Wednesday, September 30, 2009

October in the Baltics

Last October 2008, Guambat noted that one of the landmark indicators of the then rapidly sinking market was a significant drop in the market prices of shipping companies. Not everyone, however, was so pessimistic:
Despite the recent slowdown, analysts in general believe in the secular China growth story. Cantor's Boyden says at current prices the stocks represent a "phenomenal buying opportunity," adding, "Right now I think they have been ridiculously oversold."
Guambat wonders how that worked out.

Last month, September 2009, Guambat noted the huge mothballed fleet of ships off Singapore and the death dive of the Baltic Dry Index. In particular, Guambat questioned the impact this may have on the steel producers, and wrung his paws over the bearishly divergent chart comparing the Baltic Index to the S&P500.

The story continues to compound, and Guambat holds fast to his sinking feeling.

China, Korea ‘Good Fight’ for Shipyards May Hit Rates (Update1)
The world’s two largest shipbuilding nations [China and Korea] have taken steps this year to aid shipyards and safeguard jobs as customers delay or scrap orders amid tumbling world trade. That support will likely ensure more vessels enter service, even as lines mothball and scrap existing ships because of a lack of cargo.

China’s bid to become the largest shipbuilding nation by 2015 may also worsen the glut as it competes for market share, said Matthias Umlauf, senior economist at HSH Nordbank AG. China has “the chance to become the world’s largest shipbuilding nation and they will not let this chance go,” said Umlauf. “They will support their national champions and that will definitely add to the overcapacity situation.”

State support may ensure that many of these vessels are delivered even if banks won’t finance them, said C.K. Ong, president of U-Ming Marine Transport Corp. Ong estimated that shipowners will likely need to raise as much as $90 billion to help fund the roughly $165 billion of dry-bulk vessels on order worldwide because of dropping asset values.

China State Shipbuilding Corp. and China Shipbuilding Industry Corp., which construct more than 70 percent of dry-bulk vessels, are both state-owned.

“What worries me is whether the Chinese or Korean governments will sit still and let the shipyards get into financial trouble because of the non-delivery of ships,” Ong said.

State support for struggling shipyards may prevent a rationalization of overcapacity, driving down vessel prices and profits across the industry. The aggregate capacity at the world’s 55 biggest shipyards is already as much as 40 percent bigger than demand, according to Morgan Stanley.

hat oversupply may help cause prices for new vessels to fall by as much as 20 percent by the end of next year, according to the bank. Prices for newly constructed container vessels fell 31 percent in the first half on the capacity glut, according to Morgan Stanley. Bulk-ship prices dropped 26 percent and tanker prices declined 25 percent.

China in June announced a two-year plan to help shipbuilders, including funding for cash-strapped producers and moves to encourage mergers and acquisitions. In April, South Korea unveiled an 11.5 trillion won ($9.6 billion) financing package to help shipowners pay for new and existing orders.

Perhaps this is just an Asian way of throwing a TARP over a TBTF industry. Even so, Guambat reckons the excess capacity will sink in a sea of tears.

And, how is that divergence in the Baltic Dry Index and S&P500 coming along? Well, it's widening, as the S&P has rallied to a rarely seen huge quarterly increase, while the BDI has continued to bail:


Friday, September 25, 2009

Dinosaurs at it again in Texas


The word popped up in Guambat's googlenews aggregator, begging to be looked at. Unfortunately the link to the article with dumbosity in it wouldn't open, but the google cache had it:
"I keep wondering what kind of dumbosity people associated with the Texas Board of Education can come up with next."
It seems the Texas Bored of Education is again trying to rewrite history, and relegate the likes of Thurgood Marshall and Neil Armstrong to the dustbins. No, actually, its even more crazy than that.

Rosa Parks, Ben Franklin, Rush Limbaugh? Texas may change must-know figures for students
Some of the proposed changes in the social studies standards, known as the Texas Essential Knowledge and Skills, include referring to the United States as a republic instead of a democracy and requiring students to be able to identify prominent conservatives such as former House Speaker Newt Gingrich and Eagle Forum president Phyllis Schlafly. Some of those behind the proposed changes cast the debate as a way to nudge conservative figures into what they say are liberal-dominated lessons.

“Liberals overwhelmingly outnumber those who are publicly known as conservatives,” wrote David Barton, a Republican activist on the board-appointed advisory panel, in board documents about the proposals. He counted 16 liberals in classroom lessons, including former President Bill Clinton, farmworkers’ advocate Dolores Huerta and feminist Betty Friedan, to seven conservatives, such as former presidents Ronald Reagan and Teddy Roosevelt and former Supreme Court Justice Sandra Day O’Connor.

The changes to Chavez and Marshall’s role in class have generated some of the loudest debate. Chavez, a leader of the United Farm Workers whose advocacy led to gains for union laborers, is a popular figure in Texas, where dozens of streets, schools and buildings are named in his honor. A statue of him even stands a few blocks away from the board’s headquarters.

Marshall isn’t without his own honors: Texas Southern University put the Thurgood Marshall School of Law in his name.

Still, members of an expert panel convened by the board suggested earlier this year that class time spent on Chavez and Marshall should be minimized. After teachers and other organizations complained, a committee suggested moving Chavez from a list of model citizens — which includes Benjamin Franklin — to a list of those who have contributed to society, including Rosa Parks, Martin Luther King Jr. and former President Franklin D. Roosevelt.
Advocates: Don't remove Cesar Chavez, Thurgood Marshall from Texas social studies classes
Among proposed changes are to require students to identify "significant" conservatives of the 21st century, such as Newt Gingrich, and deleting references to Christmas and Rosh Hashanah. Lowe said Thursday the holidays would likely remain in the final plan.
Board decides to keep Christmas in textbooks
"No one on this board intends to take out Christmas,” said Gail Lowe, of Lampasas, chair of the 15-member board.

More than 50 people mentioned in current textbooks are not included in the proposed standards, including Carl Sagan, Colin Powell, Nathan Hale, Neil Armstrong, Eugene Debs, John Steinbeck and Mother Teresa.

Recall that Don McLeroy, the Bored Chairperson, has criticized teaching students how to learn, preferring that they stick to memorizing specified facts:
Our educator preparation programs and influential high school "redesigners" ... recommend that instead of memorizing facts, students should be taught how to find, use, and apply knowledge.
The mere task of preparing and requiring instruction about such arbitrary lists of "model" vs. "contributing" citizens smacks of thought control rather than the learning process.

Dumb bosses hard at work.


Thursday, September 24, 2009

How extended is this rally?

Guambat is now becoming known as Poppa Guambat, what with the arrival of granddaughter Cherry Blossom/Tinker Bella/The Baby.

Poppa Guambat is charmed by that standard child charade, "how big is (whoever the kid is)?", asked in proudish stage voice by some old person, to be followed by the kid throwing hands high up in the air over his/her head, with proud parents/grandparents/uncles/assorted other old person, all stupidly exaggerating, "Soooooooo Bigggg!". It's insipidly charming and irresistible and too often repeatable.

Guambat was reminded of that when reading a link to the FT Alphaville post today, This bank-engineered equity rally. See this post in the Stew, also.

The linked cite was to Just who is buying this rally?

In that cite is a quote that answers the question, "how big is this rally?":
The market is so overextended that it is now 20% above its 200-day moving average, which is a technical condition that has not occurred in 27 years.

A Bear Market Lurks as Dow Nears 10000
All previous rallies of this magnitude took place in the 1930s and the 1970s, according to Ned Davis Research. Those were periods of turbulence for both the economy and the markets, and none of the gains was sustained.

"We are saying, sure, you can get in, but don't fall asleep at the wheel, you have to get out, too. If you are looking to put money in and then not look at it for a year, you are taking a big chance."


China stakes claim to rare earths

Rather that sell China all the iron ore, alumina, coal and other common earth dug up in Australia, the Aussies ought to be doing a swap. Shiploads of the former for buckets of the latter.
Rare earths are vital, and China owns them all

The U.S. Geological Survey recognizes 17 different rare earths, materials with science-fictionesque names like lanthanum and gadolinium. They are used in everything: glass polishing and ceramics, automotive catalytic converters, computer monitors, lighting, televisions and pharmaceuticals.

China has all but cornered the market.

"We are addicted to rare earths as much as we are addicted to oil," said Byron King, editor of Energy & Scarcity Investors, published by Agora Financial LLC. "Without these elements, much of the modern economy will just plain shut down," he said.

Without these elements, "you can say goodbye to much of modernity," said King. "There will be no more television screens, computer hard drives, fiber-optic cables, digital cameras and most medical imaging devices. You can say farewell to space launches and the satellites ... and the world's system for refining petroleum will break down too."

China accounts for about 97% of global rare-earth production -- 139,000 metric tons of material in 2008 -- and it also consumes about 60% of the world's rare earths, according to Sean Brodrick, a natural-resources analyst at

Meanwhile, the U.S., which is also a major buyer of rare earths, mined no rare-earth elements last year, USGS said.

China has made moves to buy up other rare-earth resources around the world.

When the credit markets collapsed last year, two Australian companies lost their financing. Lynas Corp. and Arafura, which plan to open mines in the next couple of years would have a combined production equal to a quarter of the annual global output of rare-earth metals

Sensing opportunity, China stepped in, with government-owned miners providing the money needed to finish construction of the two companies' mines and ore-processing factories.

Model stripped bare

Several years ago, the Macquarie Model became the rage, with plenty of observers raging against the vampirist fee consumption of its infrastructure vehicles.

So how is that working out?

Well, one of the most famous me-too's, Babcock & Brown, has imploded on the weight of its own over-leveraged excess.

Now we're being treated to the spectacle of one of Macquarie's cash-cows hijacking investors for more lavish treatment purely for the price to get it of their backs.

That's how Ian Verrender sees it in the SMH:

Nothing but complete contempt for investors

During the past seven years, Macquarie has reaped a $527 million fee bonanza from MAp, even though it now concedes that managing the airport fund cost just $11 million a year. Multiply 11 by seven and then look at the difference.

As a final insult, Macquarie wants MAp unitholders to hand over $345 million to sever the links, an amount that the independent directors think is a good deal and which has been ticked off by an independent expert KPMG.

During the past two months, Macquarie has shown utter contempt for the investors who poured their hard earned into MAp during the boom - and all those other infrastructure funds - as it desperately tries to cut the airport fund loose.

But what has been truly disturbing during the past few weeks is the cavalier approach to corporate governance shown by MAp, and in particular the woeful performance of MAp's so-called independent directors

The simple fact is Macquarie Group is desperate for the $345 million that it will be paid to walk away from MAp.

There is every indication it wants to book the money as earnings in the September half.

That money is likely to flow almost straight through to the bottom line, providing a substantial portion of the profit for the first half and the basis for executive bonuses.

The independent directors claim the Macquarie deal is the only viable option because, without its co-operation, a banking syndicate owed $4 billion may call in those loans or try to renegotiate them on higher rates because there has been a change of control.

Guambat wonders if, perhaps, the change of control clause may have been purposefully negotiated and drafted just for such an event. It's called a poison pill in other places.

Wednesday, September 23, 2009

An ebbing tide of dollars ...

... Lifts all [other] currencies.
The Kiwi currency has gained nearly 3 per cent in just two days - and a total of 27 per cent against the US dollar in six months.

Australia’s currency meanwhile has also benefited amid rising prices of gold and crude oil, key Australian commodity exports, touching $0.8788, the most since August 2008. Against the yen, the currency was at Y79.48 from Y79.56. But that’s another story…

And here's the other story... Dollar touches 1-year low as Fed meets

Tuesday, September 22, 2009

The problem with Pop

Seems to be a lot of talk these days about populism. What is it, is it racism or merely channeling racism; is it religious based or political dogma?

Guambat liked the title to Frank Rich's column/editorial, Even Glenn Beck Is Right Twice a Day probably better than his commentary, but he made some resonant remarks:
there is a national conversation we must have right now — the one about what, in addition to race, is driving this anger and what can be done about it. We are kidding ourselves if we think it’s only about bigotry, or health care, or even Obama. The growing minority that feels disenfranchised by Washington can’t be so easily ghettoized and dismissed.

Many of those Americans may hate Obama, but they don’t love the Republican establishment either. Michael Steele, who was declared persona non grata at one of the mad “tea parties” in April, was not invited to that right-wing 9/12 March on Washington last weekend. There were no public encomiums for McCain or Bush. No Senate leader spoke to the gathering, and perhaps only Palin and Ron Paul would have been welcome from the ranks of what passes for G.O.P. presidential timber.

Beck has notoriously defamed Obama as a “racist,” but the race card is just one in his deck. His ideology, if it can be called that, mixes idolatrous Ayn Rand libertarianism with bumper-sticker slogans about “freedom,” self-help homilies and lunatic conspiracy theories. (He fanned Internet rumors that FEMA was establishing concentration camps before tardily beating a retreat.) It’s the same crazy-quilt cosmology that could be found in last weekend’s Washington protest, where the marchers variously called Obama a fascist, a communist and a socialist, likening him to Hitler, Stalin, Castro and Pol Pot. They may not know that some of these libels are mutually exclusive. But what they do know is that they need a scapegoat for what ails them

Beck captures this crowd’s common emotional denominator — with appropriately overheated capital letters — in his best-selling book portraying himself as a latter-day Tom Paine, “Glenn Beck’s Common Sense.” Americans “know that SOMETHING JUST DOESN’T FEEL RIGHT,” he writes, “but they don’t know how to describe it or, more importantly, how to stop it.” This is right-wing populism in the classic American style, as inchoate and paranoid as that hawked by Father Coughlin during the Great Depression and George Wallace in the late 1960s. Wallace is most remembered for his racism, but he, like Beck, also played on the class and cultural resentment of those sharing his view that there wasn’t “a dime’s worth of difference” between the two parties.

Unlike liberal critics of capitalist inequities, of course, Beck and his claque are driven by an over-the-top detestation of government. Washington is always the enemy, stealing their hard-earned money to redistribute it to the undeserving and shiftless poor (some of whom just happen to be immigrants or black). Though there is nothing Obama can do to stop racists from being racist, he could help stanch the economic piece of this by demonstrating how a reformed government can at times actually make Americans’ lives better. That’s what F.D.R. did, and that’s the promise Obama made, swaying some Republicans and even some racists, during the campaign.

Too many Americans are impatiently waiting for results.

One of those impatient Americans is Paul Krugman. In his column, Reform or Bust, he takes a swipe at President Obama for failing to take on the populists:
All I can think is that this was another example of something we’ve seen before: Mr. Obama’s visceral reluctance to engage in anything that resembles populist rhetoric. And that’s something he needs to get over.

It’s not just that taking a populist stance on bankers’ pay is good politics — although it is: the administration has suffered more than it seems to realize from the perception that it’s giving taxpayers’ hard-earned money away to Wall Street, and it should welcome the chance to portray the G.O.P. as the party of obscene bonuses.

Equally important, in this case populism is good economics. Indeed, you can make the case that reforming bankers’ compensation is the single best thing we can do to prevent another financial crisis a few years down the road.

It’s time for the president to realize that sometimes populism, especially populism that makes bankers angry, is exactly what the economy needs.

Such utterances often come from folks who don't know or haven't lived face to jowl with populists. Obama is street wise to such knowledge, however, and is wise not to take this particular bait.

Populism is often used, but never tamed. It is a beast that will lift your burden and then have you for dinner. It can turn on a dime, and forget the change. It is often found lurking in the halls of Congress, particularly the Senate.

Folks who live with typhoons and hurricanes know that, after the eye of the storm, it comes at you just as furiously from the opposite direction.

Best to keep your head down on this one, Mr. Obama.

Friday, September 18, 2009

Unlikely bull in a China shop

Sending shivers up and down the spine:

Faber on China: Still right after all these years…
Damian Kestel in a weekly newsletter has resurrected one of Faber’s most prescient pieces of work, dating back to October 2004, on China

You are now all members of the central committee of the Communist Party which meets today for the first time in a year. I am Comrade Faber.

Increasingly, we will challenge the American hegemony … in terms of military might, the US is far superior to our nation. But there is a chance that we can beat them economically.

Now my esteemed comrades will ask me why we at the central bank are so stupid and continue to buy US dollars and US assets? Because it is clear there is a crisis looming some time in the future… My plan is to keep the US dollar very, very strong. First of all this forces our neighbours in Asia to also buy US dollar assets… So the whole of Asia is buying US dollars and by doing so, we keep the dollar at a high level. It continuously undermines and hollows out the manufacturing sector in the US. And our Hindu friends they gradually destroy the services sector that is tradeable in the US. .. At the same time we are buying US bonds and by doing so we keep interest rates artifically low….

…Whereas the US is spending and borrowing we have had this huge increase in capital spending, in net capital formation, where our net capital formation rose until early this year by approximately 50 per cent per annum.

But still we think this wealth transfer from the US to Asia will continue. Our region is not dependent, unlike in 1997, or before 1997, on foreign capital. We can grow with our own capital…

..We will choose the perfect timing when geopolitical tensions are such that they are very conducive to an economic crisis in the United States. And relatively speaking, we will do better. We will also suffer but far less than in the western world.

Thursday, September 17, 2009

Impressive rally as heat shield

This has certainly been an impressive stock market rally, coming as it does on such slender underpinnings as this and this and this. (Not to mention, but to do so as a PS, this.)

Guambat chalks it up mainly to a classic squeeze on shorts as mentioned here, fueled along by the quarterly expiry of futures and other so-called witches.

But, more cynically, Guambat reckons it has been manufactured by the same, usual suspects to ramp up particularly financial stocks to take the heat out of bank reforms.


Perhaps not exactly on the same conspiracy page, but to the same result, is this post, Sep 24th (a week after this post in the Stew), at FT Alphaville: This bank-engineered equity rally

Wednesday, September 16, 2009

Tell it to the Judge

Bits and Pieces From Memorandum Order, SEC vs BoA

The S.E.C. admits that the corporate penalties it here proposes will be “indirectly borne by [the] shareholders.” But the S.E.C. argues that this is justified because “[a] corporate penalty ... sends a strong signal to shareholders that unsatisfactory corporate conduct has occurred and allows shareholders to better assess the quality and performance of management.”

This hypothesis, however, makes no sense when applied to the facts here: for the notion that Bank of America shareholders, having been lied to blatantly in connection with the multi-billion-dollar purchase of a huge, nearly-bankrupt company, need to lose another $33 million of their money in order to “better assess the quality and performance of management” is absurd.

[E]ven upon applying the most deferential standard of review for which the parties argue, [the Court] is forced to conclude that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate.

It is one thing for management to exercise its business judgment to determine how much of its shareholders money should be used to settle a case brought by former shareholders or third parties. It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away.

Overall, indeed, the parties’ submissions, when carefully read, leave the distinct impression that the proposed Consent Judgment was a contrivance designed to provide the S.E.C. with the facade of enforcement and the management of the Bank with a quick resolution of an embarrassing inquiry – all at the expense of the sole alleged victims, the shareholders.

The proposed Consent Judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.

And all this is done at the expense, not only of the shareholders, but also of the truth.

Yet the truth may still emerge. The Bank of America states unequivocally that if the Court disapproves the Consent Judgment, it is prepared to litigate the charges. The S.E.C., having brought the charges, presumably is not about to drop them. Accordingly, the Court, having hereby disapproved the Consent Judgment, directs the parties to file with the Court, no later than one week from today, a jointly proposed Case Management Plan that will have this case ready to be tried on February 1, 2010.


From the NYT, Judge Rejects Settlement Over Merrill Bonuses
“I’m having a difficult time understanding who was harmed here,” said Richard X. Bove, a banking analyst with Rochdale Securities. “Why is this company being put into court over a series of events that benefited the nation, its economy, its financial system, the shareholders of Bank of America and the bank itself.”

“It’s a strong, blistering decision,” said John C. Coffee, a Columbia Law School professor who has taught a course along with Judge Rakoff for 21 years. “It is really a critique, not just of this case, but of a long-standing practice at the S.E.C., which effectively allowed corporate managers to buy immunity with their shareholders’ money.”

3 items on a wing and a prayer

All from today's WSJ.

Airlines Face $11 Billion in Losses
IATA sees premium passenger traffic falling 20% in 2009, compared with a 5% drop in traffic from the back of the cabin. The low demand for high-priced seats is expected to push yields, or revenue per passenger, down 12%.

Now, the airline industry needs to make structural changes to regain its footing, Mr. Bisignani said.

Airlines have helped themselves by adding new passenger fees, Mr. Bisignani said. IATA reported that revenue not related to tickets or cargo currently accounts for more than 10% of global airline revenue.

Photo attribution

Here's three structural ideas from Guambat: make it easier for passengers to get into the airport, on the plane and back off again; let them bring their baggage along; and give them enough space so they arrive looking and feeling unlike a crushed car.

JAL Plans Job Cuts, Confirms Alliance Talks
The restructuring plan is key for JAL to get fresh loans from banks, as it will have to persuade lenders that it can get back on its feet. Analysts estimate JAL may need as much as 150 billion yen, or $1.65 billion, in new funds in the second half of the fiscal year through March, on top of the 100 billion-yen loan partially backed by the government that it received in June.
A Year Later, AIG Rescue Is a Work In Progress
You wouldn't know it from the outside, with new CEO Robert Benmosche exuding confidence from his Croatian villa and AIG shares up nearly 70% during the past four weeks. But inside the offices of AIG and its government minders, there is a push to rescue one of AIG's most important units.

It is the largest airplane-finance company in the world, known as International Lease Finance Corp., and like much of this country, it can't pay its coming debts. But neither AIG nor the government has given up on ILFC, as both hope to extract some value from the company once considered AIG's crown jewel.

But taxpayers should tune in because a likely scenario is that they will end up paying for much of this smaller rescue, too. The Federal Reserve and the Treasury could agree to refinance tens of billions of ILFC debt at below-market rates, a move that would greatly increase their own risk and attract more AIG headlines. AIG has drawn on some $82 billion in loans and investments since its rescue last year, and has access to an additional $48 billion.

AIG also is expected to to plug other holes caused by ILFC's problems. One of its main insurance subsidiaries, National Union Fire Insurance Co., has a $4.5 billion equity stake in ILFC that is expected to be worthless. People involved in the situation expect AIG to protect the insurer by drawing down government funds to make up the difference. An additional $3 billion held by AIG itself likely will be flushed.

"AIG is working to pursue a business strategy that best positions ILFC for the long term, provides ongoing benefit to ILFC's customers and various stakeholders, and achieves enhanced value for its portfolio," said spokeswoman Christina Pretto.

Tuesday, September 15, 2009

Santa's sleigh sighted off Singapore

And it's sitting empty.

Revealed: The ghost fleet of the recession
Here, on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers - all should be steaming fully laden between China, Britain, Europe and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.

They are a powerful and tangible representation of the hurricanes that have been wrought by the global economic crisis; an iron curtain drawn along the coastline of the southern edge of Malaysia's rural Johor state, 50 miles east of Singapore harbour.

It is so far off the beaten track that nobody ever really comes close, which is why these ships are here. The world's ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world's economies.

Read more:
That article is full of pictures and other information indicating the equity market rebound is simply financial stocks returning to "normalcy" and bounding over the open main street.

Back in the real world, Banks Face $90B Ship Write-Downs:
The write-downs would be a delayed response to a crash in ship values of more than 50%, which has fatally undermined loan cover.

This fall, measured by the Baltic Dry Index, suggests heavily geared shipowners are under particular pressure. The fall in the index is seen as a leading indicator, which suggests the prospects for equities are also set to worsen following a recent rally.

Banks are using small print in their contracts to escape from funding commitments, leaving shipyards and those who commissioned ship construction to fight it out. Coffin said the scrapping of ships and construction projects should stabilise the situation, once the next period of write-downs was under way, but he said short-term prospects were poor.
And what will that do for world demand for steel and all the other industrial metals?

There is a fascinating collage of correlating charts involving the Baltic Dry Index at, comparing the Baltic Dry index and various other indexes and commodities, as well as technical analysis of the index itself, including this rather pregnant one:

PS: Further reading:
Other relevant charts and data re falling US retail sales

Ego investing

Most Roaring markets at some point give way to pure ego indulgence, wrapped up though it may be in rationalized notions of "investing".

Istithmar World is just one instance of the syndrome. Istithmar World is a subsidiary of Dubai World.

Dubai’s Trail of Dud Deals Shows Sovereign Wealth Gone Awry
Istithmar contributed about $2.5 billion of its own cash to back $27 billion of purchases since 2003, the people said, speaking anonymously because the strategy was private. It used so-called non-recourse bank loans, backed by specific assets, to finance about 75 percent of its acquisitions, one of the people said. The rest was funded with a mixture of its own cash and money borrowed from banks on a term-loan basis that was backed by Istithmar or Dubai World, the person said.

Istithmar’s deals were part of Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum’s attempt to raise the Arabian Peninsula emirate’s profile as he tried to vault it into the top ranks of the world’s financial centers.

Under Chief Executive Officer David Jackson, the former Lehman Brothers Holdings Inc. executive who has led the fund since 2006, and his predecessor, Muneef Tarmoom, Istithmar roamed the world to target high-end businesses. The fund bought a stake in Perella Weinberg Partners, the boutique advisory firm run by Joseph Perella, and two of Manhattan’s most exclusive hotels, the W Union Square and the Mandarin Oriental at the Time Warner Center. It acquired the Queen Elizabeth 2, the Cunard Line flagship for more than three decades, with plans to convert it into a hotel to be moored beside the emirate’s Palm Island.

Istithmar also bought stakes in Cirque du Soleil, the Montreal-based company known for staging extravagantly acrobatic circus-like performances around the world, and Yacht Haven Grande, a marina complex in the Caribbean catering to so-called mega- yachts.

“Abu Dhabi is now and will continue calling the shots in Dubai,” said Rochdi Younsi, head of Middle East research at Eurasia Group, a New York-based political-risk consulting firm, who expects additional bailouts from Abu Dhabi. “They’re making serious demands that Dubai keep only its viable arms and consolidate or shut down overleveraged ones like Istithmar.”

“It’s critical that Dubai downplay any restructuring of Istithmar as business-as-usual,” Younsi said. “They’ve put way too much money and resources to let their reputation collapse.”

Time for surgery, Dr Obama

The banks have been pulled back from the brink. They are now strong and ambulatory. It is time for the surgery that the credit attack revealed was necessary.

Time to cut off the obesity, time to slim them down to a healthy, competitive size. Time to make sure no bank or other financial institution is ever again too big to fail.

Nobel prize winner in economics, Joseph Stiglitz, has joined Stanley Fischer in berating Obama for avoiding the surgery, content to remain wedded to permanent government subsidy for the banks. Content to provide constant care.

This is not middle-class welfare, it is flying first class, private jet even, on the government's credit card and laughing all the way back to their banks. It is the one public option we can't afford.

Stiglitz Says Bank Problems Bigger Than Pre-Lehman

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview yesterday in Paris. “The problems are worse than they were in 2007 before the crisis.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.

“The question then is who is going to finance the U.S. government,” Stiglitz said.

Stiglitz is too pessimistic and the banking system will probably continue to strengthen, said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London. “I’m not sure why he’s saying it,” O’Neill told Bloomberg Television today. “The banks were close to near death. We’ve been to hell and back, so to speak, and we’re on the road to recovery.”

PS: From Obama's speech today:
... some firms that posed a “systemic risk” were not regulated as strongly as others,... As a result, the failure of one firm threatened the viability of many others.

That’s why we’ll create clear accountability and responsibility for regulating large financial firms that pose a systemic risk.

we’ve also proposed creating what’s called “resolution authority” in the event that such a failure happens and poses a threat to the stability of the financial system. This is intended to put an end to the idea that some firms are “too big to fail.” For a market to function, those who invest and lend in that market must believe that their money is actually at risk. And the system as a whole isn’t safe until it is safe from the failure of any individual institution.

The only resolution authority we currently have that would prevent a financial meltdown involved tapping the Federal Reserve or the federal treasury. With so much at stake, we should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution that threatens the economy and innocent people, or forcing taxpayers to foot the bill. Our plan would put the cost of a firm’s failure on those who own its stock and loaned it money.

PPS: Further reading
The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion...
Actually, the Washington's blog has been running a series of such posts since that last one, including this one explaining why banks can be broken up. Velly intelesting.

Monday, September 14, 2009

Grannie Gates

So where's the clamour for grannie gates???

Elderly drowning deaths surge By Stephen Johnson CANBERRA, Sept 14 AAP -
One in three drowning victims is an older Australian and a surge in deaths has prompted calls for aging swimmers to be realistic about their strength in the water.

Toddlers drowning in backyard swimming pools account for 10 per cent of all fatalities, but the most alarming increase is among the over-55s, with their drowning death rate surging by 42 per cent. A total of 302 Australians drowned in the year ending June 30, 2009 - Of these, 94 victims were aged 55 or older.

Sixty per cent of toddler deaths, where the victims were under five, occurred in a backyard swimming pool. They were dying needlessly because local governments were failing to enforce Australian Standard pool fencing regulations, Mr Bradley said

Saturday, September 12, 2009

One of those good news/bad news things, maybe

German ships successfully make "Arctic Passage"
Two German cargo ships have successfully navigated across Russia's Arctic-facing northern shore from South Korea to Siberia without the help of icebreakers

The Northern Sea Route trims 4,000 nautical miles (7,400 km) off the usual 11,000-mile journey via the Suez Canal, which Beluga has said would yield substantial savings in fuel costs and reductions in CO2 emission

The two merchant ships belonging to Beluga Shipping Gmbh were able to make the cost-saving voyage by the fabled Northeast Passage because of the reduction in the polar ice cap due to global warming, the company said.

While it has finally happened, this Swedish blogger pointed out the likelihood of the event a year ago.

Ghostwriters in the sky

Sorry, Frankie Lane

Guambat noted something not quite coincident in the following two story headlines, dealing with the same subject:

Study: Ghostwriting common at top journals
Up to 10 percent of the articles in the most prestigious medical journals were written by unacknowledged, industry-funded ghostwriters. That's the conclusion of a new study released by the editors of The Journal of the American Medical Association.

The data shocked journal editors when it was presented at a professional meeting. "It was very compelling, and I find it quite shocking, to be honest," Ginny Barbour, chief editor of PLoS Medicine, told the New York Times.

Ghost authorship on the wane, but guest authorship still common
The prevalence of so-called "honorary," or guest, authors has not declined significantly in recent years, although the practice of "ghost authorship" may be on the wane. Presenting the results, Joe Wislar, a survey research specialist at the Journal of the American Medical Association (JAMA), said the prevalence of honorary and ghost authors is still a concern.

Wislar and colleagues surveyed the "corresponding" authors of 896 research articles, review articles, and editorial/opinion pieces. Corresponding authors are typically the ones who do the bulk of the writing and research for any given article.

an "honorary" or "guest" author is often something "bestowed as a tribute to a department chair or to the person who acquired funding for the study."

By contrast, a "ghost" author refers to someone who is not named as an author, despite having made substantial contributions to the research or writing of the article.

So, next you shout "author, author" in praise of a work, please be precise as to which one you refer. It could be an important distinction without a difference.

Second verse, same as the first?

Niall Ferguson, Wall Street’s New Gilded Age, in Newsweek, an excerpt or 2:

Now, barely a year after one of the worst crises in all financial history, we seem to have returned to the Gilded Age of the late 19th century—the last time bankers came close to ruling America. A few Wall Street giants, led by none other than -JPMorgan, are back to making serious money and paying million-dollar bonuses. Meanwhile, every month, hundreds of thousands of ordinary Americans face foreclosure or unemployment because of a crisis caused by … a few Wall Street giants.

And what makes the losers in this crisis really mad is the fact that there's now one law for the small debtors and another for big ones. If you lose your job and fall behind on your $1,500 monthly mortgage payment, no one's going to bail you out. But Citigroup can lose $27.7 billion (as it did last year) and count on the federal government to hand it $45 billion.

A hundred years ago, people angrily compared the House of Rothschild to a giant octopus with its tentacles wrapped around the U.S. economy. Today it's the turn of Goldman Sachs to be likened to a "great vampire squid."

Right now we don't need a charade in which politicians claim they are going to regulate the big banks more tightly. (These are the same politicians who were supposed to be regulating Fannie and Freddie, remember.) What's needed is a serious application of antitrust law to the financial-services sector and a speedy end to institutions that are "too big to fail."

In particular, the government needs to clarify that federal insurance applies only to bank deposits and that bank bondholders will no longer protected, as they have been in this crisis. In other words, when a bank goes bankrupt, the creditors should take the hit, not the taxpayers.

Friday, September 11, 2009

When TBTF prevails, is there any value at risk?

Value at risk
In financial mathematics and financial risk management, Value at Risk (VaR) is a widely used measure of the risk of loss on a specific portfolio of financial assets. For a given portfolio, probability and time horizon, VaR is defined as a threshold value such that the probability that the mark-to-market loss on the portfolio over the given time horizon exceeds this value (assuming normal markets and no trading in the portfolio) is the given probability level.

For example, if a portfolio of stocks has a one-day 5% VaR of $1 million, there is a 5% probability that the portfolio will fall in value by more than $1 million over a one day period, assuming markets are normal and there is no trading. Informally, a loss of $1 million or more on this portfolio is expected on 1 day in 20.

VaR has five main uses in finance: risk management, risk measurement, financial control, financial reporting and computing regulatory capital.

It was the last use that brought together Nassim Taleb and Rick Bookstaber.

While many of VaR’s failings are due to the fact that the measure largely relies on banks’ own inputs, leverage ratios, we imagine, are prone to the same sort of manipulation. In fact, Bookstaber points out in his statement that off-balance sheet positions, and even CDOs, weren’t included in some banks’ VaR calculations.

So, here we come again to notions of off-balance sheet problems and mark to market issues. Guambat believes that if we simply solve these two practical problems, all the other theoretical issues, like leverage ratios and VaR, will fade to black. White, whatever.

All these notions have their genesis in theoretical modeling. Guambat is more of a realist; an ignorant realist, admittedly, so proceed with caution. Realistically, it is power that shapes events, not models. So long as the power elite can do what they want, the models of capitalism, socialism, prudence, democracy, and whatever ideal you want to label it, all fall and fail at some point. Models, dependent as they are on base-less assumptions, never get past greed and privilege. For Guambat, these last two factors are always base-line assumptions.

The way to get rid of cockroaches and rats is to shine bright lights on them. No more off-balance sheet sh@t; no more mark to whatever. All debtors should be treated with the same disdain as consumer debtors. Like most addiction therapies, it will take a while to get over it. Is it worth the trouble?

"A Lever Long Enough... and a Place to Stand"
When speaking of diplomacy, of the work that I do, one often thinks of hypocrisy. Indeed, diplomacy is a word full of meaning. The popular notion is that which comes from Machiavelli when he said: “Diplomacy is the art of getting what you want at any cost and by any means.” How can the Holy See accept this concept of diplomacy, this vision of things?

My time in the diplomatic service has taught me that what changes the world is not might, but the truth. The truth is not simply reporting facts and verifying the accuracy of words and figures without distortion; rather, it is a natural law that cannot contradict itself and which takes precedence over the laws of any state and deliberations of international institutions.

The Catholic Church is convinced that real democracy cannot be based simply upon the majority opinion of any given moment in time. A viable democracy recognizes the authority it has comes from a set of universally accepted principles upon which every political society is founded. These principles can be found in the national constitutions and in the great international declarations—which merge together in recognizing natural law, a healthy philosophical and religious spirit, and the principles and experiences that have established a national community. For this reason, the subsequent laws voted upon by a particular majority must always be in accord with fundamental, objective values. These values, once acknowledged as true, may be updated and expressed in contemporary ways, but never abrogated.

Well, that's a relief: it's not the machines

David Weidner sort of reviews a book, Inside the Black Box: The Simple Truth About Quantitative Trading by quantitative trading specialist Rishi Narang, in the WSJ, in an article titled Peering into the Black Box .
Mr. Narang is of the opinion that as a whole, quantitative trading and its sub genre, high-frequency trading, are good for the markets. Such trading strategies create liquidity in the markets and -- in the case of high-frequency guys, he argues, can stabilize volatility by providing the other side of the trade.

The problem, of course, is that people have been given new, trading tools of mass destruction. In the right hands, a high-frequency or passive quantitative program can be left running with minimal human interference.

Put those powerful tools in the hands of the less scrupulous, however, and suddenly the rules have changed. Someone is not only playing the game but controlling the roll of the dice. In August, a federal prosecutor asked a judge to put Sergey Aleynikov in jail because the computer code he allegedly stole from Goldman Sachs Group Inc. could be used to "unfairly manipulate" stock prices.

If someone could do it with a few megabytes of code, what's to stop traders at a big brokerage, or a big hedge fund or anyone with real resources from juicing the trading desk even if for a few trades? Stock manipulation is a crime as old as the markets, but have the markets ever seen such a powerful force as a computer that can crunch numbers -- including incoming customer orders -- in milliseconds?

The point is the big trading decisions in all sorts of investing are made by humans, not computers.

"If you leave people to their own devices they often do horrendous things," Mr. Narang said.

Sounds to Guambat like the "guns don't kill" argument.

Don't bank on it, says Barry

Bloomberg ran the story, Investment Bank Profits May Drop on Regulations, JPMorgan Says.

Barry Ritholtz read the JPM report and was not swayed:
With the least amount of regulatory oversight in generations in the 1990s and 2000s, bank profits were less than zero — indeed, their losses were so great that many of the biggest financial institutions bankrupted themselves.

Banks were allowed to set their own leverage, determine their own risk levels, and control their own fate more than anytime in history. And quite bluntly, they blew it.

Stop and consider the simple fact that with much less regulation, the bank profits were less than zero — their losses were so massive they bankrupted themselves.

They require oversight as they have proven beyond any doubt they are incapable of handling themselves, managing risk, to the point where they blew themselves up.

Market rallies on rose-coloured, half-glassed optimisim

Here's some data points on the day:

> The Census Bureau said the poverty rate rose to 13.2 percent in 2008, the highest level since 1997, from 12.5 percent in 2007. It said this was the first statistically significant increase in the annual poverty rate since 2004.

> The number of Americans without health insurance climbed by 800,000 to 46.3 million, or 15.4% of the population.

> Real median household income fell 3.6 percent to $50,303 in 2008. "This breaks a string of three years of annual income increases and coincides with the recession that started in December 2007,"

> The number of people filing new claims for unemployment insurance in the week ending September 5 fell by 26,000 to 550,000, the tenth consecutive week below 600,000.

> The U.S. had a record low 2.4 million job openings in July, the Labor Department said Wednesday, the fewest since the department started tracking the figure in 2000, and half the peak of 4.8 million in mid-2007.

> Employment may be starting to stabilize after 20 straight months of job losses, economists said. A return to job growth, meanwhile, is likely months away

After a brief early dip, the DJIA is at this moment up 20, S&P up 4 and the Nasdaq up 10. Happy days are here again.

US poverty rate rises to 11-year high

Household income falls 3.6% in 2008

Jobless Claims Fall to 550,000; Cont. Claims at 6.1 Mln

U.S. Initial Jobless Claims Fell to 550,000 Last Week

Job Openings Fell to Record Low in July

Thursday, September 10, 2009

Lead us not into deleveraging

Record drop in consumer credit - September 9, 2009
The drop was more than five times larger than economists forecast and marked the sixth straight month of declines -- the longest stretch since 1991.

July's $21.6 billion drop was a record, and on a percentage basis, the decline was the biggest since June 1975.

The global recession has reduced Americans' wealth by nearly 22% of since the middle of 2007.

US Stocks Climb As Investors Grow More Optimistic On Economy - Sep 9, 2009
"I'm getting a little more comfortable with this market from a fundamental standpoint," though it also remains prone to short-term swings based on chart-based trading, said portfolio manager Uri Landesman, of ING Investment Management in New York.

Consumer deleveraging datapoint of the day - September 8, 2009
Consumer credit decreased at an annual rate of 10-1/2 percent in July 2009. Revolving credit decreased at an annual rate of 8 percent, and nonrevolving credit decreased at an annual rate of 11-3/4 percent.

That’s huge, and it’s good news: individuals are clearly getting their fiscal houses in order.

And get this: consumers aren’t just deleveraging, they’re also getting more sensible about where they’re borrowing. Look at the numbers for credit unions: total consumer credit extended from credit unions has now hit a new all-time high of $238 billion. No deleveraging there

A fate worse than debt -- Sep 25th 2008
IT IS ugly, but deleveraging is the word of the moment. Financial institutions, desperate to repair the damage inflicted on their balance-sheets by mortgage-related securities, sell assets. In doing so, they exacerbate the problem. Forced sales push down the prices of assets, worsening the balance-sheets of other investors, forcing more asset sales, and so on. In the end, the government is the only entity left in the game with a balance-sheet strong enough to keep buying.

A cut in overall lending would be a complete reversal of trend. Morgan Stanley reckons that total American debt (ie, the gross debt of households, companies and the government) has risen inexorably since 1980 to more than 300% of GDP (see chart), higher than it was in the Depression. Consumers, in particular, were encouraged to borrow by low unemployment and interest rates and (until last year) rising asset prices. Their debt jumped from 71% of GDP in 2000 to 100% in 2007, a bigger increase in seven years than had occurred in the previous 20.

If consumers start to save more or borrow less, spending suffers. In the last three months, America has seen the weakest car sales since 1993, according to Bloomberg. A general decline in demand will cause businesses to shed jobs, creating further falls in demand and more bad debts.

Once started, the process is hard to stop. “What the financial and household sectors are doing is unwinding more than ten years of a credit boom,” says George Magnus, an economist at UBS. “The idea that they can rid themselves of this problem in a matter of months is pie in the sky.”

The Great Deleveraging
Actually if you're a restaurant and you turn out all the lights and shut off the oven, you can cut your expenses to zero. The problem is that you're now out of business.

Showtime for Visible Roots and Fruit - September 8, 2009
prior economic recoveries have relied on the expansion of debt-financed economic activity such as housing starts, capital spending, and other forms of gross domestic investment, as well as sustained automotive demand (beyond a brief Cash for Clunkers jolt). Debt-financed economic activity typically leads broader economic activity by nearly a year.

It strikes me as hopeful to expect this at present, in the face of continued deleveraging pressures, fresh highs in mortgage delinquencies and foreclosures, and a huge second-wave of adjustable rate mortgage resets on Alt-A and Option-ARM mortgages that were initiated at the peak of the housing bubble (which will become pressing beginning in November and December, and will continue through 2010 and 2011).

The deleveraging process is inevitable -- July 10, 2009
Not sure that no amount of intervention can stop the deleveraging process. My take from this data is fairly straightforward - the process of deleveraging and accrual of bad debt is dynamic and creates a vicious cycle, and no amount of government intervention would have or should have tried to stop the market forces and deleveraging process.

We are in a vicious cycle, with more houses getting foreclosed and coming to the market, leading to further price declines. A similar deleveraging process has to take place in commercial real estates, such as retail. Deutsche Bank has recently released sobering estimates regarding the prospective losses in commercial real estate. Equally, in light of the lost real estate and equities wealth, the household sector has to deleverage. Defaults in consumer credit are likely.

So as painful as it is, maybe the leveraging process has to proceed and the government should stand by ensuring only the payment system, and facilitate the deleveraging process.

A necessary fiddle around the edges

Rather than take on Wall Street financiers (see last 2 posts), Obama is taking on the companies that the financiers finesse, according to the Financial Times.

Obama squares up to corporate America
Barack Obama ["who campaigned relentlessly on the issue of closing offshore loopholes"] squared up on Monday for what looks likely to be his administration's first major battle with big business, when he unveiled crackdowns on offshore tax avoidance and evasion by US companies and individuals.

The steps announced by the president would include closing down the notorious "check box" loophole that enables companies to avoid US and foreign taxes by shifting income to subsidiaries based in offshore tax havens.

Mr Obama cited a Cayman Islands building where more than 18,000 US companies are housed. "Either this is the biggest building in the world or it is the biggest tax scam in the world," he said.

The administration says more than a third of US foreign profits in 2003 came from Bermuda, the Netherlands and Ireland. It also estimated that US companies paid an effective tax rate of just 2.3 per cent on the $700bn they earned in foreign profits in 2004.

But corporate America reacted with dismay

"It is the wrong idea, at the wrong time for the wrong reasons," said John Castellani, Business Roundtable president. "It will cripple growth, reduce the competitiveness of US companies overseas and destroy jobs."

The National Association of Manufacturers called the proposals "disastrous"

It appears the members of the Homeland Investment Coalition aren't as patriotic as they had claimed when it comes to bringing the profits back home.

It's not rocket science

Well, then again, maybe it is.

Markets, that is. Given that most of the algorithmic fueling of the markets in the last decade has come from the ranks of physics derivatives, game theory and other realms of the rocket scientists, perhaps it is fitting that it took a couple of physics scientists to come up with the conclusion, which simply tested the hypothesis of the rest of us, that the world's markets are the playthings of a select few.

Study Says World's Stocks Controlled by Select Few and "Companies from US, UK and Australia have the most concentrated financial power."
A pair of physicists at the Swiss Federal Institute of Technology in Zurich did a physics-based analysis of the world economy as it looked in early 2007. Stefano Battiston and James Glattfelder extracted the information from the tangled yarn that links 24,877 stocks and 106,141 shareholding entities in 48 countries, revealing what they called the "backbone" of each country's financial market. These backbones represented the owners of 80 percent of a country's market capital, yet consisted of remarkably few shareholders.

"You start off with these huge national networks that are really big, quite dense," Glattfelder said. “From that you're able to ... unveil the important structure in this original big network. You then realize most of the network isn't at all important."

Large, sparse networks dominated by a few major companies could also be more vulnerable, he said. "In network speak, if those nodes fail, that has a big effect on the network."

The most pared-down backbones exist in Anglo-Saxon countries, including the U.S., Australia, and the U.K. Paradoxically; these same countries are considered by economists to have the most widely-held stocks in the world, with ownership of companies tending to be spread out among many investors. But while each American company may link to many owners, Glattfelder and Battiston's analysis found that the owners varied little from stock to stock, meaning that comparatively few hands are holding the reins of the entire market.

The results raise questions of where and when a company could choose to exert this influence, but Glattfelder and Battiston are reluctant to speculate.

Guambat reckons Washington repeatedly shows the backbone in bailing out the backbone of the financial markets, but lacks its own backbone to regulate it.

Crisis diverted

Barry Ritholtz says the health care issue pushed financial reform off the agenda, and to Guambat's expectations, we'll likely not get either because of it.
The massive taxpayer wealth transfer to inept, corrupt, incompetent bankers has created huge resentment amongst the populace — regardless of political affiliation.

As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

This was an enormous miscalculation.

What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

This was a colossal blunder. Passing reform legislation successfully would have fulfilled the campaign promise of “Change;” it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings.

Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in five generations.
Guambat recently posted a story wherein it was noted, "For Wall Street, the longer it takes to get legislation passed the better."

Guambat wonders just how much of the diversion from Wall Street issues in pursuit of the health or high water one might be attributed to doing a deal with Hilary to keep her quietly onside.

Guambat hasn't quoted/linked to Barry in a while, but still is a regular reader of Barry's blog.

Tuesday, September 08, 2009

Panting for civil rights

Like Kartika, women in some parts of the world are being treated to more than tongue lashing for getting uppity and disrespectful.

Sudanese 'trousers woman' jailed
A Sudanese woman has been jailed for a month after refusing to pay a fine for "dressing indecently" by wearing trousers, her lawyers say. Ms Hussein, a journalist in her 30s, could have been given up to 40 lashes.

Ms Hussein was arrested in July together with 12 other women who were wearing trousers. Several of the women pleaded guilty and were given 10 lashes immediately, Ms Hussein said at the time.


Media are reporting (or blaming -- take your pick), the US is significantly responsible for the drug wars in Mexico, to the extent, anyway, that the wars are fought with US-sourced arms.
American gun sellers supply the cartels with 95 to 100 percent of their guns, according to the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives.
Back in his impressionable youth, which happened long before his impressionable oldth, Guambat read with amazed outrage a book called, The Arms of Krupp.

Today Krupp makes coffee pots and heavier industrial products, but for centuries the House of Krupp armed German Princes, Kings, Kaisers and Fuhrer.

There may not be a House of Arms in the US today, but there is certainly some form of Krupption.

Despite Slump, U.S. Role as Top Arms Supplier Grows

Despite a recession that knocked down global arms sales last year, the United States expanded its role as the world’s leading weapons supplier, increasing its share to more than two-thirds of all foreign armaments deals, according to a new Congressional study.

The annual report was produced by the nonpartisan Congressional Research Service, a division of the Library of Congress. Regarded as the most detailed collection of unclassified global arms sales data available to the general public, it was delivered to the House and Senate on Friday

Monday, September 07, 2009

Pushing up tulips

Guambat has posted a couple of times lately about how the NYSE rally was mounted on the back of three very rickety stocks, Citigroup, Fannie and Freddie.

The Financial Times has spotted even more Casino madness in stocks that are bankrupt.

Lehman leads the way in ‘lottery ticket’ rally
Lehman shares peaked last week at 32 cents, having spent much of the year at less than 5 cents. When the rally in Lehman began in late August, trading volume soared above 100m shares on one day, compared with virtually no activity earlier in the year. Shares in Washington Mutual and IndyMac, two other bankrupt financial institutions, have also risen sharply in recent days.

“It is tulip mania,” said Mr Golding. “People have decided [a stock] is worth something based on nothing. The facts are quite the contrary.”

Guambat reckons you should tip toe through the tulips alone.

Lyrics | Tim Tiny - Tiptoe Through The Tulips lyrics


Guambat apologizes for the white space appearing here over the last few days. He's suffering from a blue screen of death mind fork, a complete mental seizure, incapable of articulation, over that speech the President of the United States intends to address to the children of the country.

How the bloody f*&%#$@k can that possibly be, before the fact even, a controversy?


Add that to the "tea parties" and the health-care town hall lynchings, and it seems the USA has taken a very radical step to the right.
Patriots, be on notice. This is the favorite tactic of the left. Any criticism of Obama, no matter what or how legit, will be labeled racism. Tea party? Racist! Opposition to socialism? Racist! Opposition to nationalized healthcare? Racist! Opposition to cap and tax? Racist! Opposition to the ethnic cleansing of Jewish people in Israel? Racist!

The editor of the American Thinker, Thomas Lifson, observed that the poster showed that the inevitable backlash against Obama’s far-left policies has begun: “It is starting. Open mockery of Barack Obama, as disillusionment sets in with the man, his policies, and the phony image of a race-healing, brilliant, scholarly middle-of-the-roader.”

And w
e can't continue to blame it on Bush, who was obviously the sawdust-head puppet for his veep ventriloquist from the populous state of Wyoming and its traditions from the Wyoming Stock Growers Association and its Cheyenne Club.
The angry reaction is a sign of how fractious the US political scene has become

“As far as I am concerned, this is not civics education – it gives the appearance of creating a cult of personality,” said Steve Russell, a Republican senator from Oklahoma. “This is something you’d expect to see in North Korea or in Saddam Hussein’s Iraq.”

But on a side note, it is heartwarming to see that Bush/Cheney's Ashcroft, his AG who formulated many of the policies that were shredding away ancient civil liberties, won't be hiding behind any immunities. The really fascinating part is that the majority opinion was written by a Bush appointee and a Reagan appointee, with another Bush appointee dissenting. Not a Democrat, nor presumably "leftist", in the debate.

Thursday, September 03, 2009

A million here, a billion there ...

Guambat's foggy eye spotted this article in the NYT, which adds to the CMBS storyline from a post of a couple days ago.

But it was not the story that got Guambat's attention, but the correction:
An earlier version of this article misstated a statement of Richard Parkus about office rents and vacancies. Mr. Parkus stated that vacancies are increasing and rents decreasing, not the other way around. Also, $393 billion worth of mortgages are set to mature by the end of next year, not $393 million, and $39 billion more that were to expire have been extended, not $39 million.

Drug lords

It's been a little bit since Guambat had a pharma spew. The bad news was so persistent it just became overwhelmingly routine, a numbing routine.

Still is.
Marketing fraud cases against pharmaceutical companies have become almost routine, with almost every major drug maker being accused of giving kickbacks to doctors or shortchanging the Medicaid program on prices. Prosecutors said that they have become so alarmed by the growing criminality in the industry that they have begun increasing fines into the billions of dollars and will soon start charging doctors individually as well.
Pfizer Pays $2.3 Billion to Settle Marketing Case

Document Details Plan to Promote Costly Drug
The document, “Lexapro Fiscal 2004 Marketing Plan,” is an outline of the many steps Forest used to make Lexapro a success. Because of concerns from Forest, the Senate committee released only 88 pages of the document, which may have originally run longer than 270 pages. “Confidential” is stamped on every page.

But those 88 pages make clear that one of the principal means by which Forest hoped to persuade psychiatrists, primary care doctors and other medical specialists to prescribe Lexapro was by finding many ways to put money into doctors’ pockets and food into their mouths.

Tuesday, September 01, 2009

The bull run we bearly knew?

Psychologists and marketers know we tend to gravitate to things and ideas we already hold near and dear, and disregard anything contrary. Thus these items gained center stage on Guambat's radar screen.

The first is a follow-on from yesterday's post about how the DJIA has been pushed along by an aberrant flow of funds into just 3 stocks, 2 of which are Fannie and Freddie:

FBR Sees ‘No Underlying Value’ in Fannie, Freddie
FBR Capital says as it views the near-quadrupling in the two government-sponsored mortgage giants’ stocks in August on speculation of reverse stock splits.

Regulators “will not want to create a false sense of value in FNM and FRE shares and will likely shy away from” those splits, FBR writes.

And then these:

Correction ‘Trip Wires’ Triggered
BofA-Merrill chartist Mary Ann Bartels is monitoring several “trip wires” for a intermediate-term correction of 15%-20%.

The measures include a loss of leadership in tech; a break below 20% of bears in Investors Intelligence poll; percentage of NYSE stocks above 200-day moving average “peaking and rolling-over”; and peak in China’s equity market.

Goldman Sachs Wrong on Economic Recovery, Macro Hedge Funds Say
[Paul Tudor] Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff.

“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

“We think the recession is ending right now,” Abby Joseph Cohen, senior investment strategist at Goldman Sachs, said in a Bloomberg Radio interview Aug. 17.

High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010, Tudor said. Macro managers’ pessimism is fueled in part by the U.S. government’s response to last year’s financial crisis, which they say fails to address the root cause. Banks still hold hard- to-sell assets on their balance sheets, the managers said.

The Financial Accounting Standards Board voted in April to relax fair-value accounting rules. The change to mark-to-market accounting allowed companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities that plunged with the housing market.

Banks are reporting better earnings because they haven’t been forced to account for their losses yet, Clarium’s Harrington said.

“We haven’t fixed the problem,” he said. “We’ve just slowed down the official recognition of it.”
The Recovery Conundrum
Here is the conundrum: To a large, but not exclusive extent, August’s strength in vehicle sales will reflect the stimulus of the federal government’s cash for clunkers program. The unanswerable question is, How would General Motors, Chrysler and Ford have fared if there were no cash for clunkers program? The other facet of the conundrum is this question: Should economic indicators goosed by the government count for as much as economic indicators covering areas on which the government has not laid its intrusive hands?

I’ve said it before, and I’ll say it again: everywhere you see what’s being hailed as recovery, you see massive government intervention. Massive. The government has committed $12 trillion in spending, loans and guarantees, and it’s spent about $4 trillion. Never in this nation’s history have those kinds of resources been committed.

Cash for clunkers has already expired, the Fed’s Treasury buying program runs out in October. The first-time home-buyer tax credit runs out in November. The Fed’s mortgage-backed securities buying program will run out either at the end of this year or beginning of next, depending upon timing (if they even complete it; Richmond Fed pres Jeff Lacker said they may not need to run the program through the planned $1.25 trillion if the economy keeps improving.)

Everywhere you see recovery, you see the hand of government: banking, autos, housing. In fact, the only part of the economy I can think of that isn’t receiving massive, direct federal subsidies, is broad consumer spending (the aforementioned clunkers and that weekly $13 tucked into your paycheck excluded.) And guess what remains weak?
Commercial Real Estate Lurks as Next Potential Mortgage Crisis
Federal Reserve and Treasury officials are scrambling to prevent the commercial-real-estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat. Similar mortgage-backed securities created out of home loans played a big role in undoing that sector and triggering the global economic recession. Now the $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn't been pretty.

CMBS, of course, aren't the only kind of commercial-real-estate debt suffering higher defaults. Banks hold $1.7 trillion of commercial mortgages and construction loans, and delinquencies on this debt already have played a role in the increase in bank failures this year.

CMBS are held by scores of investors, and the servicers of CMBS loans have limited flexibility to extend or restructure troubled loans like banks do. Earlier this month, it was no coincidence that CMBS mortgages accounted for the debt on six of the seven Southern California office buildings that Maguire Properties Inc. said it was giving up. "During most of the evolution [of CMBS] no one ever thought all these loans would go into default," says Nelson Rising, Maguire's chief executive.
If you can't link to the WSJ article for the full story, a synopsis is also available at: Second Round of Mortgage Crisis

Also see, Commercial Mortgage Defaults Jump for U.S. Banks (Update2)
The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter from a year earlier amid falling rents and occupancies for malls, office buildings and warehouses. This year’s first-quarter default rate was the highest since 1994, Real Econometrics said.

The CMBS market accounts for about 22 percent of the nation’s $3.4 trillion in commercial real estate debt, according to the Real Estate Roundtable. Banks are beginning to recognize that more past due commercial property loans are unlikely to be paid in full.

And how does the CMBS play out in Guambat's alter burrow Down Under?

Macquarie CountryWide Bets CMBS Better Than Bank Debt (Update1)
Macquarie CountryWide Trust is selling Australia’s first commercial mortgage-backed securities since 2007 after calculating they’ll provide more flexible funding than loans, Chief Executive Officer Steven Sewell said.

“We’ve got a fallback option, if we’re unsuccessful in this program, of a syndicated bank facility,” he said.

About 44 percent of the rated Australian CMBS market, or A$3.4 billion, is scheduled to mature in 2009, according to a report by Fitch Ratings, creating a “maturity hump.”

“We’re pretty confident the CMBS route is the best route available to us,” Sewell said in a phone interview from Melbourne yesterday. “The bank syndicate option would come with upfront charges as well as ongoing covenants, whereas CMBS, whilst it is a little bit more restrictive, doesn’t have ongoing covenant issues.”
Notice the pregnant silence in that last clause regarding upfront charges, a key element of the Macquarie model.

Guambat can't shake the feeling deep down in his ever more impressive gut that the market is setting up for another post-Labor Day, perhaps October, shake-down (see this and this). The recent run has been made of the same kind of giddy and irrational momentum that bubbled over last year. It has proven that the people at the coal face fighting for recovery have put expediency and fraternity before foundation and future. For whatever reason(s).

Guambat had hoped for more, much more, from the change he wanted so much to believe in. But couldn't vote for.