Saturday, March 22, 2008

Idle Curiosity

3/22/08 Idle Curiosity

The disclosure of inappropriate Barack Obama passport inquiries recalled an incident in 1992, when a Republican political appointee at the State Department was demoted over a search of presidential candidate Bill Clinton's passport records. At the time he was challenging President George H.W. Bush. The State Department's inspector general said the official had helped arrange the search in an attempt to find politically damaging information about Clinton, who had been rumored to have considered renouncing his citizenship to avoid the Vietnam War draft. The State Department said the official, Steven Berry, had shown "serious lapses in judgment." After a three-year, $2.2 million probe, a federal independent counsel exonerated officials in the incident, saying that while some of the actions investigated were "stupid, dumb and partisan," they were not criminal. The independent counsel also said that Berry and others who were disciplined for their involvement were treated unfairly. Doug Hattaway, a spokesman for Sen. Hillary Rodham Clinton said of the current breach: "It's outrageous and the Bush administration has to get to the bottom of it." What chance do you think there is of the truth being revealed?

``Fundamentally, the charge forward is still there,'' Peter McGuire, managing director at Commodity Warrants Australia, said today in a Bloomberg Television interview. ``The time to buy is on the dips.''
Gold for immediate delivery gained $9.71, or 1.1 percent, to $920.24 an ounce as of 4:26 p.m. in Tokyo. Silver for immediate delivery gained 0.7 percent to $16.90 an ounce. Given the scale of gold's rally in recent years and the pace of inflation, the precious metal ``should be at $2,500'' an ounce, on an inflation-adjusted basis, McGuire of Commodity Warrants Australia said today. ``We think it's got a long way to go.''

India's inflation accelerated to a ten-month in the first week of March, making it more difficult for the central bank to reduce interest rates to bolster slowing economic growth. Wholesale prices rose 5.92 percent in the week ended March 8 from a year earlier, faster than the previous week's 5.11 percent, the Ministry of Commerce and Industry said in New Delhi.

According to AMG Data Services, including ETF activity, Equity funds report net cash inflows totaling $22.937 billion in the week ended 3/19/08 with Domestic funds reporting net inflows of $24.197 billion and Non-domestic funds reporting net outflows of -$1.260 billion;
Excluding ETF activity, Equity funds report net cash outflows totaling -$3.280 billion (0.15% Assets) with Domestic funds reporting net outflows of -$2.344 billion and Non-domestic funds reporting net outflows totaling -$936 million.
In sum, if you follow the money, it's easy to see why the equity market rallied so strongly this week. There was a massive flow of funds into equities. Money tawks!

One-month Treasury bill rates sank 88 bps this past week to 0.315%, with 3-month yields down 59 bps to 0.61%. What a joke!

Paul Krugman: "Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931. This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure. As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way."

Aloha Airlines filed for Chapter 11 bankruptcy protection Thursday, a little more than two years after emerging from bankruptcy. Aloha said it will continue to fly as long as a bankruptcy court accepts the airline's financial plan to keep operating.

Kiyohiko Nishimura, the bank's other deputy governor, said Japan's economic slowdown is getting worse. "The economy is slowing quite sharply, even though it is on a mild expansionary trend," he told the same press conference. "We need to manage policy extremely carefully."

Russia’s OAO Severstal will be the fourth-largest steel maker in the U.S. after agreeing to buy ArcelorMittal’s Sparrows Point production facility for $810 million.

In a conference call with reporters, Obama advisers described Mrs. Clinton’s White House meetings as evidence that she had misrepresented her support for Nafta. She has said that she has been a critic of Nafta “from the very beginning.” David Axelrod, Mr. Obama’s chief strategist, called the White House schedules “direct, incontrovertible evidence that Senator Clinton was, in fact, actively involved on this issue.” “This is a question of political character,” Mr. Axelrod said. “We all remember the press conference that Senator Clinton had in Ohio 10 days before the election, in which she said with great theatricality, and waved her finger at the TV screen and said, ‘Shame on you, Barack Obama.’ ” “She knew at the time that she made that exhibition in Ohio that we were, in fact, being exactly accurate about her position over the years.”

“No matter what the costs, no matter what the consequences, John McCain seems determined to carry out a third Bush term,” Mr. Obama said. “That’s an outcome America can’t afford. Because of the Bush-McCain policies, our debt has ballooned.”

Standard & Poor's Ratings Services on Friday revised its outlook on the U.S. brokerage industry to negative, saying despite "relatively good" earnings from the group this week, it has become more worried about the general profit outlook for broker/dealers as a result of "increased unpredictability of business trends." The firm said its ratings factor in a 20% to 30% fall in revenue for the industry as a whole, and there is the risk that revenue could fall even further.

Central banks on both sides of the Atlantic are in talks about the feasibility of mass purchases of mortgage-backed securities in a bid to solve the global credit crisis, the Financial Times said.

Doug Noland: "It would be an outright crime if thinly-capitalized Fannie and Freddie were allowed to increase their Books of Business (mortgages retained on their balance sheets and MBS guaranteed in the marketplace) by $2 Trillion this year – “if the market needs that money.” I was shocked when Mr. Lockhart imparted that they were now in a position to accomplish such a feat. It is certainly a terrible idea to put Fannie and Freddie guarantees on millions of new mortgages created from restructuring loans of troubled borrowers. This would amount to nothing less than a despicable transfer of massive prospective Credit losses directly to the American taxpayer (current owners of this paper should not be bailed out).
I have fully expected the GSEs, at some point, to be taken over by the federal government. It may have been orchestrated subtly, but I can only presume that such a historic endeavor was accepted this week as the only means of averting financial dislocation. And for their regulator to suggest that the GSEs today have any handle whatsoever over their unfolding “risk management” challenge is wishful thinking - at best.
As far as I’m concerned, much of the U.S. mortgage market was this week essentially Nationalized. I’ll take the dramatic narrowing in agency debt and MBS spreads as support for this view. Additional support arrived from comments from Mr. Lockhart, Mr. Paulson, and actions by the Federal Reserve. Having lived contently for years with the markets’ interpretation of the (grey-area) “implied” government backing of the GSEs, our policymakers are surely today satisfied with the inferred market acceptance of mortgage industry Nationalization. To be sure, the Fed’s Splashy “Sunday Night Special” bailout of Bear Stearns is rather trivial in both its implications and consequences when compared to Thursday’s Quiet Coup...The “average American” is getting slammed by rapid inflation in the prices for fuel, food, healthcare, education and other basis necessities. He was duped into various dangerous mortgage products to purchase homes with, in many cases, grossly inflated market values. Millions are in the process of losing virtually everything. He was also duped into various risky investment products, while the bursting of Bubble markets will leave him dreadfully unprepared for retirement. Now, he is seeing the returns from his savings crushed by the melee to bailout Wall Street “money changers” and speculators. Over the coming months, millions will lose their jobs with the inevitable adjustment and realignment to cope with post-Bubble realities. And now, apparently, the American taxpayer is to sit back and watch his contingent liabilities balloon (even further) with the Nationalization of the U.S. mortgage market.
I understand perfectly the motivation Wall Street, the Administration and the Fed have in blindly throwing the “kitchen sink” at this unfolding Crisis. These are indeed scary times bereft of solutions. I am certainly familiar with the view that bailing out Wall Street and the speculators is medicine necessary to stabilize the system. But not only is this approach both inequitable and unethical on moral grounds, it is my view that such endeavors will prove only further destabilizing for the system overall...there is absolutely no way that the U.S financial system will now be capable of sustaining either the (pre-bust) quantity of Credit or the uniform flow of finance that levitated Bubble Economy asset prices, household incomes, corporate cash-flows, “investment” spending or consumption. Huge sections of the Credit infrastructures (notably throughout Wall Street-backed finance) are inoperable and disCredited. Prominent Monetary Processes have been broken and the resulting Flow of Finance radically revamped."

Seven in 10 said Barack Obama did a good job talking about race relations and as many said he did a good job explaining his relationship with Reverend Wright, according to a CBS News poll.

Friday, March 21, 2008

The Coming Meltdown?

3/21/08 The Coming Meltdown?

Borders, the nation's second-largest bookseller, said Thursday it may put itself up for sale and has lined up $42.5 million in financing to help the chain continue operations.

In early Thursday trading, light sweet crude recently was down $2.38 to $100.16 a barrel, and metals futures dropped further as well, with gold futures down $29 an ounce and platinum futures down $62.

Allianz Group, the German insurer and owner of Dresdner Bank, said in its 357-page 20-F filing that it expects further mark-downs in the first quarter of 2008, citing deterioration of observable market prices and credit indexes. During 2007, Dresdner registered mark-downs of 1.3 billion euros ($2 billion) on asset-backed securities.

Morgan Keegan says the home-improvement cycle is a long way from the bottom.

"I've been asked many times whether we will have another Great Depression," said David M. Kennedy, a Stanford University history professor and the author of "Freedom From Fear," a Pulitzer Prize-winning history of the Depression and World War II. "My standard answer is that we won't have that one again -- I'd be surprised to have one of that seriousness and duration. But that doesn't mean we wouldn't have a catastrophe we haven't seen before."

According to Bloomberg, Thornburg Mortgage Inc., the ``jumbo'' mortgage specialist struggling to meet margin calls, may declare bankruptcy if it can't raise $948 million by next week.

According to the NY Times, with 10 contests remaining, Mrs. Clinton trails Mr. Obama by about 150 delegates out of the 2,025 needed to secure the nomination...Mr. Obama’s edge over Mrs. Clinton is 700,000 votes out of 26 million cast, excluding caucuses and the disputed Florida and Michigan results. About 12 million people are eligible to vote in the remaining contests.

Credit Suisse warned it was unlikely to be profitable in the first quarter, partly because of this month’s tough markets and partly because of previously flagged pricing errors that it said Thursday stemmed from “intentional misconduct by a small number of traders.”

Dillard's Inc. said its fiscal fourth-quarter profit plunged 70 percent, hurt partly by one less week in the period and a smaller tax benefit. Late Wednesday the department store retailer reported earnings fell to $47.3 million, or 63 cents per share, compared with $155 million, or $1.90 per share, in the previous year.

FedEx sees next quarter estimates at $1.60 to $1.80 vs. $1.95 estimates.

The Wall Street Journal writes that the supply of oil may keep prices high.

According to Bloomberg, John McCain is bolstering his reputation as a maverick by encouraging Americans to buy lower- priced drugs from Canada, a plan that may cost Pfizer Inc. and the drug industry $40 billion over 10 years.

British billionaire Joseph Lewis plans to take action to protect the value of his 8.4 percent stake in Bear Stearns, which is being acquired in an emergency deal with JPMorgan Chase, according to regulatory filing Wednesday. In a Securities and Exchange Commission filing Wednesday, Lewis reported holding 12.1 million shares of the New York-based investment bank. He holds the stake through Aquarian Investments, Cambria Inc., Nivon Inc. and other entities.Lewis said the shareholder group will take "whatever action that they deem necessary and appropriate to protect the value of their investment in the shares," including encouraging Bear Stearns and third parties to consider an alternative transaction.

Nouriel Roubini: "It is now clear that the US and global financial markets are experiencing their worst financial crisis since the Great Depression. And in spite of desperate and radical actions by the Fed this crisis is getting worse. A brief equity rally after the rescue of Bear Stearns, the 75bps Fed Funds and the announcement of new radical and unorthodox lending facilities (allowing non bank primary dealers access to the Fed discount window) has already completely fizzled today with US equities plunging over 2% while the severe crunch in money markets and credit market is becoming much worse... the crisis is becoming more severe and increasing the risk of the mother of all financial meltdowns."

Wheat fell the maximum permitted by the Chicago Board of Trade as rains improved crop prospects in Australia and farmers worldwide prepared to sow more grain to take advantage of prices that reached a record high last month. Rainfall has eased drought conditions for four straight months in Australia, the fifth-largest exporter last year. Russia, the third-largest exporter, said today that its crop is in good condition. The International Grains Council estimates global output will rise 7 percent in the year through June 2009, after wheat prices doubled in the past year.

On Wednesday, corn and soybeans fell the exchange limit in Chicago on speculation a rebound in the dollar will reduce the appeal of commodities as an inflation hedge. The UBS Bloomberg Constant Maturity Commodity Index fell as much as 3.5 percent, led by declines in sugar, wheat and lead. The gauge is down 5.7 percent this week, heading for the biggest weekly drop since May 2006. The U.S. Dollar Index, down 14 percent in the past year, rose 0.6 percent.

Volatility in the Standard & Poor's 500 stock index .SPX, the most widely-used barometer of the U.S. stock market, is at a 70-year high, according to an analysis released on Wednesday by Standard & Poor's. Measured by daily changes of at least 1 percent in the index, volatility has soared since credit concerns became a critical issue in the summer of 2007, S&P said.

Deutsche Bank was in the running to buy Bear Stearns as late as Saturday, according to a report from the German daily Handelsblatt.

First-time claims for state unemployment benefits for the week ending March 15 hit 378,000, up 22,000 from the prior week's revised level of 356,000, the Labor Department reported Thursday. The four-week average of initial claims gained 6,000 to 365,250. For the week ended March 8, continuing claims for benefits rose 32,000 to 2.87 million - the highest since August 2004. The four-week average of continuing claims rose 19,750 to 2.83 million - the highest since September 2004.

Robert McHugh: "Stocks plunged Wednesday, destroying about two thirds of Tuesday's mega-rally. This lack of follow-through is Bearish. The upper boundary of the declining trend-channel from October 2007 through now has held once again. This trend-line is formidable resistance, and suggests we are going to new lows over the next few months. There have been numerous touches, or near touches that have failed. We saw heavy intervention Wednesday by deep pockets, buying the Blue Chip indices hard. Stocks were seeing the sort of selling pressure that could have led to a mini-crash. The PPT and its surrogates put a stop to that.
Commodities and precious metals - inflation assets - plunged Wednesday. If this is an indication of deflation, then a depression is coming. If so, raise cash. Three month Treasury Bill yields fell to less than 1 percent, to 0.61 percent Wednesday, the lowest level in fifty years, since May 1958. This means the Fed Funds interest rate is 165 basis points too high. This is a depression era level for interest rates. Rates can't go below zero, so with a floor imminent, the Master Planners' traditional open market operations and other tools for monetary stimulus are about to be neutered. They don't get it. The bailout has to include the American household for a recovery. If they merely throw dollars at money center banks, eating their bad assets, nothing will be accomplished of any substance, and a depression will occur, because more and more bad assets will keep coming, like storm waves."

During visits to the Middle East in December 2002, Senator Chuck Hagel said, Israel's top security officials asked, "Do you really understand what you are getting yourselves into?"

The U.S. economy may be "grinding to a halt," the Conference Board said Thursday, reporting that the index of leading economic indicators fell 0.3% in February, the fifth straight decline. The coincident indicators - the best overview of the current economy - have been flat for three straight months, the private research group said. "Growth will be weak this spring," said Ken Goldstein, labor economist for the Conference Board. "A small contraction in economic activity cannot be ruled out." Five of the 10 leading indicators fell in February. Over the past six months, the leading index is down 1.5%, with two indicators rising.

Jesse Livermore: "There's a time to go long…there's a time to go short…and there's a time to go fishing."

On what basis are U.S. Treasury notes a counter-balance for risk? Why are they a safe haven? Do you trust in a printing press? Do you have faith in a printing press?

John A. Hutchinson: "Unthinking faith is a curious offering to be made to the creator of the human mind."

The Philly Fed index rose to negative 17.4 in March from negative 24.0 in February.

The euro bought $1.5405, down from $1.5617 in late U.S. trading Wednesday. The British pound, which was trading above $2 Wednesday, was at $1.9814, down from $1.9842 in late U.S. trading. The dollar was back above parity against the Swiss franc, buying 1.0142 francs, compared with 0.9990 franc late Wednesday. The dollar was at 99.34 yen, up from 99.09 yen The dollar index, which measures the greenback against a basket of six major currencies, was at 72.902, up from 72.103 late Wednesday.

U.S. natural gas inventories fell by 85 billion cubic feet in the week ending March 14, the Energy Information Administration reported on Thursday. It's the 17th consecutive week marking the fall of natural gas stockpiles. Last week's natural gas stocks were 215 Bcf less than last year at this time and 29 Bcf above the five-year average of 1,284 Bcf, EIA said.

Chris Puplava: "Ignore the endless bottom calling in the press that is buzzing around with some financial pundits pointing to the Bear Stearns blow-up as a likely capitulation in the markets. One thing that should be abundantly clear is that Wall St. tends to err on the side of optimism. I recently watched a clip of Maria Bartiromo being interviewed while in the U.K. who said that the financial media was playing a role of talking ourselves into a recession. What struck me was nowhere in the interview did the other side of the coin come up, that we can talk ourselves into a euphoric bubble." Is that bubble in the Treasury market?

CIT Group Inc. dropped 26 percent to $8.66, the lowest since its initial public offering in July 2002. The largest independent commercial finance company in the U.S. may need to tap $7.3 billion in backup credit lines because its access to unsecured short-term debt has become ``materially constrained,'' Fitch Ratings said.

Bernanke lives in Washington's Capitol Hill area in a four- bedroom, 2,600-square-foot house he bought new in May 2004 for $839,000. Almost four years later, it may not be worth any more, according to real estate records and local agents.

3COM SHARES FALL AS TAKEOVER BY BAIN CAPITAL AFFILIATE IS SCRAPPED.

Citigroup Cuts 2,000 Banking, Trading Jobs.

Securities and Exchange Commission Chairman Christopher Cox said the collapse of Bear Stearns last week was due to a lack of confidence, not a lack of capital.

EBay Inc. is cutting 125 jobs this week, or less than 1% of its workforce, according to a report Thursday in the online edition of The Wall Street Journal.

Investment banks and broker dealers borrowed $28.8 billion from the Federal Reserve on Wednesday under the new lending program set up on Sunday, the Fed announced Thursday.

The Dow Jones Industrial Average gained 261.66 points, or nearly 2.2%, to end at 12,361.32, giving it a gain of 3.5% on the week. The S&P 500 advanced 31.09 points, or 2.4%, to 1,329.51, up 3.3% from last week's close. The Nasdaq Composite rose 48.15 points, or 2.2%, to 2,258.11, advancing 2.1% on the week.

Crude oil for May delivery, the new front-month contract, ended down 70 cents, or 0.7%, at $101.84 a barrel on the New York Mercantile Exchange.

The Federal Reserve will auction off $75 billion of Treasurys for 28-day loans to its 20 primary dealers on March 27 in the first auction in its Term Securities Lending Facility announced a week ago. The Fed will accept mortgage-backed securities, including collateralized mortgage obligations (or CMOs), as collateral in the first auction. The second auction will take place April 3.

New Mexico Gov. Bill Richardson is endorsing Obama for president, calling him a "once-in-a-lifetime leader" who can unite the nation and restore America's international leadership. “As a presidential candidate, I know full well Sen. Obama’s unique moral ability to inspire the American people to confront our urgent challenges at home and abroad in a spirit of bipartisanship and reconciliation.”

According to the Wall Street Journal’s DealJournal, the Office of the Comptroller of the Currency suggested Thursday that it would be willing to cap Blackstone’s exposure to Alliance Data's credit-card exposure at $400 million. That removes a big stumbling block to having Blackstone close the deal. The private equity firm had worried that it would have effectively unlimited exposure to Alliance’s credit-card banking liabilities. There’s still a question, as the DealJournal noted, of whether Blackstone is still willing to pony up the $81.75 a share value of the bid, because that still looks a little ripe.

Two State Department employees were fired and a third has been disciplined for improperly accessing Democratic presidential candidate Barack Obama's passport file, the State Department announced Thursday night. Senior Department officials said they learned of the incidents only when a reporter made an inquiry Thursday afternoon. They said an initial investigation indicated the employees - all of whom worked on contract - were motivated by "imprudent curiosity."
Curiosity took place in January, February, and March by contract employees and has a familiar ring to it, namely, the Watergate break in.

Wednesday, March 19, 2008

Desperation

3/20/08 Desperation

The regulator of Fannie Mae and Freddie Mac on Wednesday eased capital requirements for the two biggest housing finance agencies, allowing them to pump up to $200 billion into the distressed U.S. mortgage market.

Morgan Stanley posted a 42% drop in first-quarter net income as revenue fell 17%, and the bank said it sees challenging market conditions ahead. Morgan Stanley had net write-downs of roughly $1.2 billion from in-house mortgage trading. Other sales and trading results included net losses of about $1.1 billion mainly related to loans used to finance the acquisition of junk-rated companies and write-downs at the firm's subsidiary banks.

David Roskoph: " As J.M. Keynes might put it, we lack enough real money to support aggregate demand in a functioning economy and more debt just won’t do. Credit can be free but it will only further indenture a country already drowning in debt. Although the S&P estimate of 300 billion may in near the mark in terms of the actual failed debt, the cause of the binge remains - an absence of organic growth. Artificially inflating our entire residential real estate market and then financing the margin with bad debt is evidence of desperation, not creativity. Our capacity to foster organic growth has been waning as we lose share to more competitive nations or simply outsource our domestic capacity away. We accepted the economic growth from our past bubbles as organic, and we pledged that as collateral to borrow our standard of living. Now we find out that it was mostly financial engineering. Each bubble’s pop replaced lost money with debt and we agreed to the notion of more credit somehow equaling growth. Inflating our most precious asset class, however, was the swan song of the big bubbles and the buck has stopped."

The dollar extended its decline against the euro, the yen and the Swiss franc on speculation some European and U.K. banks were in difficulties. ``There are rumors doing the rounds on various financial institutions being in trouble,'' said Adam Cole, the London-based head of currency strategy at Royal Bank of Canada, the nation's biggest lender. ``European and U.K. banks are rumored to be in trouble.''

Futures on the Chicago Board of Trade indicate a 50 percent chance the U.S. central bank will cut its rate by another half point by its June meeting. The odds of a quarter-point cut in April were 38 percent.

The Oil Drum: "A recent article in the UK's Sunday Times warns that, although UK natural gas prices are already at historically high levels, they are set to increase by 25% by next winter. Part of the problem is that the UK is increasingly dependent on imports of liquefied natural gas (LNG), and this winter (2007/08) Japan has been paying twice as much for spot LNG cargoes as the UK has. The implications looking forward are that to secure spot LNG cargoes in future, residents of the UK should be prepared to pay much more for their gas. Meanwhile, in its latest weekly podcast, Platts explains why there are essentially three seperate markets for LNG supplies, and media reports suggest that Russia will be soon be hiking its gas prices for exports to Europe. In other words, barring economic meltdown, natural gas prices are set for double digit increases, annually."

Sony Ericsson said it would miss Q1 earnings because of lack of handset demand.

Rob Hanna: "Combining it with last weeks and taking into consideration such things as put/call ratios, VIX levels, etc and I’d say there is a good chance the next month or so will lead to higher prices. Will it turn into a strong bear-market rally that eventually rolls over? Don’t know. Don’t really care. What I see in front of me is quite bullish over the next several weeks. Buying pullbacks could work very well. As I discussed above, we’ll probably see lower prices at some point in the next week. Last night’s Fed study also suggested a pullback in the coming days is likely. Therefore, chasing this is likely not necessary. I’ll be ready to add to my positions if it does pull back."

Houston Chronicle: "The battle lines over the future of Mexico's oil industry hardened Tuesday — the 70th anniversary of its nationalization. At a ceremony in the oil state of Tabasco celebrating the takeover, President Felipe Calderon issued a call for more private investment in the national oil company, Pemex. He proclaimed the fate of the company the defining issue of his generation. Several hours later his leftist rival, Andres Manuel Lopez Obrador, led a huge protest march in the capital against any form of privatization. At stake is the viability of Mexico's oil company, which provides nearly 40 percent of the government's budget and sends 1.4 million barrels a day to the United States through the Houston area. After nearly two decades of free-market policies that have seen most government-owned industries privatized, communal farms dismantled and labor unions weakened, nationalized oil remains as one of the few economic touchstones of the Mexican Revolution. In 1938, President Lazaro Cardenas expropriated the oil fields, following months of turmoil involving strikes by Mexican workers. "The oil is ours!" became a rallying cry for generations of Mexicans. Oil revenue fueled decades of development and other sources of revenue were left untapped. High world oil prices have assured huge profits for Pemex. But the country's proven reserves and production have declined as the offshore Cantarell field plays out. The field has accounted for two-thirds of Pemex's production over the past three decades. "To transform Pemex is to strengthen Mexico," Calderon said Tuesday.

Applications filed for mortgages fell a seasonally adjusted 2.9% last week even as interest rates on fixed-rate mortgages declined.

The first deliveries for Boeing Co.'s 787 Dreamliner aren't likely to occur before the end of September, 2009, according to Steven Udvar-Hazy, chairman and founder of the aircraft maker's largest customer, International Lease Finance Corp

In early Wednesday trading, crude oil for April delivery was down $2.32, or 2.1%, at $107.10 a barrel on the New York Mercantile Exchange. Analysts surveyed by Platts, an energy information provider, expect crude stocks to show a 2.3 million barrel build.

Spartech cutting 350 jobs, or 10% of workforce.

U.S. crude inventories gained by 2.5 million barrels to 307.7 million barrels in the week ending March 14, the American Petroleum Institute reported on Wednesday. Distillate stocks fell by 1.5 million barrels to 112.7 million barrels in the same period, while gasoline stocks dropped by 768,000 barrels to 218.5 million barrels, the API said. At the same time, U.S. crude inventories rose less than expected, up 200,000 barrels to 311.8 million barrels in the week ending March 14, U.S. Energy Information Administration reported on Wednesday. Gasoline supplies fell by 3.5 million barrels in the latest week, while distillate stocks dropped by 2.9 million barrels, EIA reported.

Shares of Visa Inc opened Wednesday at $59.50, 35% ahead of their $44 a share IPO pricing.

The dollar index, which measures the greenback against a basket of six major currencies, was at 71.829 in early trading and then rallied to 72.50.

Wednesday was the day for some serious profit taking in commodities. If you believe inflation will abate, then cutting back makes sense. If you think the dollar will gain traction for more than a few days or a week, then cutting back makes sense. If you think the Fed will stop the printing presses, then cutting back makes sense. If you think the U.S. government will reduce spending, then cutting back makes sense. If none of this makes sense, then sit on your hands and relax. Make the trend your friend.

Starbucks CEO Schultz: "We're an affordable luxury, but there are forces of nature here that we can't control...You have an economy that is really in a tailspin."

The Dow Jones Industrial Average dropped 293.00 points to end at 12,099.66. The S&P 500 shed 32.22 points to 1,298.52, while the Nasdaq Composite declined 58.30 points to settle at 2,209.96.

Crude oil for April delivery fell $4.94, or 4.5%, to close at $104.48 a barrel on the New York Mercantile Exchange. Gold futures for April delivery fell $59, or 5.9 percent, to $945.30 an ounce on the Comex division of the New York Mercantile Exchange. That marked the biggest percentage drop for a most-active contract since June 13, 2006. The metal climbed in the previous six sessions, gaining 3.3 percent.

Tuesday, March 18, 2008

To Trust

3/19/08 To Trust

Chinese Premier Wen Jiabao said China would not revalue the yuan to ease inflationary pressures, while acknowledging meeting this year's target to contain inflation at 4.8% will be difficult.

China told banks to set aside more reserves for the second time this year, hours after Premier Wen Jiabao said the government will take ``forceful'' steps to damp inflation at an 11-year high. Lenders must place a record 15.5 percent of deposits with the central bank, up from 15 percent previously, the People's Bank of China said in a statement on its Web site today. The increase will take effect on March 25.

Alibaba.com Ltd said on Tuesday its full-year 2007 profit grew 340 percent, boosted by a buoyant Chinese economy, increasing Internet access in the country and healthy growth in the firm's number of paying members.

Agatha Christie: "Where large sums of money are concerned, it is advisable to trust nobody."

Reuven Brenner: "The destruction of wealth by debasing currencies occasionally "creates" employment (with people being forced to accept lower-paying second and third jobs) but it signals poverty, not prosperity."

``The Fed let JPMorgan steal Bear Stearns because it needed cover for the putative moral hazard in keeping the system afloat,'' said Paul DeRosa, a partner at Mt. Lucas Management Co. ``For macro reasons, the Fed had no alternative.''

Gillian Tett: " Credit takes its root from the Latin word credere (“to trust”) And as the current credit turmoil now mutates into ever-more virulent forms, it is faith – or, rather, the lack of it – that has turned a subprime squall into a what is arguably the worst financial ­crisis in seven decades."

Iomega said Monday it it is prepared to begin acquisition talks with EMC after EMC raised its proposed buyout offer for the storage technology company to $3.75 a share.Iomega said EMC has indicated a willingness to pay above its original offer of $3.25 a share that was rejected one week ago. The new offer puts a $205.5 million value on Iomega, based on its 54.8 million outstanding shares.

Mike Cavanagh, JPMorgan's chief financial officer, estimated the acquisition(Bear Stearns) would add about $1 billion a year to the bank's earnings.

Steven Pearlstein: "If shareholders lose their money, it's a shame for them, but their losses won't cause credit markets to collapse. Not so for creditors and counterparties.That is not to say that the losses of Bear Stearns shareholders won't matter. One of the major challenges for banks and investment houses is to attract more equity to give them better cushions against losses or protection against a sudden withdrawal of liquidity from the market. Given the experience of Bear Stearns, however, that equity capital will be more expensive, and shareholders in other firms may be unwilling to dilute their own shares to obtain it. No matter. Now that the government is in bailout mode, it has both the right and the obligation to require financial institutions that are undercapitalized for the current environment to find new investors."

Deutsche Bank analyst Michael Mayo cited Lehman's $2 billion working capital line with 40 banks as proof that counterparties haven't lost confidence in the broker-dealer and pointed to the fact that nearly half of Lehman's franchise is outside the U.S. and that its asset-management business is more than twice as large relative to its size as evidence of its diversified business model. Mayo predicted that Lehman will weather the credit storm and reaffirmed his estimate of a price-to-adjusted-book-value ratio of 83%. At the close of 2007, Lehman had $35 billion in excess liquidity, combined with $63 billion of free collateral, implying $98 billion available for liquidity, or $70 billion more than needed for $28 billion of unsecured short-term debt, including the current portion of long-term debt, Mayo wrote in his note.

Goldman Sachs Q1 earnings $3.23 per share vs $6.67. Assets under management increased 21% from a year ago to a record $873 billion, with net inflows of $29 billion during the quarter. "Market conditions are clearly very difficult," said Lloyd C. Blankfein, Chairman and Chief Executive Officer. "But we saw strong customer activity across many of our franchise businesses in the first quarter. Although market conditions present many challenges at the moment, they also offer considerable opportunities." Goldman Sachs Group Inc. Chief Financial Officer David Viniar said the company's liquidity position is "stronger than it has ever been before."

U.S. video game sales _ including hardware and software _ jumped 34 percent in February to hit $1.33 billion, even with two top-selling consoles in short supply, according to data from market researcher NPD Group.

Exxon Mobil Corp.'s freeze on $12 billion of assets belonging to Venezuela's state oil company was overturned by a U.K. court in a setback for the U.S. energy company in its dispute with President Hugo Chavez.

Lehman Brothers Holdings Inc.reported net income of $489 million, or $0.81 per common share (diluted), for the first quarter ended February 29, 2008, representing decreases of 57% and 59%, respectively, from net income of $1.15 billion, or $1.96 per common share (diluted), reported for the first quarter of fiscal 2007. Fourth quarter fiscal 2007 net income was $886 million, or $1.54 per common share (diluted). Chairman and Chief Executive Officer Richard S. Fuld, Jr. said, "In what remains a challenging operating environment, our results reflect the value of our continued commitment to building a diversified platform and our focus on managing risk and maintaining a strong capital and liquidity position. This strategy has allowed us to support our clients through these difficult and volatile markets, while continuing to build and strengthen our global franchise for our shareholders." As of February 29, 2008, Lehman Brothers' total stockholders' equity was $24.8 billion, and total long-term capital (stockholders' equity and long-term borrowings, excluding any borrowings with remaining maturities of less than twelve months) was $153.2 billion. Book value per common share was $39.45. The Holding Company had a robust liquidity pool of $34 billion at quarter end. In addition, the Holding Company had other unencumbered assets of $64 billion and our regulated entities had unencumbered assets of $99 billion at quarter end.

More than a month after an explosion killed 13 workers at its Georgia sugar refinery, the Imperial Sugar Co. has shut down a section of its Louisiana plant out of concern for combustible dust. Imperial said it closed down its powdered sugar operations at its Gramercy facility on Friday after inspectors with the Occupational Safety and Health Administration found potentially combustible dust there.

Rob Hanna: "Fed-day rallies have a tendency to be short-lived. Again looking back to 1982 I looked at buying at the close of any day there was a Fed meeting and the market finished up 1% or more...after two days there is a negative expected value. Going out two weeks it generally gets progressively worse...The market is oversold on a price basis. The VIX is spiking. The Put/Call ratios continue to put up overly bearish readings, and the Fed is meeting tomorrow. All these things suggest a bounce. Unfortunately, the last two days look rather ordinary on a chart. There was no washout or accelerated move lower. This calls into doubt the possibility that today could serve as a bottom should the Fed along with the positives mentioned above spark a rally over the next day or two. Right now a reasonable road map to keep in mind might be a short, oversold bounce followed by another leg lower. I’ll continue to re-evaluate as the next few days unfold, though."

Nouriel Roubini: "The Fed has no idea of which other primary dealers may be insolvent as it does not supervise and regulate those primary dealers that are not banks. But it is treating this crisis – the most severe financial crisis in the US since the Great Depression – as if it was purely a liquidity crisis. By lending massive amounts to potentially insolvent institutions that it does not supervise or regulate and that may be insolvent the Fed is taking serious financial risks and seriously exacerbate moral hazard distortions. Here you have highly leveraged non bank financial institutions that made reckless investments and lending, had extremely poor risk management and altogether disregarded liquidity risks; some may be insolvent but now the Fed is providing them with a blank check for unlimited amounts. This is a most radical action and a signal of how severe the crisis of the banking system and non-bank shadow financial system is. This is the worst US financial crisis since the Great Depression and the Fed is treating it as if it was only a liquidity crisis. But this is not just a liquidity crisis; it is rather a credit and insolvency crisis. And it is not the job of the Fed to bail out insolvent non bank financial institutions. If a bail out should occur this is a fiscal policy action that should be decided by Congress after the relevant equity holders have been wiped out and senior management fired without golden parachutes and huge severance packages."

"'The [US] dollar is melting,' Brazil's finance minister Guido Mantega, said. 'Our plan is to avert an abrupt impact on the foreign exchange rate and help mitigate, in a smooth way, the dollar's free fall.'"

Bill Bonner: "I don't get it…" said a French businessman over lunch on Friday. "In fact, I don't think any of us get it. You've got a guy - the governor of New York - who hires a prostitute. He gets caught and has to resign. But the President of the United States lied to the American people and started a war in which thousands have died…a war that is so expensive it threatens to bankrupt the entire nation. How come he doesn't have to resign? Strange system."

New construction on single-family homes dropped by 6.7% in February to a seasonally adjusted annual rate of 707,000, the lowest in 17 years, the Commerce Department reported Tuesday. Total housing starts, including multifamily units, dropped 0.6% to a seasonally adjusted annual rate of 1.065 million, better than the 990,000 pace expected by economists surveyed by MarketWatch. Building permits, a leading indicator of construction, fell 7.8% in February to a seasonally adjusted annual rate of 978,000, the lowest since the autumn of 1991. It was the biggest monthly decline in 13 years.

U.S. producer prices rose 0.3% in February, the Labor Department reported Tuesday, in line with expectations. Excluding food and energy, however, producer prices rose by 0.5% in February, more than expected. It was the biggest rise since November 2006.

Lehman Brothers Holdings Inc. took $1.8 billion in write-downs on mortgages and other loans during its first quarter. The negative mark-to-market adjustments totalled $4.7 billion, but "risk mitigation" strategies reduced that valuation hit to $1.8 billion, Lehman reported. The brokerage firm said it still holds $31.8 billion of residential mortgage-related securities, down from $32.1 billion at the end of its fourth quarter. Half of this inventory is tied to prime and so-called Alt-A home loans. Roughly $4 billion is subprime and second-lien mortgage securities, the firm disclosed. Lehman also said it holds $36.1 billion of commercial mortgage securities, down from $38.9 billion at the end of its fourth quarter. Lehman has cut 1,100 jobs in March.

The dollar index, which measures the greenback against a basket of six major currencies, was at 71.325, compared with 71.460 in late U.S. trading Monday.

Yahoo says it expects to roughly double operating cash flow over the next three years and generate $8.8 billion in revenue after costs in 2010. Yahoo says its three-year financial plan support the board's determination that Microsoft's Jan. 31 takeover bid undervalues the company. Sunnyvale, Calif.-based Yahoo Inc. continues to expect first-quarter revenue between $1.28 billion and $1.38 billion and full-year revenue of $5.35 billion to $5.95 billion.

According to the WSJ, the European Central Bank pumped an extra €25 billion ($39.42 billion) into euro-zone money markets. As expected amid continuing tension, the ECB padded its regular weekly refinancing operation with extra funds, doling out €202 billion, well above the €177 billion it believes banks need for routine weekly business. Demand for the funds was strong, with 336 financial institutions bidding over €295 billion.

OPEC has no need to pump additional oil supplies to soften near-record prices, which are propped up by the weak U.S. dollar, Qatar's energy minister said.``We are confident there is no shortage of supply,'' Abdullah bin Hamad al-Attiyah said in a phone interview from Qatar today. ``One of the reasons that the oil price is going up is because of dollar weakness. Every time the dollar goes down, oil goes up.''

Delta Air Lines wants to reduce its headcount by 2,000 employees, helping to cut costs by 10% in 2008 and offset some of its skyrocketing fuel expense, Chief Financial Officer Ed Bastian said Tuesday.

The initial public offering of credit card company Visa Inc. priced at $44 a share late Tuesday. The offering raised a record $17.86 billion with the issue of 406 million shares.

The Dow ended up 420.41 points at 12,392.66. The S&P 500 gained 54.10 points, or 4.2%, to 1,330.70, while the Nasdaq Composite gained 91.25 points, or 4.2%, to 2,268.26.

Crude oil for April delivery ended up $3.74, or 3.5%, at $109.42 a barrel on the New York Mercantile Exchange. In a widely expected move, the Fed cut its target for Fed fund rates, at which banks lend to each other overnight, by 0.75% to 2.25%. The dollar index, which measures the U.S. unit against a basket of major currencies, fell 0.2% to 71.31. Gold for April delivery rose $1.70, or 0.2%, to end at $1,002.60 an ounce.

J.P. Morgan retains the option to purchase Bear Stearns' valuable headquarters building in midtown Manhattan, even if Bear's board recommends a rival offer.

John Adams: "There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty."

Monday, March 17, 2008

Crisis Hits

3/18/08 Crisis Hits

John Hussman: "The Fed Can Provide Liquidity, But Not Solvency "

The Fed will provide up to $30 billion to JPMorgan to help it buy Bear Stearns. JPMorgan is buying Bear, which has 14,000 employees, for a third the price at which the smaller firm went public in 1985.

"Modern monetary policymaking puts a lot of weight on rules, but there is no rule book for an economic crisis," said Douglas Elmendorf, a senior fellow at the Brookings Institution and a former Fed economist.

Paul Kedrosky: "To end up paying $0.25 on the dollar for the company's $1 in headquarters real estate, in effect, and to do it in equity, no less, is an embarrassment beyond embarrassment for people collectively incapable, at least until now, of being embarrassed."

Nouriel Roubini: "The Fed now can lend unlimited amounts to non bank highly leveraged institutions that it does not regulate. The Fed is treating this run on the shadow financial system as a liquidity run but the Fed has no idea of whether such institutions are insolvent. As JPMorgan paid only about $200 million for Bear Stearns – and only after the Fed promised a $30 billlion loan – this was a clear case where this non bank financial institution was insolvent. The Fed has no idea of which other primary dealers may be insolvent as it does not supervise and regulate those primary dealers that are not banks. But it is treating this crisis – the most severe financial crisis in the US since the Great Depression – as if it was purely a liquidity crisis. By lending massive amounts to potentially insolvent institutions that it does not supervise or regulate and that may be insolvent the Fed is taking serious financial risks and seriously exacerbate moral hazard distortions. Here you have highly leveraged non bank financial institutions that made reckless investments and lending, had extremely poor risk management and altogether disregarded liquidity risks; some may be insolvent but now the Fed is providing them with a blank check for unlimited amounts. This is a most radical action and a signal of how severe the crisis of the banking system and non-bank shadow financial system is. This is the worst US financial crisis since the Great Depression and the Fed is treating it as if it was only a liquidity crisis. But this is not just a liquidity crisis; it is rather a credit and insolvency crisis. And it is not the job of the Fed to bail out insolvent non bank financial institutions. If a bail out should occur this is a fiscal policy action that should be decided by Congress after the relevant equity holders have been wiped out and senior management fired without golden parachutes and huge severance packages.
Manufacturing activity in the New York area plunged for the second straight month in March, the New York Federal Reserve Bank said Monday. The bank's Empire State Manufacturing index fell to negative 22.2 in March, a record low reading. The index had fallen to negative 11.7 in February from 9.0 in January.
Responding to money-market conditions, the Bank of England on Monday held an "exceptional fine-tuning open market operation" that auctioned 5 billion pounds of extra reserves in a three-day repo that matures on Thursday. The auction was held at 7 a.m. Eastern and was conducted "in response to conditions in the short-term money markets this morning," the bank said in a statement. "The bank will take actions to ensure the overnight rate is close" to the bank's official lending rate of 5.25%. "Along with other central banks, the Bank of England is closely monitoring market conditions," the statement said.

US financial regulators should seek a suspension of mark-to-market accounting of “exotic securities,” and Bear Stearns “did not have to go out of business,” Forbes Inc. CEO Steve Forbes said. “Take a time out, don’t realize a loss until the loss actually happens,” Forbes told CNBC. “Right now, we’re just guessing, and when you’re guessing in a panic environment, disaster takes over,” he said.

The dollar hit a new 12-year low against the Japanese yen at 95.75 yen and remains 1.8% lower at 97.22 yen. The greenback was down 0.7% against the euro at $1.5774 after hitting an all-time low of $1.5903. The dollar was trading below parity with the Swiss franc, losing 1.4% to change hands at 0.9841 francs after hitting a low 0.9631.

The Federal Reserve on Sunday cut the rate on direct loans to commercial banks by a quarter-point and said it will allow primary dealers to borrow at the rate in exchange for a broad range of investment-grade collateral. In a statement, the central bank also extended the maximum term of discount-window loans to 90 days from 30 days.

Shares of Lehman Bros. fell 30% in pre-open trade Monday morning, leading a rout in financial stocks as concern about the repercussions of the Fed-backed bailout of Bear Stearns reverberated through the market. In addition to Lehman's drop, shares of Merrill Lynch fell 15%, Goldman Sachs shed 9%, Morgan Stanley fell 10% and Citigroup fell 7%.

The biggest threat to Lehman Bros. Holdings Inc. shares in the near future is speculation about the firm's liquidity, according to Bank of Montreal analyst George Lazarevski, in a research note to clients Monday. "Similar to Bear Stearns, the greatest risk for Lehman Brothers is the risk that once speculation begins, it becomes a self-fulfilling prophecy, and no level of liquidity will be sufficient," Lazarevski wrote. That said, the analyst added that the Federal Reserve's discount rate cut Sunday and its other recent actions, "should help alleviate investor concerns over potential liquidity shortfalls."

Deutsche Bank analyst Mike Mayo said Monday that fears of a Bear Stearns-like meltdown for brokerage Lehman Brothers are overblown. "Lehman is not Bear," Mayo said, pointing out that Lehman has more liquidity, more support from counterparties, a more diversified franchise and a "seasoned and experienced" CEO. Deutsche Bank maintained its "buy" rating on the stock. "While there is a chance that we have not factored in all the needed write-downs, we believe that this difference creates a reasonable margin of safety," Mayo wrote in a research note.

Moody's Investors Service said Monday that it affirmed its A1 rating on the senior long-term debt of Lehman Brothers Holdings Inc., but trimmed its outlook on Lehman ratings to stable from positive.

Lehman ended off $7.51, or 19%, but had fallen as much as 40% at one point in the session.

Abraham Lincoln: "I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts."

Coventry Health Care Inc. now expects 2008 earnings of $4.39 to $4.50 a share on $12.0 billion to $12.5 billion in revenue. When the company reported fourth-quarter results on Feb. 8, it provided guidance for 2008 earnings of $4.42 to $4.58 a share on sales of $12.4 billion to $12.9 billion. The company said that recent Federal Reserve actions to reduce the federal funds rate put more downward pressure on net investment income.

Bond insurer FGIC Corp. reported a $1.89 billion quarterly loss, mostly on loss and loss adjustment expense reserves and mark-to-market losses recorded for the quarter. The increase in loss reserves for the quarter stemmed from the rapid and substantial deterioration during the quarter in the performance of certain RMBS and ABS CDO transactions written primarily in 2006 and 2007.

April-dated fed fund futures contracts rose 11 cents to 97.98 -- implying a 90% chance that the Fed will slash its base rate to 2%.

Weyerhaeuser Co. agreed to sell its container board-packaging and -recycling business to International Paper Co.for $6 billion cash, the companies said.

Bristol-Myers Squibb is sounding out potential buyers for a possible sale of its Mead Johnson baby formula food business, which is valued at between $7 billion and $9 billion, the Financial Times said on Monday.

Gold for immediate delivery climbed $19.98, or 2 percent, to $1,022.92 an ounce as of 8:36 a.m. in London after gaining to $1,032.70, the all-time high. Prices have increased 23 percent this year as the dollar has dropped 7.7 percent against the euro and the U.K.'s benchmark FTSE 100 stock index fell 15 percent.

Crude oil for April delivery rose as much as $1.59, or 1.4 percent, to $111.80 a barrel in electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It was at $110.50 at 11:03 a.m. London time. The April contract expires March 19. Crude-oil futures fell sharply to $107.54 after hitting a record high of $111.80 earlier.
Crude oil for April delivery dropped $5.7 to an intraday low of $104.51 a barrel in mid-afternoon trading. It earlier hit a record high of $111.80 a barrel as the dollar fell to a new low against the euro.

According to the Financial Times, Goldman Sachs and Morgan Stanley are forecast to write off at least an extra $1bn on their portfolios of loans for leveraged buy-outs, with Lehman Brothers, another provider of buy-out financing, also expected to suffer a big writedown.

According to 24/7WallSt, NYMEX shareholders will receive 0.1323 shares of CME Group Class A common stock and $36.00 in cash for each share of NYMEX common stock. This equates to approximately 12.5 million shares and cash of $3.4 billion, and NYMEX will ultimately hold approximately 18.6% of the combined company. This generates a purchase price of $100.30 before any dilution to CME shares. NYMEX shares closed at $95.34 Friday, and the 52-week trading range is $86.61 to $148.00.

UBS AG, Europe's biggest bank by assets, fell the most in more than nine years in Swiss trading after reports that the company may cut as many as 8,000 jobs, propose a new capital increase and sell businesses.

China's fuel demand may rise 8 percent this year as the nation's biggest manufacturing hub restarts oil-fueled power generators to ease shortages, said an official with state-owned China Petrochemical Corp.

John Hussman: "I remain concerned that the market hasn't even considered the potential losses in credit default swaps. The single largest trader in the CDS market is, perhaps ironically, J.P. Morgan."

Illinois Tool Works Inc. has lowered its 2008 first quarter and full year outlook due to two special charges with an estimated pretax effect of $127 million, or 22 cents a share. The total includes $90 million to $100 million related to the company's industrial software business and $32 million for European taxes. The company is now forecasting a full-year 2008 diluted income per share from continuing operations range of $3.25 to $3.39. The full-year forecast continues to assume a total company revenue growth range of 6% to 10%.

The Obama campaign Sunday called Sen. Hillary Rodham Clinton a "veteran of non-disclosure" and, opening a new front, challenged her to release information about her income taxes, Bill Clinton's foundation and library donors, earmark requests and first lady records. The Clinton team said raising questions about her integrity is a "personal attack."

U.S. industrial output dropped by 0.5% in February, the Federal Reserve reported Monday. The decline was largely a result of a weather-related 3.7% decline in utilities' output. Analysts surveyed by MarketWatch were looking for an overall decline of 0.2% in February. The capacity utilization rate, meanwhile, fell to 80.9% from 81.5%.

"Our financial institutions are strong," Bush said, adding that "capital markets are functioning efficiently." Spoken like a government economist turned comedian.

The dollar index, which measures the greenback against a basket of six major currencies, was at 71.412, down 0.4% but up from its overnight low of 70.698.
This is the Bush administration's strong dollar policy at work.

``The Federal Reserve's decision to create a lending facility for primary dealers and permit a broad range of investment grade securities to serve as collateral improves the liquidity picture and, from my perspective, takes the liquidity issue for the entire industry off the table,'' Lehman's CEO Richard Fuld said in a statement today

Shares of Lehman Brothers Holdings Inc. plunged in Monday after a news report that Southeast Asia's largest bank instructed traders in an e-mail not to do business with the bank. DBS Group Holdings Ltd. took back those instructions, but after the fall of the once storied Wall Street bank Bear Stearns on Sunday, skittish investors sold off quickly and Lehman fell 23 percent, or $9.16, to $30.10.

The Boston Globe takes a look at the sudden spike in GOP support for Clinton ever since McCain wrapped up the GOP nod. "Spurred by conservative talk radio, GOP voters who say they would never back Clinton in a general election are voting for her now for strategic reasons: Some want to prolong her bitter nomination battle with Barack Obama, others believe she would be easier to beat than Obama in the fall, or they simply want to register objections to Obama. ‘It's as simple as, I don't think McCain can beat Obama if Obama is the Democratic choice," said Kyle Britt, 49, a Republican-leaning independent from Huntsville, Texas, who voted for Clinton in the March 4 primary. ‘I do believe Hillary can mobilize enough [anti-Clinton] people to keep her out of office.’”

The International Energy Agency, an adviser to 27 industrialized nations, expects worldwide demand for oil products to increase an average 1.9 percent annually until 2012, driven mainly by expansion in Asia and the Middle East.``Demand is projected to grow to almost 94.3 million barrels a day by 2012,'' Eduardo Lopez, an analyst with the agency, said in a presentation to the Oil Africa 2008 conference in Cape Town today. ``By 2012, demand will be a third higher than in 1996.''

U.S. home builders remain discouraged about their industry, but their attitudes didn't get any worse in March, according to the monthly sentiment index released Monday by their trade group. The National Association of Home Builders/Wells Fargo housing market index remained at 20 in March as expected, close to the all-time low of 18 reached in December. The index shows that only about one-in-five home builders has a positive view of the industry. Sentiment among builders has been nearly unchanged for the past seven months at a very low level.

The Bank of England became the latest central bank to step in with extraordinary funds Monday. The bank said it would offer £5 billion, or more than $10 billion, of three-day funding to help bring down overnight interest rates -- the rates banks charge each other for overnight.

For the quarter ended Dec. 31 WCI Communities Company gross margin would have totaled $29.2 million ($-297.7 million as reported plus $268.9 million, $38.4 million, $12.6 million, and $7.0 million), or 12.0% of $243.0 million of revenue before effect of the recorded contract defaults ($191.6 million as reported plus $51.4 million cited...``During the fourth quarter we commenced closings at One Bal Harbour which is comprised of 185 luxury condominiums and 115 luxury hotel condominium suites. To date, we have closed 85% or 157 of the condominiums and 42% or 48 of the hotel condominium suites sold. The five star hotel operated by Regent opened on March 1st and we hope its opening will facilitate closings and stimulate new sales of any defaulted units,'' said Jerry Starkey, President and CEO of WCI Communities...Company gross margin would have totaled $29.2 million ($-297.7 million as reported plus $268.9 million, $38.4 million, $12.6 million, and $7.0 million), or 12.0% of $243.0 million of revenue before effect of the recorded contract defaults ($191.6 million as reported plus $51.4 million cited...Cash Flow/Financial Position: For the twelve months ended December 31, 2007, cash flow from operating activities and investing activities totaled $229.0 million ($197.9 million from operating activities and $31.1 million from investing activities), compared with cash used of $536.6 million ($489.6 million used in operations and $47.0 million used for investing activities) in the same period a year ago. Total liquidity, measured as the sum of cash plus available capacity under the Credit Facility, totaled approximately $342.8 million at December 31, 2007. In addition, letters of credit of $53.7 million were outstanding as of December 31, 2007.

Investor demand for the relative safety of short-term government debt sent the three-month bill rate down 16 basis points to 1 percent, according to Bloomberg's market average. It touched 0.652 percent, the lowest level since May 1958, when the U.S. was emerging from a recession. The yield on the benchmark 10-year note dropped 14 basis points to 3.32 percent.

According to Bloomberg, the gap between bids and offers for Treasuries has widened over the past few days, reflecting uncertainty on the part of traders and investors about the fate of financial markets.``There's absolutely no liquidity whatsoever,'' said Tom di Galoma, head of U.S. Treasury trading at Jefferies & Co., a brokerage for institutional investors in New York. ``If you don't act within a split second, you could lose the bid-offer.'' The last time spreads widened as much was in the aftermath of the terrorist attacks of September 11, 2001, he added.

WL Ross & Co. LLC Chairman Wilbur Ross told CNBC that his company is buying H&R Block’s mortgage loan servicing unit for $1.1 billion because it will be a “profitable and cash-generative business.” The purchase will create the second-largest US subprime servicing portfolio.

JP Morgan shares rose 11.5% and was the primary reason the Dow managed a small gain. The Nasdaq closed down 35 points and the S&P 500 finished down 11+ points.

A Wall Street Journal/NBC News poll released Thursday found that more Americans view Bill Clinton negatively than positively, 45 to 42 percent. It marked the first time since January 2002 that a plurality of Americans disapproved of the former president. One month earlier, The Gallup Poll found that nearly as many Americans had an unfavorable as favorable view of Bill Clinton-for the first time in nearly five years.

The Florida Democratic Party will not hold a mail-in vote to "redo" the presidential primary, The Associated Press reported late Monday.

Federal officials are in the process of putting together a potential deal that could allow Fannie Mae and Freddie Mac to increase their support for the mortgage market by buying and guaranteeing more home loans, the Wall Street Journal reported on its Web site late Monday.

Alliance Data Systems Corp. notified private-equity firm Blackstone Group LP that it has breached the agreement of its planned acquisition of Alliance Data for $81.75 a share. The notice also said Blackstone and its affiliates are "contractually obligated" to satisfy their respective obligations and complete the transaction. Alliance Data said Blackstone has developed a case of "buyer's remorse" is attempting to "run out the clock" on the transaction by prolonging negotiations with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

Delta Air Lines' pilots union has told company executives it can't agree on seniority issues with its counterpart at Northwest Airlines, raising serious doubts about the prospect of a combination of the two companies as Delta prepares to overhaul its operations.

John F. Kennedy: " The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger-but recognize the opportunity."

Sunday, March 16, 2008

What Is There To Say?

5/17/08 What Is There To Say?

According to the FT, one thing most agree on is that Bear fell victim not to a real liquidity crisis but to a crisis of confidence in which every rumour about the bank's position was assumed to be true and nothing its executives said could calm the fears. "This is not a capital issue - it's a confidence issue. The brokers are adequately capitalized," said Brad Hintz, analyst at Sanford Bernstein. "But the market is apprehensive about lending to the brokers and taking counter-party risk."

"Everyone is here," a Bear official said Saturday evening. "The dining room is open, the whole thing is open. It's just one big 10-hour meeting." Many executives have a good portion of their life savings tied up in the company's stock...Bear must get a deal done by Monday morning, short of which it may have to file for bankruptcy, executives say.

The WSJ reported late Sunday that J.P. Morgan agreed to buy Bear Stearns for $2 a share in a stock-swap transaction, people familiar with the matter say. J.P. Morgan will exchange 0.05473 shares of its common stock per one share of Bear Stearns stock. Both boards have approved the transaction. Think about this. Here is an 85 year old company whose stock sold at $170+ in 2007, and closed at $30 on Friday, and they are selling out for less than chicken feed. I don't know what to say!

San Antonio-based Valero Energy is considering selling its refinery in southern Oklahoma. Valero purchased the Ardmore refinery in 2001. The plant employs about 250 workers and can produce 90,000 barrels per day.