Tuesday, April 7, 2009

ProLogis (PLD) with Massive 115M Shares (At Least) Share Offering

Oh great... here we go again. We know this this turned out last time [Apr 2: Kimco Realty (KIM) With Massive 70M Share Offering] - and that dilution was only 30%ish+. [Apr 5: I Fought the Wall Street, and the Wall Street Won] KIM was down 5% in after hours when it was announced before rocketing up 30% the next day.

ProLogis (PLD) is putting Kimco to shame - the initial offering is 115M shares (they only have 267M shares) so 43% dilution. If they do the over allottment of 17M more shares it will be nearly a 50% dilution. Almost as cool as a reverse split! And unlike Kimco, ProLogis is UP 6% already in afterhours. Yippee! Dilute me! Hit me with more shares.

Now we know the game - tomorrow we look for the upgrades by the shady brokerages who are in delight over this ... which will allow everyone who gets in at tomorrow's offering price (big boys) to dump it on the retail public for what? 20%? 50%? 100%? 200%? profit? I mean if 30% dilution is worth 30% gain, what would 50% dilution be worth?

Looks like I'll be covering tomorrow bright and early! Maybe SL Green (SLG) can do a full 100% dilution, for every share that exists they can issue a new one and then we can have 3 analysts upgrade the "courageous" decision. Well we only have 3 REITs left to pull this ploy - we'll be on the lookout.

Congrats institutional buyers (again!) - time to call Citi, Merrill, and DB and ask for that allotment of shares to dump on unsuspecting retail buyers tomorrow. Then you can make your appearance on CNBC and say how your full year investment record is par excellete through natural stock selection and rigorous analysis. Boo Yah! Always a bull market somewhere.
  • ProLogis (NYSE: PLD - News), a leading global provider of distribution facilities, today announced it intends to offer 115 million common shares in a registered public offering. The company also plans to grant the underwriters a 30-day option to purchase up to 17.25 million additional shares to cover overallotments, if any.
  • Merrill Lynch & Co., Citi and Deutsche Bank Securities are acting as joint bookrunners for the proposed offering.
Oh joy - my favorite crew - Merrill, Citi, and Deutsche Bank. Let me know when the upgrades and buy recommendations start to hit!

Here is the key, its Kimco 2.0
  • Certain of the joint bookrunners and their respective affiliates are lenders and agents under the global line of credit and will receive a portion of the proceeds of the offering.
Too big to fail, but too big to have conflicting interests left and right. Once more - thank you Phil Gramm for this system. You were right, deregulation of financials is awesome.

Short all names mentioned in fund; short SL Green and Phil Gramm in personal account

Mosaic (MOS) with a Quite Large Miss on Earnings

Magic 8 Ball Lemming Overreaction to Earnings says..... -5%ish after hours.

Earnings season is Charles Dickens time for me... the best of times (more information) and the worst of times (rabid overreactions by huge swathes of people who do nothing more than look at a headline and make rapid fire decisions based off of it). As long time readers know I don't do the "gambling in front of earnings" game that seems to be so popular among the masses - if I want a 50/50 chance I'll flip a coin. I took a little bit off the table (but added to Potash earlier in the day) once I realized earnings were today - I've been so engrossed in the economic and 40,000 foot stock market actions, I have been losing track of some of the individual company specifics.

Chart wise, one would really like to see Mosaic (MOS) hold $42 (it is below in after hours) but frankly commodity stocks generally move en masse so in general a subsector is a hostage to the "reflation" or "not reflation" trade.

I am not going to spend too much time on the earnings report like I did in 2007 or 2008 because this is just a "proxy" play on commodities for us; the language is not unexpected on first glance and despite a substantial miss the stock is not doing terribly. Ironically at one point in latter 2008 Mosaic reported a far better number but lost 30-40% in value the next day or two. [Oct 1: Market Hates Mosaic - Phosphates Not Up to Snuff] I remember that.... "fondly". It's all about expectations and lemmings during earnings season.

Full report here, expectations were for $1.9 Billion in revenue and 24 cents EPS - they managed to miss both quite dramatically. Gross margins simply imploded... all these fertilizer makers keep pointing to 2nd half recoveries as well (should give them a CNBC time slot) but I've had my doubts. I guess it is time for bulls to start pumping the Cargill buyout rumor mill. [Feb 27, 2009: Cargill Rumor Heats up Mosaic]
  • The Mosaic Company (NYSE: MOS - News) announced today net earnings of $58.8 million, or $0.13 per diluted share, for the third quarter ended February 28, 2009. These results compare with net earnings of $520.8 million, or $1.17 per share, for the third quarter ended February 29, 2008. The Company maintained a strong financial position, with cash and cash equivalents of $2.5 billion as of February 28, 2009.
  • Mosaic had net sales in the third quarter of fiscal 2009 of $1.4 billion, a decrease of $771.7 million, or 36%, compared to the same period a year ago.
  • Mosaic's gross margin for the third quarter of fiscal 2009 was $140.3 million, or 10% of net sales, compared with $727.9 million, or 34% of net sales, a year ago.
  • Mosaic's third quarter results were driven by significantly lower sales and production volumes, higher raw material costs, and lower phosphate selling prices. This was due to a change in buyer sentiment resulting from, among other factors, lower grain prices, a build-up of inventories in the distribution supply chains, the global economic slowdown and the recalibration of the phosphate market to reflect lower raw material input costs. (but other than that, the quarter went well)
In all seriousness, I remain a long term bull on potash specifically due to the high moat - but even food production is somewhat elastic.

Specific Items
  • The average diammonium phosphate (DAP) selling price was $413 per tonne and total phosphate sales volumes were 1.1 million tonnes
  • The average muriate of potash (MOP) selling price was $565 per tonne and total potash sales volumes were 0.8 million tonnes
  • The Company has increased its phosphate production in the fiscal fourth quarter while maintaining reduced production levels in potash (why increase phospate production?)
  • Fiscal fourth quarter results are expected to improve from third quarter levels while remaining weak compared to the recent past
  • The global phosphate market appears to have stabilized with a number of customers returning to the market in recent weeks. Potash customers, however, continue to be cautious and the Company expects fourth quarter potash sales to remain weak.

[Mar 4, 2009: Potash, Mosaic, Intrepid Potash Come Under Pressure After Talk of Uralkai 25% Price Cut]
[Jan 6, 2009: Mosaic Earnings - As Expected]
[Dec 2, 2008: Mosaic Warns, Stock Up]
[Oct 28, 2008: Noteable Calls - Mosaic Cargill Standstill Expires Oct 22]
[Jul 29, 2008: Mosaic with Blow Out Earnings]
[Jul 17, 2008: Canpotex to Sell Potash @ $1000/Ton]
[Jul 15, 2008: Mosaic Sells Nitrogen Plant to Yara International for $1.6 Billion]
[Apr 16, 2008: Chinese Agree to $576 Price Point for Potash]
[Mar 27, 2008: Canpotex Potash Contracts Secured with India @ $625]

Long Mosaic in fund; no personal position

Bookkeeping: Closing Monsanto (MON)

I am closing Monsanto (MON) at this time as the chart is not correlating with the solid fundamentals. I will book about a 3-4% loss on this last batch and we'll revisit the position later when the chart firms up.

(just realized Mosaic reports after the bell today - so this move concurrently helps remove "lemming knee jerk reaction" risk in agricultural group)

At this point, I am going to (big leap of faith) assume we won't be crashing and am trying to run my mainline strategy of long/short stocks. This strategy is actually nearly impossible to run in a market where every stock is blessed or hated as we've been doing since September 2008 (with exception of December). Going on 8 months now - it's been far more important to throw a dart and guess which way the market is going then knowing anything about individual stocks or sectors. Very atypical and very difficult to manage. Seeing bad stocks run up 150% in 5 days as the pants of shorts are lit on fire is bemusing at times, but we are disassociating facts with stock movement. I always say stocks do not trade in a vacuum even in calm markets, but in this era the vacuum - not the individual stocks - is everything.

That said, with financial Armageddon taken off the table, all we have to deal with is the Great Recession offset by the Great Paper Printing. I have no clue how this works out because there is no framework, no precedent. I expect all assets to be inflated (including stocks) over where they belong due to the Great Paper Printing but the true economic issues affecting Main Street won't be helped much. While I do expect another retest and/or surge down "later" in the year I am not sure it will be right away as "faith in government to save us" is the current ethos.

So with that said, I am going to try to build up both long/short positions and hope "student body" left and right trading lessens to some degree. I am not sure what the government has left to announce - they've thrown every kitchen sink at this, and created kitchen sinks we had never even thought of. Accounting rules covered, short rules covered - not sure what is left to announce. Now we just have to see how things play out - we enter an earnings season that everyone knows will be bad but the great hope will be CEOs singing wonderful stories of 2nd half recoveries. Even if they do, it will be on blind faith...

So with that said, I am adding to positions in good charts that have pulled back - again we take an incremental approach - so much of this today is replacing what i sold last week - some names included First National Financial (FNF), Myriad Genetics (MYGN), Potash (POT), BHP Billiton (BHP), Quality Systems (QSII), Blackstone (BX), Morgan Stanley (MS) and a touch of Baidu.com (BIDU). As I've done this, I've dropped my ETFs which were giving me the long exposure I lacked when I punted portions of these positions last week into the rally.

I'd like to buy all those names lower (as long as their charts stay in good shape) as well as seeing significant drops in names such as Gafisa (GFA), HDFC Bank (HDB), Allegiant Travel (ALGT), Ocwen Financial (OCN) and the like which have run, run, run and are nowhere near any support. I have very tiny positions in these awaiting a serious pullback to add.

To balance this I did add to shorts in Commercial Real Estate and frankly a lot of consumer related names/retail stores - really are looking appealing now that shorts have been eviscerated in those stocks. So overall, incrementally building individual long positions on pullbacks, and doing the same in individual short positions to create a more balanced approach. In a normal world I'd have positions as 4-6% stakes, everything has been cut by 1/2-2/3rds in size since the the market moves are so vicious. I am hoping we get some times of calmer action instead of 2-4% up or down each day.

As for the market if it continues to fall S&P 805, 800, and 780 are the 3 levels of interest ...

Ridiculous fact of the day - a "bull market" (or bear) is technically a 20% move. Since fall 2008 we have had TWO full bear markets, and TWO full bull markets. That's obscene but shows you how material the moves have been. What used to take 8-36 months now happens in 8-36 sessions. This is why the trading has been frenetic... the time compression is incredible - positions that used to take months to build are now over with in "6 days".

Long all names mentioned in fund except Monsanto; long Blackstone, First National Financial in personal account

George Soros on Yahoo Tech Ticker

Mr. Task over at Yahoo Tech Ticker keeps landing some very interesting guests. Today he has George Soros. What I love is George would not go to the lowly studio to interview; you must come to George to interview him - it's like the mob ;)

I have yet to listen to these 3 videos but judging from the headlines I anticipate I will be agreeing with much of it. As I said quite a few times, if the Federal Reserve is "successful" they will move us out of the 1930s redux and into the 1970s redux. Bernanke has said over and over the big mistake of the 1930s was government's mistake in thinking things were improving and taking away the (much smaller) punch bowl they had. Now we have an Olympic size punch bowl and Ben will make sure he does not make the same mistake - so the great faith that this group of economists will "see the light" at exactly the right time and pull away the punch bowl at the appropriate time is a dream. They will overshoot and once the global economy picks up, we'll combine our quite jobless recovery with inflation. Thankfully the global economy is so weak (ex government paper printing) this won't be a problem in the near term. However in the intermediate term, I am sure the populace will be enjoying their 15%+ unemployment while gas heads to $3+. Here's to success Ben!

George Soros: "Danger of Collapse Has Passed", But Stock Rally Not Sustainable

"The real danger of collapse has passed," says legendary financier George Soros. But the "fallout of the collapse" of the banking system "will linger."

In the wake of Lehman Brothers' bankruptcy on Sept. 15, 2008, authorities were forced to put the financial system remains on "artificial life support, which is where it is now," says Soros, the chairman of Soros Fund Management and author of several books, including most recently The Crash of 2008 and What It Means.

As a result, the billionaire speculator says the stock market's recent rally is doomed to fail. "Now we will face reality," he says, referring to a belief policymakers "did not succeed in recapitalizing the banks to the point where they can lend freely." He added, "talk of zombie banks – unfortunately that's where we are now," Soros says. "Instead of providing lifeblood of credit, [banks] are effectively drawing the lifeblood of activity of profit to themselves."

That, in turn, will keep the economy from producing anything more than a fleeting bounce for the foreseeable future, says Soros, in this first part of our extensive interview.

George Soros: Dollar's Strength a Measure of System's Sickness; Euro Will Remain Viable

George Soros is a man of many skills. The billionaire has been very successful as an author, philanthropist, and as a force in liberal politics.

Arguably Soros' greatest skill – and undoubtedly where he made his fortune – is as a speculator, specifically in the realm of currencies. Soros is best known as "the man who broke the Bank of England" for his infamous short bet against the pound in 1992. Less known but nearly as successful was his 1985 "Plaza Accord" bet that the dollar would fall against the yen.

So when George Soros talks currencies, people listen.

In the accompanying clip, part 2 of a series from my extended interview, Soros provides insights on three of today’s big currency questions:

  • Will the dollar maintain its status as the world’s reserve currency?
  • Is there are risk of a breakup of the Eurozone?
  • Is he still short the British sterling today?
George Soros Says Federal Reserve in Bind; Beware Stagflation, Bursting of Bond Bubble

After the financial market collapsed last fall, the Fed responded with a massive injection of liquidity and expansion of the monetary base.

Eventually, Ben Bernanke & Co. will face the challenge of having to remove that liquidity from the system. "That's a big and difficult task and probably the authorities will not be able to do it well," says legendary financier George Soros, chairman of Soros Fund Management. "That's the fear that drives people into gold."

Soros wouldn't say whether he's actively trading gold but certainly implied it's a good bet; more explicitly, he agreed with the view there's a "bubble" in Treasuries that's likely to burst sooner rather than later.

"The moment this fear of deflation turns into a fear of inflation, you'll find interest rates rise in the long end which is going to choke off the recovery," he says. "If we are successful [in reviving the economy] we are heading from the prospect of deflation to stagflation."

[Mar 31: UK Times: George Soros Sees Global Meltdown]
[Feb 23, 2009: George Soros - This is the End of the Free Market Era; Situation Similar to Disintegration of Soviet Union]
[Jan 28, 2009: Roubini & Soros on Bad Bank]
[Apr 9, 2008: Soros Believes Global Subprime Costs to Reach $1 Trillion]
[Jan 22, 2008: Soros Says World Faces Worst Financial Crisis Since World War II]

Bookkeeping: Gingerly Stepping Back into Commercial Real Estate Shorts

I am VERY gingerly stepping back into the short side in the basket of 5 commercial real estate stocks we hold. We just saw a short squeeze of epic nature and being a participant I am still looking for the teeth that were kicked out of my mouth. Again... gingerly. Of the 5 names SL Green (SLG) indeed has been the weakest (NYC office market party) - other than last Friday when "The Club" pushed up REITs it's been dead man walking.

Right now I don't have a very good feel for this market, because the ethos of the consumer is back - which I highly disagree with - are lending strength to areas of the market I dislike the most over the intermediate term. Then last Friday the market held key level S&P 825 and even the 100 day moving average (832) only to reverse down. Making things ever more tricky is almost every morning we now gap up or down 1-2% so your entire portfolio is marked in one direction or another based on mood swings. So I envision as I build shorts back up, we will gap up 2% tomorrow on some nonsense "better than expected" result and the technical condition will turn back to "bullish". And we'll be in the wrong spot yet again. So to hedge some of these short positions I am trying to slowly build up some long exposure back into individual names that have corrected a bit; which we took profits in last week. I keep waiting for some sideways action within a wide range lasting a few weeks....

Working on finding my bearings - my bullish leaning going into the week based on key support levels being held was proven a false idol. S&P 825 is a pivot point for me; I would expect weakness below it and strength above it but thus far this week that has proven to be incorrect. There is such a disconnect between what I believe lies ahead for the economy and the rampaging bulls. After the euphoria of "we are seeing improvement over the worst readings in history" wears off, I am trying to figure out what the bulls will use next as a "stimulant". If bulls are going to clutch onto CEOs saying "we see improvement in the 2nd half" - I'd remind them that no one has a clue about the 2nd half; it's just guesswork.

Very tricky environment and times like this make me savor when it seems so easy.

WSJ: Short Sellers Squeezed All Around

Part of this article in the Wall Street Journal is about the steps taken to "take back" land from the short sellers; that is not the part I am concerned with. What I simply hate(d) as an investor in mid cap and some small cap stocks was the complete lack of attention the SEC paid to naked short selling. Short selling on its own is a positive; but naked short selling (selling shares that don't even exist) is essentially a fraud. The reality is many of the big players whose prime broker were the Merrill Lynchs, Goldman Sachs, Lehman Brothers of the world - engaged in this. When pressed on this, the brokerages (and their institutional buddies) insisted its an overblown issue... certainly very rarely did a hedgie sit day after day shooting against a defenseless small cap stock as its personal plaything. Nope - all in your imagination folks.

Finally the SEC decided to step up to the plate .... why you might ask? Because the tables got turned on the same players who facilitated the short selling. Government Sachs (GS) and Morgan Stanely (MS) were threatened by the same ploys that year after year people winked winked about. But once the gun was turned on them; the CEO of Morgan Stanley was on the phone with the Administration and SEC and "this has to be stopped". Just another example of how important it is being part of The Club. [Sep 15, 2008: SEC Finally Gets Around to Addressing Naked Short Selling?]

Well it's taken catastrophe and carnage across Wall Street but maybe, just maybe the SEC plans on doing it's job. There appear to be plans to strengthen action against naked short selling - sadly there are already regulations against this on the books but they appear to be so loose and very few respect it. There are entire lists of stocks on each exchange filled with stocks that are targets of this ploy, but nothing is done about it. We'll see if there is any teeth to this new plan - but without regulation rules are meaningless.

To show what a farce it has been all these years when the big honchos (who have profited frankly - illegally - from naked short selling) denied (a) it was happening or (b) it was so minor as to be nothing more than a nuisance or (c) something that was just a clerical situation (failure to deliver) and there was no way to really fix it, I'd like to present the graph below which shows an absolute freefall in number of "delivery failures" (the excuse du jour).

See, the Wild Wild West can indeed be fixed when the "in bed with the outlaws" sheriff has a reason to clean it up. Unfortunately it took the potential obliteration of the two biggest investment banks for it to be addressed. It is funny because some CEO's such as Overstock.com's (OSTK) Patrick Byrne were made out to be "loonies" for claiming such illegal manipulation was taking place.

Again, short selling is fine; naked short selling is gaming the system.

  • Securities regulators and some financial firms are making it more difficult for investors to pile on when stocks are falling and further drive down prices. The Securities and Exchange Commission, facing years of criticism, has begun to crimp the ability of traders who bet against stocks to depress prices by selling millions of shares they don't possess, known as naked short selling. And some financial firms have cut back on lending to traders who want to bet against stocks.
  • The result: The number of stocks in which big chunks of shares haven't properly been delivered to investors has plummeted, to a daily average of 79 in the three months ending in March from 529 in the first nine months of 2008, according to an analysis of trading data from major stock exchanges.
  • Critics say short sellers, with the aid of brokerage firms, cause these delivery failures by shorting stocks without first borrowing shares, as required by securities law. Such activity drives down stocks by adding to the selling pressure.
  • The moves come as the SEC meets Wednesday to discuss further potential restrictions on short sellers. These include reinstating the "uptick rule," which until 2007 had required short sellers to wait for a rise, or uptick, in a stock's price before placing their bet that it would go down.
  • Critics say such trading by short sellers roiled stocks last year by swamping the market with sales that characterized the 2008 market volatility. Amid that turmoil, the SEC closed loopholes that had allowed sold shares to go undelivered.
  • Despite the reductions in delivery failures, critics say the SEC took too long to act forcefully and still hasn't gone far enough because failures still occur. "The majority of these failures-to-deliver are not the result of honest mistakes or bad processing," former SEC commissioner Roel Campos wrote in a letter posted on the SEC's Web site. "Rather, these companies are instead targets of illegal and manipulative trading, with intentional failures-to-deliver used by traders to extract profits as the share price plummets."
  • The SEC first attempted to address the problem in 2005, with the implementation of Regulation SHO, which mandated "threshold securities" lists, daily compilations by exchanges of stocks that had suffered at least five consecutive days of delivery failures totaling at least 10,000 shares and at least a half a percent of their outstanding shares each day. Once a stock hit the threshold lists, traders were required to close out failed deliveries by the 13th day after the trade. But there were loopholes in the regulation, and there was no requirement to close out delivery failures of securities that weren't on the lists. (i.e. toothless regulation that was nothing more than eye candy)
  • The threshold lists averaged about 300 securities a day in the first two years after Regulation SHO was instituted. In 2007, the daily average climbed to 414. In the first nine months of 2008, as the markets and banks crumbled, the lists averaged 529 securities.
  • Last summer and fall, the SEC issued emergency orders restricting the short sales of certain financial firms and tightening the requirements for deliveries. Most important, observers say, was a new rule requiring short sellers to close out any delivery failure by the open of trading on the fourth day after the trade. The number of securities on the threshold lists has since plummeted. (imagine that - its funny how that works)
  • But stricter SEC delivery requirements may have instilled a new discipline in market participants. In the past, hedge-fund and bank executives said, brokers were quick to tell clients not to worry about finding borrowed shares to sell short, even if there was some risk that they wouldn't be able to find and deliver the stock.
And if you are wondering why it took so long to turn a "paper regulation" into something "effective" - it simply goes back to the same problem at the root at almost everything in the country. Politics - bought and paid for by those who pay for campaigns.
  • Peter Chepucavage, a former counsel at the SEC who helped draft Regulation SHO, said the initial weakness of the rule and the years it took the SEC to stiffen it can be traced to the lobbying efforts of hedge funds and Wall Street.
  • Brokerage firms "have made huge amounts of money" facilitating short selling, said Mr. Chepucavage, general counsel for Plexus Consulting Group, a Washington firm that advises nonprofit firms and broker-dealers. "They want and have argued strenuously for flexibility."
Just like the housing bubble - it was great on the way up. But once the bazooka was turned at the brokerage firms?? They ran like scalded chimps to D.C. to make sure the rules were "effectively enforced" - the same rules they, and their clients - for years lobbyied again.

Have to love Cramerica.

[Sep 18, 2008: SEC Considering Forcing Hedge Funds to Disclose Short Positions]

Communities Begin Printing Their Own Currency to Keep Cash Flowing

Aside from being illegal, this is one of the more fascinating stories I've come upon in quite a while. What's good for the goose....

On a larger scale these are all incremental steps to what I see as a long term backlash against "going global" especially in "1st world Western countries" whose wage structure will be threatened by export of jobs - this is "going local" at its finest.

Via USA Today
  • A small but growing number of cash-strapped communities are printing their own money. Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses. About a dozen communities have local currencies, says Susan Witt, founder of BerkShares in the Berkshires region of western Massachusetts. She expects more to do it.
  • The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.
  • Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.
  • Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash.
  • "We wanted to make new options available," says Jackie Smith of South Bend, Ind., who is working to launch a local currency. "It reinforces the message that having more control of the economy in local hands can help you cushion yourself from the blows of the marketplace."
  • Under the BerkShares system, a buyer goes to one of 12 banks and pays $95 for $100 worth of BerkShares, which can be spent in 370 local businesses. Since its start in 2006, the system, the largest of its kind in the country, has circulated $2.3 million worth of BerkShares. In Detroit, three business owners are printing $4,500 worth of Detroit Cheers, which they are handing out to customers to spend in one of 12 shops.
  • During the Depression, local governments, businesses and individuals issued currency, known as scrip, to keep commerce flowing when bank closings led to a cash shortage. (I'd assume there will never be this type of problem this time around)
  • The IRS gets its share. When someone pays for goods or services with local money, the income to the business is taxable, says Tom Ochsenschlager of the American Institute of Certified Public Accountants. "It's not a way to avoid income taxes, or we'd all be paying in Detroit dollars," he says.
This is very strange - I was going to write

I am confused how the businesses benefit unless the currency lasts indefinitely... because at some point the non US legal tender is shut down and then someone is left holding the bag. You can't exactly go to a bank and convert your Ithaca Hours for US Pesos.

  • We're a wiped-out small town in America," says Lyle Estill, president of Piedmont Biofuels, which accepts the Plenty. "This will strengthen the local economy. ... The nice thing about the Plenty is that it can't leave here."
  • Pittsboro, N.C., is reviving the Plenty, a defunct local currency created in 2002. It is being printed in denominations of $1, $5, $20 and $50. A local bank will exchange $9 for $10 worth of Plenty.
Again... fascinating. Here, I thought it was illegal but apparently even local banks are accepting.... Plenty. What the heck does the bank do with Plenty?

Moody's Credit Card Charge Offs Hit Record; While 8.2% of All Types of Loans are Delinquent or in Default

Two quick stories - one credit card specific and one "consumer loans" in general. This is one of those deceiving headlines because Moody's index only goes back 20 years (hence it's only a record since 1989) but you get the point... a year from now it will be far worse, even with our soon to be illusionary prosperity brought on by spitting US Dollars out of a fire hydrant. I usually track this credit card data company by company but found this story by accident, so it's a more comprehensive view.
  • Credit card write-downs soared to record levels in February, representing an all-time high in the 20-year history of the Moody's Credit Card Index, as job losses mounted, the rating agency said on Wednesday.
  • Credit card charge-offs, the write-down of uncollectable debt, advanced decisively to 8.82 percent in February, marking the sixth consecutive month of increases. The level, is more than 300 basis points higher than a year ago. Sharp increases were experienced across several large issuers and have closely followed the surges in unemployment occurring over recent months, the rating agency said.
  • "We expect that the charge-off index will threaten double digits by the end of the year, in light of our expectation that the economy will worsen throughout the remainder of the year," Moody's said. It predicts the charge-off rate index will peak at about 10.5 percent in the first half of 2010, assuming a coincident unemployment rate peak at 10 percent.
  • Delinquency rates on credit cards also advanced in February. Moody's delinquency rate index broke through the 6 percent level to 6.14 percent. However, Moody's said, delinquency rates tend to exhibit a seasonal element, usually peaking in the early months of the year, followed by a reduction in delinquencies resulting in part from the spring tax refund season.
  • "We would expect these seasonal factors to help limit increases in the delinquency rate in the immediate months ahead, but the overwhelming influence of the negative economic environment should continue driving delinquencies to record-high levels by mid-year," the rating agency said. (I wouldn't bother explaining folks; once the "seasonal moderation" kicks in, the punditry can cheer the improvement, ignoring historical trends.)
In a much broader sense - a staggering 8.2% of ALL consumer loans are either in default or delinquent. Obviously much of this is economic duress but I'd also argue we have not embedded a culture of "walking away is ok! It's only a contract and it's not your responsibility." These are all on banks balance sheets (or the Federal Reserve's) which means eventually they will all be on YOUR balance sheet since you are going to be responsible for many of these loans as they are shuffled off to dark corners of the Fed's balance sheet AND/OR sold off to hedge funds with 90% of the risk to the taxpayer. You're welcome!

Via USAToday
  • A record 4.2% of consumer loans were delinquent at least 30 days in the fourth quarter, the latest data available, according to the Federal Reserve. Another 4% of consumer loans were in default, meaning they'd been written off by lenders.
  • Recent data from the American Bankers Association and Moody's rating agency show the same sobering trend: More consumers are paying late — or not at all — on home, car and credit card loans. And as more people become unemployed, they're increasingly giving up on loan payments.
  • The worst is likely yet to come. Chessen expects consumer loan charge-offs and delinquencies to continue rising through the end of this year. In this economy, many families are juggling their bills, figuring out which ones to pay first, says Joel Naroff, founder of Naroff Economic Advisors.
  • Historically, consumers pay their mortgages before their credit cards and auto loans, because their home is often their most important asset. But this trend no longer holds true for all borrowers, data from the nation's credit bureaus show. (this is something we actually talked often about in 2007 - how people now can treat their "investments" in homes as nothing more than a rental. When you put either nothing down or very little down it is much like a security deposit on an apartment - very easy to walk away from and a complete change in policy from how mortgages were done the previous many decades. Ironically the current solution is for FHA to push out as many 3%ish type of down payment loans as it can to "support" the housing market. And you know how this will end in 2011-2013) Some financially squeezed borrowers have begun paying their credit card and car bills before their mortgages, according to Experian and Equifax credit bureaus. But more people may soon fall behind on those bills, too. Zandi expects card charge-offs to peak at 10% in the first quarter of 2010, vs. 6.3% now.
Short American Express, Capital One Financial in fund; no personal position

Monday, April 6, 2009

Bill Moyers Interviews William Black; Charles Bowsher Resigns

Sorry for the focus today on very little stock market wise - it's really hard to discuss much in the stock market other than to "buy on faith" and "make those shorts burn". I do indeed hope to one day return to an era where 95% of our focus are stocks, sectors, macro trends that affect companies, and the like. I doubt we will enjoy such a benefit anytime soon.

There are a lot of very prominent and respected people speaking out on the sham (handout) that is the Geithner plan (PPIP). As I said in the weekend summary, non market participants are taking the signal that the market is going up as a sign "this must be the right plan". They are right! It IS the right plan....for Wall Street's financiers! Unlike PIMCO's Bill Gross who speaks mostly in self interest and calls it a "win/win/win" for all parties involved - a lot of respected voice who don't have profit at stake are calling it lose/lose/lose. For the taxpayer at least.

I had promised to post a lot of different opinions 2 weeks ago when PPIP first came out (market was up 7% so clearly it was "a good plan") but so many other things were going on in this rapid fire market I did not have time. Here are some latest news events/opinions - not just on PPIP but just this whole clustermess from accounting to bailouts to stress tests to taxpayer handouts.

First, a little discussed development, which again makes your heart simply sink as many in the inside who have a moral compass have simply "given up"...Charles Bowsher - comptroller general of the US from 81-96 and more recently Chairman of the little known (but HUGE) Federal Loan Home Bank's Office of Finance... resigned. In apparent disgust.

Per Bloomberg
  • Remember this man’s name: Charles Bowsher. He’s one of the few people leaving the banking crisis behind with his reputation enhanced.
  • He didn’t want to put his name on the banks’ combined financial statements, because he was uncomfortable vouching for them. Bowsher, 77, had held the post since April 2007.
  • The job Bowsher left is a crucial one. The Office of Finance issues and services all the debt for the 12 regional Federal Home Loan Banks. That’s a lot of debt -- $1.26 trillion as of Dec. 31, making the FHLBank System the largest U.S. borrower after the federal government. The government-chartered banks, which operate independently, in turn supply low-cost loans to their 8,100 member banks and finance companies. If any of the FHLBanks were to fail, taxpayers could be on the hook.
So what specifically was the issue?
  • The finance office’s board also oversees the preparation and auditing of the FHLBanks’ combined financial statements. Some of the banks have run into trouble the past year because of plunging values for mortgage-backed securities they own. “I was not comfortable as an audit-committee member in signing off on the financial statements, after I became aware of the standards and processes for valuing the mortgage-backed securities,” Bowsher told me.
  • Bowsher told me he was concerned, in part, with the methods used for determining when losses on hard-to-value securities should be included in banks’ earnings and regulatory capital. The way the accounting rules work, as long as such losses can be labeled “temporary,” they don’t count in net income.
So... as long as you "believe" losses are temporary i.e. that Cisco stock I bought in 99 is still worth $80... only a temporary issue! you can mark assets to "imagination". Hence the losses you really have ... are hidden. The losses you state.... are a fraction of reality. Welcome to accounting in America. (remember as we pointed out last week in the mark to model discussion, all the problems in the country are due to the accountants - we shall exterminate tham one by one via political pressure to change the rules to the "way they should be")
  • For the fourth quarter of 2008, the FHLBanks said their total preliminary net loss was $672 million. It would have been many times larger, had they included all their red ink.
  • The year-end balance sheet at the FHLBank of Seattle, for example, showed $5.6 billion of non-government mortgage-backed securities that it says it will hold until maturity. Yet the estimated value of those securities was just $3.6 billion. (not a math major but in my world thats a $2 billion mis-statement. Generally we call that some form of fraud but in Cramerica we call that correct accounting. Because as we all know - the housing market is set to rebound shortly as the economy rebounds)
  • The bank, which reported a $199.4 million net loss for 2008, said the declines were only temporary. They’ve been anything but fleeting, though. Most of those securities have been worth less than they cost for more than a year. (it's all in how you define "temporary" - in my world temporary means anything under 100 years. Problem fixed)
  • The FASB’s rules on this subject, which have never been well defined, are now in flux. Today, after caving in to pressure by the banking industry and members of Congress, the Financial Accounting Standards Board is set to vote on a plan to relax its rules on mark-to-market accounting, so that companies can disregard market prices and ignore losses on their securities indefinitely. (this was written before the FASB caved to pressure and indeed allowed losses to be ignored indefinitely - the same thing Japan did. But we're not Japan)
  • While that wouldn’t make the banks any healthier, it would make their numbers look prettier. The FHLBanks have been among the most vocal lobbyists pressing for the change.
  • Bowsher said the process of valuing such assets was fraught with doubt already. “Now if you think about it, the FASB might be changing the whole thing, and everybody might mark their assets up,” he said. “Who wants to be part of that?” (uhhh... everyone? the market moved up smartly hence it must be "the right plan" Mr. Bowsher)
Anyhow what credence does this guy Bowsher have?
  • Tough stands are nothing new to Bowsher. As comptroller general, he was in charge of the General Accountability Office, the investigative arm of Congress. At his direction, the GAO was among the first to warn the public about the brewing savings-and- loan crisis during the 1980s. He testified before Congress in 1994 that there was an “immediate need” for “federal regulation of the safety and soundness” of all major U.S. derivatives dealers.
  • Now the question for taxpayers is this: If Charles Bowsher can’t get comfortable with these banks’ financial statements, why should anybody else be?

Well - mark another one down for the Wall Street team and another loss for the few watchdogs we had as peasants.

Next! William Black please step up... please introduce yourself
  • The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout
These next 3 videos are about 30 minutes in total and of the PBS variety so perhaps only being of interest to a smaller portion of our viewing audience. Below that I put more quick action videos from Yahoo Tech Ticker...

First the 3 PBS vids

Onto the more bite size 5 minute videos fom Yahoo Tech Ticker

Geithner's Stress Test a Complete Sham

The bank stress tests currently underway are “a complete sham,” says William Black, a former senior bank regulator and S&L prosecutor, and currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City. “It’s a Potemkin model. Built to fool people.” Like many others, Black believes the “worst case scenario” used in the stress test don’t go far enough.

He detailed these and related concerns in a recent interview with Naked Capitalism. But Black, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis, says the program's failings go way beyond such technical issues. “There is no real purpose [of the stress test] other than to fool us. To make us chumps,” Black says. Noting policymakers have long stated the problem is a lack of confidence, Black says Treasury Secretary Tim Geithner is now essentially saying: “’If we lie and they believe us, all will be well.’ It’s Orwellian."

The former regulator is extremely critical of Geithner, calling him a “failed regulator” now “adding to failed policy” by not allowing “banks that really need desperately to be closed” to fail. (On Saturday, Geithner said on Face the Nation, if banks need "exceptional assistance" in the future "then we'll make sure that assistance comes with conditions," including potentially changing management and the board, but did not say they'd be shut down.)

Black says the stress test must also be viewed in the context of Geithner’s toxic debt plan, which he calls “an enormous taxpayer subsidy for people who caused the problem.” The fact bank stocks have been rising since Geithner unveiled his plan is “bad news for taxpayers,” he says. “It’s the subsidy of all history."

Mortgage Fraud Epidemic - How the FBI Blew It and Why There are no "Perp Walks"

In the wake of the bursting of the housing bubble, you'd think there'd be a significant number of investigations into criminal wrongdoing and accounting fraud, similar to what occurred after the S&L crisis and bursting of the stock bubble in 2000.

But two years into the crisis the FBI "doesn't have a single major conviction or indictment of anyone," notes William Black, a former senior bank regulator and S&L prosecutor, and currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City.

Black, who was counsel to the Federal Home Loan Bank Board during the S&L crisis of the 1980s and blew the whistle on the "Keating Five" in 1989, reiterated what he told us in November: Though the FBI warned of an "epidemic" of mortgage fraud in 2004, they subsequently made a "strategic alliance" with the Mortgage Bankers Association, which Black calls the "trade association of perps."

Indeed, as much as 80% of the fraud during the boom was "induced by the lenders," who either encouraged people to lie on loan applications or actively altered documents to make them more likely to be approved, says Black.

How extensive was the fraud?

"There was the appearance of fraud or misrepresentation in almost every file," Fitch Investors declared in late 2007 after reviewing nonperforming subprime MBS (the same stuff they, S&P and Moody's rated triple-A).

Black estimates there are as many as 500,000 cases of mortgage fraud that need to be investigated. Furthermore, such extensive mortgage fraud led to accounting fraud, which led to securities fraud at any/all publicly traded mortgage lenders. As with the FBI, the SEC was "completely ineffective" in stopping such crimes, much less investigating them now, he says.

Among the biggest mortgage lenders, IndyMac was put into FDIC receivership, Countrywide was acquired by Bank of America, Golden West was acquired by Wachovia, and WaMu was ultimately acquired by JPMorgan.

This is relevant because the government's current practice of keeping banks' senior management and boards intact (unlike, say GM's) is effectively prohibiting any investigation of possible (likely) wrongdoing at those firms.

It is for these reasons Black says the FBI's current level of 800 cases per year is "no longer symbolic prosecutions, it's shambolic prosecutions."


And to finish off this most disheartening of situations in which people apparently have no more control over what the ruling class shall do with our money, comes this study by Harvard and Princeton professors via Clusterstock. Not that it matters... because the "stock market endorses this plan".

  • The government's official view that toxic assets are incorrectly priced due to illiquidity "fire sales" is wrong, a new study by Harvard and Princeton finance professors suggests. You can read the whole paper by Harvard's Joshua Coval and Erik Stafford and Princeton's Jakub Jurek below. The striking conclusion is that the low prices of toxic assets actually reflect the fundamentals, rather than being driven by an illiquidity discount.
  • This contrasts sharply with the analysis that underlies most of the financial rescue programs launched by the Federal Reserve and the Treasury Department. The white paper released to support the Private-Public Investment Partnerships, the program that seeks to encourage private firms to buy toxic assets with government subsidized loans, took the opposite point of view.
Many prominent economists--including such diverse types as Anna Schwartz and Paul Krugman--have taken with this official view, saying the government was mistaking a solvency crisis for a liquidity crisis. This latest paper effectively demolishes the "fire sale" view. It draws three important conclusions.
  • Many banks are now insolvent. "...many major US banks are now legitimately insolvent. This insolvency can no longer be viewed as an artifact of bank assets being marked to artificially depressed prices coming out of an illiquid market. It means that bank assets are being fairly priced at valuations that sum to less than bank liabilities."
  • Supporting markets in toxic assets has no purpose other than transfering money from taxpayers to banks. "...any taxpayer dollars allocated to supporting these markets will simply transfer wealth to the current owners of these securities."
  • We're making it worse. "...policies that attempt to prevent a widespread mark-down in the value of credit-sensitive assets are likely to only delay – and perhaps even worsen – the day of reckoning."
In short, the government cannot save the banks by improving liquidity or changing mark to market rules because the problem isn't illiquidity or accounting. The problem is that highly leveraged financial firms own assets that are worth far less than they thought they would be, and the firms are insolvent as a result. This is why the latest bailout plans secretly give huge subsidies to banks--because the only way to keep the insolvent zombies afloat is to transfer billions of dollars to banks, bank stockholders, and bank creditors. The alternative--allowing the insolvent banks to fail, seizing the assets, wiping our shareholders, giving bond holders a serious haircut--is still not on the official agenda.

Back to my comments. I've just sort of given up on the whole thing. They will do as best fulfills their self interest and those that matter. The peasant class either doesn't care or it is simply too complicated to understand... which is most likely a purposeful goal of those in charge. Make it so complicated that anyone outside of financial geeks will have their eyes glass over. Not much more you can do if the working folk are happy to play along in return for their 201k returning to a 301k.

Reverse Robin Hood. It's here - it's large - it's in charge. And no one seems to care; in fact many cheer.

Analysts Estimate Copper Prices Could Fall 21% in Q2

It might seem strange to focus so much on one metal, but copper is truly an industrial king pin and the recent jump in the metal - apparently due to restocking in China [Mar 23: FT.com - Chinese Stockpiling Spurs Copper Price Rally] has helped support the bull run... it's a green shoot after all. We saw the exact same thing with iron ore/Baltic Dry Index the month previous and once the Chinese backed away from the dinner table, well rates for bulk shipping fell right back off the cliff.

While this Bloomberg article has nothing but analysts estimates for Quarter 2, it will be interesting to see how it plays out as copper is Dr. Economist. Even more interesting is if the projections are accurate, will the market shrug it off as it has the relentless downfall in the Baltric Dry Index the past month... instead pointing to some murky future of recovery that only the Oracle (market) is so wise to see. Copper, much like oil [Mar 27: Thesis Buying 101 in Oil - Even Experts Mock It], has been increasing for no apparent reason other than "thesis" - in both cases most 'experts' have been bamboozled by speculators who see a completely different future ahead of us. Further it appears China's buying power (get used to it folks) is so immense that they are causing havoc in "price signals" that we've long relied on.... what used to be a signal of resurgence nowadays means nothing more than China (smartly) loading up on prices of said commodity at bargain prices with the very long term in mind. In this case they apparently have bought 18 Olympic sized swimming pools worth of copper. The other arguement of course (Economics 101) is as demand plummets, supply is being taken off the table at an even quicker pace. Certainly plausible I suppose but a hard arguement to make considering inventory levels are immense (near 5 year highs). But never let facts get in the way of a good thesis.

In the bottom right margin of the blog, I have a section called Industry Focus websites - of which Kitco's Copper page is the top link. I would keep an eye on copper since so much money keys off it, and I'll post the charts over the past 60 days and 6 months at the bottom of this entry to show you the trends.
  • Copper, this year’s best industrial- metal investment, may become the worst in the second quarter as demand slumps the most in three decades.
  • Known as the commodity with an economics Ph.D., copper risks losing its reputation as an industrial barometer because prices rose 40 percent by April 3, the best start to a year since at least 1986, just as the global economy contracted for the first time since World War II, according to data compiled by Bloomberg. Prices rose as China, the largest user, agreed to stockpile as much as 400,000 metric tons, based on Macquarie Group Ltd. estimates, enough to fill 18 Olympic swimming pools.
  • Copper will average $3,400 a ton this quarter, 21 percent below the April 3 closing price of $4,301 on the London Metal Exchange, according to the median estimate of 13 analysts surveyed by Bloomberg. (again this is nothing more than a guess by analysts) U.S. manufacturing contracted for 14 consecutive months, Japan’s Tankan survey of business sentiment fell to the lowest on record and euro-region unemployment rose to the highest level in almost three years.
  • We’re running out of impetus here,” said Sean Corrigan, who helps manage about $5 billion in commodities at Diapason Commodities Management SA in Lausanne, Switzerland. “We’re not building houses anywhere in the world, car sales are down by 50 to 60 percent in the major economies and commercial real estate is running into problems.” (but other than that, it's all good)
  • Consumption will shrink 9.2 percent in 2009, the biggest drop since 1975, according to Sydney-based Macquarie. New autos in the U.S. sold at an annual rate of 9.86 million units in March, compared with an average of 16.8 million this decade through 2007, according to Autodata Corp. of Woodcliff Lake, New Jersey. The average car contains 2 kilometers (1.2 miles) of copper and alloy cables.
  • Copper is very expensive, relative to the collapse in industrial demand,” said Lars Steffensen, managing director at Southend-on-Sea, England-based hedge fund Ebullio Capital Management LLP. Copper should fall to $2,500 a ton because there’s no shortage. (that would be far greater than a 21% drop if indeed it happened)
  • Global copper stockpiles tripled to about 567,000 tons since July, according to combined figures reported by the London Metal Exchange, New York Mercantile Exchange and the Shanghai Futures Exchange as of April 3. That’s equal to more than 12 days of global demand.
  • Copper’s 51 percent increase to April 3 from Dec. 24, when prices reached a four-year low, probably means China is reducing purchases, said Briggs. “I am pretty confident that the SRB is not buying at $4,000,” he said.
  • Morgan Stanley says copper is the industrial metal most likely to drop in the second half of 2009. Buying by China may have ended, demand is sagging and producers haven’t been aggressive enough in shutting mines.
  • “Money poured into copper and the industrial commodities on the assumption that growth in the developing markets would come back sooner rather than later,” said Peter Sorrentino, who helps manage $13.3 billion at Huntington Asset Advisors in Cincinnati. “That has gotten a little overdone. The stimulus packages aren’t going to have a real impact until 2010.”
This should be one very interesting market to watch in the coming months

Larry Summers - No Conflict of Interest; He Pinkie Swears

There are so many conflicts of interests in the monied few I am starting to lose track. Paul Volcker was our one hope to stand above the fray but from all indicated reports, Larry Summers has been doing an excellent job keeping him in some dusty closet. As more and more time passes, you will see how there is a small club of gentlemen, as The Atlantic most kindly pointed out - [Weekend Reading: 2 Stories Only] who intermingle... let's call the The Club. It's the club of The Connected.

So as parts of The Club devise ways to use US taxpayers money to subsidize the other part of The Club, we cheer. Because Wall Street *is* Main Street - keep repeating that. Your 401k is at hostage so unless the monied financiers get their loot, we'll take down your retirement hopes with us.

It does appear Mr. Summers does have a conflict or two. Or perhaps three. Aside from earning $5.2 million for work at DE Shaw (hedge fund) the past few years (for 1 day of work a week), he made $2.7 in speaking fees at many of the same banks he now is figuring out ways to prop up. (and folks it is NOT an either or question - we can have functioning banks without subsidizing both equity and bond holders with tax payer money)

For those who don't know DE Shaw is one of the HAL9000 quant hedge funds we so often speak of....

Shall we? Via the New York Times
  • Lawrence H. Summers plays down his stint in the hedge fund business as a mere part-time job — but the financial and intellectual rewards that he gained there would make even most full-time workers envious.
  • Mr. Summers, the former Treasury secretary and Harvard president who is now the chief economic adviser to President Obama, earned nearly $5.2 million in just the last of his two years at one of the world’s largest funds - DE Shaw. Impressive as that might sound, it is all the more considering that Mr. Summers worked there just one day a week. (nice work if you can get it... leaves 300+ days open for other things to boot)
  • Much is known about Mr. Summers’s days in Washington and Cambridge, but little attention has been paid to his two years in New York, from late 2006 to late 2008, advising an elite corps of math wizards and scientists devising investment strategies for D. E. Shaw & Company.
  • Mr. Summers and Shaw executives say his role there was to be a sounding board for Shaw’s traders. But interviews with friends and former colleagues suggest that Mr. Summers’s role at D. E. Shaw was wider and more complex.
  • Mr. Summers, these people say, was a marquee hire, a prized spokesman for Shaw. He routinely made himself available for private consultations with Shaw’s clients, an attractive perk for investing with the firm, as one client put it.
  • While at Shaw, Mr. Summers also peered into the inner workings of the $2 trillion hedge fund industry, which the Obama administration is now relying on to buy billions of dollars of worrisome assets from the nation’s beleaguered banks.
  • Some of his critics worry that such ties raise questions about whether the government’s ever-changing effort to bolster the financial industry will benefit Wall Street in general, and hedge funds in particular, at the expense of taxpayers. (nah!)
  • D. E. Shaw does not like to talk about what goes on inside its modish headquarters near Times Square. There, esoteric trading strategies are imagined, sketched on whiteboards and modeled on supercomputers by an elite corps of math wizards and scientists, most of them unknown to the outside world.
  • He (Summers) seemed to fit in among Shaw’s math-loving “quants,” as devotees of math-heavy quantitative investing are known. Traders joked that Mr. Summers was the first quant Treasury secretary because he had once ordered dollar bills to be printed with the transcendental number pi — 3.14159... — as the serial number.
  • At Harvard and at Shaw, Mr. Summers cultivated a small circle of financial professionals — particularly hedge fund managers — to serve as an informal brain trust. He consults with them on policy matters from his perch in the White House. (hence why we have such glee on Wall Street at these plans - now if only they could be assured Congress would never come after them in the future; these toxic assets would be flying off shelves like hot cakes)
  • Among these insiders are Kenneth D. Brody and Frank P. Brosens, the founding partners of another hedge fund, Taconic Capital Advisors, for whom Mr. Summers did consulting work from 2004 to 2006. Mr. Summers reached out to Mr. Brosens in December to discuss the Obama administration’s economic priorities. This year, he campaigned to have him run the federal office overseeing the $700 billion bailout program.
  • A spokesman for Shaw said Mr. Summers’s main job was not to act as a salesman. But in the fall of 2007, as the financial crisis simmered, Mr. Summers traveled to Dubai for a series of meetings with Shaw’s marketing staff and potential investors. Bankers from across the region flew in for the event. Mr. Summers spoke at several lavish dinners and met with local parties involved in Shaw’s real estate investments in the area, people briefed on his trip said.
Just wanted to let you know whose interests we are looking out for as we plan national policy. In the last administration, Cheney took the oil executives behind locked doors (no transcripts kids) to make energy policy. Now we have the financiers "consulting" on "best actions" to fix the problems... and yes Mr. Geithner is also speaking quite often with the more common names that roll off your tongue - the JPMorgans, the Goldmans, the Morgan Stanleys... devising "best practices" go forward, of course.

Oh, I almost forgot - via Washington Post
  • Summers, a former U.S. Treasury secretary and Harvard University president, also was paid $2.7 million in speaking fees by a range of organizations and companies, including several troubled Wall Street financial firms, they showed.
  • ......had speaking fees of $67,500 from JP Morgan, $45,000 from Citigroup, $135,000 from Goldman Sachs and $67,500 from Lehman Brothers, which went bankrupt in the mortgage crisis last year.
And it's not just Summers - The Club is a most excellent place
  • The disclosure documents showed many of the senior advisers to the president earned large salaries from their companies, served in lucrative positions on corporate boards and had large holdings of stocks, bonds and mutual funds.
  • National security adviser James L. Jones earned $1.1 million last year in board compensation from five corporations, including defense contractor Boeing, in addition to $900,000 in salary from the U.S. Chamber of Commerce and hundreds of thousands more in consulting fees.
  • Valerie Jarrett, another senior Obama adviser, reported $346,687 in directors' fees, including from the consulting firm Navigant, a real estate investment trust and the Chicago Stock Exchange. Jarrett had $302,000 in salary from a company that develops and manages apartment buildings, plus $550,000 in deferred salary from the same firm, her disclosure form showed.
  • White House social secretary Desiree Rogers received a $1.8 million salary from People's Gas and North Shore Gas, where she was president, as well as $350,000 from Allstate, where she managed the social networking division. (wow! busy person! two jobs at once? two jobs at that pay at once? man, I've heard of picking up a 2nd job but not like this - I would hope these two jobs were not concurrent but the way it is written makes it sound as if it is)
  • Louis Caldera, director of the White House Military Office, made hundreds of thousands for serving on corporate boards, including $227,155 in board fees and deferred compensation from IndyMac Bancorp, the California-based savings and loan company that failed and was seized by the federal government.
And if you are wondering where our storied Mr Greenspan is now working, outside of his massive speaking fees? It's all about The Club baby.
  • Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco
Really - where else would we expect him to land? Jackpot.

Bookkeeping: Starting Smith & Wesson (SWHC) Position

The two major public gun makers have seen a resurgence as daytraders piled in the past few months. Unlike most "thesis" trades I am worried this one has some footing to it. If you have been watching the news the past month there has been a monster string of mass killings - almost all have been job/economic related. I hope I am wrong on this one, but I do believe this summer when the weather heats up and the "real economy" (non inflated world of stock prices) degrades, a country with countless unemployed men in the 18-35 demographic with little prospects of finding gainful employment could potentially make a very serious turn for the worse. While the past 20 years Wall Street mostly ignores Main Street, there could be some very eye opening things happening as "government" unemployment rates rise to the low double digits ... meaning real unemployment is at least 1 in 5 people.

See this quick two minute story - what is most alarming ... well ALL of it is alarming, but in this gun culture without adequate safety nets it is quite scary to see the damage inflicted on the police force - both Oakland and Pittsburgh forces suffered multiple losses.

Watch CBS Videos Online

The two major public gun makers are Smith & Wesson (SWHC) and and Sturm, Ruger, & Co (RGR). The latter has the better balance sheet but in this world where fundamentals no longer matter - buy the more speculative fare and chuckle to self. So I'm going with SWHC, starting with a 1.3% stake on the pullback to the 20 day moving average $5.50. I am hoping for a more serious pullback as these stocks have had enormous runs - but then again, what hasn't.

Here are Smith & Wesson's latest earnings from early March...
  • The parent of gun maker Smith & Wesson reported Thursday that it climbed to a profit in its fiscal third quarter from a year-ago loss, as sales of handguns and tactical rifles soared. Smith & Wesson Holding Corp. said that for the three months ended Jan. 31 it earned $2.4 million, or 5 cents a share, compared with a loss of $1.8 million, or 4 cents a share, a year earlier.
  • Net product and services revenue in the quarter rose nearly 26 percent to $83.2 million from $66.1 million, as pistol sales jumped 46 percent on strong consumer demand and law enforcement purchases of M&P pistols. Handguns and tactical rifle sales offset a decline in hunting products sales linked to fewer consumer discretionary purchases amid the recession.
  • The results easily beat estimates of analysts surveyed by Thomson Reuters, who expected profit of 2 cents per share on sales of $74.1 million.
  • The company ended the quarter with roughly $21.3 million of cash without accessing its revolving line of credit. The company said it amended its revolving line of credit with TD Bank, giving Smith & Wesson incremental borrowing capacity at a future date should the company elect to access it. (normally I'd worry but debt seems to not be an issue in the new bull market) The company also said it amended its revolving line of credit that expanded the leverage ratio covenant to 3.5 from 3.0 for April 30 through fiscal 2010, and to 3.25 from 3.0 for fiscal 2011.
  • Sales of handguns and tactical rifles for the third quarter grew 62 percent over the prior year period. M&P tactical rifle sales rose 111 percent. The company reported a 46 percent drop in sales at its hunting firearms segment.
Now keep in mind some of this growth was in response to fears of Obama regulations on guns; and even this company is not recession proof as hunting is dicretionary. Protecing your family? Not so much...

My thesis has for well over a year been that social unrest shall be increasing dramatically the longer we go. It takes a lot to get Americans incited - unlike countries overseas. While unemployment can be dismissed lightly by the market, it won't be for a populace where 1/4th of the unemployed now have been out of work at least 6 months, the highest rate since the early 80s. And it gets worse from here.

Long Smith & Wesson in fund; no personal position

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