Friday, June 27, 2008
By Kevin Depew
Five Things You Need to Know: Too Much Stuff
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Mortgage Rates Reach Nine-Month High
Thirty-year mortgage rates edged higher this week to 6.45% from 6.42% last week, according to data released yesterday by Freddie Mac (FRE). One-year adjustable rate mortgages (ARMs) rose a bit more, to 5.27% from 5.19%. What's interesting about this is that it marks the highest level for 30-year mortgages since September. In fact, rates for 30-year mortgages are actually higher than when the Fed began its rate-cutting spree. Of course, rates on new mortgages are only one part of the story, which leads us to today's Number Two...
2. Homes Becoming Less Affordable Even As Prices Fall
Monthly payments on 30-year fixed mortgages are 6% to 10% higher in 41 of the top U.S. housing markets than they were two months ago, even as home prices have declined year-over-year in 88% of those areas, according to Zillow.com, a provider of home valuations. "While it's a buyers market in terms of home prices, that is definitely being mitigated by the cost of financing,'' Stan Humphries, Zillow's vice president for data and analytics, told Bloomberg.
3. Process vs. Event
Days in the market like yesterday often feel "event-like." In other words, they seem to take on the feel of an occurrence when in reality it is just one datapoint in a longer-term process. The credit unwind that is ongoing is a long-term process. Yesterday we noted the action in Oshkosh (OSK), which declined 30% after disappointing earnings and guiding lower. The company said orders were being canceled due to the impact of housing on municipality taxr receipts. We can't stress how important it is to understand this process. It's the multiplier effect in reverse. Just as the housing boom had a positive multiplier effect on the way up (the wealth effect, tangential employment related to housing, contractors, real estate sales people, etc.), so too will it have a multiplier effect on the way down. This is what we have referred to as the echo effect; what began on Wall Street among a handful of hedge funds last year at this time with too much exposure to subprime mortgages, has now expanded to include Alt-A and prime mortgages, other types of credit products, credit cards, auto loans and the ability of corporations across a broad range of industries to access credit markets. The most dangerous point in this process will occur when it appears that banks and financials have moved beyond the crisis. At that point, as the process continues to work through the economy, it will echo back to Wall Street from Main Street.
4. Too Much Stuff
Minyan Chase forwarded us an interesting piece by MSN Money's MP Dunleavy that fits neatly with some themes we've been discussing in Five Things over the past few years. Her piece, "The High Price of Too Much Stuff," looks at what she calls "a nationwide consumption disorder that needs to get better before things get a whole lot worse." Dunleavy adds, "The relentless focus on having and buying and wanting and owning -- and using your credit card or your home equity to cover it -- has landed us here: with crates of things we don't need, stuffed into compartments where we never see it, throwing yet more money down the drain for the meaningless thrill of knowing we have it." In a society exhausted (physically and financially) and pushed to the brink by excessive pursuit of credit and consumption, articles like this one are an important step in the "cleansing" process; they make it OK to stop and reassess priorities. It becomes OK to not consume.
Articles such as this, appearing with increasing frequency over the past few years, are not a culmination, but point toward the beginning of a long-term cultural shift in attitudes toward consumption, a shift precipitated psychologically by the, perhaps subconscious, recognition that many of us are overextended in almost all aspects of life; physically, occupationally, financially, socially. Reacting to this overextension while bombarded incessantly with overt and covert images, overt and subtextual messages urging us toward ever deeper overextension and consumption requires something more than a simple decision not to consume and add to the pile of stuff we are accumulating without purpose and without need. It requires the vilification of excessive consumption; the assertion of simplification and downsizing as, first, something "cool", then later as worthy, higher pursuits; as traits where the measure of worth is the opposite of accumulation and is instead absence. The credit-fueled view of absence as deprivation shifts under this weight of material possessions, so that absence becomes its opposite, the presence of some thing conspicuous by its invisibility, and attractive by the difficulty of measurement at a glance, void of design, label, price tag, categorization. This is not anti-capitalist. It is capitalism evolved, pushed toward the commodification of the intangible, the priceless, involving the exchange of that which defies external measurement.
5. The Seven Signs of Credit Addiction
Are we really addicted to credit? Let's take this simple quiz and find out.
1) Have we ever substituted one form of credit for another, thinking that one particular type of credit was the problem? You mean, like, buying corporate junk while avoiding mortgage-backed-securities? Cause corporate junk is "ok."
2) Have we ever manipulated or lied to a lender to obtain credit? Hmm, like overstating our income on a loan application, or if loaning money, overlooking reasonable lending standards?
3) Have we ever used one form of credit to overcome the negative effects of another type of credit? Three words: Term Auction Facility.
4) Do we avoid people or places that do not approve of our use of credit? Are there such places?
5) Have we ever used credit without knowing what it was or what it would do to us? Haha, isn't that what credit default swaps are? Haha. Hahaha. Uh. Ha. Ahem. Yes.
6) Do we put the purchase of loans ahead of our financial responsibilities? No, we need the loans to meet our financial responsibilities.
7) Does the thought of running out of credit terrify us? I terrifies the Federal Reserve.
Automatically generated by Bloomberg Publisher version 3.5
Then you can see how much upside and downside you have in this game regardless of these relentless chartists opinions.
Here's the news and what it implies according to me, do your own and see for yourself.
Addition: I do not believe GS earnings forecast for both 2008 and 2009. I think we are on track for $68-72 in 2008 and $62-75 in 2009 conditional on 2008. My best estimate is $70 and $65, respectively.
By Elizabeth Stanton
June 27 (Bloomberg) -- Analysts' expectations for 2008 and
2009 earnings for Standard & Poor's 500 Index companies are ``too
optimistic'' and are likely to be reduced, Goldman Sachs Group
Inc.'s David Kostin said.
Those companies will probably earn $78 a share this year
as a group and $83 a share in 2009, Goldman's chief stock
strategist wrote in a report. He said those are 12 percent and 22
percent lower, respectively, than what other analysts project.
``Consensus estimates will be revised downward as the impact
of commodity inflation, consumer weakness and slowing U.S. growth
limits sales and margins,'' the report said. Fiscal stimulus
``will not nearly be enough to offset the weakness in overall
consumer spending driven by falling house prices, rising food and
energy costs and historically low sentiment levels.''
Thursday, June 26, 2008
In 199x, to his dismay, he realized the world was about to betray him. People of indecent talents were rewarded, for no skills whatsoever but be in the right time at the right place. The society was blinded by greed and lack of education. It placed emphasis in non-good producing sectors and allocated TREMENDOUS percentage of its population in the pursuit of incredibly wasteful projects. Money was printed out of a hole in the wall and was given to all the no-talent in the world.
The man later admitted he is to some extent guilty in joining this folly, yet he said "he would rather betray the world first than the world betrays him". So off he went first writing useless softwares and next, learned to "shuffle papers".
In the years that followed, fully aware of what he did, he earned and saved what he could, which was accumulated at nearly 90x the rate of his comparable peers, while keeping an eye on when the unstable system would collapse so he can bail from the proverbial "exit", where he sat close by at all times.
Today, he says, this is the incredible IMBALANCE that all the leaders were talking about. It's just that there is no easy way to explain it to the commonfolks. That in the past 10-15 years they were engaging in (inadvertent) fraud and wasted their mortal life ruining themselves. There simply is no easy solution, if at all. Now jobs are getting destroyed, and the mirage will evaporate. Economic jargons were coined around this phenomenon, and yet the mirror is always there for those who want to look, and avoid holding the proverbial bags.
The scientist is alive and well, conducting his daily experimentation in the stock market today, while hiding the bulk of his wealth elsewhere out of reach in case an exhorbitant tax is put in place to take back the notes that are not supposed to be out there. And he sends his regards to you all. He also says he might just work on something useful, good-producing, when he's done experimenting.
Why not hike now? Stock and momentum investment (including commodities!!!) will drop, who knows where, but at least, Sir Ben, I would still be employed and business is gonna be able to run without haemorrhaging cash and without fudging accounting #s.
Who cares about the stock price? The CEO who awarded himself 40 million shares? C'mon sir you know better than that.
Please, please, hike the rate now.
A concerned bank insider/citizen who preferred losing his stock investments than losing his job.
Wednesday, June 25, 2008
By Erik Holm
June 25 (Bloomberg) -- American Express Co., the biggest
U.S. credit-card company by purchases and cash advances, said
customers are falling further behind on their debt, signaling the
economy is worsening.
``Business conditions continue to weaken in the U.S. and so
far this month we have seen credit indicators deteriorate beyond
our expectations,'' Chief Executive Officer Kenneth Chenault said
in a statement today announcing the company would receive as much
as $1.8 billion in a settlement with competitor MasterCard Inc.
Tuesday, June 24, 2008
By Mike Mish Shedlock
Bank United Example of Larger Problem
On Wednesday, BankUnited Financial Corporation Announced Public Offering of
Stock. BankUnited Financial Corporation (BKUNA) today announced the launch of a public offering of its Class A common stock, with gross proceeds of $400 million. The offering is expected to be pursuant to customary underwriting terms for a firm commitment offering of this type.
BankUnited expects to use the net proceeds from this offering for general corporate purposes, including contributing capital to its bank subsidiary. This offering was not greeted with open arms to say the least. Bank United was crushed 33% ahead of the news (who knew?) and another 19% the following day. Its stock now sits at $1.90. Bank United Weekly Chart
Why didn't Bank United raise capital at $31, $20, $14, or even $8? It's market cap today is $68 million. Now it wants to raise $400 million, which is 588% of what the market says it's worth. If that dilution comes on top of the declines we have already seen, its share price will be something like 32 cents.
* Bank United $1.90
* Chorus Bank (CORS) $4.74
* Washington Mutual (WM) $6.35
* Indymac (IMB) $1.26
* Ambac (ABK) $2.03
* Keycorp (KEY) $11.35
* MBIA (MBI) $6.45
* Fifth Third (FITB) $9.75
(Mish forgot the most obvious LowDoc OptionARM duo: DSL and FED, which I gladly appended here).
Every one of those companies had enormous opportunities to shed assets or raise
capital. Now, BKUNA is doing so at $1.90 and Fifth Third at $9.75 (see Fifth Third Clobbered In Capital Raising Plan). Ambac is in denial about the need to raise capital. So is Indymac. None of these companies could see what was happening, even though it was perfectly obvious to many of us. So why now for Bank United? This is a guess on my part, but I suspect the Fed told Bank United to raise capital or be taken over. I also think this is part of the reason Paulson is desperately pleading for more Fed power. See my comments on this horrendous idea in Screams For More Fed Authority Get Louder. Will $400 million be enough for Bank United? To answer, let's take a look at the balance sheet from the latest 10Q and Bank United Assets.
Hmm. What have we here? I see $748 million in mortgage backed securities at "fair value". Anyone want to hazard a guess as to how "fair" that value is? What about a total loan portfolio of $12.3 billion? Isn't that a little excessive for a bank with a market cap of $68 million. I also see $73.4 million in REOs - real estate owned. Anyone want to guess the fair value of that?Finally, I see Goodwill of $28.3 million that is most likely worthless.
But wait... There's more. Let's look at the liability side: Bank United
That's interesting isn't it? Bank United, a bank worth $68 million, is in hoc to the Federal Home Loan Bank for $5.86 billion. Federal Home Loan Bank System
Inquiring minds just might be interested in the FHLBank System.
"The mission of the Federal Home Loan Banks is to provide cost-effective funding to members for use in housing, community, and economic development; to provide regional affordable housing programs, which create housing opportunities for low and moderate-income families; to support housing finance through advances and mortgage programs; and to serve as a reliable source of liquidity for its membership."
"FHLBank Advances. Advance lending is the FHLBanks' main business line. It currently represents about two-thirds of all the FHLBanks assets. These loans, known as advances, are well-collateralized loans used by members to support mortgage lending, community investment and other credit needs of their customers." FHLBank consolidated obligations are sold to institutional investors through the Office of Finance. The Office of Finance, which handles FHLBank transactions, is able to sell the debt at rates just slightly higher than Treasury bonds because FHLBank products are rated Aaa/AAA by Moody’s and Standards and Poor’s. The FHLBanks frequently borrow short, primarily in the form of discount notes, while our membership tends to lend long, primarily to fund 15 to 30-year mortgages. At first blush, this may appear to be a term mismatch, but it’s not. In fact, the FHLBank System intermediates on behalf of its members to reduce term mismatch risk and provide liquidity.
FHLBanks don't fund individual mortgages. They fund mortgage pools. Since these pools are constantly changing, they have no maturity. Consequently, the many term rates FHLBanks issue reflect their member needs, including the advances they use to minimize their own interest rate risk. The FHLBanks are not the only prominent financial institution that operates this way. The U.S. Treasury does it, too.
(As of December 31, 2006)
$1.02 Trillion in assets
$ 641 Billion in advances
$ 98 Billion in mortgage loans
4.41% Capital to Asset Ratio
This Ponzi scheme cannot possibly be solvent. The only question is when it blows
Automatically generated by Bloomberg Publisher version 3.5
Monday, June 23, 2008
or otherwise known as US financials, go buy FRE and FNM BONDS, (Not STOCKS). BONDS.
The Quid-pro-quo condition is fully formalized and ratified by congress. Congress has formally announced they will take money from private money GSE to subsidize housing and this completes the requirement that quid-pro-quo exists in explicit form.
Laser firing in 10, 9, 8, ....
Friday, June 20, 2008
Could it be like this?
200X Witnessing fatal failures of numerous banking rescues because they fight basic math.
200X Enactment of various LARGE taxes to correct "social imbalances"
201X Enactement of one time Wealth tax
201X An absolute desperation of the formerly greatest nation in the universe, it has been 20+ years since the most significant innovation was invented and there was nothing else after.
201X Comparable wealth and technology (civilian and military) existed in several dominant earth nations, including USA.
201X A US "hero" arises, could be your kid, but doesn't matter really, and he promises food and social justice for everyone at seemingly very little cost and sacrifices.
202X(early) Some academics and their books would be BURNED. Something about writings of the REAL cost of the "miracle".
202X The cost involves taking a small area outside USA and integrated as a US state. Something about energy source.
202X Several small areas outside USA are "integrated" as well, with minor protests from the inhabitants. All news from these "areas" are controlled before they reached the outside universe.
202X A large area outside USA and this area borders to a US rival is "integrated" causing a near full-scale conflict with the "rival" but was ended with the "hero's" promise not to integrate any more land.
202X Two pronged wars were started by USA, who claimed that rivals would invade at any moment. USA population would be 5% of the world, and wealth / technology still comparable to the rest.
202X The expansion came to a halt when a massive Russian winter stopped the Big Red One outside of Moscow.
202X (late) The "rogue nations" were pushing back. News from the front are getting hard to come by. Younger and younger recruits were sent, including YOUR KID, who volunteers! Congrats!. Propaganda all mentioned how every time just 1 hero defeated HUNDREDS of barbarians in various remote places in the world, as long as the faith to the "hero" is maintained. Continuous emphasis on "quality" to try and defeat overwhelming "quantity" from two fronts.
203X After continuous retreats, the Battle of Capitol Hill begins. *Video games would later be made off this battle, in which hundreds of volunteer and a couple of Abrams IX tanks heroically sacrificed themselves just to buy a couple of hours.
203X The Hero comitted suicide. (If this is your kid, the HISTORIC ROLE is fulfilled here!)
203X A white flag is flown on the capitol, by none other than YOUR KID, who is at the time a captain in his FOLK-STORMER brigade. Thus the HISTORIC ROLE is fulfilled.
An alternate history would probably be more plausible though you may agree that this wont quite have the historic role of the previous alternate history, but here it is anyway:
Your kid works for a call center of Arabic banks/Asian banks collecting past due cell phone bills from 201X to 204X when he dies of cancer due to unchecked radiation from lack of shielding from nearby nuclear reactor, owned by the same company he works for. :D
There is a reason for your disease. And I am going to write the post-mortem when I had the energy sometimes this weekend.
Wednesday, June 18, 2008
By Fabio Alves and Tal Barak June 19 (Bloomberg) -- MSCI Inc. will decide within 12months whether to reclassify South Korea and Israel as developedcountries, elevating them from its emerging market indexes.
Read that over and over.... That is all I am willing to say.
June 18 (Bloomberg) -- New York Times Co., the third-
largest U.S. newspaper publisher, said advertising revenue at
its newspapers and their Web sites dropped 13 percent in May,
the biggest monthly decline this year.
Monday, June 16, 2008
June 16 (Bloomberg) -- Broadcom Corp. co-founder and former
Chief Executive Officer Henry Nicholas pleaded innocent to
charges he spiked customers' drinks with ecstasy and helped
orchestrate improper stock-options backdating.
Sunday, June 15, 2008
Wednesday, June 11, 2008
FITCH U.S. HOUSING UPDATE - DISAPPOINTING SPRING; NEGATIVE MOMENTUM RULES IN 2008 AND INTO 2009
Fitch Ratings-New York-10 June 2008: The housing downturn
continues to have 'legs', and most of the statistical data
reported so far in 2008 are discouraging, according to Fitch
Ratings. The spring selling season was a 'bust'. Although it
does not appear likely that the year-over-year declines in
major metrics such as starts, new home sales, and existing home
sales will continue at the current pronounced pace throughout
this year, the decreases are likely to be greater than Fitch's
prior projections. Perhaps more important, initial projections
for 2009 are for further slippage in starts and new home sales.
The three specters: poor buyer psychology, easing pricing, and
excessive inventories, are likely to mitigate other modestly to
moderately positive developments. Tightened credit standards
should continue to largely offset improving affordability.
Fitch concludes that operational and financial pressures will
persist and, possibly, intensify for the public homebuilders
during 2008 and into next year.
The CASH FLOWS are managed, so they grow at least at the rate of profit increases.
That is the problem, my friend.
Cash-flow-CENTRIC businesses are THE MOST susceptible to INTEREST RATE INCREASES. They would ACCENTUATE the already declining cashflow (experienced by all other sectors) with MUCH MUCH HIGHER interest rate cost or discount rate to the cashflows.
Call me stupid but I would like master Warren to bitchslap me and call me stoopid. Of all people, these FACTS should have come from him directly and NOT FROM ME. See, I have learned to use my grasshopper tiny wings, master.
and IMB is the BEST, yet trading at $1. The WORST crap of the planet is almost 5-10x more expensive. INSANE ARBITRAGE opportunities. (Not to say that zero is even a fair price as you can well deduce from the above #s).
more about the timing in the next several days than what the direction or amount is going to be.
By Cherian Thomas
June 11 (Bloomberg) -- India's central bank raised interest rates for the first time in 15 months, the latest in a global wave of monetary tightening to combat a surge in inflation sparked by food and energy costs.
The Reserve Bank of India increased the repurchase rate to 8 percent from 7.75 percent, according to a statement in Mumbai. The move came seven weeks before the bank's next scheduled monetary policy meeting on July 29. Reserve Bank Governor Yaga Venugopal Reddy joins central bankers in the Philippines, Vietnam and Indonesia in raising borrowing costs this month. The urgency signals Reddy's concerns on inflation after India raised fuel prices at the sharpest pace in at least six years.
``If inflation is heading into double digits, it would have been impossible for the central bank to ignore that,'' said Robert Prior-Wandesforde, senior economist at HSBC Holdings Plc in Singapore. ``Particularly with inflation being so sensitive a subject politically in India.''
Lehman Brothers Holdings Inc., Standard Chartered Bank and ICICI Securities Ltd. expect India's inflation rate to rise to 9.5 percent, the highest since 1995. Inflation is currently at
8.24 percent, near a four-year high. The changes in fuel prices announced on June 4 will be reflected in price data due for release on June 20.
I computed that it's value is about -1.5x it's "claimed" book value. Suppose a long term investor (with 30 year horizon is investing), he can expect, to return IMB into 1x book value (assuming he pays ZERO for the company)
(1 + 1.5)^(1/30) - 1 = negative 3.10% per year over 30 years.
This is comparable with most non-profits out there. Why the hesitations?
Make Warren proud my son.
Tuesday, June 10, 2008
Unfortunately some people are still willing to but MTG, FED, and RYL off my money factory. LOLz.
Monday, June 9, 2008
Here's the link:
Here's the spreadsheet in question taken from that blog for your convenience
And here's what a couple of "late" analyst says about the numbers early today:
By Ari Levy and Linda Shen
June 9 (Bloomberg) -- Washington Mutual Inc. tumbled as much as 14 percent, leading mortgage companies lower in New York trading, after UBS AG analyst Eric Wasserstrom said the Seattle-based lender is underestimating losses on home loans.
Washington Mutual, nicknamed WaMu, will lose about $21.7 billion from mortgages through 2011, more than the $12 billion to $19 billion the company forecasted, Wasserstrom wrote in a report today. He cut his 12-month share price target
to $8.50 from $11.
and I thought these areas are very well insulated due to gov't money pumping direct to communities via jobs, subsidy, etc.
By Rich Miller and Matthew Benjamin
June 9 (Bloomberg) -- Sky-high gasoline prices aren't just
raising the cost of Eugene Marino's 120-mile round-trip to his
job in the Washington area. They're reducing his wealth, too.
House prices in his rural subdivision beyond the Blue Ridge
Mountains in Charles Town, West Virginia, have plunged as
commuting expenses have soared. A four-bedroom home down the
street from his is listed for $239,000, after selling new for
$360,000 five years ago.
Homeowners in the exurbs aren't the only ones whose assets
have taken a hit because of the surge in energy costs. Companies
such as General Motors Corp. and UAL Corp. are writing off
billions of dollars in plants and equipment that are no longer
viable in an age of dearer oil. The destruction of wealth and
capital will weigh on U.S. growth for years to come.
``Our whole economy reflects the relative costs of energy:
the cars we drive, the houses we occupy, the kinds of factories
we have and the equipment in them,'' says Dana Johnson, chief
economist at Comerica Bank in Dallas. ``I'm expecting relatively
large changes in all of these things.''
The loss of wealth could be a double whammy for the U.S.
economy. In the short run, it depresses demand as homeowners
save more and spend less, and companies fire workers. Longer
run, it curbs productivity growth, as firms shift their focus
from increasing worker efficiency to reducing energy costs.
``At $4 per gallon gas, $125 per barrel oil and $10 per
million Btu natural gas, a lot of activity becomes
uneconomical,'' says Mark Zandi, chief economist at Moody's
Economy.com in West Chester, Pennsylvania.
The lifestyle of the exurban commuter may be one casualty.
Emerging suburbs and exurbs -- commuter towns that lie
beyond cities and their traditional suburbs -- grew about 15
percent from 2000 to 2006, nearly three times as fast as the
U.S. population, as Americans moved further out in search of
more affordable houses or the bigger ones that are sometimes
derided as McMansions.
``It was drive until you qualify'' for a mortgage, says
Robert Lang, director of the Metropolitan Institute at Virginia
Tech in Alexandria, Virginia. ``You can't do that anymore. Your
cost of transportation will spike too much.''
The 38-year-old Marino, an archeologist for the U.S. Fish
and Wildlife Service, is among those feeling the pinch. ``Eating
out and discretionary income are a thing of the past for us,''
He reckons he once could have sold his 2,700 square-foot,
four-bedroom house for around $450,000 based on the value of
other homes in the neighborhood. Now he figures it's worth about
$330,000. Gasoline prices have doubled his commuting costs since
he bought his home in 2003, he says.
``Gas prices are really hurting demand here,'' says Celia
Lainez, a broker at Keller Williams Rice Realty in Martinsburg,
West Virginia. She says she has yet to receive a bid on the
house down the street from Marino's, which has been on the
market for five months.
Nationwide, home prices in neighborhoods with long
commutes and no public transportation are falling faster than
prices in communities closer to cities, according to a study by
Joseph Cortright, an economist at Impresa Consulting. For
example, his study found that prices in distant suburbs of Tampa
fell 14 percent in the last 12 months, versus a 9 percent drop
in areas nearer the city.
``The decline in almost every case is worse in the suburbs
and exurbs than it is in close-in neighborhoods because
transportation costs are so much more of a factor,'' says
Cortright, whose Portland, Oregon, firm studies regional
Americans are trying to cope by switching from gas-guzzling
trucks and sport-utility vehicles to more energy-efficient cars.
Asian automakers outsold Detroit's Big Three in the U.S. for the
first time last month as buyers left GM and Ford Motor Co.
trucks on dealer lots in favor of Honda Civics and Toyota
``This is a fundamental change,'' Ford Chief Executive
Officer Alan Mulally told reporters last month. The Dearborn,
Michigan-based company plans to temporarily idle its Wayne,
Michigan, SUV plant and cut production at its Louisville,
Kentucky, pickup-truck facility.
Detroit-based GM is taking more drastic steps. It plans to
close four North American pickup and large-SUV factories,
cutting capacity by 700,000 trucks a year, and may sell its
Hummer SUV brand, which averages about 13 miles per gallon in
city driving and 18 on the highway, according to government
The largest U.S. automaker is responding to ``a structural
change, not just a cyclical change,'' Chief Executive Officer
Rick Wagoner said before the company's annual meeting June 3.
Gasoline prices are up 31 percent this year and have doubled
since March 2005.
Dennis Virag, president of the Automotive Consulting Group
in Ann Arbor, Michigan, says vehicle manufacturers will find it
cheaper to shut factories than retool them.
``Domestic automakers, in their infinite wisdom back in the
1980s and 1990s, built factories and tooled factories just to
build trucks and SUVs'' like the Ford Explorer, the Chevrolet
Suburban and the Ford F-150, Virag says. ``So it's very likely
you're going to see more plant closings.''
Airlines are also retrenching. More than a dozen have
collapsed in the last six months, including Columbus, Ohio-based
Skybus Airlines Inc. and Frontier Airlines Holdings Inc. of
Chicago-based United Airlines, the world's second-largest
carrier, will cut its fleet by 70 planes and shut its low-fare
Ted unit to counter record fuel expenses. The airline will
ground about 64 Boeing Co. 737s and six Boeing 747s by the end
Delta Air Lines Inc. in Atlanta is grounding 90 planes, and
Fort Worth, Texas-based AMR Corp.'s American Airlines, the
world's largest carrier, plans to reduce capacity on domestic
routes by 12 percent.
``Skyrocketing oil prices are changing everything,''
Giovanni Bisignani, chief executive officer of the International
Air Transport Association, told the group's annual meeting June
2. ``The situation is desperate.''
The association, whose members account for 93 percent of
international traffic, forecasts that airlines may report
combined losses of $6.1 billion this year, the worst since 2003.
`Obsolete' Capital Stock
``The change in energy prices makes a portion of the
capital stock obsolete,'' says Richard Berner, co-head of global
economics at Morgan Stanley in New York. ``That will depress
He sees the U.S. economy growing at a sub-par 1.4 percent
next year after expanding just 1 percent in 2008, held back by a
variety of forces that include the destruction of capital
resulting from the rise in energy prices.
Zandi at Moody's Economy.com says permanently higher fuel
costs will depress productivity growth during the next three to
five years as companies retool to boost energy efficiency.
That's what happened in the 1970s, as successive oil
shocks, coupled with increased environmental regulation and
other factors, led to a sharp slowdown in productivity growth.
Federal Reserve Chairman Ben S. Bernanke said in a June 4
speech at Harvard University that he doesn't see a return of
1970s-style stagflation, in part because the economy is more
flexible and adaptable than it was back then. That doesn't mean
the future will be pain-free, others say.
``We're going to see some companies go out of business,''
says economist Philip Verleger, president of PKVerleger LLC in
Aspen, Colorado. ``There is going to be a large amount of wealth
Saturday, June 7, 2008
The last time I visited GGP board was in Jan 2008. It was peachy clean and there was very little discussion around the company. In Jun 2008, the place is a battlefield with paid posters from both sides completely obliterate anybody they see the opposite of their "mandate" :D
Do what you must.
Friday, June 6, 2008
Now it's there for WB. In any pops you will have to fight with me for shares to borrow.
We are changing our moat rating for FirstFed Financial FED to none from narrow, as we don't think the bank will be able to earn positive returns on invested capital over the next three years. Although returns might rebound in the long run, we think a no-moat rating is warranted, given the extremely high uncertainty around this firm.
Those characters at Morningstar are the dumbest and will only downgrade the last when the price is heading to the final throes......Where now can I get anymore FED. This one is unambiguous death sentence.
Laugh at your own risk.
By popular demand: explanation of my cryptic cowardly comments: :D
I think there is sufficient evidence to suggest that at any reasonable transfer mechanism of inflation (from oil to PPI then to CPI) that inflation anchor has moved +5% over target at the rate and level oil and many commodities are presently. While this may be good to POT and Saudi Arabia, the real economy runs on fixed set of condition (namely salary) and will not be able to adjust to such a rapid shock.
This is equivalent to in other words, BSC, or shall I say the Bear-Stearns-event-equivalence. The only cure to stop it is the application of unexpected rate increase until the pricing mechanism is firmly under control.
This may very well be suitable, as the majority of investment banks who needed to raise capital have done so in the past 3-4 months.
The fed's responsibility to IB is fulfilled, in that they opened a breathing room for the IB to obtain funding. As far as to those who provided the funding (please don't use the words BAGHOLDERS, it's not proper), the Fed never issued guidance as for example, how much someone should pay to invest in the stocks of LEH, or MER, or Citi. That is, Ben told me, the key defense in court, should anybody take him to that, when they say "But YOU SAID you GOT OUR BACK".
Now that issue is behind us, and another firmly in front of us, namely the incorrect application of slosh to deposit into commodity investments, the pressure is clear as to what this Fed Chairman would do (or any Fed chairman previous to him would hav done), which is a surprise rate hike.
Wednesday, June 4, 2008
JANA Has Stake in Troubled FirstFed
by Christopher Glynn, Reporter June 3, 2008
JANA Partners has disclosed a 9.9% stake in troubled bank FirstFed Financial
The hedge fund revealed its ownership in FirstFed in a filing May 30. JANA did not own a stake in the California company last quarter. Stock in FirstFed dropped 60% between November and May. A month ago, San Francisco hedge fund Menta Capital unloaded its entire 6,600-share stake in the company. The troubled housing market has hurt FirstFed. JANA is a shareholder activist hedge fund based in San Francisco.
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Tuesday, June 3, 2008
I think their time runs out. DHR "narrows" their profit forecast so that they are more certain but this means nothing. I will sell them tomorrow. So what I have done in the past 2 weeks are gradually cashing out of my long position and increasing short bets in nook and cranny of the market like FED, WB, and OSTK short and puts.
The cavalry is however, not yet out as I don't want them to be massacred by crazy bottom-calling hordes in case I am wrong. It looks like EVERYTHING runs out of steam at this point. Check out DCI since I told you I was cashing out. Everyday a pumper showed up and upgraded it after practically ignored it for months (and at that point DCI WAS going up on its own without their help!!! ) and yet NO change in price since earnings. I think a 10-15% pullback in that one to $45 range is not out of the question especially if the sentiment in the market confirmed this.
More final bits and pieces from the Spring "Selling" season and a BUST just DOESN'T quite describe it. On the loan / mortgage sides, POWERFUL entities in the market who seem to be immune in the past 12 months are secretly hurting and beginning to ask advice to people like me how to justify changes in marks of portfolio. These are the types of questions that if the sources leak my head is on a platter. But the s**t is VERY real, much more so than the last half of last year.
Monday, June 2, 2008
The inflation hawks point out that consumers are, for the first time in decades, telling pollsters that they expect a sharp rise in prices over the next year. Fair enough.
But where are the unions demanding 11-percent-a-year wage increases? (Where are the unions, period?) Consumers are worried about inflation, but you have to search far and wide to find workers demanding compensation in the form of higher wages, let alone employers willing to accept those demands. In fact, wage growth actually seems to be slowing, thanks to the weakness of the job market.
Translation: The sign of inflationary spiral is "continuous front running of price increases, which begets more price increases" as I have discussed in my blog 2 weeks ago.
Well, Paul, here's your answer also coming in the same day you placed your article - There is no union because there is no factory and there is no factory because when HUMANS are needed in the factory then the factory is WHERE in the WORLD? There you go boy-o.
Here are the excerpts and links
June 2 (Bloomberg) -- Plummeting currencies did in the
first Asian economic miracle. The second may fall victim to
Central banks from Beijing to Bangkok are losing their bets
that a global slowdown would temper price increases. While
export demand from the U.S. and Europe may have eased, it has
been replaced by rising domestic consumption that has helped
push inflation rates in Asia as high as 26 percent.
The result: In China, Thailand, the Philippines and at
least eight other Asian economies, benchmark borrowing costs are
lower than the rate of inflation, resulting in negative real
interest rates, according to data compiled by Bloomberg. The
risk is that prices will spiral even faster, leading to
overheated economies and an eventual bust.