The major stock measures closed on their lows for the day
as the bulls didn’t have enough energy (or care) to rally stocks in the last
fifteen minutes as they have so often recently. But bulls remain in control as
a 50 point drop in the DJIA is small change after the 50% run up from the March
lows. Breadth was 2/1 negative and volume was moderate.
18 September 2009
Shanah Tovah to everyone celebrating the New Year.
Asian markets were lower
overnight. Gold is at $1015 and Oil has a $72 handle as the trading day begins.
PG was raised to a buy at Citi and that is helping the DJIA.
Floyd Norris, NYT: The student
loan system has a lot of problems, and there have been scandals. Perhaps the
worst part of it is that for-profit schools of little if any repute manage to
use it to collect cash for enrolling students who they will not, in fact,
educate. That leaves those unfortunate students with debt they cannot pay, and
the government with losses. I hope the Obama administration will find a way to
deal with that.
We get e-mails:
A couple of items:
Received a trade
conformation on a treasury bill that may have been for
And what do you think
about limited partnerships.
Have a great day,
We bought the Treasury bill for
you to get accounts under $500 M because we are going to an insured C/D money
fund and there are only 2 banks names we want to own at $250 M each for now. The
bills mature in December.
We don't like limited
partnerships because the general partner controls what the limited partners
own. Usually, as in real estate, the general partner also owns real estate aside
from the partnership (same for oil) and thinks it is too much of a temptation
for the general to place the best stuff in its own account.
A J.P. Morgan analyst lifts
his view on the home-builder sector to
positive from negative, saying the housing market has made it through the
worst of the correction.
Discussion of Wells Fargo loans:
Most European markets pulled back
from recent gains, as profit-taking hit commodity-sector stocks.
Oil closed at $71.86. Gold closed
Stocks closed higher on Quadruple Witching Friday with
breadth almost 2/1 positive and major measures on yearly highs. Volume was
active but low for a Witching day. The bears are licking their wounds which are
getting more serious by the trading hour.
Rosh Hashanah (Hebrew:
השנה, literally "head
of the year," Biblical: [ˈɾoʃ haʃːɔˈnɔh], Israeli: [ˈʁoʃ
is a Jewish holiday commonly referred to as the "Jewish
It is observed on the first day of Tishrei,
the seventh month of the Hebrew calendar,
as ordained in the Torah,
in Leviticus 23:24.
Rosh Hashanah is the first of the High Holidays
or Yamim Noraim ("Days of Awe"), or Asseret Yemei Teshuva (Ten Days of Repentance) which are days
specifically set aside to focus on repentance that conclude with the holiday
of Yom Kippur.
Rosh Hashanah is the start of the
civil year in the Hebrew calendar (one of four "new year" observances
that define various legal "years" for different purposes as explained
in the Mishnah and Talmud). It is the New Year
for people, animals, and legal contracts. The Mishnah also sets this day aside as the
New Year for calculating calendar years and sabbatical (shmita) and jubilee (yovel) years. Rosh Hashanah
commemorates the creation of man whereas five days earlier, on 25 of Elul, marks the first day
the core text of Judaism's oral Torah, contains the first known reference
to Rosh Hashanah as the "day of judgment." In the Talmud tractate on Rosh Hashanah it states that
three books of account are opened on Rosh Hashanah, wherein the fate of the
wicked, the righteous, and those of an intermediate class are recorded. The
names of the righteous are immediately inscribed in the book of life, and they
are sealed "to live." The middle class are allowed a respite of ten
days, until Yom Kippur, to repent and become righteous; the wicked are "blotted
out of the book of the living." http://en.wikipedia.org/wiki/Rosh_Hashanah
17 September 2009
WSJ: Housing starts rose a
less-than-expected 1.5% compared to the prior month, the Commerce Department
reported Thursday, as single-family home construction fell and groundbreakings
on new apartment buildings rebounded. Permits for new buildings climbed 2.7%.
Economists had expected permits to rise by 4.6%.
The number of workers filing new claims for
jobless benefits fell by 12,000 last week to 545,000. Economists had expected
an increase in claims. In currency markets, the dollar fell to new lows, with
the euro rising as high as $1.4766. Oil had a $72 handle based on stronger
equity markets and a weaker dollar against the euro, but gains were capped due
to concern over mounting U.S. products inventories. Overseas, European markets
were higher midday; Asian markets hit new multimonth
highs, as China closed at a 13-month peak. Gold is unchanged at $1020.
AMR was up more than 24% after it said
it obtained $2.9 billion in added liquidity and new aircraft-leasing financing
while announcing a big retrenchment. FedEx shares slipped 0.6% after the
package-delivery giant reported its first-quarter earnings slumped 53%. Last
week, the company expressed optimism for the current period amid anticipation
of "a continued modest recovery in the global economy."
Oracle shares were down 2.5% after the
company reported that sales slipped in a typically slow Aug. 31-ending first
quarter, with license sales falling 17%. Its profit rose 4%.
European shares ended higher, with banks and aviation-linked shares
rising amid optimism over a global economic rebound.
Article on the Federal Government funding small airports to the tune of
billions of dollars.
Oil ended unchanged at $72.81 and
Gold lost $3 to $1017.
Stocks closed slightly lower on Thursday in active trading.
The bulls remain in control.
16 September 2009
At the close yesterday we bought shares of Kroger in larger accounts at $20.50
which was down $1.50 on the day. The shares were within $1 of their 52 week
low. KR is a low risk trade.
Asian markets were higher except
China which was down 1%. European markets are higher at midday and U.S. markets
look to open higher again. Oil is $71 and Gold is at $1020 on its way to
The consumer price index was up 0.4% on a monthly basis in August, the
Labor Department said Wednesday. That was in line with expectations of
economists surveyed by Dow Jones Newswires. Core CPI, which excludes food and
energy prices, increased 0.1%, as expected. Unrounded, CPI advanced 0.447% last
month, while the core index was up 0.068%.
Not kosher: Citigroup Chairman Richard Parsons is joining private-equity firm
Providence Equity Partners as a senior adviser but plans to remain in his
Citigroup post. What Parson’s learns on the Citi board will be of great value to the hedge fund he is part of.
The new capitalism: heads the
government pays, tails the government pays.
(NYT): When Congress passed an
$8,000 tax credit for first-time home buyers last winter, it was intended as a
dose of shock therapy during a crisis. Now the question is becoming whether the
housing market can function without it.
As many as 40 percent of all home
buyers this year will qualify for the credit. It is on track to cost the
government $15 billion, more than twice the amount that was projected when
Congress passed the stimulus bill in February. In the view of the real estate
industry and some economists, all that money is well spent. They contend the
credit is doing what it was meant to do, encouraging a recovery in the housing
market that is gathering steam. Analysts say the credit is directly responsible
for several hundred thousand home sales.
Skeptics argue that most of the
money is going to people who would have bought a home anyway. And they contend
that unless it is allowed to expire on schedule in late November, the tax
credit is likely to become one more
expensive government program that refuses to die.
The real estate industry,
including the powerful 1.1 million-member National
Association of Realtors, wants Congress to extend the credit at
least through next summer. The group hopes to expand the program to $15,000 and
to allow all buyers, not just those who have been out of the market for at
least three years, to qualify. The price tag on that plan: $50 billion to $100
The new capitalism: heads the
banks win, tails the banks win.
(FT): The US government should
help revive the moribund market for big mortgages by getting Fannie Mae
and Freddie Mac
to buy large home loans from banks, the chief executive of the lender Wells Fargo
urged on Tuesday. Fannie and Freddie can currently buy or guarantee mortgages
worth up to $417,000. The stimulus plan approved last year set the companies
higher limits of up to $729,750 in certain high-cost areas such as California
until the end of 2009. Congress has to approve any extension of those higher
limits. “I would like to see Fannie and Freddie increase the size of mortgages
[they buy],” Mr. Stumpf said. “It would be good for housing and good for the
When Obama gets everything he said was needed for single payer he
changes his mind.
“I happen to be a proponent of a
single-payer, universal health care plan,” then-U.S. Senate candidate Obama
said at an AFL-CIO event in 2003, using the terms that commonly refer to a
government-run health insurance system. “Everybody in, nobody out, a
single-payer health care plan, universal health care plan — that’s what I’d
like to see,” he said. “But as all of you know, we may not get there
immediately, because first we’ve got to take back the White House. And we got
to take back the Senate, and we got to take back the House.” Obama has said
repeatedly that he doesn’t now support a single-payer system — where the
government is the sole provider of health insurance across the country. (http://www.americablog.com/)
(Bloomberg) -- Warren Buffett, the billionaire investor who last year called the financial
crisis an “economic Pearl Harbor,” said the U.S. economy has “hit a plateau at
bottom.” “We have not bounced but we’ve quit going down,” Buffett said today in
an interview on CNBC. “We’re through the worst of it in residential real estate
in all probability,” adding that he doesn’t expect a “double-dip” recession.
9/2/09: Today, Goldman, never too far behind,
especially in names in which it is significantly axed in CDS and other OTC
products, upgraded Textron maker
from Neutral to Conviction Buy, with a price target increase from $16 to
$23. 9/16/09: Textron issued $600 million in new notes with Goldman one of the folks running the
books on the bond sale. (http://www.zerohedge.com/)
European shares ended up 1% and higher, with miners and autos fronting
the gains amid hopes for a sustained global economic recovery.
Baucus introduced his health
reform (?) bill and United Health, Aetna and Humana all jumped $1 in price. That says it all.
Gold closed at $1018 and Oil
gained 90 pennies to $71.83.
Furthermore, the persistent bid
for treasuries is there. As the money
market guarantee is set to expire in the next few days, is this merely a
last minute push by advisors telling their clients to get out of MMs and into
the "safety" of any and all other asset classes? And speaking of
money market accounts: we are now back to the
pre-Lehman levels. All the "money on the sidelines" that moved out of
equities as a result of the events since the Lehman collapse is now back in. (http://www.zerohedge.com/)
A presentation of shipping vessels in use and not in use around the
world using Google. Worth a gander:
Stocks closed plus 1% and higher today on increased volume
and 3/1 positive breadth. There were over 500 new 52 week highs today.
The bulls are rolling in clover.
15 September 2009
Asian markets were slightly
higher overnight as are European markets at midday and U.S. markets
pre-opening. Gold is flat at $1000 and Oil has a $69 handle as the trading day
Retail sales were better than and Kroger lowered guidance while Illinois
Tool Works raise guidance. Yahoo
was raised at Bernstein.
WSJ: U.S. retail sales jumped in August as car dealers cashed in on
"clunkers," getting a big boost from the government car rebate
program, according to a report that also showed other merchants faring well in
an unexpected sign of consumer resilience. Separately, U.S. producer prices rebounded sharply last month on the back of
rising gasoline and other energy costs, though core prices posted only a slight
gain. Retail sales last month exceeded expectations and rose 2.7%, the Commerce
Department said Tuesday. Wall Street was looking for a 2.0% jump. While much of
that big gain came from cars and gasoline, other sales rose 0.6%; that was the
second increase in six months within the ex-car, ex-gas category. Consumer
spending makes up 70% of gross domestic product, which is the broad measure of
U.S. economic activity.
The game these days and thus the
price of the stock is dependent on the guessing game
of what earnings will be versus what they eventually are. In this vein Best Buy's earnings for its fiscal second quarter fell 22% as sales
continued to fall and the company's international business swung to a loss.
But the consumer-electronics
retailer raised its outlook for the fiscal year because first-half revenue
"modestly exceeded" expectations and customer traffic showed signs of
stability and so the share price will be higher this morning.
The Treasury has a $10 billion
gain on the 7 billion shares of Citi
it owns and is considering selling shares in blocks or dribbling it out over
time. We wonder who is going to get the order to sell it.
Bloomberg: Manufacturing in the
New York region grew in September at the fastest pace in almost two years, a
sign factories are helping pull the economy out of a recession. The Federal
Reserve Bank of New York’s general economic index increased to 18.9 from 12.1
in August, the bank said today. Last month’s report was the first time since
April 2008 that the reading was above zero, the dividing line between expansion
and contraction for the Empire State index.
The judge threw out the
BankAmerica settlement with the SEC and so now the SEC has to try a case it
wanted to settle.
Financial is selling common
stock to raise roughly $500 million in new capital. The share price is ten
times higher than it was in March.
Robert Reich: So will the President succeed
on financial reform? I wish I could be optimistic. His milktoast list of
proposed reforms is inadequate to the task, even if adopted. The Street's
behavior since its bailout should be proof enough that halfway measures won't
do. The basic function of commercial banking in our economic system -- linking
savers to borrowers -- should never have been confused with the casino-like
function of investment banking. Securitization, whereby loans are turned into
securities traded around the world, has made lenders unaccountable for the
risks they take on. The Glass-Steagall Act should be resurrected. Pension and
401 (k) plans, meanwhile, should never have been allowed to subject their
beneficiaries to the risks that Wall Street gamblers routinely run. Put simply,
the Street has been given too many opportunities to play too many games with
other peoples' money.
But, like the health care industry, Wall Street has
platoons of lobbyists and an almost unlimited war chest to protect its interests
and prevent change. And with the Dow Jones Industrial Average trending upward
again -- and the public’s and the media's attention focused elsewhere,
especially on health care -- it will be difficult to summon the same sense of
urgency financial reform commanded six months ago.
The Health Care Industry has pledged to spend $150 million on advertising supporting the Gang of Six Senate
Health Reform Plan (who represent about 1% of the total population of the
country) which doesn’t have a public option. It will be money well spent.
Strange but true: With the White House zeroing in
on the insurance-industry practice of discriminating against clients based on
pre-existing conditions, administration
allies are calling attention to how broadly insurers interpret the
term to maximize profits. It turns out that in eight states, plus the
District of Columbia, getting beaten up by your spouse is a pre-existing
condition. Under the cold logic of the insurance industry, it makes
perfect sense: If you are in a marriage with someone who has beaten you in the
past, you're more likely to get beaten again than the average person and are
therefore more expensive to insure. http://www.huffingtonpost.com/2009/09/14/when-getting-beaten-by-yo_n_286029.html.
Beach House story cont: Wells Fargo has fired a senior vice
president after investigating reports she held lavish parties at a foreclosed
beachfront Malibu house owned by the bank. The fourth-largest U.S. bank said in
a statement on Monday that it had terminated one employee, senior vice
president Cheronda Guyton, who it found had violated its policies.
The proposed health care
legislation would give additional federal money to help states pay for newly
eligible Medicaid enrollees. And a higher percentage of those newly eligible
would live in states that so far have made it hardest for people to qualify for
Alabama, for instance, sets its
eligibility cutoff for parents at 11
percent of the federal poverty level. That
means that a couple with two children would qualify for Medicaid only if they
earn less than $2,500 per year. (If that’s all they earn the family has
more problems than no health care.) A couple earning more would not be
considered poor enough to qualify.
Compare that to the Medicaid
cutoff in more generous states, most of them traditionally blue. Medicaid is
offered to parents earning 100 percent of the poverty limit in California; 150
percent in New York; 185 percent in Illinois; 200 percent in Maine, New Jersey
and Wisconsin; and 275 percent in Minnesota.
A crazy quilt of eligibility
rules obtains around the nation. (In more grandiose moods, we describe this as
“the laboratory of the states.” It’s an example of “American exceptionalism.”) In
Alabama, a two-child couple who earn $3000 per year
are too rich to qualify for Medicaid. In Minnesota, a couple can qualify if
they make upwards of $50,000.
In the current debate, this matters big-time because, under proposed
reform, additional federal money would only go to cover newly eligible
enrollees. The states which had already been more generous would therefore get
the shaft. http://www.dailyhowler.com/index.shtml
High yield bond funds:
Former Chicago Bull Horace Grant won a $1.46 million arbitration
award against Morgan Keegan & Co. for losses in some bond mutual funds, the
largest victory against the brokerage firm to date for his Chicago-based
The award, announced Friday,
represents nearly all of the unrealized losses Grant allegedly suffered as of
January 2008, said his attorney, Andrew Stoltmann.
Grant had alleged that Morgan
Keegan, a Memphis-based broker, sold him four high-yield bond funds with more
risk in them than he was told. He initially invested about $3 million with
Morgan Keegan eight years ago, Stoltmann said. Morgan Keegan marketed the funds
as conservative investments appropriate for retirees looking to protect their
principal, Stoltmann said.
In 2007, the four funds plummeted
by an average of 58 percent, according to Grant's complaint filed in March 2008
with the Financial Industry Regulatory Authority, or FINRA, which runs the
arbitration forum for investors. Similar bond funds lost 6.9 percent that year,
the complaint said.
The Morgan Keegan funds were
clobbered by the meltdown in subprime residential mortgages, largely because
they invested in risky debt-related securities and other mortgage-related
holdings. Stoltmann claimed that Morgan Keegan failed to disclose the funds'
large concentrations of such securities, an allegation that the brokerage firm
The FINRA arbitration panel did
not provide any reasons for finding in favor of Grant, who did not return phone
calls seeking comment. Grant, who lives in California, retired in 2004from the NBA. Morgan Keegan said in
a statement that "arbitration cases turn on their individual facts and we
don't agree with the outcome."
The brokerage firm, a unit of Regions Financial Corp., a bank based in Birmingham, Ala., faces a flood of arbitration
claims from investors related to its high-yield bond funds. Investors in the
funds reportedly lost more than $2 billion in 2007.
Stoltmann said he has about 60
cases against Morgan Keegan pending before FINRA. He lost his first few cases
against Morgan Keegan, according to FINRA records, but has won his last four.
His biggest previous award in a Morgan Keegan case was about $700,000,
"Grant's award is important
because it shows that arbitrators can comprehend these complex investments and
hit a brokerage firm hard for subprime losses," Stoltmann said.
A Morgan Keegan representative
said that investor claims have been denied in about half of arbitrations cases
heard to date. FINRA has so far heard 57 Morgan Keegan cases related to its
high-yield mutual funds.
Last year, complaints involving
mutual funds outnumbered complaints involving stocks for the first time,
according to FINRA statistics. The phenomenon has continued so far this year.
The U.S. Treasury Department
adopted rules allowing lenders to revise commercial real estate loans without
triggering tax penalties in an effort to stem a rise in defaults. What this
means is that investors in commercial real estate get to keep their tax
deductions and depreciation even though the terms of the original purchase and
loan are lowered. Nice work if you can get it.
News flash: Ben says recession over
WSJ: U.S. Federal Reserve
Chairman Ben Bernanke made his most emphatic declaration yet that the recession
has ended, as a separate data release Tuesday showed a rebound in retail sales.
But Mr. Bernanke reiterated that tight credit conditions and a soft labor
market will prove to be a challenge.
From a technical perspective, the
"recession is very likely over at this point," Mr. Bernanke said in a
question-and-answer session at the Brookings Institution. But he added that
even if recovery is under way, the economy will still seem weak because credit
conditions remain tight and any decline in the unemployment rate will probably
happen gradually. He noted that one risk is that the economy will grow in the
second half of 2009, but not enough to trigger a rapid recovery in employment.
The way capitalism used to work is that a company that
couldn’t refinance would file bankruptcy and the bondholders would divide
what’s left. The new way exacerbates the problems that are then never solved.
WSJ: One year, two CEOs, and $82
billion since the government rescue of American
International Group, monsters are still rattling in the closet. 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. AIG needs
to save ILFC without hurting a core insurance business that has equity in the
unit. And it must do so without raising the ire of taxpayers and Congress. In
other words, AIG must figure out how to feed the beast without being consumed
by it. Whether there is the political will, the financial acumen, and the dumb
luck to pull off all these objectives is an unknown. But taxpayers should tune
in because a likely scenario is that they will end up paying for much of this
smaller rescue, too. Already, there is a consensus that the current ILFC
doesn't make financial sense. The business, whose $47 billion balance sheet
holds some 1,000 aircraft, used to piggyback off AIG's sterling credit rating.
That meant it could issue debt at a low cost of just 4% to 5%, buy aircraft and
lease them at higher rates. The business was so solid that AIG invested some
surplus capital of one insurance subsidiary -- used to back policies --
directly into ILFC. The credit crisis pushed ILFC's borrowing costs up by
nearly three times, according to a recent report by CreditSights. And there is
a wave of debt coming due. The figure is about $18 billion over the next three
years, and $30 billion overall. The problem is that bond investors aren't
willing to re-up. Though ILFC still produces a large chunk of annual cash flow
-- and has the explicit backing of AIG for 11 more months -- the company is in
a clear liquidity crisis, with a shortfall of around $5 billion to $6 billion,
according to people familiar with the matter. Bankruptcy would be the normal
course for companies in this bind. 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.
Market volume is low and 80% of volume is select financials.
Overall volume is 70% of the August rally volume which was low. The old saying
was that volume precedes price, i.e.
high volume means higher prices, low volume means
lower prices. In the computer age that old saying may not have any value, or
maybe it does.
European markets ended higher, as better-than-expected U.S. retail
sales fuelled hopes of a sustainable recovery in the global economy.
LAT: Southern California median home price climbs 2.6% in August. The price
is still 45.5% below the 2007 peak and 16.7% lower than a year earlier.
Sales are limited because fewer foreclosed homes are on the market.
Gold closed at $110 and Oil was
up $2 at $71.08.
Barclays Plc President Robert
Diamond said “there isn’t any banking without risk” and that anyone
who can’t take chances should leave the industry.
“We need banks that are confident
and banks that are willing to take risks,” to “get the economy going again,”
Diamond told the British Broadcasting Corporation’s Radio 4
today. Anyone unwilling to take risks should “get out of banking,” he added.
... There isn’t a banker that didn’t make mistakes in the past couple of
years,” Diamond said. “I certainly know I learnt some valuable lessons.”
Diamond is the fellow who bought Lehman’s trading division for Barclays
at the height of the crisis. There is risk and there is risk. And there is
Stocks continued their inexorable shimmy higher in light
trading with breadth 2/1 positive on the NYSE. The bulls remain in control.
This is an expiration week so one counter-trend day should be expected.
14 September 2009
Stocks look to open lower after
the evil Obama’s minions are being accused of starting a trade war with China
by imposing a tariff on Chinese tires. Asian markets were lower overnight
except China which was up 1%. Europe is lower, Gold is at $999 and Oil has a
$68 handle as Quadruple Witching week begins.
Eli Lilly plans to cut about
5,500 jobs, or about 14%, by 2011, lowering its global work force to 35,000 in
a bid to slash costs by $1 billion and speed up development of new medicines.
Strange but true. The DJIA closed on 9/10/01 at
9605. And it closed on 9/11/09 at 9605.
We sure do like certain
anniversaries in this country. Friday was 9/11 and today is the anniversary of
Lehman collapse last year. Obama goes to Wall Street to speak about reform? Yet
we never hear of the Oklahoma City bombing or commemorate its anniversary with
presidential visits. Nor were the families of its victims compensated with
million dollar settlements. http://www.apfn.net/Messageboard/04-17-05/discussion.cgi.5.html
Most European shares fell for the first time in eight sessions, with
miners under pressure as investors pulled back from riskier trades in light of
a possible trade war between the U.S. and China.
Gold ended at $999 and Oil closed
at $68.85 down 44 pennies. One reason proffered for it being lower was concern
that the CME might begin enforcing position limit rules.
Stocks closed a bit higher in desultory trading. The bulls
remain in control until further notice.
11 September 2009
The news this morning is that
John Mack is out as CEO of Morgan Stanley. The talking heads are making a big
deal of the fact that Morgan Stanley’s earnings were not up to the level of
Goldman because Mack didn’t take as much risk and leverage Morgan as much as
Goldman was leveraged. And so maybe the takeaway is that leverage will keep your
job, as long as you are leaning the right way. And that is the same old same
Gold is back over $1000 and Oil has
a $72 handle in the early going. Asian
shares ended mostly higher, getting a boost from a batch of upbeat Chinese economic
data, but Japan stocks fell 0.4%, weighed by the strong yen and slower growth. Chinese
stocks climbed over 2% after a raft of data from the country, including a 15%
increase in retail sales and a 12% rise in industrial output. Money Supply was
up 28%. Can anyone say inflation? Europe stocks were up at midday for a seventh
day in succession.
Not all suffer from foreclosures:
A Wells Fargo & Co. executive
who oversees foreclosed properties hosted parties and spent long summer
weekends in a $12 million Malibu beach house, moving into the home just after
it had been surrendered to Wells Fargo to satisfy debts, neighbors said.
The previous owners of the beachfront home in Malibu Colony, a densely
built stretch of luxury homes that has been a favorite of celebrities over the
years, were financially devastated in Bernard Madoff's massive fraud scheme,
real estate agent Irene Dazzan-Palmer said.
The couple signed the property
over to Wells Fargo last spring, and the bank subsequently denied requests to
show the house to prospective buyers, Dazzan-Palmer said.
Residents in the gated community
told the Los Angeles Times that a woman they believe was Cheronda Guyton took
up occupancy at the home in May. Residents said they obtained Guyton's name
from the community's guards, who had issued her a homeowner's parking pass.
Residents also wrote down the
license plate number of a 2007 Volvo sport-utility vehicle they say was parked
in the home's garage. A check of state motor vehicle license plates by the
Times found the vehicle was registered to Guyton.
Guyton is a Wells Fargo senior vice president responsible for
foreclosed commercial properties, resident Phillip Roman said.
The total value of Harvard's endowment plunged nearly 30 percent in the
last fiscal year as the Ivy League institution's portfolio was battered by
the worldwide recession, the university's management company said. The
endowment stood at $26 billion on June 30, after distributions and donations,
the university said Thursday. It stood at $36.9 billion 12 months earlier, at
the close of the previous fiscal year.
The U.S. Census Bureau has just
announced that the poverty rate for 2008 was 13.2%. This means the
number of people in poverty has increased by about 2.5 million, to 39.8
million. To give you some perspective, 2.5 million is more than the number of
people who live in Detroit and San Francisco combined. The Census data does not
take into account that the numbers come before the job loss in the first 8
months of this year. In addition to the uptick in the poverty rate, real median
household income fell 3.6%, the biggest drop in 40 years. The
richest tenth of one percent saw their incomes rise by 35%
over the last 10 years while median incomes stayed flat; and the
number of Americans lacking health insurance increased by
about 700,000 to at least 46.3 million, which does not account for
Michael Pollan, NYT: http://www.nytimes.com/2009/09/10/opinion/10pollan.html?_r=2&ref=opinion
: There’s lots of money to be made selling fast food and then treating the
diseases that fast food causes. One of the leading products of the American
food industry has become patients for the American health care industry.
Preliminary consumer sentiment survey from the University of Michigan. The
survey hit 70.2, which is better than the 67.5 that was expected and up from
the 65.7 that was registered in August. Separately, wholesale inventories for
July fell 1.4%, which is a bit steeper than the 1.0% decline that was widely
expected. However, July's figure wasn't as bad as the downwardly revised 2.1%
decline that was registered in June.
Goldman Sachs has developed a
tradable index of life settlements, enabling
investors to bet on whether people will live longer than expected or die sooner
than planned. The index is similar to tradable stock market indices that
allow investors to bet on the overall direction of the market without buying
Wall Street is developing a new use for the securitization process — bundling
life insurance policies and selling them as bonds to investors who would be
betting, in essence, on when the policyholders will die. http://trueslant.com/matttaibbi/:
What’s very amusing about this New York Times article is that, while
describing this, there is no passage that reads anything like, “This utterly
insane plan, which will condemn all those involved with it to an eternity of
elaborate torment in the afterlife, is ironically being promoted by the very
institutions that only just recently tried to destroy the world by creating
similar casino-like gambits based on home ownership.”....
This feels like financial
innovation as practiced by Josef Mengele meets the Zucker Brothers; not just
evil, but wacky evil. I don’t even want to think about what happens
when Goldman Sachs suddenly has a large financial stake in the premature deaths
of a bunch of old people. Where are the crazy police? Where is the crack
federal crazy squad with the big butterfly net? I don’t know about betting on
anyone’s life expectancy, but I think I’d like to bet on whether or not this
idea ends well.
Oil closed at $69.29 down $2.65.
Gold finished the week in NYC at $1007 up $10 on the day.
Here is an interesting article on Barclay’s taking over Lehman in
September 2008: http://www.esquire.com/features/barclays-deal-of-the-century-1009
This is what investing has
Structured Products Online is
reporting that JPMorgan has launched a new product that uses ETFs to gain
exposure to real estate and banking stocks. The new "accelerated growth
note" will feature 200% exposure to each of the following ETFs: Financial
Select SPDR (XLF - commentary - Trade Now), iShares Dow Jones U.S. Real Estate
Index (IYR - commentary - Trade Now) and SPDR S&P Homebuilders (XHB -
commentary - Trade Now).
The duration of the new note will
be two years, with upside performance capped at 48.5% and downside performance
buffered at 15%. This accelerated growth note combines debt and equity
structure along with leveraged returns. With leveraged ETFs under the gun, this
product finds a way to leverage ETFs through a different structure. Perhaps the
most notable aspect of this new note is the bullishness of its bet, but
sophisticated investors can avoid the risk of the note by using margin or
leveraged ETFs along with stops to create a position with limited downside risk
and even greater upside potential.
No, we don’t know what the above
Stocks closed slightly lower in slow trading. Breadth was
The bulls held serve.
10 September 2009
Asian markets ended mostly higher, with Japan's benchmark index gaining
as bargain hunters snapped up banks and technology stocks after recent declines.
Texas Instruments, PG, and General Mills all raised guidance while Monsanto cut.
The number of people filing for
state unemployment benefits for the first time fell 26,000 to a seasonally
adjusted 550,000 last week, the lowest since mid-July, the U.S. Labor
Department reported. Initial claims have been in a fairly narrow range for the
past eight weeks. The number of people collecting regular state benefits fell
by 159,000 in the week ending Aug. 29 to a seasonally adjusted 6.09 million,
the lowest number since April.
The reason the continuing number
is falling is that benefits are expiring, not that the folks got work.
Home foreclosures in August
jumped 18 percent from a year ago, but decreased 0.47 from the previous month,
according to a new report by RealtyTrac, an online marketplace for foreclosure
properties. In all, 358,471 properties in the United States received foreclosure
fillings in August, just slightly below July's record level of 360,149
Robert Marcin, realmoney.com: ...another
couple trillion to go? One of the most egregious yet low key programs in the
Fed's attempt to rebubble the economy hit a milestone last week. Officially,
the Fed has purchased over $1 trillion of government debt, agency debt, and
rmbs since the Infinite Intervention began. And Bernanke says with a straight
face that they are not monetizing debt.
I guess there is little
commentary on Bubblevision because every loves a good rally. And in credit,
thanks to the Fed trillion dollar buying spree, that's just what we have. The
consequences are when not if.
WSJ: Banks have been silent
partners in the meteoric rise of the Federal Housing Administration. In the
past year, the nation's financial institutions have snapped up securities
backed by Ginnie Mae, a government-owned agency that guarantees payments on
mortgages backed by the FHA. That helped drive demand for Ginnie securities and
created an outlet for billions of dollars of FHA-backed loans made to borrowers
who in many cases couldn't afford big down payments. As of June 30, the roughly 8,500
federally insured banks and thrifts were holding $113.5 billion of Ginnie securities,
compared with just $41 billion a year earlier.....
Holding Ginnie bonds help banks
look better because federal bank-capital guidelines give the Ginnie securities
a "risk weighting" of 0%. That means banks don't have to hold any
cash in reserve to protect against losses. By contrast, securities backed by Fannie Mae
and Freddie Mac,
the two mortgage giants seized by the government, carry a 20% risk weighting,
meaning some cash needs to be set aside to hold them, even though most banks
and investors think there is scant risk of Fannie or Freddie securities
defaulting. Privately issued mortgage-backed securities can receive risk
weightings of 50%, while many other types of debt carry 100%.
The banks are essentially
borrowing short and lending long. For now that is great because the Fed is
throwing money at them at 0% interest and allowing them to invest it to earn
4%. As we have been writing we savers are rescuing the banks from their folly.
But borrowing short and lending
long is the way banks have historically gotten into trouble. When interest
rates rise the value of the Ginnie Mae securities will
fall. It ain’t rocket science. If the economy
recovers interest rates will rise.
Humana is up $1 which is the best indication of whether the markets
think the public option will pass.
The number of people lacking
health insurance rose to 46.3 million in 2008, the Census Bureau said, while
the poverty rate rose to 13.2%, an 11-year high.
The Difficulty of Doing Nothing
By Tim Melvin
9/10/2009 1:00 PM EDT
The one question I am asked the
most these days is, what should I do now? Everywhere I go, it is the same
thing. Should I jump into the market now? Should I buy Citigroup (C) or Bank of
America (BAC) ? Is it worth making a bet on Fannie (FNM) or Freddie (FRE) ,
since they are so cheap?
Everyone wants to be in and
enjoy the easy money that appears to be being made. My advice is the same every
time: Do nothing. If you are not already in to some degree, you missed this
rally. I know I missed a lot of it, but that does not keep me awake at night.
This rally has been led by the
low-price stocks, particularly financials, being bid up furiously since the
March lows. It has all been psychology and liquidity driven, and the current
prices are not even vaguely reflective of economic or corporate reality. The
mantras of the rally have been "green shoots" and "it is not as
bad as the analysts thought." Given that Wall Street analysts are
notoriously inaccurate, the fact that they are wrong is not news, and it is
certainly not a reason for stock prices to rise.
The green shoots have been
anything but. The two factors that need to be watched are real estate and
unemployment, and neither of them is getting better. Sales in some real estate
markets have ticked up, but prices are still dropping. Unemployment is rising
rather steadily in spite of all the stimulus money thrown at the economy.
Rising unemployment in an economy that depends on consumer spending does not
bode well for future profits.
At times, the most difficult
trade or investment is to do nothing. I am just as guilty as everyone else. I
want to get in the game in a big way. I am very aware of the themes I see
developing in the market. There are certain segments of the stock market that I
think are going to be powerful sources of profits over the next five to 10
years. I have learned over the years that I have to wait, no matter how
difficult the waiting becomes. Eventually those stocks and sectors I want to
own will come down to prices that offer a margin of safety and represent a true
bargain. Until they do, I have to wait.
There will be occasional
opportunities to put a little money to work. The institutional and activist
buying in shares of Tesoro (TSO) caught my eye, and I am going to start selling
a few puts below the market to try to back into the position. I am wildly
bullish on energy for the next 10 years, and the stock is cheap enough at the
strike price that I will be thrilled to have a few shares put to me. The
reality is that no matter how much we talk about green alternatives, oil and
gas will remain the chief energy sources for the planet for many years to come.
We will need to find and extract a lot more of the stuff, and this company
benefits from that.
I also have bids in on several
microcap stocks. The bids are at the price I want to pay for the stock, and I
am not going to move them up or down to attempt to time the market or force the
trade. If one of them moves up too far for my bid, I will cancel it. I know the
price I want to pay for these stocks, and I force myself to be disciplined
about it. Chasing them upward has been proven to be a losing proposition.
I clearly remember feeling the
same frustration at doing nothing back in 1999 and early 2000. Everywhere I went,
people were chattering about how much money they were making buying various
tech and telecom stocks. The returns some of them were earning were absurd,
while I just plodded along with a few book-value bargains in my portfolio and
what appeared to me very average returns compared with those of the tech
traders. Two years later, most of them were broke, and I was buying with
abandon at prices that pretty much guaranteed huge profits with almost no real
risk. The current move, especially in select financials, reminds me of the time
I will get my chance to invest
with abandon again. I am human. I get twitchy when I hear all the stories of
buying XYZ Bank and watching it run to the moon in spite of being technically
insolvent. Time and money lost in the past have taught me that I have to relax
and focus on the search for values. The prices and valuation will tell me when
it is time to buy aggressively. This is not that time.
Last year at this time we were
in the same cash position and felt the same as we do now, scared but sorry to
be missing the boat ride. We were too anxious to get in at the first correction
in October. This year we hope to be more patient. We don’t foresee a financial
disaster as last year but we do think stocks are fully priced and even if we
are in a new bull market a correction is needed. That doesn’t mean they won’t
go higher, just that we don’t want to be part of the game right now.
WSJ: The Bank of England decided
Thursday to leave its benchmark interest rate at a record low of 0.5 percent,
amid signs that the country’s economy is recovering more slowly than in many
other parts of Europe.
European shares ended mixed, as gains for technology firms were offset
by losses in financial and chemical stocks.
Who names a company Clairvoyant Energy, or Xtreme Power for that
Two alternative energy companies
are looking to buy a closed Ford Motor plant and turn it into a renewable
energy park. People close to the deal say Xtreme
Power of Texas and Clairvoyant
Energy of California are interested in the Wixom Assembly Plant in
Michigan, and are waiting on approval from state tax incentives and federal
loans. Officials say that the park would overtake the 50-year-old Ford plant,
which closed in 2007, and that the new park could employ at least 2,800 workers
within five years. Details of the $725 million project aren't being made public
until legislative hearings later today.
The term Clairvoyance
(from 17th century French with clair meaning "clear"
and voyance meaning "vision") is used to refer to the ability
to gain information about an object, person, location or physical event through
means other than the known human senses, a form of extra-sensory perception. A person said to
have the ability of clairvoyance is referred to as a clairvoyant
("one who sees clearly").
There were no 52 week lows on the
U.S. stocks gained for a fifth day, the longest streak for the
Standard & Poor’s 500 Index since November, 2008. At the bell the DJIA was
up 80, the NAZZ gained 24 and the S&P 500 was up 10. Volume was light.
Gold was unchanged and Oil closed at $72.50.
The bulls are stampeding.
Lemley Letter Comments from 8 September 2008
Paulson speaks, Fannie and Freddie are now Government entities, the markets are saved, house
prices will rise and all is well in La La land. Or...
Asian markets and European bourse
indexes all are up 2% and more as are U.S. futures pre-opening in NYC.
INTERSTINGLY China bucked the trend dropping 2%. Financials are on fire as shorts are
covering. Oil is also up $2 and Gold is up $2 and Treasuries are lower as
traders sell Treasuries to move to the now safe GSEs.
Today should be interesting.
Our take on the bailout is that
it will eventually be profitable for the government. The GSE borrowing costs
come down and so the spread becomes more profitable.
The DJIA opened 350 points
higher. That is a pretty good gap opening which eventually will have to be
filled. Moreover the question now is where we go from here. Financials are the
big gainers up 10% and more while other stocks are up 2%.
Machinists are striking Boeing. We think the company wants the
strike as an excuse to further delay the delivery of the new 777 which it has
had problems producing and certifying.
We are selling some issues into the gap opening today in
case this rally doesn’t have legs. Already this morning’s pop has retraced 50%
of the opening push and the trading is lethargic at the noon hour. We took
scratches in recent buys of Cisco
and Intel and are taking scratch
profit in Briggs & Stratton and
scratch P/L in Williams Sonoma.
Oil closed up a few pennies and
Gold was up $2. Treasuries gave ground. European bourse indexes closed higher
with most up over 3%.
The DJIA closed up 295 points at
11515. The S&P 500 gained 25 to 1267 and the NAZZ was up 15 to 2270.
Breadth was 2/1 positive and
volume was active on the NYSE at 8 billion shares with Fannie and Freddie
trading a billion shares between them.
There were about 280 combined new
lows and 130 combined new highs.
The bulls won the day.
9 September 2009
Asia was mixed small overnight as
is Europe at midday. Gold has retreated from $1000 and Oil is up 60 pennies in
the early going. McDonald’s same
store sales for August were up 2.2% instead of the 2.7% expected and that
placed a damper on U.S. stocks going into the opening.
CNBC has James Chanos, a
perpetual bear, on as its market expert this morning.
Investors Intelligence has 48% bulls and 23% bears.
A blog duller than ours: http://www.dullestblog.com/
Short article about the Fed and
its control of economists and the economy and how wrong it has been.
Swine flu news from http://www.dailykos.com/
A new study eases fears that the
pandemic H1N1 influenza virus will recombine with seasonal flu to mutate into a
more lethal form. The study, reported in the online journal PLoS Currents,
shows that the pandemic virus, commonly known as swine flu, grows much faster
than seasonal flu viruses and is thus less likely to exchange genetic material
.....Health officials are heavily
promoting the inoculations. So far this year, fewer than 600 deaths have been
attributed to H1N1 in the U.S., and swine flu was less lethal than feared
during the southern hemisphere's recent winter months. But federal officials
say that up to 40 percent of the U.S. population could develop symptoms during
the coming winter flu season, and tens of thousands of deaths could result.
“This is one of those times that we should expect the worst and hope for the
best," said Kenneth Alexander, a pediatric infectious disease specialist
at the University of Chicago Hospitals. "We could be called alarmists, but
I would rather be called an alarmist than be called a fool for being
.... The U.S. is bracing for as
many as 1.8 million hospital admissions for flu as students return to school
and cases surge to unprecedented levels, Centers for Disease Control and
Prevention Director Thomas Frieden said.....
.....In one of the largest
outbreaks of swine flu on a college campus, at least 2,000 students at
Washington State University, in Pullman, Wash., have reported symptoms of the
virus, according to reports in The New York
Times, the Spokane Spokesman-Review,
and other newspapers. The outbreak began around August 21, during the
fraternity and sorority rush season, several days before classes began. Sally
Redman, a nurse at the student health center, told the Times that the
pace seemed to be slowing, with calls or visits to report flu symptoms down to
about 140 a day, from as many as 200......
.....In the southern hemisphere,
15 to 33 per cent of hospitalized cases went to ICU in the past two months.
"That's very high for flu," says Richard Wenzel of Virginia
Commonwealth University in Richmond. "When this flu is bad, it's very
WSJ: China's $300 billion sovereign-wealth fund is eyeing big
investments in distressed U.S. real estate, according to people familiar with
the matter. To finance some of the deals, China may rely on an old trading
partner: the U.S. government.
In recent weeks, officials from China Investment Corp. have held talks
with U.S. private-equity fund managers, including BlackRock Inc., Invesco Ltd.
and Lone Star Funds, about potential investments in beaten-down property
assets, namely mortgage securities backed by office buildings, hotels, strip
malls and other commercial property. CIC also is considering buying ownership
interests in buildings, according to the people with knowledge
European shares rose for the fifth straight session and hit a new
11-month high, with auto makers a standout sector after brokers offered
positive comments on likely demand.
Sleep-At-Night-Money Lost in Lehman Lesson
Missing $63 Billion
Oil closed at 471.39 in NYC. Gold
was down $8 at $992.
We bought Treasury
Bills in our large accounts due in December. The yield is .10%. Thank you Ben.
We are going to move all our accounts from the Prime Reserve Money fund to one
that invest only in C/Ds in amounts of $250,000 or less. The individual C/Ds
will show up in accounts but will act like a money fund on redemptions and
check writing. The Prime Reserve fund has no yield and the advantage of the
FDIC Bank C/D fund is that the money is insured by the FDIC. The yield on the
new fund is .15% but the reason for the move is an extra layer of safety.
Please call if there are any questions once the fund shows up in accounts in
the next few days.
Stocks trade higher most of the day moved back to even at 2pm
and then rallied to close higher on the day. The DJIA was up 50, the NAZZ
gained 22 and the S&P 500 rose 8. Breadth was 2/1 to the good.
The bulls are in control.
8 September 2009
Gold is trading over $1000 and
Kraft made a $16 billion bid for Cadbury. That last bit of news has stocks
higher as the after Labor Day markets get set to roll.
Asia was higher overnight with
China up 1.6% and European bourse indexes are higher at midday. Oil is up $2
with a $70 handle.
European shares rose for a fourth straight session, with miners getting
a lift from stronger gold prices and deal making also helping the latest
advance in equities.
Oil ended up $3.30 at $73.25.
Gold finished at $1001.
The markets were as boring as
Stocks were higher with the DJIA up 55 and the NAZZ up 18
while the S&P 500 rose 9. Breadth was 2/1 to the good on the NYSE and there
were 170 new highs and only 1 new low on the NYSE. The bulls are in control.
4 September 2009
While we were away 2
3 September 2009
Asian markets were up with china
regaining 4%. European markets were up after three losing days.
570,000 folks lost jobs in the
latest week. Since December 2007 seven million folks have been fired.
European markets ended mostly lower, as losses in the pharmaceutical
and food sectors offset gains for miners. Gold closed at $995 And Oil just
Our worries are over:
The Securities and Exchange
Commission may create a "fraud college" to train staff in detecting
market abuses after the agency failed to stop Bernard Madoff's $65 billion
Ponzi scheme, Chairman Mary Schapiro said.
"The fraud college concept
is a great one," Schapiro said today at a joint meeting with the Commodity
Futures Trading Commission in Washington. Coordinating fraud-detection training
with the CFTC "would be particularly valuable," she said.
Stocks closed higher and breadth was 3/1 to the good.
4 September 2009
The monthly unemployment report
said 216,000 folks lost jobs versus an expected 230,000. But the July report
was adjusted to show a loss of 30,000 more jobs than originally reported (10%)
and that makes the August number a wash.
Asian and European market were
higher overnight and Oil is $68 while Gold is down $5 after its $25 jump higher
As markets digest the worse, yet
somehow better, than expected 9.7% unemployment, the real state of the labor
market is much worse, as indicated by the U-6 number, which has hit a recent
record of 16.8% on a seasonally adjusted basis. As a reminder, the "U-6
represents total unemployed, plus all marginally attached workers, plus total
employed part time for economic reasons, as a percent of the civilian labor
force plus all marginally attached workers." In other words, in reality
the U.S. labor market is likely about as bad as Spain in terms of undoctored
Nobel laureate economist Joseph
Stiglitz on Thursday gave a gloomy assessment of a rebound in the U.S. economy,
saying he does not see a resurgence in the strong consumer spending that has
been a key driver of growth.
"The prospects of a robust
recovery are very, very weak," Stiglitz, a Columbia University professor
and winner of the Nobel Prize for Economics in 2001, told reporters at a
roundtable held at Columbia.
Some of the more recent U.S.
economic data has been surprisingly upbeat, especially on the housing, services
and jobs front.
But Stiglitz said the U.S.
economy faces the possibility of low economic growth over a long-term period or
the possibility of a "double-dip" recession whereby a recovery is not
"It is not possible to
predict whether we have a malaise or a W (shaped growth pattern). But there is
a significant chance of a W," he said.
Oil ended up at $68.45. Gold
dropped to $993.
Stocks closed higher on good breadth and light volume.
2 September 2009
While we are away...
2 September 2009
We went for a short excursion
over the weekend and while we were away Shanghai tanked some more and U.S.
stocks decided to drop 2% yesterday. Today will be a test of the bulls staying
power although the real test will be next week when folks return form late
The August Employment report is
Friday and today ADP said that 298,000 folks lost jobs in August. That was more
than expected but the ADP numbers have not been good predicators of the
Government numbers so they really only serve as a trading crutch for today.
Quarter 2 productivity gained 6.6% and Costs were down 5.9%. That is what
occurs when companies fire a lot of folks.
European markets played catch up
overnight dropping 2% while Asian was mixed after a large down day on Tuesday.
Ford sales during the August clunker
program were up 17% while GM dropped
20% and Chrysler dropped 17%. All
the numbers were less than expected.
The issue now is whether this is
the first significant crack that will end the uptrend that has been in place
since March or just some healthy profit-taking that will shake out some excess
and eventually set us up for further upside.
In the bigger scheme of things,
the selling is still extremely mild. The S&P 500 is off just 3% or
so from its recent highs, and the uptrend line from the March low has not been
breached. We have a long way to fall before we even test that trend line or the
50-day moving average, which is around 965 on the
British Petroleum said it has made a
"giant" oil discovery in a deep well drilled in U.S. waters in the
Gulf of Mexico.
U.S. factory orders rose a
less-than-forecast 1.3% in July.
No shame club:
So You Just Squandered Billions . . . Take Another Whack at It
Steven Pearlstein, Washington Post
You've probably never heard of
Jay Levine, Chris Ricciardi, John Costas or Stanford Kurland, but they are
charter members of Wall Street's Mulligan Club.
Back during the heyday of the
credit bubble, they were the financiers who earned huge bonuses for creating,
trading and investing other people's money in those complex securities that
resulted in trillions of dollars in losses and brought global financial markets
to their knees. And now they're out there again hustling for investors and
hoping to make another score buying and trading the same securities.
Like golfers who treat themselves
to a second drive after hooking the first one deep into the woods, these guys
play on without apology or penalty. The maddening thing is that they're getting
away with it and nobody seems to care.
Consider the case of Jay Levine,
once the co-chief-executive of RBS Greenwich Capital, the American investment
banking arm of the Royal Bank of Scotland. Under Levine's direction, RBS
Greenwich went from the bottom of the "league tables" in terms of
issuance of asset-backed securities to a perch near the top -- right up there,
one industry publication wrote at the time, with Bear Stearns and Lehman
Brothers as one of the "best mortgage-backed houses" in the business.
At the height of the mortgage
frenzy, Levine's group generated more than $350 million in profit annually for
RBS and Levine was reportedly RBS's highest paid employee, earning more than
$60 million during the three years before his departure at the end of 2007.
Now, two years later, RBS is a
financial ward of the British government, which has had to put in more than $30
billion to keep it from collapsing. RBS's biggest mistake was an ill-timed and
overpriced purchase of a Dutch bank, but there were also tens of billions of
dollars in U.S. credit losses, many of them attributable to RBS Greenwich.
Levine, meanwhile, left RBS at
the end of 2007 to take the top job at Capmark Financial Group, a spin off of
GMAC that had become one of the country's biggest commercial real estate
lenders. Since then, of course, things have only gone from bad to worse in the
world of commercial real estate finance, forcing Capmark to post more than $2
billion in operating losses before it stopped filing public reports this
spring. Its biggest shareholder, the buyout firm KKR, has now written off its
entire investment in the company. Levine volunteered to reduce his base salary
from $5 million to $4 million.
But don't shed too many tears for
Jay. Even while remaining at Capmark, he's reassembled some of the old team
from RBS Greenwich at a new firm, CRT Capital Group, a small trading house in
Stamford, Conn., that he bought in July with former RBS Greenwich
co-chief-executive Ben Carpenter and Ron Kripalani, who once headed the capital
markets group at none other than Countrywide Financial. In a statement
announcing the purchase, the new managers suggested that with so much of Wall
Street operating under government-imposed pay caps, it was a perfect time to
lure away the industry's "best producers."
Then there is Chris Ricciardi. In
the world of finance, nothing has proven more toxic than collateralized debt
obligations, or CDOs, and no one did more to expand their reach than Ricciardi.
He pioneered them at Credit Suisse First Boston, then
was lured away to Merrill Lynch, where he expanded the CDO business from less
than $4 billion in new issues underwritten in 2003 to $28 billion in just the
first half of 2007. That's when the music stopped and the venerable brokerage
house found itself with $41 billion in CDOs and nobody to buy them.
By then, however, Ricciardi had
already left Merrill and an $8 million-a-year pay package for what looked to be
even better opportunities at Cohen & Co., a big Merrill client. Under
Ricciardi as chief executive, it became a big CDO issuer in its own right,
pumping out $25 billion of the stuff before the market collapsed.
Cohen & Co. is still limping
along, but the publicly traded real estate investment trust that it manages --
and with which it merged -- now trades as a penny stock after its holdings lost
more than $5 billion in value. Last month, its auditors cited material
weaknesses in the company's internal controls.
There was a time when Swiss banks
were known as much for their conservative investment strategy as for their
secrecy and discretion. But that was before John Costas showed UBS how to turn
its small American investment bank into one of the five biggest on Wall Street,
and the source of nearly half of its profits.
Then, UBS asked Costas to open a
hedge fund with $3 billion of the bank's capital, $1.1 billion raised from the
outside and lots of borrowed funds. And, indeed, over the next two years, the
hedge fund, Dillon Read Capital Management, bragged of gains of $2.5 billion,
even after paying generous bonuses to Costas and his team. But when the market
turned in the spring of 2007, UBS found itself hip-deep in soured U.S. real
estate investments. UBS rushed to close Dillon Read and took its assets onto
its own books. But when the dust finally settled, UBS was forced to recognize
$37 billion in credit losses and write-downs, including $3 billion directly
attributed to Dillon Read.
Costas, however, seems to have
landed on his feet at 623 Fifth Ave., where he and a few partners used their
bubble earnings to open the PrinceRidge Group, which provides trading and
investment banking services to institutional investors. Company officials say
their aim is to fill the vacuum left by the disappearances of Lehman, Bear
Stearns and Merrill.
And then there is Stanford
Kurland, who helped turn Countrywide Financial into the biggest mortgage lender
in the United States, rising to chief operating officer and heir apparent to
founder Angelo Mozilo. Kurland helped to create the growth-oriented culture at
Countrywide and oversaw the introduction of new loan products that would later
land the company in trouble. In late 2006, Kurland was forced out, reportedly
in a dispute with Mozilo over succession and declining lending standards.
Not long after a failed
Countrywide was forced into the arms of Bank of America, however, Kurland was
back in action. Starting with some of the $140 million he had earned from
Countrywide stock sales, he earlier this year put together a $600 million war
chest and began buying up mortgages and securities backed by mortgages that were
just like the ones he used to write back at Countrywide. And at the end of
July, Kurland raised an additional $300 million from an initial public offering
for his PennyMac Mortgage Investment Trust.
I contacted Kurland, Costas,
Ricciardi and Levine, along with a number of other, less prominent members of
the Mulligan Club, to talk about their attempts to cash in on the crisis they
helped to cause. Some declined to talk, while others spoke only on the
condition that they wouldn't be quoted. The message that came through in those
conversations, and in comments made to other news outlets, was remarkably
The bad stuff happened after I
left. . . . The losses that occurred on my watch were more than offset by our
profits during the boom. . . . I saw it coming and sold off most of it before
the crash. . . . Our securities performed better than most.
There is probably some truth to
these excuses, but taken as a whole, they are really nothing more than a
cop-out. It's hard to believe that large organizations could really go from
being smart and honest one day to being stupid and deceitful a year later. Nor
is it credible that the money they earned during the good years was the result
of individual brilliance while the money lost in the bad years was the result
of uncontrollable market forces. It is also a peculiar moral code that says it
is okay to traffic in crappy securities, just as long as you don't get stuck
with them in your own portfolio when the market finally craters.
What's most curious, however, is
why anyone would want to invest new money with people whose record is so
tarnished. And then the answer hits you right between the eyes: The money isn't
coming from savvy outsiders; it's coming from other members of the Mulligan
Club -- members who are lucky enough to still have money to manage, and clever
enough to know that some day they, too, might be looking for a second swing at
European shares closed down for a third straight session, with
financials among the worst performers, as investors booked profits.
Gold gained $25 to $980 and Oil
was unchanged at $68 and change.
Stocks finished mildly
lower. We’ll post Friday afternoon.
FAIR USE NOTICE
This site contains copyrighted material the use of which has not always been specifically
authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental,
political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any
such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107,
the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for
research and educational purposes. For more information go to:
http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use
copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
For those folks who have accounts with us, you may now go to:
and fill out the account information and view your accounts online. If you
have trouble filling out the form, or in getting online, call and we will
help you with the process. NASD regulations require the eview
site to be secure. Thus your password must be changed every ninety days.
You will be prompted to make this change when needed.
For information on Mesirow SIPC and Excess SIPC protection SIPCmesirow.pdf.
For those clients of LY& Co and other
interested persons the Quarterly Report on the routing of customer orders under
All future SEC Rule11Ac1-6 Quarterly reports may be found by visiting the diclosures at LY& Co Clearing Broker Mesirow Financial at:
Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you
our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.
A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.
Summary of Business Continuity Plan