Thursday, November 29, 2007

Not so firma Terra

Terra Securities Declares Bankruptcy
Norwegian investment house Terra Securities ASA declared bankruptcy Wednesday after national regulators moved to revoke its license for failing to inform townships of the high risks of their U.S. investments.

Four small townships in northern Norway had been embroiled in a conflict with Terra over losses, saying the brokerage failed to inform them of the high risk of 451 million kroner ($82 million) in investments placed through Citibank.

In a news release, the Financial Supervisory Authority of Norway, a government agency, notified Terra that it intended to revoke all of its licenses to manage investments in Norway. The ruling, which does not affect other companies in the Terra Group, accused the securities unit of "serious and systematic violations of good business practices."

"Terra Securities ASA has failed to provide information about significant risks in advance of the townships investments and has offered products to a target group that the products were not suited for," the agency said.

Without the licenses, Terra Securities cannot continue to operate. It informed the Oslo stock exchange it was shutting down immediately and filing for bankruptcy.

See, Leaking like a SIV.

Wednesday, November 28, 2007

BHP is getting loanly in its attempt to buy Rio Tinto

If the $7.5 Billion loan to Citigroup from Abu Dhabi is a big deal(OK, it's a preferred stock deal, but let's not get pedantic), which caused stock markets around the globe to bob to the surface and the US market to put in a 200+ point rally,what kind of a deal is it for BHP to borrow $70 Billion? And how will the markets react to that?

RLPC-Seven lead $70 bln loan for Billiton's Rio bid -sources By Tessa Walsh
The financing, which is likely to be the European syndicated loan market's largest-ever loan to date, is being led by co-ordinator Goldman Sachs (GS.N: Quote, Profile , Research) and mandated lead arrangers Barclays (BARC.N: Quote, Profile , Research), BNP Paribas (BNPP.PA: Quote, Profile , Research), Citigroup (C.N: Quote, Profile , Research), HSBC (HSBA.L: Quote, Profile , Research)(0005.HK: Quote, Profile , Research), Santander (SAN.MC: Quote, Profile , Research) and UBS (UBSN.VX: Quote, Profile , Research), banking sources told Reuters Loan Pricing Corp (RLPC).

"We have already raised it (the money). The deal is done," a banker close to the deal said.
Is this another of those market top/bottom show-stopping events, or just another routine rung up in the commodity super-cycle?

Hey! Pay attention here! Guambat wants some answers.

The (dollar) signs are there, just receding from sight

Once I had a secret love
That lived within the heart of me
All too soon my secret love
Became impaitient to be free

Doris Day

Once, the world had a love affair with Dollar by John Lee
Not only are mortgage-backed securities distressed, but auto-loan backed securities and credit-backed securities are now beginning to experience pressure. The world had a love affair with the Dollar, and happily ate up any Dollar-denominated package that threw a 5% interest at them. [But now Abu Dhabi is demanding 11% from Citigroup.]

This $30 trillion love affair has ended and the aftermath is not pretty. To understand why the Fed has to print and bail out all those banks and funds, we highly recommend that you watch this British comedy skit from John Bird and John Fortune...

As the banker says: "One thing I learned is if you are going to cock up something, better cock up big so government has to bail you out, and if the government does not give me my money back, I will tell them, it's not my money, its your pension fund money."

Actually, though, don't you get the itchy suspicion growing in the back of your head that this dollar demise is getting close to having run its course? Guambat does.

Not that the clean up will be pretty, and not that the Bush administration, including its Fed - and FEMA - appointees, has shown much panache in cleaning up the messes it made/inherited/suffered, either.

And not, perhaps, that the dollar will regain its unique reserve status it has had over the last century. But it's just the observation that things in equilibrium tend to move to disequilibrium and vice versa; and this is pretty vice versa at the moment.

Perhaps its just the optimist in Guambat that expects some phoenix to arise after all the financial geniuses around the world again make ashes of themselves. Not to point fingers - one thing Guambat has proved to himself is that he ain't no financial genius. Still, he also manages to make an ash of hisself pretty regularly.

Dubai-ous soverign wealth fund investments

David Wilson at Bloomberg provides some anecdotal evidence that sovereign wealth funds may have as much to fear from their investments as the rest of us have to fear of the sovereign source and nature of the investments. He writes,
Sony Corp.'s gains yesterday after a Dubai investment fund disclosed the purchase of a ``substantial'' stake may be short- lived, if the state-run fund's other holdings are any guide.

Sony, the world's second-largest producer of consumer electronics, is among three stocks owned by Dubai International Capital LLC's Global Strategic Equities Fund. HSBC and European Aeronautic, Defence & Space Co., whose Airbus SAS unit is the world's biggest maker of commercial planes, are the others.

HSBC has fallen 13 percent since May 1, when the $2 billion fund made an announcement similar to yesterday's. EADS, based in Paris and Munich, has dropped 11 percent since Global Strategic reported owning a 3.1 percent stake on July 5.

The losses for the Persian Gulf emirate don't stop there. Och-Ziff Capital Management Group LLC, which sold a 9.9 percent stake to Dubai International before going public two weeks ago, has declined 23 percent since its debut. Deutsche Bank AG has fallen 29 percent since the state-owned Dubai International Financial Centre disclosed a 2.2 percent holding on May 16.

Tuesday, November 27, 2007

Sovereign wealth fun

Bush's deficits and Paulson's dollar are creating a fire sale of US assets. Along with China's sovereign wealth fund buying into the world largest, US based, Private Equity group (see prior post) the Middle East Emirate of Abu Dhabi has been busy buying into US technology.

Michael Kanellos blogs,
"Abu Dhabi's Mubdala Development announced it was buying an 8.1 percent stake in chipmaker Advanced Micro Devices, which could cost it roughly between $550 million and $700 million. Mubdala is a separate organization but it's funded by the government. The emirate, part of the United Arab Emirates, is awash with money thanks to escalating oil prices so it needs to put the money somewhere. But there is also more going on in the deal.

Abu Dhabi, like nearby Dubai and Qatar, has been rapidly increasing its investments in the technology industry as a way to diversify its economic base.

The amazing part is the speed with which the emirate is acting. Last year, it set up Masdar, a $250 million clean tech VC fund. It has already invested heavily in HelioVolt, which wants to make copper-indium-gallium-selenide (CIGS) solar cells, as well as Texas LED manufacturer AgiLight.

MIT is getting involved too. America's storied technology university has agreed to help Masdar build an alternative energy graduate school in Abu Dhabi. The school hopes to start admitting students in 2009.

One of the major complaints among business people and even government officials in the Middle East is that many of the college graduates who come from these countries don't have much practical experience.

Will it work? It's hard to say. Dubai, which has created an Internet business park and opened its doors to chip makers, has only made a small dent in high tech. But like China, these countries aren't exactly democracies, so they can conduct long-range planning. And the money is going to continue to flow there for the next several decades."

According to Wikipedia, "Each of Abu Dhabi's 420,000 citizens is worth $17 million."

Fortune magazine has crowned it "The richest city in the world":
"Khaldoon Khalifa al Mubarak is a man in a hurry.

"We move fast," Khaldoon says, his crisp, white headscarf whipping in the wind. "Think about it: How many places in the world can you say, 'I'm going to establish an airline,' and boom, two years later you have 21 planes and 37 destinations? How many places in the world can you say, 'I need 15,000 hotel rooms,' and boom, you have 100 new hotels in the works? How many places can you say, 'I want world-class hospitals, universities, and museums,' and boom, the Sorbonne, Cleveland Clinic, Guggenheim, and Louvre are on the way?"

And where in the world do you turn when you're just about the largest bank in the world and find yourself in dire straits? Why to one of the world's leading and most sophisticated equity investors; yes, Abu Dhabi.

The WSJ reports, "Abu Dhabi Invests $7.5 Billion in Citigroup":
"As a result of the deal, the investment authority known as ADIA will become one of Citigroup's largest shareholders, with a stake of no more than 4.9%. The stake will exceed that of Saudi Prince Alwaleed bin Talal, long known as one of Citigroup's largest shareholders...

"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," said Sir Win Bischoff, the bank's acting chief executive officer, in a statement.

The investment underscores the growing role that Middle Eastern investors are taking outside their home turf. Separately yesterday, an investment company owned by Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, bought a stake in Sony Corp. ADIA, which has almost $1 trillion under management, this summer bought a small stake in Apollo Management LP.

ADIA, which is a client of Citigroup, won't have any special ownership rights and no role in Citigroup's management or governance. It also won't have any right to name a member to Citigroup's board.

Separately, Bear Stearns Cos. Inc. and Citic Securities Co., a Chinese investment bank, last month announced a deal in which each will invest about $1 billion in the other."

And in that idiosyncratic way the market seems to react to things, this latest Citigroup bail-out/buy-in sent the Australian Share Price Index futures contract soaring over 75 points over the hour after the WSJ released that story.

Go figure.

Follow up. There's always a party pooper, this time from Bloomberg:

Dubai Migrants Earn $245/Month, Build $2,455/Night Hotel Rooms By Sean Cronin
Jonson Joy gets up at 5 a.m. every day to work 13 hours on a Dubai construction site then comes home to a dormitory next to an overflowing sewage tank. He earns $245 a month and sends half to his wife and two children in India.

Such living conditions, a falling currency and 9 percent inflation have triggered an exodus of laborers from Dubai and strikes by more than 22,000 workers. The protests threaten $430 billion of offices, hotels and homes as the second-largest member of the United Arab Emirates seeks to build a global finance and tourism center with cheap, imported labor.

As many as 286,000 illegal immigrants, or 7 percent of U.A.E. residents, left the country under an amnesty that expired Nov. 3, according to the Labor Ministry. The U.A.E., whose biggest member is Abu Dhabi, had 700,000 migrant construction workers last year, many from India.

With less to show for their labors, many workers say going home may be a better bet than staying in Dubai. India's $900 billion economy expanded an average of 8.6 percent annually in the past four years, making it the second-fastest growing major economy behind China.

Blackstone unturned - Or, "another blog frankly devoid of factual support"

Stephen Schwarzman, the chairman, chief executive and co-founder of the Blackstone group went on the offensive in defense of those holders of the moral high ground, the denizens of Private Equity. The criticism of PrivIty, he said, was "unremittingly hostile and frankly devoid of factual support".

Guambat read his arguments and swayed. Guambat is now convinced that it is the fault of all that complacent, lazy, unfocused, underpaid and short-sighted executive management and directors of all those big public companies that makes PrivIty do it. And its all for the good of the workers and the world that PrivIty is so insistent on its job. See, Blackstone chief calls private equity 'a force for good'.


Guambat is sure that it is just that sort of spirit that convinced the denizens of Communist Capital to take a piece of the stone. "The Chinese Government today agreed to buy a $3 billion (£1.5 billion) stake in the US private equity firm Blackstone and could hand it part of a $200 billion fund which China has earmarked for overseas investments."

"Last month, Industrial and Commercial Bank of China Ltd (ICBC) took a 20 per cent stake in South African lender Standard Bank. ICBC is now the world's biggest bank with a market capitalisation of $360 billion...."

"The CIC [China Investment Corporate Ltd] was launched in September to mitigate the risks in China's huge foreign exchange reserve." That risk is, of course, primarily that China owns too many US dollars and not enough hard/strategic assets.

That article above discloses that the chairman, chief executive and co-founder of the Blackstone group, Schwarzman, reckons that the Chinese have just the most dandy government in the whole wide world, and Guambat has no reason to doubt he's seen most of them up close and personal. The article said,
Stephen Schwarzman, chairman, chief executive and co-founder of Blackstone, said the deal took just three weeks to be agreed from the time China decided to invest.

“I doubt that there is any government in the world that could have done it more efficiently or more professionally.”

Guambat reckons, though, that his offensive defense of the PrivIty was way shy of the example set by Fortune magazine, which complains that "few observers appreciate that the private-equity phenomenon is about more than just big bucks."

Well, permabear Jeremy Grantham is one who will not leave that Blackstone unturned. He reckons the worm will turn for it.

His two pieces, "The Blackstone Peak and the Turning of the Worms", and "Evaluating the Usefulness of Private Equity Managers" found here provide at least some factual support for PrivIty criticism.

And that little Hertz affair with PrivIty adds a bit more.

PrivIty has a long way to go to hose down all the critical comment it has engendered.

May the Schwarzman be with it.

Saturday, November 24, 2007

The Party's over

Thursday, November 22, 2007

Leaking like a SIV

Citigroup SIVs Hit Norway Townships

* Two Bear Stearns (BSC) Hedge Funds went to Zero
* Two Hedge Funds in Australia liquidated
* Money has been frozen in Canada including the Yukon
* US and Canadian pension plans are affected
* Two banks in Germany were bailed out by the ECB
* Norway Townships borrowed money to invest in this mess
* Citigroup (C) and Merrill Lynch (MER) both lost their CEOs over this mess
* Hundreds of $billions in potential losses are still circulating

* Don't trust Citigroup, Bear Stearns, Merrill Lynch or anyone else hawking debt

The latest news in the US is that SIV debts are hiding in scores of public school funds and close to a $billion in defaults losses had not even been disclosed as late as a week ago even though this mess has been brewing for six months. See SIV Debts A Disaster For Public School Funds for more on this story.

Townships caught up in international credit crisis
Officials in four northern Norwegian townships (Narvik, Rana, Hemnes and Hattfjelldal) went along with an alleged recommendation by Terra Securities to invest a total of NOK 451 million in what they're now calling "high-risk structured products" offered by Citibank and sold for Citibank by Terra.

The American commercial paper was also tied to bonds issued by local governments in the US, and Norwegian Broadcasting (NRK) reported that hedge funds were involved. To boost returns, the Norwegian townships also borrowed NOK 3.5 billion to invest in Citibank's products, which later lost as much as 50 percent of their value because of the US credit crunch.

News started leaking out about the troubled investments when the townships were ordered to pay in millions more, to satisfy guarantee requirements. Mayor Asgeir Almås in Hattfjelldal feels cheated.

erra officials say they're sorry about the losses, but claim the townships are viewed as "professional players" in the financial markets and must also take responsibility "for the investments they choose to make."

While the finger-pointing continues, the townships are obligated to put what some fear is good money after bad. Norwegian townships that are suddenly relatively wealthy on energy revenues are also learning to be more cautious, as they face constant, complicated investment offers from foreign institutions.

The township politicians are both embarrassed and angry at the financial advisers who they now claim led them astray. "They think we're a bunch of small-town fools," one local mayor told newspaper Dagens Næringsliv.

Paulson Finds Bush's Treasury No Career Enhancer Like Goldman
The entity is called the master liquidity enhancement conduit, or M-LEC. Henry Paulson hopes it will help the banking system contain a debacle.

Paulson, the former Goldman Sachs Group Inc. chief executive who took office as U.S. Treasury Secretary in July 2006, led the effort to create M-LEC, whose purpose is to stem the tide of defaults by a group of financial companies called structured investment vehicles, or SIVs, which are packed with mortgage-backed loans.

The idea is to have a group of big banks -- Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. have already signed on -- provide back-up financing to the SIVs and buy their higher-rated long-term assets, using money raised through the sale of short-term commercial paper.

"If Paulson succeeds, he'll have a very strong legacy," says Vin Weber, a former Republican Congressman and party strategist who is policy chairman for presidential candidate Mitt Romney. "If not, it means we're headed for a serious economic downturn, and we'll all pay a price."

There are 30 SIVs that held securities worth $400 billion when the mortgage meltdown began in July, according to Moody's Investors Service. Their net asset value fell more than 30 percent from July to mid-November. As of the first week of November, SIVs had been forced to sell at least $75 billion of assets as investors retreated from all but the safest bets.

Paulson started preparing for market gyrations on the day he moved to Washington from Wall Street, colleagues say. "And he decided early on that a key mechanism for doing that was the President's Working Group."

Nicknamed the Plunge Protection Team, the group brings together officials from the Commodity Futures Trading Commission, Federal Reserve, Securities and Exchange Commission and Treasury Department for what have become regular meetings.

Wednesday, November 21, 2007

Krupption in high places

A thousand years ago when Guambat was just a lad, he did time in VISTA, a sort of domestic, stateside Peace Corps outfit. He also fell prey to commie propaganda (and has been trying to exorcise that demon ever since). He literally got run out of the State of Ohio (well, it was a bit mutual) for spreading insurrectionist material: he lent his copy of the comical Arlo Guthrie's "Alice's Restaurant" to a few too many people, it seems.

One of the subversive books he read at that time in Ohio was The Arms of Krupp. Krupp is still with us, making kettles, coffee makers, lifts and other steel products and what have you. Guambat was naive enough to believe that since this was about those nasty nazis that there was nothing sinister in the subject, but it seems you do not speak ill of any wealthy dynastic empire, no matter what their stripe, if they are within a bull's roar of the military-industrial complex.

The thing that absolutely absorbed Guambat was the way, as told in that book, the political machinery of the likes of Hitler, but also including all the kings, monarchs and lords before him, linked so closely, so fist-in-glove as it were, to manufacturers and merchants of ordinary, every day products like washing machines, light bulbs and water kettles and aeroplanes. It was a rather powerful incandescent bulb that went off in Guambat's young and impressionable head, which has gotten rather old and impressionable in the fullness of time.

This is one review of that fateful book:

The Arms of Krupp
by William Manchester

n this narrative of extraordinary richness, depth, and authority, America's preeminent biographer/historian explores the German national character as no other writer has done. The Arms of Krupp brings to life Europe's wealthiest, most powerful family, a four-hundred-year German dynasty that developed the world's most technologically advanced weapons, from cannons to submarines to anti-aircraft guns; provided arms to generations of German leaders, including the Kaiser and Hitler; operated private concentration camps during the Nazi era; survived conviction at Nuremberg; and wielded enormous influence on the course of world events. William Manchester's galvanizing account of the rise and fall of the Krupp dynasty is history as it should be written-alive with all its terrifying power.

It has since been fascinating to Guambat to observe the connections, real or perceived, between commercial reality and real politik. For instance, Guambat has a rellie, dearly loved and admired, who very responsibly and professionally works for Dow Chemical company. Guambat was impressed with the attention and money this company devotes to safety, including the safety and wellbeing of the communities in which it operates. Guambat was very impressed that the company will only start up a manufacturing facility when the residue of the products of the plant can be immediately used as inputs to another product that can be manufactured next to the same facility, and then another and so on so that the "industrial waste" is constantly being used as inputs to other products that seem to benefit our lives, to the end that, when the process is complete, there is precious little "waste" to matter.

And yet, this is the same Dow Chemical that spurred the mighty college campus revolts of Guambat's 1960's youth.

Poor old Guambat. He is lost in a sea of right and rights, wrong and wrongs. Adding to the confusion, but kindling remembrances of "The Arms of Krupp", is the recent report by The Center for Public Integrity, identifying "The Top 100 Private Contractors in Iraq and Afghanistan". The results of this analysis was presaged in an online article, "Who's profiting from the Iraq war?"

The thing that is most disturbing to Guambat is that the contractor with the most to profit from the Iraq war, and the sideshow-that-should-have-been-the-main-show, the Afghanistan affair, is the subsidiary (until just this year) of Dick Cheney's Halliburton. As the CPI report put it,
"In fact, the total dollar value of contracts that went to KBR—which used to be known as Kellogg, Brown, and Root and until April 2007 was a subsidiary of Halliburton—was nearly nine times greater than those awarded to DynCorp International, a private security firm that is No. 2 on the Center's list of the top 100 recipients of Iraq and Afghanistan reconstruction funds."

Could it possibly be that America has its very own Krupp? Could it possibly be that the Vice President of the United States of America is involved in Krupption?

These are questions that haunt Guambat as he continues to try to exorcise the demons of his youth.

More of this, for what it's worth:
The Iraq War Profiteers


Happy Thanksgiving !

Guambat sends his best Turkey Day wishes to everyone, from the Beautiful Island of Guam (which has, it is said, the largest per capita consumption of Spam in the world).


(Image from Danielle Spencer dot com, via Boing Boing)

DC's gun control law in Supreme Court's sights

Guambat mentioned this case when it was at the US Court of Appeal level in, "So this militiaman walks into the Senate with a loaded gun..."

Guambat's take was that shooting down the Individual's Right to Bear Arms crowd with this Bush-stacked court was not a betting proposition: "Guambat reckons the second amendment will end up being a right to bear any arm except a sawed-off shotgun."

Now that the Supreme Court has taken up the case, the battle for the Second Amendment will be joined. The duel will be most interesting.

Settling the meaning of the 2nd Amendment

U.S. Supreme Court takes up gun-rights case


FOLLOW-THROUGH: If the WSJ Law Blog can stir up this much commentary on this subject, just imagine the bandwidth the topic will take up in less genteel places.

What's the use complaining

Tuesday, November 20, 2007

Of payin' and pain

Wall Street Plans $38 Billion of Bonuses as Shareholders Lose By Christine Harper
Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won't prevent Wall Street from paying record bonuses, totaling almost $38 billion.

Goldman's record earnings and gains at Morgan Stanley and Lehman mean all the New York-based firms will be forced to pay more in a year when all but Goldman lost more than 20 percent of their market value, said Charles Geisst, finance professor at Manhattan College in Riverdale, New York.

The bigger bonus pool derives from a record $9 billion of fees for arranging acquisitions and $5 billion for underwriting initial public offerings and sales of junk bonds, the most lucrative securities, Bloomberg data show.

The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria. The average $201,500 bonus is more than four times the $48,201 median household income in the U.S. last year, according to U.S. Census Bureau statistics.

The size of the payouts is a concern given how badly the shares of most securities firms have performed this year, said Fitzpatrick of Johnson Asset Management.

"They're paid very handsomely in good times because they're supposed to take a hit in bad times," Fitzpatrick said. "Performance has dwindled this year, and I think they should feel that."

There's plenty more on this floating around the web and wires. For instance,

Goldman Sachs Rakes in Profit in Credit Crisis
Goldman’s business is built on taking risks, both for itself and its clients. In recent years, Goldman has established the largest private equity and real estate fund complexes in the world. That has led to natural tensions with private equity clients who sometimes complain, but never publicly, about Goldman’s common insistence to team up with them for a piece of the deal.

“Goldman has done the best job of any firm in the U.S. or world competing with their clients but doing business with them,” said one client who asked not to be named because he does business with the firm. “They’ve managed to get their clients to live with it.”

Still, this bottom-line approach has turned off some Goldman veterans and clients. They see the firm’s desire to advise, finance and invest — a so-called triple play — as antithetical to Goldman’s stated No. 1 business principle of putting clients first.

And there is little question that its success in trading, investment banking and servicing hedge funds — many of the traders come right from Goldman — allows the firm a bird’s-eye view on trends and capital flows in the market.

For all its success on Wall Street, it is Goldman’s global reach and political heft that inspire a mix of envy and admiration. In the race for president, Goldman Sachs executives are the top contributors to Barack Obama and Mitt Romney, and the second highest contributor to Hillary Rodham Clinton. Mr. Blankfein has held a fund-raiser for Mrs. Clinton in his apartment and has come out publicly in her favor.

Another member of Goldman’s influential diaspora is Philip D. Murphy, a retired executive who is the chief fund-raiser for the Democratic National Committee.

All of which has made Goldman a favorite of conspiracy theorists, columnists and bloggers who see the firm as a Wall Street version of the Trilateral Commission.

One particular obsession is President Bush’s working group on the markets, an informal committee led by Mr. Paulson that includes Ben S. Bernanke, the chairman of the Federal Reserve; Christopher Cox, the chairman of the Securities and Exchange Commission; and Walter Lukken, the acting chairman of the Commodity Futures Trading Commission.

The group meets about once a quarter — privately, with no minutes taken — to ensure that government agencies are briefed on market conditions and issues. The group is currently examining the extent to which the packaging and distribution of mortgage loans contributed to the crisis. It also recently completed a study recommending that hedge funds not be subject to further regulation; the group’s fund committee was led by Eric Mindich, a former Goldman trader who now runs a successful hedge fund.

There is no evidence that the conduct of the group is anything but above board. But to some, the group’s existence adds more color to the view that Goldman is indeed everywhere — much as J. P. Morgan was in the early years of the 20th century.

“Goldman Sachs has as much influence now that the old J. P. Morgan had between 1895 and 1930,” said Charles R. Geisst, a Wall Street historian at Manhattan College. “But, like Morgan, they could be victimized by their own success.”

A tale of two Citis

Ellis Mnyandu is writing for Reuters today about the propects of the New York stock market as seen just before the open. He says the market's direction is down because Goldman Sachs has downgraded Citigroup.
Goldman Sachs downgraded Citigroup, a Dow component, to
"sell" and said the No. 1 U.S. bank may have to write off $15
billion for debt losses over the next two quarters.
Of course, Goldman is the genius who helped to create and sell a lot of the toxic stuff the banks are having trouble ingesting. But that wasn't the genius part. The genius part was in then shorting the sector because Goldman just knew that stuff would lead to tears.

(Digressing a bit, Guambat was directed by David Gaffen to this take on the genius of Goldman:
It does well at its job and there are many institutional factors that make that possible. It does not, however, produce genius that is immediately transferable to other forms of economic and political leadership.)

Mnyandu continues his Reuters story,
Goldman also cut its profit estimates for Citigroup through
2009, saying the bank would likely take additional hits from
securities linked to subprime mortgages and other investments.
"It's been guess work as to how big a writedown Citigroup's
going to take," said Marc Pado, U.S. market strategist at
Cantor Fitzgerald & Co. in San Francisco.

"Goldman has sort of been viewed as the smartest person in
the room. They went short the mortgage market. They seem to
have a good grip on what's going on. So for them to come out
and say there's more to come, I think that's why it's
undermining Citigroup and the financials."

So, Goldman, being short the sector probably ain't too unhappy that Citi goes down on its Citi downgrade.

But Mnyandu takes careful note that not all analysts share Goldman's view of Citi. He points out,
Citigroup's Tobias Levkovich upgraded the U.S. banking
sector to overweight from market weight, saying the shares'
valuation was compelling.

Wouldn't it be comforting to know that Wall Street analysts have only their own disinterested interests at heart in their analytical recommendations. (No question mark: that's rhetorical.)

David Gaffen takes a closer look at the details and timing behind Goldman's downgrade of Citi in his WSJ MarketBeat blog. He notes,

Analyst sentiment right now on the stock is middling. Six analysts have buy ratings, eight have hold ratings and four recommend selling shares.

Monday, November 19, 2007

Just like clockwork - orange

Before the dust settles on the antics of media companies and their relationships with media consumers, Guambat reckons the media companies will have bagged enough law makers to require that all media viewers be locked down and seated in front of the projection screen, eyes pried open, eyelids taped back, compulsorily pinioned to watch their damned ads and other objectionable material. It will take off with laws making it illegal to go pee or get a drink from the frig during commercials.

But it will start with stuff like this:

Networks want to nobble ad-skipping
The free-to-air television industry has declared war on ad-skipping personal video recorders as it prepares to release a free electronic program guide for the first time.

Despite releasing the guide, the industry is pressuring PVR makers to limit the advertisement-skipping functions of their products before they are authorised to access it.

The networks have threatened legal action under Australian copyright law, but manufacturers say Australia-specific modifications to the advertisement-skipping features would not be possible as their products are made for global markets.

Blackwater up in the air

Blackwater Buys Brazilian Bombers by James Dunnigan September 4, 2007
Security company Blackwater U.S.A. is buying Super Tucano light combat aircraft from the Brazilian manufacturer Embraer. These five ton, single engine, single seat aircraft are built for pilot training, but also perform quite well for counter-insurgency work. Brazil. The Super Tucano is basically a prop driven trainer that is equipped for combat missions. The aircraft can carry up to 1.5 tons of weapons, including 12.7mm machine-guns, bombs and missiles.

Blackwater already has a force of armed helicopters in Iraq, and apparently wants something a little faster, and more heavily armed, to fulfill its security contracts overseas. Initially, Blackwater is getting one two-seater, for pilot training in the United States.

This item has not appeared broadly, it seems, but has drawn some commentary (and see this).

But Blackwater is also busy getting geared up with the latest in laser technology. It is hoped, and Guambat appreciates the logic, that temporarily blinding someone is a useful alternative to shooting him/her/them dead.

Lasers, Helmet Cams Ordered for U.S. Convoy Guards

While there is some risk that a temporarily blinded driver might crash into another vehicle, that is considered by the State Department to be a better alternative than the deadly attacks that have killed hundreds of innocent civilians in Iraq.

The State Department plans to equip its motorcade security details in Iraq with lasers to "dazzle" suspect motorists and helmet cameras to record it all.

U.S. officials also say the State Department plans to double the number of its diplomatic security agents to 90 so that one of its agents can accompany every convoy guarded by Blackwater and other private security contractors.

The new equipment comes as a result of orders from Secretary of State Condoleezza Rice to crack down on the killing of innocent civilians by security guards in Iraq.

Brothers, Bad Blood and the Blackwater Tangle By SCOTT SHANE
They were smart, scrappy brothers who rose from modest circumstances in Baltimore to become lacrosse stars at Princeton, succeed in business and land big government jobs.

Now the Krongard brothers — who have carried childhood nicknames, Buzzy and Cookie, through long careers — are tied up in the tangled story of Blackwater, the security contractor accused in the deaths of at least 17 Iraqis while guarding a State Department convoy in Baghdad.

Alvin Krongard, 71, who left a $4 million-a-year job in investment banking to serve in top posts at the Central Intelligence Agency from 1998 to 2004, played what he describes as a routine role as an intermediary in helping Blackwater get its first big security contract from the agency for guards in Afghanistan in 2002.

A martial arts enthusiast and former Marine who has regaled friends with tales of punching a great white shark while scuba diving, Mr. Krongard said he later became friendly with the company’s founder, Erik D. Prince. They have hunted near Blackwater’s North Carolina training ground and at Mr. Krongard’s hunting club in Maryland.

Meanwhile, Howard Krongard, 66, a former general counsel at the accounting firm of Deloitte & Touche who took the State Department job in 2005, was grilled this week by House Democrats. They accused Mr. Krongard (who does not use his nickname professionally, as his brother does) of alienating his staff and improperly interfering in investigations, including a Justice Department inquiry into allegations of weapons smuggling by Blackwater employees.

John A. DeDona, Howard’s assistant for investigations until August, said in an interview that he believed top State Department officials had influenced the inspector general to back away from tough investigations, including that of Blackwater, which diplomats depend on for protection in Iraq under a $1.2 billion contract.

From a distance, events might suggest that Mr. Prince chose to recruit Buzzy Krongard to curry favor with Howard Krongard and blunt any inquiry into Blackwater. But if that was Mr. Prince’s strategy, his intelligence was gravely flawed, according to people who know the family.

The Krongard brothers barely speak, friends say. In fact, Howard appears to be estranged from several family members, including his son Kenneth, whom he sued last year over a home loan. And Buzzy Krongard has said that when Howard called him a few weeks ago as he prepared his testimony, it was their first conversation in months.

Buzzy Krongard vigorously defends Blackwater’s record in Iraq. “It’s very easy to second-guess them when you’re sitting back in an air-conditioned office,” he said. After Mr. Krongard’s resignation from the Blackwater board was announced late Friday, Mr. Prince expressed his dismay at the politically charged maelstrom around the company.

“It’s a real shame in this country when honorable men and private companies are presumed guilty based on politicized allegations, even while investigations are under way,” Mr. Prince said.

Stand up to Blackwater
This is what we know. Bodyguards working for the Blackwater Worldwide security company shot and killed 17 Iraqi civilians Sept. 16 in Baghdad. Federal agents investigating the incident have concluded that at least 14 of the shootings came without justification and in violation of the deadly force rules that are supposed to be in effect for security contractors in Iraq.

State Department investigators, against their better judgment, gave limited immunity to the Blackwater guards involved in the Baghdad killings in exchange for information. That means the security guards' statements can't be used against them, and requires other evidence to be compiled to make a case against them.

But then there are the politics of the larger war that relies so heavily upon somewhere between 20,000 and 50,000 employees of Blackwater and other private security companies. Putting even one of them on trial could be quite embarrassing to the Bush administration. Simply putting up with the bad press and general outrage over what the FBI has found about the Sept. 16 mass killings might well be regarded as the easier course of action.

What's so troubling about such thinking is that it could succeed. Rep. David Price, D-N.C., needs some formidable allies in his fight to hold Blackwater properly accountable.

"Just because there are deficiencies in the law, and there certainly are, that can't serve as an excuse for criminal actions like this to be unpunished," Mr. Price tells the Times.

Guambat points out that unjustified homicide is not necessarily murder, notwithstanding the temptation to yell "bloody murder" over the outsourcing of the job of protecting our diplomatic staff.

We have nothing to fear but bears themselves, especially the English ones

Just the other day, Guambat rendered the off-handed offense to his many English friends (and their allies, the Scots, Welsh, Northern Irish and anyone else who was at one time or other considered "British"), that he "can't begin to touch the cynicism of the British".

And that was before he followed up on a reference emailed to him from a close Australian friend of English persuasion, who pointed him to the following doomsday article (and Guambat points out it was the English Conguerer, William, who invented the "Domesday" Book, and the English at large who thereafter gave it the "Doomsday" spelling).

> Markets poised for severe fall, says King By Edmund Conway, Economics Editor, Telegraph (UK) Nov 11, 2007.

The Bank of England Governor has issued an extremely unusual warning on world stock markets, indicating that shares may be heading for a major fall.

Mervyn King said the full impact of the credit crunch had not yet been felt on equity markets in the West and in developing countries, saying that the possibility of share price falls were one of the biggest risks facing the world economy.

The BOE Governor seemed as perplexed as Guambat has been over the perceived disconnect between the direction of the stock markets and the implications of the credit/dollar crunch. (See, You can't get there from here and The market is climbing a wall of money and Hello dollar!)

He said,

"It is very striking that despite the developments we've seen in the last three months , despite the stresses and strains in the banking sector , equity prices are higher now than they were in August," he said, unveiling the Bank's Inflation Report, which said the strength of share prices had been "surprising".

He added: "This is true around the world, and in emerging markets they're 20pc higher. There must be some downside risks there.

"That's factored into our projections. That's the bigger risk to the global economy than the narrower one focused on the banking sector."

It is highly unusual for a central banker to comment directly on share prices. One of the most renowned examples was former Federal Reserve chairman Alan Greenspan's comment about "irrational exuberance" in the US stock market in the 1990s. [See, The legacy of Greenspan's Put.]

In following links from that article, Guambat noticed these other Chicken Little droppings from the British Press that all make for a depressing start to a Thanksgiving Week:

> Nowhere left to hide for private equity By Andrew Murray-Watson

Secretive private equity groups are to be forced into the public eye following the publication this week of a report into the industry by Sir David Walker, the former chairman of Morgan Stanley.

The Walker report, commissioned after a barrage of criticism aimed at private equity companies, will recommend that an independent body is set up to hold buyout groups to account if they do not publish a raft of financial obligations and consult with stakeholders such as employees and unions.

Sir David was asked to lead a working group to come up with a voluntary "comply or explain" code of conduct for private equity companies, partly to head off potentially more onerous regulation from government.

On Tuesday, Sir David is expected to announce that the British Venture Capital Association, the trade body for the private equity industry, will be tasked with setting up a panel to enforce the new code. All of the BVCA's members, which account for more than 95 per cent of private equity companies operating in the UK, will have to sign up to the code if they wish to retain their membership.

(Actually, Guambat is quite certain that the membership of the committee will be wearing cover-alls to make sure they do not spill any whitewash on themselves, and there will, actually, be very many places for Private Equity to hide in their little chicken coop.)

> An economy on the brink of snapping
Talk of 'soft landings' or a 'happy handover' of growth from America typifies end-of-bull-market wishful thinking, says Tom Stevenson

This year's wishful thinking is dressed up as Goldman Sachs's "happy handover" or the ubiquitous "decoupling".

(Guambat reckons Tom Stevenson ought to talk to Sam Jones, who already has pointed out "No doubt Goldman will already be making money from it".)

> We face a crude awakening over oil prices By Liam Halligan, Economics Editor
Optimists say the world economy is now immune to high oil prices. After all, since 1999, global commerce has boomed despite the ever-growing cost of crude. The Western world is less energy-intensive, they say, given our increasing reliance on service industries.

I'm not so sure.

But we are now approaching a crunch point for the global economy - with crude costs about to become a very major problem. Until quite recently, the world has managed to keep on growing despite expensive oil. The advent of cheap Chinese goods helped keep inflation at bay.

But the inflationary impact of China's thirst for energy is now easily outstripping the "deflation" it exports via low-price goods. And, around the world now, as oil prices rise, inflationary dangers loom.

Because US petrol is lightly taxed, crude costs feed directly into prices on the forecourt. Tens of millions of American homes are heated by oil. And the US is, of course, a huge country - so haulage costs are a large proportion of the price of goods in the shops.

For all these reasons, America is uniquely vulnerable to high oil prices. Last week, we learnt that US inflation hit 3.5 per cent in October - a 14-month high.

There's much worse to come.

Saturday, November 17, 2007

Outsourcing the Nation-State

They're called "sovereign wealth funds". They're not really a new concept in that kings and lords and then nations have, since the dawn of such organizations, consolidated and maintained whatever power they may have amassed with finance, sometimes stripped, often borrowed, from others of their kind.

Back in the days when J.P. Morgan and other robber barons of his century secured their roles in the heart of American finance, most of the US capital used privately and publically came from overseas, principally from London, Brussels and a bit from other European sources, some of it from the foreign governments, but mostly private, or at least channeled through private entities in such manner as to make JP Morgan a very wealthy man, whose legacy has turned into a very wealthy institution. In those times the money for the capital came in the form of debt and the US was a big borrower of such debt.

For a short while after WWI the US found itself to be in the position of having changed from a net borrower to the world's creditor. By the end of the 20th century, the US was back in the debtor side, with some concern being expressed in some places that it was not a good policy for the US to owe so many foreigners so much money. There was a great debate, not settled, to the effect that US sovereignty might somehow be compromised by, for instance, the Chinese holding such a large chunk of America's debt.

But we have been led to believe that the whole world's economy is beholden to keeping the US consumer fat, if not happy, and so this debtor situation wasn't a high priority issue. Debt is good when borrowing is required to keep the cows fat.

Besides, we're told, we only owe the foreigners money; our great industrial wealth is still our own. Much of the debt, we're told, is only a book entry caused because we own so much production and other assets overseas that the "debt" on the books is just returns we owe ourselves. No worries.

But what happens when those damn foreigners begin to buy up our economic base? Well, then, things begin to get a bit more edgy. At least for the politicians and citizenry, but not for the types of the Dutch bankers and JP Morgan's heirs and successors, who live in the nether lands of borderless finance.

In Australia and elsewhere, simple things like buying a house and land are denied to foreign money, or at least regulated. In America, things like having an Arabian company buy into private ports or having a Chinese company buy into a distressed oil company get Congressional scrutiny. In China, having practically anyone from outside buy into practically anything inside is rife with scrutiny, regulation, corruption and risk. Business and trade is one thing, just don't step on the sovereign toes of the host country.

And this is one of the current intersections of world history where government is taking on the shape of hedge funds and private banks while simultaneously "multinational" business is taking on the size and power of governments. (See, Unrepresentative swill, Part 3.)

With foreign countries taking on so much US debt and accumulating so many US dollars, some of these countries are shifting tactics from being a lender to being an owner. So far, they are behaving something akin to private equity, but when does a hedge fund begin to look like a Trojan horse?

Things will be very interesting in the time upcoming as the US tries to maintain its sovereign powers in the face of these sovereign funds. It gets particularly entertaining to see the titans of US capital, who hide themselves in "off-balance-sheet" enterprises, "off-shore" accounts, off-handed relationships and other devices intended to put off scrutiny of their doings, and their political masters or puppets or what have you demand "transparency" of these sovereign funds.

This from capitalism's fount, Forbes:
Treasury calls on IMF, World Bank to lead on sovereign wealth funds UPDATE

The [US] Treasury Department today renewed its call on the International Monetary Fund and World Bank to develop a list of best practices for sovereign wealth funds (SWFs), which he said would help ensure investments controlled by foreign governments are transparent and made for economic rather than political reasons.

Paulson said last month that there are some fears that countries like China that want to pour their vast foreign exchange reserves into overseas investment might base their investment decisions on political aims. McCormick reiterated today that if these countries use their reserves to further broad strategic goals, 'sovereign wealth funds could potentially distort markets.'
Guambat would like a little transparency from the American government to determine if the invasion of Iraq, for instance, was based on investment decisions of, say, Halliburton, or political aims, such as ensuring a re-election? But that is a digression.

Back to the matter of these new-ish sovereign wealth funds, there is this from the International Monetary Fund magazine:
The Rise of Sovereign Wealth Funds
Sovereign funds have existed at least since the 1950s, but their total size worldwide has increased dramatically over the past 10–15 years. In 1990, sovereign funds probably held, at most, $500 billion; the current total is an estimated $2–3 trillion and, based on the likely trajectory of current accounts, could reach $10 trillion by 2012.

Currently, more than 20 countries have these funds, and half a dozen more have expressed an interest in establishing one. Still, the holdings remain quite concentrated, with the top five funds accounting for about 70 percent of total assets. Over half of these assets are in the hands of countries that export significant amounts of oil and gas. Norway has a large sovereign fund, as do places as disparate as Alaska, Canada, Russia, and Trinidad and Tobago. About one-third of total assets are held by Asian and Pacific countries, including Australia, China, and Singapore.

As has become apparent in today's fast-paced financial markets, the impact of a particular pool of money on financial stability depends not only on assets under management but also on the potential leverage (that is, debt) used in investment strategies.

For example, many hedge funds and (their cousins) private equity funds are reported to use leverage ratios of 10:1. That means they borrow 10 times their own capital for particular transactions. In some cases, leverage is even higher, probably significantly higher. Hedge funds almost certainly improve the allocation of capital around the world, but recent developments indicate that, in some forms, they also pose a danger to the global financial system. The consensus so far is that while hedge funds deserve considerably greater scrutiny, there are advantages for the allocation of global capital flows if this sector continues to have a relatively light direct regulatory burden.

Now take note of that. Hedge funds are good, even though they and the products they deal in are unregulated, little is known about them, and many of them are hidden away in opaque jurisdictions like the Bahamas. Until now, anyway, most hedge funds have been owned or operated by democratised Westerners, with, of course, proper schooling in the proprieties of gentlemanly responsibility and discretion, tempered by the corporate form of democracy, one dollar, one vote. Now, continuing with the IMF story:
Unfortunately, there's a lot we don't know about sovereign funds. Very few of them publish information about their assets, liabilities, or investment strategies. It's thought that they've traditionally been "long only": that is, they pursue buy-and-hold strategies, with no short positions and perhaps no borrowing or direct lending of any kind. They probably have long horizons and, like other long-term investors, are willing to step in when asset prices fall. This likely exerts a stabilizing influence on the world's financial system. But there is also anecdotal evidence that some sovereign funds have placed investments with other leveraged funds.

At least one central bank is reported to have had investments with Long-Term Capital Management when that hedge fund went bankrupt in 1998. Another central bank has invested recently with a major private equity fund. The Norwegian sovereign wealth fund reports that it has shifted somewhat from bonds to equities, and we think the same movement may be under way more broadly. It seems clear that some part of the hedge funds' assets and private equity assets under management now comes from sovereign wealth funds (care must be taken not to double count when the assets of these related entities are added), but there are no numbers.

Rogue traders, a serious issue for all types of investment funds, are also a potential problem for sovereign funds. Although the problem isn't likely to be widespread, there are specific instances in which traders employed to invest central bank reserves have taken large speculative positions and lost heavily. At least some of these traders acted without the approval of the appropriate credit risk managers. It wouldn't take many such transactions to awaken calls for regulation of cross-border capital flows when decisions by sovereigns are involved.

The emergent approach to "regulating" hedge funds is not to regulate them, but rather to watch carefully over the regulated intermediaries that lend to them (that is, commercial and investment banks). The idea is that this protects the core of the financial system while allowing innovation and risk taking. But as sovereign funds grow in importance, they effectively become a significant unregulated set of intermediaries that may or may not invest with hedge funds in the future.

The real danger is that sovereign wealth funds (and other forms of government-backed investment vehicles) may encourage capital account protectionism, through which countries pick and choose who can invest in what. Of course, there are always some national security limitations on what foreigners can own. But recent developments in the world suggest there may be a perception that certain foreign governments shouldn't be allowed to own what are regarded as an economy's "commanding heights." This is a slippery slope, which leads quickly and painfully to other forms of protectionism. It's important to preempt such pressures.

There will be much written about sovereign wealth funds in the coming years, and it will pay to pay attention and try to discern the subtle battle between private capital and nation-state capital. We are all (well, mostly all) citizens of some country or other, but none of us are yet citizens of private enterprise. The only way to maintain the franchise of citizenship is to make sure the disenfranchising aggregation of corporate power remains under governmental checks and balances.

The world's most expensive club
The announcement on May 21st that [China] would invest $3 billion of its reserves in Blackstone, a New York-based private-equity firm soon to issue shares, shows that it is prepared to barge into murky private markets as well as liquid public ones.

By choosing a private-equity firm, China will also be able to invest directly in a partner that, notwithstanding its forthcoming share offering, can keep many of its operations out of the public eye. But this is where the ironies of the deal are most apparent. “Crony capitalism? It is a marriage made in heaven—a partnership that does not want investors to ask questions with a country whose firms do not want investors to ask questions. I worry about the serious conflicts of interest this generates. More generally, government entities shouldn't be in the business of investing in private firms,” opines Raghuram Rajan, of the University of Chicago's Graduate School of Business.

Moreover, it is widely believed that by having China as a partner, Blackstone will receive preferential access to China's market (as well as providing China with experience it clearly covets on how to set up its own domestic private-equity industry). This is an advantage for Blackstone, and for its shareholders, China included, particularly so when other private-equity firms complain that the impediments to operating in China are growing.

[China] is not the only inscrutable country to be cosying up to the inscrutable private-equity industry. Around the world, a secretive society is emerging of governments flush with foreign assets, some of them petrodollars, that are increasingly calling the shots in international finance. The Blackstone deal is likely to stir others to invest their money even farther away from prying eyes than they do already.

To the extent governments have traditionally held investment assets, it was to protect domestic currencies and banks from crisis. Since the funds were for emergencies, they were of a type that could be liquidated easily—initially the holdings were in precious metals, lately they have been in dollars. The idea of building up an endowment to replace shrinking natural resources did not exist.

That process may have started inadvertently in 1956 when the British administration of the Gilbert Islands in Micronesia put a levy on the export of phosphates—bird manure—used in fertiliser. The manure has long since been depleted. However, a once-tiny set-aside of money has become the Kiribati Revenue Equalisation Reserve Fund, a $520m investment portfolio that has grown to about nine times the tiny atoll's GDP.

A similar approach is now common among oil-producing countries, which, it is estimated, account for two-thirds of the assets in these sovereign-wealth funds, and are keen to diversify their national revenues, aware that their wealth is being pumped away. They have typically invested along similar lines to central banks, holding bonds, dollars and bank deposits. Temasek, a Singaporean entity created in 1974 to pool state-owned investments, started to change the mindset. It subsequently evolved into an even more complex investment vehicle. The heady combination of state-control, success and secrecy, entranced other governments.

Recently, central bankers have also begun wondering whether they have a fiduciary duty to make higher returns from the public wealth under their supervision, which could mean placing at least some part of foreign-exchange reserves in high-yielding, if less liquid, investments. In Asia this question has become increasingly pertinent in the past two years, as reserves have mushroomed.

The result has been a torrent of money into a finite pool of assets. There is no precedent for such fortunes suddenly to find their way into global financial markets, and they help explain the waterfall of liquidity that has driven up the value of risky (and less risky) assets of all descriptions around the world. The world's entire supply of shares is $55 trillion, and bonds account for a similar amount. Sovereign-wealth funds could soon become the most important buyers of such assets, and many others besides. If so, the world will witness the intriguing spectacle of its largest private companies being owned by governments whose belief in capitalism is often partial.

The last time governments were this involved in sinking money into private assets, the process tended to be called nationalisation. Now the funds are invested both abroad and domestically. A new term will have to be coined: internationalisation, perhaps.

Yes, perhaps so. Globalization is so yesterday.

No doubt Goldman will already be making money from it.

Time for a little change

But there won't be much change left over from a $100,000,000.00 spending campaign financed by the public purse for the benefit of the pollies whose noses are in the public trough.

This from Jack Waterford opining in the Canberra Times:
As the Auditor-General's report this week showed for the few for whom it had not long been obvious the [John Howard Liberal/National Coalition Australian] Government, particularly the National Party, has also long been using taxpayer dollars on scads of blatantly partisan local grants and bribes. The party's political machinery has also been closely, and improperly, hooked into the information and intelligence data properly gathered (for other purposes) by government agencies in a way that may be difficult for the new government to disentangle.

Never has so much been offered to so many.

The Government has made maximum use of incumbency, well into the zone of plain impropriety. It has spent more than $100 million of taxpayers' money on partisan political ads.

But the voters, it seems clear, are sick and tired of the Howard Government and want it out.

They do not, it seems, actually hate Howard as such; indeed, in many respects they hold him in a certain affection and respect. But they think he's had his day, it's time for change.

Howard has probably been more hurt by the perception of having slipped in workplace reform without consent, of being generally mean minded, and of seemingly being more and more hopelessly out of touch with public concern about the greenhouse effect.

There are signs as well that Coalition candidates recognise that Howard has no coat tails....

French kiss fine

Rindy Sam, a woman in France, kissed a painting. That little act of love earned her a fine. One hundred dollars hours of community service and the equivalent of over $2,000 in damages.
The owner of the painting had asked for nearly $3 million.

The painting is an all-white canvas. At an exhibit in July, Sam kissed the painting, leaving a lipstick mark.

Sam argued during her trial that she had committed an "act of love," not vandalism.

Guambat reckons the "painting" of a white canvass has been muchly improved and may now be well worth more than the fine. Guambat may not be able to define art, but he knows it when he sees it. Guambat ponders if Sam will have any "moral rights" in the lipstick mark.

Friday, November 16, 2007

You can't get there from here

Guambat recalls an old yankee joke about a perplexed yankee farmer trying to give directions to a lost wayfarer. You've no doubt heard it. Try as he might, the farmer just could not give an easy-to-follow direction to get the wayfarer from where he was to where he wanted to be; he could describe the way to many other parts but not the place the wayfarer wanted to go. The farmer himself knew how to do it, but it was just too complicated to explain. (Guambat got an email today trying to explain how to get to a friend's house for dinner on Saturday, and this story could just as easily have originated on Guam.)

So anyway, after making several aborted attempts to give proper instructions, the farmer just said, in exasperation, "you can't get there from here".

Guambat feels that the wayfaring markets have been getting the same instructions from Wall Street. Whatever "asymmetric" design you want to put on it, after over a year of warnings and attempts to explain where this new fangled financial engineering and Greenspan induced low interest rate shenanigans was all leading, the markets continue to forge higher as the frantic hand signs and pointing and scratching of heads of the people who believe they know where this is going end up throwing hands up in the air in capitulation.

It seems any little pull back is met with another shove higher. The Australian stock market is within days of having just made yet another all time high. The US markets aren't even in a decent mild-mannered correction off their highs. Randy Newman was right: short people got no reason to live.

Guambat only just returned from a quickie to Sydney and came away with the feeling that the US dollar situation, which is likely linked somehow to the low interest rate manipulation that pumped up the banking/financial system debts so high they had to put the blame on stretched out over-lent home buyers, is quickly re-writing the script but no-one is watching because the Hollywood and tv writers are on a script-strike of their own.

Sydney has turned into a ridiculously expensive place to visit for a lowly Guambat subsisting on greenbacks. And yet, it was still all go go go. But not out in the small towns not far from city centre. There a horse virus has put down the country's third largest industry. In the bush, the drought makes Georgia look like a commodious lake, abundant enough for a jolly swagman to drown himself in. Apart from the stuff dug up out of the ground and from environmentally and culturally sensitive other parts, the rural sector is sick sick sick. North of Sydney, the Central Coast had gone back into hibernation, like a bear, or like a Central Ghost.

Guambat has become confused by the disparity between seeing a bearish roadmap in his head but finding all the money pointing to bull heaven. Thus Guambat continues to try to come up with rational directions that lead to a bear market whilst the market goes on its own merry own (irrational??) bullish way. It seems like the cyclical bear market that some say we're in is pure cant. Indeed, had money been placed on a bear market unfolding over the last several years, that money would have been foolishly wasted, or perhaps, unfoolishly wasted. But wasted either way.

Take the situation with the way the market pendulum swings the way Goldman Sachs do. Guambat read about the most recent swing on his trip Down Under but couldn't post. First, Goldman spends the last several years packaging, marketing and happily handing out (for a fee, of course) trick-or-treat financial instruments to its customers. Then, they realize that this candy is toxic and all the kids on the street who took the candy from them are going to get sick, very sick. So, they spring into action. And do they do that by warning all those kids with the candy and take it all back? No, they lie in wait for the kids to get so sick they have to dump all their treats in a massive puke, and then Goldman merrily scoops it all up.

And the best part is, with the market so sick on this stuff that the market players have been ingesting, the market rallies and soars in apparent glee because Goldman's good health is a sign that the sickies will soon be in good health too. It was a perplexing turn in the road that Guambat couldn't explain and read no news that expressed the surprise of others. Now having time to look a little deeper, Guambat has found, via Barry Ritholtz, that Bill King did a take on that bit of absurdity too. Some tidbits from that post:
"So what we have is a huge rally because Goldie will profit from the US economy and financial system going to hell. Apparently a critical mass of traders believes that not only what is good for Goldman is good for America but as long as Goldman profits everything else is immaterial..."
Reviewing further items in the news now that Guambat has access to the web, poor old Guambat keeps turning over more roadsigns that misdirect him down a bear trail whilst all the bulls are following the money into prosperity. As Guambat sits flailing away at his steam-driven keyboard, the markets are up again as we "speak".

Among these bearish, but obviously wrongly so, signs that Guambat imagines are the following:

David Gaffen blogs, a day or so ago, that Citigroup
"is being forced to pay up to sell its debt. The banking behemoth sold $4 billion of 10-year notes at the highest yield relative to benchmark rates in the bank’s history, according to Bloomberg. Bianco Research notes in recent commentary that options-adjusted spreads on investment banks’ debt are at their highest in history, and are higher than Merrill Lynch’s corporate bond index, which is exceedingly rare."
This item was only a small part of the larger picture produced by Bryan Keogh and Shannon D. Harrington writing for Bloomberg:
For the first time, the world's biggest financial institutions are paying more to borrow in the corporate bond market than the average company.

The total damage may reach $400 billion worldwide, Deutsche Bank AG analysts said this week in a report, and Wells Fargo & Co. Chief Executive Officer John Stumpf said the housing market is the worst since the Great Depression.

"Until credibility can be restored, the banks are going to have to pay prices to investors that they thought were unthinkable until six months ago," IDEAglobal's Atkins said. "But they have little choice as they need to keep the capital taps open."
Ironically, the following ad appeared at the bottom of the online version of that story on Guambat's computer:
"Advertisement: You've worked, you've saved, now PROTECT your nest egg.!"
A day before that story, Christine Richard and Cecile Gutscher wrote, also in Boomberg:
The crisis of confidence in bond insurers that bestow top credit ratings on debt sold by borrowers from the New York Yankees to Citigroup Inc. may cost investors as much as $200 billion.

The AAA ratings of MBIA Inc., Ambac Financial Group Inc. and their five smaller competitors are being reviewed by Moody's Investors Service and Fitch Ratings. Without guarantees, $2.4 trillion of bonds may fall in value and some issuers would get shut out of the capital markets.

"We shudder to think of the ramifications," said Greg Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value. You have politicians, taxpayers, municipalities, states. It just opens up a Pandora's box. That is a huge destabilizing force."

"The insurers can protect you from one unusual, idiosyncratic event, like a Hurricane Katrina," said Daniel Castro, chief credit officer of structured finance at GSC Group in New York, which oversees more than $24 billion of debt. "What if you had 20 Hurricane Katrinas and everything is wiped out? That's what you have right now."
This stuff is bound to make a cynic of poor old Guambat, who is known to be a bit suspicious of the power of Goldman. But Guambat can't begin to touch the cynicism of the British.

Sam Jones (an alias if ever there was one: like John Brown or Bill Smith)
blogs in the FT Alphaville:
The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a “substantial recession”.

Coming, especially, from Goldman [Goldman Sachs’s chief economist, Jan Hatzius] this makes very grim reading.

On estimates of $200bn in writedowns on mortgage linked securities, Hiatzus reckons that banks will dramatically cut back their lending elsewhere in the economy. Instead of providing loans to corporations and stimulating growth, banks will be too busy sheltering their SIVs, CDOs and conduits.

No doubt Goldman will already be making money from it.

But the cynic in Guambat just exploded when he read this, from Boomberg (Guambat may have to give up reading Bloomberg for the sake of his blood pressure):
With Ford workers' approval of a new labor pact two days ago, all three U.S. automakers have agreed to turn retiree health-care costs over to a union-run trust known as a Voluntary Employee Beneficiary Association.

The trust may draw interest from investment firms including JPMorgan Chase & Co., State Street Corp. and Merrill Lynch & Co., he said.

The autoworkers' health-care trust will be equal in size to some of the country's largest pension funds, matching the University of California's $54.4 billion endowment, the 25th largest, according to trade publication Pensions & Investments.

"There's nothing like this in America in terms of health care, and arguably in the world, of this size," said Geoff Bobroff, an independent investment consultant in East Greenwich, Rhode Island, with three decades of asset-management experience. "A lot of people are going to be lining up to service this fund."

He estimated that fees for managing the VEBA may total $285 million.

No doubt Goldman will already be making money from it.

Saturday, November 03, 2007

You're too sexy for that job

Ruth Mantell, reporting for MarketWatch, elaborates on the details of a study done by the Center for Economic and Policy Research and the Center for Social Policy at the University of Massachusetts, identifying America's "10 worst jobs".

Most of it was as you would expect. There's a bunch of bad-paying jobs out there, and always have been. As a career choice, these jobs are not such a good plan. But most of the jobs listed are ones that, for better or worse, serve as happy training grounds for the larger workforce, as entrees, as it were, for workplace novices, and temporary salary ATMs for students, itinerants and others. But if you're not in one of those categories, those jobs are dead-ends.

(Image from NewsUSA, which claims to be copyright-free; click on the picture to go to the source.)

One of the surprising things from the study, the thing that makes for sexy headlines, is that one of the worst jobs on the list is that of "model". That shouldn't surprise given that the bulk of the time spent trying to be a model is in a "cattle call", except this is a cattle call without the beef. I'm sure they've mentioned this to America's Next Top Model and all the other little models (and ballerinas) in waiting, and waiting and waiting.

Here are some excerpts from the story:

"Last year, models made a median hourly wage of $11.22, according to the Bureau of Labor Statistics, a bit less than twice the minimum wage of $5.85. Not so glamorous.

"Most models take other jobs. They're waiters. It gives them the flexibility to go to model calls and auditions," said Ean Williams, executive director of DC Fashion Week, a designer showcase held twice a year in the nation's capital. "There are a lot of people that are very beautiful, very talented, that don't make it in the business."

John Schmitt, a senior economist with CEPR, said the categories heavily composed of bad jobs haven't improved in recent years. "The composition is basically the same. It's not like suddenly it's a different world for people," he said.

In 2005, almost one-third of American workers had a job that met all three bad criteria, about the same share as in 1979, according to the report. "Even worse, despite substantial economic growth since the end of the 1970s, the share of bad jobs in the U.S. economy has remained essentially unchanged for over a quarter century," according to the report.

With 12.8 million estimated employees, the restaurant industry is the largest employer outside of the government, according to the National Restaurant Association. By 2017, the industry is expected to add 2 million jobs, according to NRA. "The restaurant industry has been a jobs juggernaut in the economic expansion," said B. Hudson Riehle, NRA's senior vice president for research and information services. "The industry has become a national training ground."

Occupations with the highest concentrations of bad jobs

1. Hosts and hostesses, restaurant, lounge, and coffee shop -- 87.0%
2. Counter attendants, cafeteria, food concession, and coffee shop -- 87.0%
3. Ushers, lobby attendants, and ticket takers -- 85.4%
4. Fabric and apparel patternmakers -- 82.2%
5. Lifeguards and other protective-service workers -- 81.6%
6. Waiters and waitresses -- 80.4%
7. Tour and travel guides -- 79.4%
8. Models, demonstrators, and product promoters -- 79.2%
9. Dishwashers -- 78.8%
10. Motion picture projectionists -- 78.1%

Guambat held such imperious positions as Information Distributor (paper boy), Purveyor of Gastronomical Delights (hamburger slinger), Sanitation Engineer (janitor), Audio/Visual Technician (projectionist), Landscape Artist (gardener) and Mailroom Guy (mailroom guy) along his road to the good life.

Note carefully: "along the road TO the good life." Ain't there yet. But not on a dead end, either.

Getting there is half the fun and most of the memories - well, maybe less than half the fun.