reverse mortgage.
Instead, the Dollars signed up for a relatively new product called a Rex Agreement.
It gave them $117,000 in cash to spend however they wanted, and they owe no payments until they sell the house.
At that time, they'll owe Rex & Co. the $117,000 plus half of the appreciation in their home's worth between the time they signed the agreement and the time they sell the house.
If the house goes down in value, Rex & Co. will eat half of that loss as well.
Since they signed the agreement last October, prices in their neighborhood have dropped.
So far, it's been a good deal for the Dollars (yes, that's their real name.) Rex is the first of several new products on the market aimed at this shared equity or shared appreciation concept."
I did not mean the home owner here screwing themselves, I am talking about more dumb "innovation" from the financial community. Read over the whole thing and quickly you are going to see a system made to fail. Too funny.
With a Whimper, MBIA and Ambac Go Gentle Into That Good Night
I will not excerpt the AP story so I will not get sued, so here it is:
http://biz.yahoo.com/ap/080619/moody_s_bond_insurers.html?.v=2
A while back we heard all the bla bla about how this downgrade would end the financial system. Well here it is and no reaction so far, though it has been only 30 minutes. We will see now just how all that insurance written by MBI and ABK will be revalued. Good stuff.
Still Not Getting It
I have CNBC on the TV behind me and I just heard one dummy on Kudlow and company say that the issue with housing is not that people do not want to buy, it is that the loans are not being made. He argues it is a liquidity issue. Sadly even now after all the evidence has been out there another commentator has zero idea on what is going on.
The only fools that want loans and cannot get them are the kind of loans that are defaulting en masse right now. That is a structural issue, not a liquidity issue. Some might argue that making bad loans will work so long as they never have to be paid back. Well, if everything went the way of a unicorn blessed fairy land, then yes we would have eternal rapture. Whatever.
I still am aiming for a Friday rock blog, so leave suggestions.
Have a good night.
A New Way To Screw Yourself; Any Takers?
Came across this article today on CNBC:
http://www.cnbc.com/id/25246270
The key excerpt:
"But they didn't want to get into a costly reverse mortgage.
Instead, the Dollars signed up for a relatively new product called a Rex Agreement.
It gave them $117,000 in cash to spend however they wanted, and they owe no payments until they sell the house.
At that time, they'll owe Rex & Co. the $117,000 plus half of the appreciation in their home's worth between the time they signed the agreement and the time they sell the house.
If the house goes down in value, Rex & Co. will eat half of that loss as well.
Since they signed the agreement last October, prices in their neighborhood have dropped.
So far, it's been a good deal for the Dollars (yes, that's their real name.) Rex is the first of several new products on the market aimed at this shared equity or shared appreciation concept."
I did not mean the home owner here screwing themselves, I am talking about more dumb "innovation" from the financial community. Read over the whole thing and quickly you are going to see a system made to fail. Too funny.
With a Whimper, MBIA and Ambac Go Gentle Into That Good Night
I will not excerpt the AP story so I will not get sued, so here it is:
http://biz.yahoo.com/ap/080619/moody_s_bond_insurers.html?.v=2
A while back we heard all the bla bla about how this downgrade would end the financial system. Well here it is and no reaction so far, though it has been only 30 minutes. We will see now just how all that insurance written by MBI and ABK will be revalued. Good stuff.
Still Not Getting It
I have CNBC on the TV behind me and I just heard one dummy on Kudlow and company say that the issue with housing is not that people do not want to buy, it is that the loans are not being made. He argues it is a liquidity issue. Sadly even now after all the evidence has been out there another commentator has zero idea on what is going on.
The only fools that want loans and cannot get them are the kind of loans that are defaulting en masse right now. That is a structural issue, not a liquidity issue. Some might argue that making bad loans will work so long as they never have to be paid back. Well, if everything went the way of a unicorn blessed fairy land, then yes we would have eternal rapture. Whatever.
I still am aiming for a Friday rock blog, so leave suggestions.
Have a good night.
Wednesday, June 18, 2008
"I Triple Dog Dare You!"
Another "unsettled" weather day. I sure wish things would settle into a nice warm summer pattern. That would be just aces. I may go to check out the 2008 Infiniti G35x this weekend as I need to trade my 2005 in pretty soon to get good trade in value. Seems like the longer I can wait the better deal I may get as car sales are collapsing all across the auto spectrum.
Countrywide Sweetheart Deals May be Too Common to Uncover
Picture this scenario:
You are the Republican party going into this years election. With approval ratings in the gutter, an unpopular president, a presidential nominee nobody is excited over, and the blame the incumbents mentality common to US voters, things are looking bad. Very bad. Along comes a story of a couple of DEMOCRATS that have received special mortgage deals from Countrywide Financial (CFC). What a break! With the whole "subprime targets the poor" and all that predatory lending anger, this is a huge story to hit with.
Only one problem: the republicans are in the same jam. Big surprise. Are you surprised because I know I am. From the great blogger Instapundit.com, I saw this great piece on the current state of CFC mortgage investigation (from politico.com):
GOP member calls for mortgage inquiry
By MARTIN KADY II 6/17/08 4:22 AM EST
A leading House Republican called Monday for hearings to determine which lawmakers received discount mortgage deals from Countrywide Financial Corp., but his colleagues in the House and the Senate don’t seem particularly eager to start turning over rocks.
In the wake of reports that Sens. Chris Dodd (D-Conn.) and Kent Conrad (D-N.D.) received special VIP discounts on Countrywide mortgages, Texas Republican Rep. Jeb Hensarling said Monday that he wants to know which members of Congress “might be knowingly or unknowingly receiving preferential treatment while millions of hardworking Americans struggle to repay their mortgage debts and cope with $4-a-gallon gasoline and soaring food prices.”
In what looks to be a rough election cycle for Republicans, a Democratic-focused mortgage scandal could be just the break the GOP needs. But no other Republican leader jumped on Hensarling’s bandwagon Monday, and aides said they were reluctant to push forward with a probe because they didn’t know what it might reveal.“You have to be very careful about opening Pandora’s box,” said one House GOP aide. “We could use it [politically], but we’d have to do due diligence on our side.” Added a Senate GOP aide: “You don’t see many people jumping on this, because you don’t know if anyone else is dirty.”
Color me unsurprised that the same congress we may need to investigate illegal mortgage practices cannot do so because, drum roll, they are part of the illegal mortgage game. This is especially galling seeing that both the banks and home builders are screaming for federal bailouts (and getting them) and some senators are on the hook for special treatment. What a mess.
"I Triple Dog Dare You!"
Flick: Are you kidding? Stick my tongue to that stupid pole? That's dumb!
Schwartz: That's 'cause you know it'll stick!
Flick: You're full of it!
Schwartz: Oh yeah?
Flick: Yeah!
Schwartz: Well I double-DOG-dare ya!
Ralphie as Adult: [narrating] NOW it was serious. A double-dog-dare. What else was there but a triple-dare-you, and then, the coup de grace of all dares, the sinister triple-dog-dare.
Schwartz: I TRIPLE-dog-dare ya!
Ralphie as Adult: [narrating] Schwartz created a slight breach of etiquette by skipping the triple-dare-you and going right for the throat! -from the film "A Christmas Story"
It seems like some firms just cannot go gentle into that goodnight. The NY Times Gretchen Morgenson with Vikas Bajaj have a great story up today about MBIA. Full article here:
http://www.nytimes.com/2008/06/18/business/18bond.html
The boiled down version: MBIA has lost its triple A rating, and this will end their business pretty much. They will be required to raise large amounts of cash to cover their massive underwriting obligations, but instead of getting pushed into anything, MBIA can hold the spector of massive, and I mean massive, credit default swap implosion as a sword of Damocles. How big? Around $137 Billion in swaps are backed by MBIA. MBIA market cap today: 1.6 Billion. If you just whistled out loud, you are not alone. WOWZA!
And so what about all those intertwined positions? If Bear Stearns had to be bailed out by the FED to avert a total systemic collapse, surely the MBIA and matching Ambac blow up will have to backstopped by the FED, yes? The FED can ride to the rescue with their stash of treasuries. Oh, the FED has lent out 80% of those already? And they have a bunch of the toxic mortgage paper in return? Ouchie indeed.
Truly, only the very brightest minds could have come up with such an interwoven mess of junk. Wall Street designed a situation where they stood to collect huge profits, but need to pass any losses onto the taxpayer to keep the system running. Could not have made up a better plan if I had time to try. This is going to be a very interesting summer.
Have a good night.
Countrywide Sweetheart Deals May be Too Common to Uncover
Picture this scenario:
You are the Republican party going into this years election. With approval ratings in the gutter, an unpopular president, a presidential nominee nobody is excited over, and the blame the incumbents mentality common to US voters, things are looking bad. Very bad. Along comes a story of a couple of DEMOCRATS that have received special mortgage deals from Countrywide Financial (CFC). What a break! With the whole "subprime targets the poor" and all that predatory lending anger, this is a huge story to hit with.
Only one problem: the republicans are in the same jam. Big surprise. Are you surprised because I know I am. From the great blogger Instapundit.com, I saw this great piece on the current state of CFC mortgage investigation (from politico.com):
GOP member calls for mortgage inquiry
By MARTIN KADY II 6/17/08 4:22 AM EST
A leading House Republican called Monday for hearings to determine which lawmakers received discount mortgage deals from Countrywide Financial Corp., but his colleagues in the House and the Senate don’t seem particularly eager to start turning over rocks.
In the wake of reports that Sens. Chris Dodd (D-Conn.) and Kent Conrad (D-N.D.) received special VIP discounts on Countrywide mortgages, Texas Republican Rep. Jeb Hensarling said Monday that he wants to know which members of Congress “might be knowingly or unknowingly receiving preferential treatment while millions of hardworking Americans struggle to repay their mortgage debts and cope with $4-a-gallon gasoline and soaring food prices.”
In what looks to be a rough election cycle for Republicans, a Democratic-focused mortgage scandal could be just the break the GOP needs. But no other Republican leader jumped on Hensarling’s bandwagon Monday, and aides said they were reluctant to push forward with a probe because they didn’t know what it might reveal.“You have to be very careful about opening Pandora’s box,” said one House GOP aide. “We could use it [politically], but we’d have to do due diligence on our side.” Added a Senate GOP aide: “You don’t see many people jumping on this, because you don’t know if anyone else is dirty.”
Color me unsurprised that the same congress we may need to investigate illegal mortgage practices cannot do so because, drum roll, they are part of the illegal mortgage game. This is especially galling seeing that both the banks and home builders are screaming for federal bailouts (and getting them) and some senators are on the hook for special treatment. What a mess.
"I Triple Dog Dare You!"
Flick: Are you kidding? Stick my tongue to that stupid pole? That's dumb!
Schwartz: That's 'cause you know it'll stick!
Flick: You're full of it!
Schwartz: Oh yeah?
Flick: Yeah!
Schwartz: Well I double-DOG-dare ya!
Ralphie as Adult: [narrating] NOW it was serious. A double-dog-dare. What else was there but a triple-dare-you, and then, the coup de grace of all dares, the sinister triple-dog-dare.
Schwartz: I TRIPLE-dog-dare ya!
Ralphie as Adult: [narrating] Schwartz created a slight breach of etiquette by skipping the triple-dare-you and going right for the throat! -from the film "A Christmas Story"
It seems like some firms just cannot go gentle into that goodnight. The NY Times Gretchen Morgenson with Vikas Bajaj have a great story up today about MBIA. Full article here:
http://www.nytimes.com/2008/06/18/business/18bond.html
The boiled down version: MBIA has lost its triple A rating, and this will end their business pretty much. They will be required to raise large amounts of cash to cover their massive underwriting obligations, but instead of getting pushed into anything, MBIA can hold the spector of massive, and I mean massive, credit default swap implosion as a sword of Damocles. How big? Around $137 Billion in swaps are backed by MBIA. MBIA market cap today: 1.6 Billion. If you just whistled out loud, you are not alone. WOWZA!
And so what about all those intertwined positions? If Bear Stearns had to be bailed out by the FED to avert a total systemic collapse, surely the MBIA and matching Ambac blow up will have to backstopped by the FED, yes? The FED can ride to the rescue with their stash of treasuries. Oh, the FED has lent out 80% of those already? And they have a bunch of the toxic mortgage paper in return? Ouchie indeed.
Truly, only the very brightest minds could have come up with such an interwoven mess of junk. Wall Street designed a situation where they stood to collect huge profits, but need to pass any losses onto the taxpayer to keep the system running. Could not have made up a better plan if I had time to try. This is going to be a very interesting summer.
Have a good night.
Tuesday, June 17, 2008
JP Morgan to FED: Thanks Chumps!
Strange weather. Late night thunderstorms had the dog all riled up, which was not fun if you happen to want to sleep. It was mostly sunny all day, then as I was leaving work it got very dark and rained very hard for about an hour. Then light again. "Unsettled" is what the weather for caster calls it. OK.
AP Gets Crabby
I am not sure what to make of the whole move the Associated Press (AP) is trying to make. It seems they have taken umbrage to the fact that bloggers all over the universe use their stories in posts. I know I do. I guess there is some concern that AP is not capturing the revenue they are due by this kind of widespread copy making. I guess that is fair enough.
I like Yahoo Finance for most of the news stories I use because I feel that AP and Reuters represent the basic mainstream media reporting that bugs me. If my using the stories from there is not getting back to AP, then perhaps they need to better monetize their material. I think it is useless to try and stop bloggers from excerpting, there are just too many to follow up on. Until I get a clear directive from AP, I will continue to excerpt stories. This may change in the future. Geez, can't even use mainstream stories any more!
Financial Stocks Unhinged
If you have been following stocks like LEH, WM, and WB it has been revealing as an exercise. One day up 15%, the next day down 8%. Day after day. Week after week. What does this mean? Probably two things at least:
One: Wall Street has zero ability to price financial stocks. While this has always been true (due to funny money book keeping) there seems to be a sudden realization of this fact. Add to this the serial dilution that capital raising does and you see that this area is subject to quick and nasty repricing to both the up and downside. Like I have said, the value of an insolvent bank is zero, but a FED bailed insolvent bank has a value of X. Solve for X and you have a trading theory.
Two: How much is short interest playing a role here? Wild swings of 25% from peak to trough have been weekly pretty common, and those kind of swings smack of short covering.
In either case, it bears watching to see the levels of volatility involved here. In a finance based economy I wonder how long things can remain reasonably ok while the money machine companies themselves are broken. We may have one part of that answer this summer when the FED runs out of cash.
JP Morgan to FED: Thanks Chumps!
From my favorite department, the department of "you can't make this up", comes this story from CNBC today about the JP Morgan (JPM) buyout of Bear Stearns (BSC) that the FED felt was the key to keeping the universe from unravelling and the end of the world as we know it:
CNBC
JPMorgan Chase: We Got Bear Stearns on the Cheap
By Charles Gasparino, On-Air Editor 17 Jun 2008 12:36 PM ET
JP Morgan Chase's top investment banking executives conceded yesterday that their acquisition of Bear Stearns was worth far more than the rock-bottom $10 a share price they paid, but that the market turmoil is still taking a toll on investment-banking profits and may result in further layoffs, CNBC has learned.
The executives—CEO Jamie Dimon, as well as investment banking co-heads Steve Black and Bill Winters—made the comments late yesterday afternoon during their first company address to the newly combined investment bank.
Bear was forced to sell itself to JPMorgan amid a run on the bank that nearly toppled the US financial markets as investors bet that bad loans on Bear’s books would leave the firm insolvent. Under the terms of the deal, the Federal Reserve guaranteed $30 billion of those bad loans, while JPMorgan agreed to assume the first $1 billion.
That said, Black, the investment banking co-chief, said the integration of the firm is proceeding "smoothly" and that JP Morgan "got something that has far more value then the price we paid," according to people who attended.
AP Gets Crabby
I am not sure what to make of the whole move the Associated Press (AP) is trying to make. It seems they have taken umbrage to the fact that bloggers all over the universe use their stories in posts. I know I do. I guess there is some concern that AP is not capturing the revenue they are due by this kind of widespread copy making. I guess that is fair enough.
I like Yahoo Finance for most of the news stories I use because I feel that AP and Reuters represent the basic mainstream media reporting that bugs me. If my using the stories from there is not getting back to AP, then perhaps they need to better monetize their material. I think it is useless to try and stop bloggers from excerpting, there are just too many to follow up on. Until I get a clear directive from AP, I will continue to excerpt stories. This may change in the future. Geez, can't even use mainstream stories any more!
Financial Stocks Unhinged
If you have been following stocks like LEH, WM, and WB it has been revealing as an exercise. One day up 15%, the next day down 8%. Day after day. Week after week. What does this mean? Probably two things at least:
One: Wall Street has zero ability to price financial stocks. While this has always been true (due to funny money book keeping) there seems to be a sudden realization of this fact. Add to this the serial dilution that capital raising does and you see that this area is subject to quick and nasty repricing to both the up and downside. Like I have said, the value of an insolvent bank is zero, but a FED bailed insolvent bank has a value of X. Solve for X and you have a trading theory.
Two: How much is short interest playing a role here? Wild swings of 25% from peak to trough have been weekly pretty common, and those kind of swings smack of short covering.
In either case, it bears watching to see the levels of volatility involved here. In a finance based economy I wonder how long things can remain reasonably ok while the money machine companies themselves are broken. We may have one part of that answer this summer when the FED runs out of cash.
JP Morgan to FED: Thanks Chumps!
From my favorite department, the department of "you can't make this up", comes this story from CNBC today about the JP Morgan (JPM) buyout of Bear Stearns (BSC) that the FED felt was the key to keeping the universe from unravelling and the end of the world as we know it:
CNBC
JPMorgan Chase: We Got Bear Stearns on the Cheap
By Charles Gasparino, On-Air Editor 17 Jun 2008 12:36 PM ET
JP Morgan Chase's top investment banking executives conceded yesterday that their acquisition of Bear Stearns was worth far more than the rock-bottom $10 a share price they paid, but that the market turmoil is still taking a toll on investment-banking profits and may result in further layoffs, CNBC has learned.
The executives—CEO Jamie Dimon, as well as investment banking co-heads Steve Black and Bill Winters—made the comments late yesterday afternoon during their first company address to the newly combined investment bank.
Bear was forced to sell itself to JPMorgan amid a run on the bank that nearly toppled the US financial markets as investors bet that bad loans on Bear’s books would leave the firm insolvent. Under the terms of the deal, the Federal Reserve guaranteed $30 billion of those bad loans, while JPMorgan agreed to assume the first $1 billion.
That said, Black, the investment banking co-chief, said the integration of the firm is proceeding "smoothly" and that JP Morgan "got something that has far more value then the price we paid," according to people who attended.
Not to say I told you so, but I told you so! The FED has no idea how sleazy these guys are. JPM not even a half year removed from getting BSC on a cramdown deal by the FED is already out gloating about it. If you were a BSC major stock price loser, you may be even more pissed off now.
I love this story. It shows how shameless JPM is, how foolish the FED is, and what a fix the rest of us are in!
Have a good night.
Monday, June 16, 2008
CEO Pay Breaks Records as Their Incompetence Shatters Assumptions
Cruddy rain for the next 3-4 days here. Cool and limited sun as well. Wonderful. Really should not complain, compared to the terrible flooding going on in the Midwest I have it perfect. I thought when major flooding occurred there was utter lawlessness and widespread looting? As far as I can gather from reports, there has been none of either. Makes you wonder.
Absolute Must Read
I will often excerpt or link to the best articles I come across if I fee; that the readers here would benefit from seeing the piece. Today there is an absolute MUST READ from the excellent site OC register. The post has a great slide show that investigates a bunch of SoCal foreclosure listings, as well as some interviews. Great stuff. Here is is, slide show is a bottom:
http://www.ocregister.com/ocregister/money/article_2067427.php
While some at the FED would have you believe that you cannot spot a bubble until it bursts, common sense tells us that is retarded. Whenever fundamental value is ignored, or easy money is raging into any asset class, there is a good bet a bubble is afoot. Looking at the last sale price for many of the homes on the slide show it is clear that some serious delusion was going on.
Richard Fuld Takes Responsibility
Today LEH released their loss report, and it was what they had already said last week. The CEO Mr. Fuld, who last month saw the bottom, took responsibility for the mess LEH is in. I certainly respect his courage! Though his golden parachute probably adds to his bravado ability.
What this means is that when housing gets worse and LEH is still hemorrhaging cash this summer, you will see Mr. Fuld take a walk into the sunset. The big "change at the top" will be the new "bottom is in" call, but that bottom is going to be a myth.
CEO Pay Breaks Records as Their Incompetence Shatters Assumptions
I cannot even excerpt this sick piece, so just read it already:
http://biz.yahoo.com/ap/080616/executive_compensation.html
Basically, as the financial companies have lost billions of dollars and have had to be recapitalized by the FED (through our tax dollars) the CEO's pay has gone up without a hitch. GM, yes that same company laying off workers and losing money like mad, that CEO pay went up too.
At a time when inflationary pressures are hitting the wallet through the gas, food, and medical expense routes, this kind of thing really rankles me. The FED is bending over for Wall Street and is being made a fool of. I would not care but you and I are going to be on the hook for this money. I say we go collect some back from these fellows, yes? Perhaps they could contribute to the recapitalization of the taxpayer instead?
Have a good night.
Absolute Must Read
I will often excerpt or link to the best articles I come across if I fee; that the readers here would benefit from seeing the piece. Today there is an absolute MUST READ from the excellent site OC register. The post has a great slide show that investigates a bunch of SoCal foreclosure listings, as well as some interviews. Great stuff. Here is is, slide show is a bottom:
http://www.ocregister.com/ocregister/money/article_2067427.php
While some at the FED would have you believe that you cannot spot a bubble until it bursts, common sense tells us that is retarded. Whenever fundamental value is ignored, or easy money is raging into any asset class, there is a good bet a bubble is afoot. Looking at the last sale price for many of the homes on the slide show it is clear that some serious delusion was going on.
Richard Fuld Takes Responsibility
Today LEH released their loss report, and it was what they had already said last week. The CEO Mr. Fuld, who last month saw the bottom, took responsibility for the mess LEH is in. I certainly respect his courage! Though his golden parachute probably adds to his bravado ability.
What this means is that when housing gets worse and LEH is still hemorrhaging cash this summer, you will see Mr. Fuld take a walk into the sunset. The big "change at the top" will be the new "bottom is in" call, but that bottom is going to be a myth.
CEO Pay Breaks Records as Their Incompetence Shatters Assumptions
I cannot even excerpt this sick piece, so just read it already:
http://biz.yahoo.com/ap/080616/executive_compensation.html
Basically, as the financial companies have lost billions of dollars and have had to be recapitalized by the FED (through our tax dollars) the CEO's pay has gone up without a hitch. GM, yes that same company laying off workers and losing money like mad, that CEO pay went up too.
At a time when inflationary pressures are hitting the wallet through the gas, food, and medical expense routes, this kind of thing really rankles me. The FED is bending over for Wall Street and is being made a fool of. I would not care but you and I are going to be on the hook for this money. I say we go collect some back from these fellows, yes? Perhaps they could contribute to the recapitalization of the taxpayer instead?
Have a good night.
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