The Destroyer of Finance

 Riding a bike sure does make your ass hurt.

It’s Not Just A Game Anymore.

  In the African testing ground for every misguided economic idea, Zimbabwe has a very exciting election running:

Leading Movement for Democratic Change official Tendai Biti says party leader Morgan Tsvangirai has won 60% of the vote, against 30% for Robert Mugabe.

He said the electoral commission was planning to announce that Mr Mugabe had won 52% of the vote – just enough to avoid a run-off. The MDC would not accept these results, he said.

A senior Zanu-PF source has told a BBC contributor that security officials met on Sunday to decide who should tell Mr Mugabe he had lost, with some refusing to take the job.

 Also, I believe that inflation in Zimbabwe for the month of February (annualized) was either “incalculable” or 200,000%, depending on your source.

It’s you and me, honey bunch.

 Just another day in the neighborhood as North Korean jets buzz the DMZ, boats shoot at each other.

 In the US, the HUD chief is resigning.  I’m not saying he shouldn’t go, but since he’s black I assumed that Jesse Jackson would be there to stand by him in this tough time.

 No?  Not interested in coming to the defense of ALL african-americans?  Huh.

Whoever it is better go away or they’ll be killed!

 And this is sort of business related, but farmers expected to plant less corn this year.  I like how the article equates less corn with higher food, yet ignores the fact that the farmers are planting SOMETHING, just not corn.  In this case the other crop happens to be soybean, for the most part, and the price on Soybean has gone up even more than the price for corn recently.  I guess planting more soybean won’t make the price of any foods go down, though.

By the way: spellchecker is not a big fan of names from Zimbabwe

 As I sit here on the last day of the first quarter, I am reminded that my obligations to the world of banking finance may interfere with my blogging ability for a week or so.

Being killed is pretty final, wouldn’t you say?

 Many people who are paid to comment about the economy on TV, etc. seem to be of the attitude that “yeah, some bad stuff might happen, but we’ll come out the other side just fine.  We always do.”  An arrogant position, to be sure, yet one that is somewhat justified.  Just look at the recent history of our economy.  So resilient, so able to bounce back from seemingly any shock… it’s like a big bungie cord stretching and contracting.

 I agree that we will come out the other side, but I don’t think things will be the same.  I think the bungie cord is probably getting stretched a little too far this time to bounce back all the way.  It could already take us years to get the housing market back in order, and the threat of serious damage to the financial system and of knee-jerk reaction bad management by the government (and the public) are just so high…

 I believe that in most things creation comes out of destruction; progress comes out of chaos.  Unfortunately, I think we’re going to have a lot of chaos and nothing to show for it that resembles progress.  Unless you count watching China take over the role as #1 economic power.

Can you keep a secret? So can I.

 This dude claims we’ll see $1 TRILLION in writedowns by the time the credit problems finish shaking out.

As bankers and regulators try to prop up the “Yertle the Turtle-like unstable tower of debt,” Morris points to two previous episodes of lost market confidence.

The first was the 1970s inflationary trauma that prompted investors to suck money out of the stocks and bonds that finance business. Confidence returned only after Fed chief Paul Volcker slew runaway inflation by ratcheting up interest rates.

The other precedent is the popped 1980s Japanese asset bubble. In that case, politicians and finance executives tried to paper over their troubles. Two decades later, Japan still hasn’t recovered, Morris writes.

 Maybe I should just build myself a Paul Volcker shrine and offer burnt offerings.

 Lehman’s gets bilked out of about $350 by a couple of shifty Japanese guys.  The things you can get away with when you use official letterhead.

 Speaking of government mis-management, this makes me uncomfortable.

Life after death is as improbable as sex after marriage.

 Also, everyone awaits details on the new financial regulation overhaul plan.

Paulson rejected Democratic charges that it was lax regulation of mortgage brokers and the financial industry that had led to the current problems.

“I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil,” he said. “I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years.”

 Well, screw me.

 Gordie Howe

Wow… some morning meetings have thrown me powerful off my schedule.

 The KB Homes rumor has legs, but it’s not really in mass circulation yet.  They’re only in “technical default,” which means that they’ve failed to comply with one or more legally binding aspects of the loan agreement.  When this happens to a company, the ball is in the lenders’ court: they can demand payment (“call the note”) and possibly crush the company into oblivion, or they can try to negotiate new terms to the loan agreement.

 As I said last night, in the old days the banks were very flexible on modifying loan terms.  In fact, typically, banks would have never allowed the client to reach the point of being in a state of default.  They would have waived the requirement or modified the loan before that happened.  The fact that KB Homes is even in this position is a telling signal for how “flexible” the banks are feeling.

 KB Homes says it did modify a different credit line on Jan 25th to ease the requirments, and that it has not drawn on that line at all yet.  Unfortunately, in these situations if you default on one, you default on the, all.

 Still, if the banks work it out with KB Homes, we might never hear anything more about it so I’ll be interested to see if the rumor gains traction in bigger media.  If you’re curious, KB Home announced they lost a bunch of money in their first quarter (ended Feb 29).

 Speaking of lending, Clear Channel is still up in the air as the lenders are dragging their feet with the financing.  I suppose they’re buying time trying to get a counter court ruling.

 The Good and The Bad: Inflation tame, consumers not spending.  I haven’t mentioned them in a while, but the foodstuffs have really moderated and taken a break from their run up.

James Cayne, Chairman of Bear Stearns, appeared to signal that JPMorgan’s $10 per share offer would be the final one, by selling the remainder of his stake in the company. Mr Cayne’s Bear holdings were worth roughly $1 billion last year, but the sale this week netted him only $61 million.

 Cayne, not the CEO as most media outlets were reporting yesterday evening, might feel a little disappointed in his investment returns this year.

 Hooray,

 frederick pabst

 Newest big development from the rumor mill is that homebuilder KB Homes is in default on an $850M credit facility led by Wells Fargo.  We’ll see how it plays out.  In days past, the banks would write amendments giving grace periods or changing the loans requirements to keep the creditor from being in default.

 These aren’t the days of yore.

edit: in comparison to the last rumor out of the mill about Stanley, Lehman’s etc.  Notice the difference between that rumor (might) and this rumor (is).  Haven’t been able to verify rumor on own, and no news source yet… but there wouldn’t be at this moment.

 If I knew I was going to feel like I had a hangover, I would have done something to deserve it.

What We Do In Life Echoes In Eternity.

 Conspicuous consumption much?

 Finally — FINALLY — some mainstream media starts drawing connections between Obama and Bloomberg… just doted lines, but you’ve got to let these guys start somewhere.

 Clinton pulls out an old Clinton classic: might be violating FEC rules by using foreign citizen to raise money.  Well, it’s not money from the Chinese army this time.

Frost…sometimes it makes the blade stick.

 In politics, when people start getting desperate, they start getting weird: Got Gore?  Other than good ole’ days syndrome, I don’t see what this has going for it: it would shatter the fragile enthusiasm of the sorry democratic voter, it’d piss off the women, it wouldn’t make the black vote all that happy, and it would give the lie to the “party of the little guy” mantra by saying “yeah, we know how you all voted and stuff, but our committee decided this was the best thing to do, so you’re all going to live with it.”  Granted, that’s how democrats run the government and it’s how the nomination procedure USED to work, but it’s a little heavy handed these days.

 China-Tibet is getting a little tense.  No government wants to be seen by their own people as condoning China’s actions, and yet no government wants to be seen by China as trying to “meddle” with their domestic problem (and risk economic backlash).

 Iraq faces big test fighting the Sadr militias.  If the national army can successfully scatter the most powerful militias, the event would go a long way toward re-establishing some sort of national identity… not to mention self confidence amongst the soldiers.  The economist has a good article on Iraq and the ethics angles.

 Shadows and dust.

Weeeee!

Didn’t the barbarians lose the Battle of Carthage?

 Unemployment claims are marginally down (or are they up?), while 4th Quarter GDP didn’t really do much to get anyone excited.

 Also, Lennar (home builder) doesn’t shock anyone by announcing a loss in the first quarter (their quarter ended 2/29, if I recall correctly).

 Onto the credit problems, many places are finding it suddenly way more expensive to fund their construction projects, and more people are wondering why mortgage rates aren’t coming down as the Fed cuts borrowing costs for banks.  Other than trying to support their capital ratios, here’s another tip on that front: inflation fears also prevent banks from issuing long term fixed rate loans.  Until banks feel certain that we’re out of the inflation threat zone, we probably won’t be seeing mortgage rates come down.  Remember, last time a bunch of “banks” issued fixed rate loans right before the Fed raised rates to fight off inflation, we ended up with the Savings and Loan crisis.

Death smiles at us all. All a man can do is smile back.

 California declares a party for overachieving: average home price down 26% in the last year as of February.

According to the CAR, “The median sales price of an existing, single-family detached home in California during February 2008 was $409,240, a 26.2 percent decrease from the revised $554,280 median for February 2007.” The February 2008 median price fell 4.8 percent compared with January’s revised $429,790 median price.

 If you owned an average California home, you’ve lost almost $3,000 a week in value in the last year.  Ouch.  Well, you know what they say: real estate is the one investment that never loses money.   Right?

 RIGHT?

Am I not merciful?!

 AT&T CEO has press conference, tell USA: You better get real.

The head of the top U.S. phone company AT&T Inc (T.N) said on Wednesday it was having trouble finding enough skilled workers to fill all the 5,000 customer service jobs it promised to return to the United States from India.

 Most customer service people I deal with need two skills: speak good english, don’t have a big attitude.  So I can see where ATT is running into problems.

“We’re able to do new product engineering in Bangalore as easily as we’re able to do it in Austin, Texas,” he said, referring to the Indian city where many international companies have “outsourced” technical and customer support workers.

“I know you don’t like hearing that, but that’s the way it is,” he said.

 Maybe instead of getting all hyped up about fining companies who move jobs overseas we should start really taking a look at our high schools and the slack ass kids (and parents) involved in that whole scene.  If ATT can’t fill customer service jobs when they are TRYING to bring jobs back to the US… come on, people.

It vexes me. I’m terribly vexed.

 Finally, Clear Channel wins first step in forcing lending banks to finance the private quity take over.

Gladiators, I salute you.

 From the deck of a heavily rolling HMS Akbar,

 Quentin Tarantino

 If I attacked the darkness, would they cancel their tour?

The first casualty of war is innocence.

 Feds reconfirm the blindingly obvious, tell us that Social Security and Medicare are in trouble.  I’m sorry, but we’re going to have to reduce benefits.  The only other option is a crushing tax burden.

 A new poll concludes that the democratic voter base is PATHETIC.  If you think “pathetic” might be a little strong, then maybe “sorry” would work better for you.  In a year with a terrible economy and an unpopular war, it couldn’t be easier…  but spite is fun, no?

 The world does it’s song and dance every four years as suddenly the media gets interested in who other people want to be our president.

Death, what do you all know about death?

 In more shocking news, I’d like to announce that I can sympathize with Clinton on the whole Bosnia trip deal she’s been caught up in.  It happened 12 years ago and memories do get distorted over time, especially when someone leans over in the helicopter and say, “We’re going to have to cut the welcoming a little short because there’s some gunfire in the area.” as I imagine happened.  The added excitement, over time, transforms into “landing in a certain way and running to safety because of the sniper bullets flying by my head.”  You tell yourself something enough, you start to think it is true.

 On the other hand, the suggestion that either the Secret Service or the military would allow the First Lady to land in an area where there is even the chance that she might come under fire is preposterous.  Both of those branches of the government have every right to feel insulted by her day-dream manifestation of her own ego, and there’s is no way that she didn’t know she was deliberately stretching the truth, even if her own memory was distorted.

Have you ever gotten into a mistake that you just can’t get out of, King?

 Such bitterness.  Childrens… really.

 The markets successfully powered through the bad housing news yesterday, but focus… focus!  Nothing has changed yet and we’re still in the boxing ring.

Take the pain! Take it!

 Bloomberg article details more bad news for financial sector.

Wall Street banks, brokerages and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed, according to Goldman Sachs Group Inc. Profits will continue to wane, other analysts said.

 If you’re inclined to be politically bitter, you might draw a parallel between estimated credit losses and estimated spending for the Iraq war.

Goldman said the $460 billion in credit losses it foresees may “result in a substantial tightening in credit conditions as these institutions pull back on lending to preserve their reduced capital and to maintain statutory capital adequacy ratios.”

 Ah yes… banks may pull back during the flight, so use caution when opening overhead bins.

Feelin’ good’s good enough.

 Speaking of banks pulling out:  Banks balk at financing Clear Channel buy-out deal, previous commitments be damned.  When you have to talk about taking your banks to court to force them to finance your deal…

 Let’s not worry about that so much.  Instead, let’s focus on the positives, like how banks are taking all the easy money the Fed is giving them… and sitting on it. 

Banks’ borrowing costs – a sign of their willingness to lend to each other – in the US, eurozone and the UK rose again even after the Federal Reserve’s unprecedented activity in lending to retail and investment banks against weaker than usual collateral and similar action in Europe.

 The reason a bank would want to hoard cash is to keep its capital ratios high (assets to obligations, stuff like that).  There are various mandated capital ratios: there’s “well capitalized”, “adequately capitalized”, and “Doo-doo”.

 Every bank maintains “well capitalized” ratios.  That’s just the way things are… unless they can’t.  The only explanation for a bank being merely “adequate” is that was the best they could manage despite all efforts to be in the higher tier, and that is NEVER taken as a good sign.

 So, the fact banks are gathering up cash in an attempt to maintain their capital ratios should tell you something about what to expect in terms of mortgage writedowns and loan chargeoffs, eh?

 Mentioned in the FT article above, Consumer confidence falls to lowest point since… last recession.  Consumer confidence can spin on a dime, but a general assumption is that pessimistic consumers don’t spend as much money (especially if they’re worried about their jobs and house).

Excuses are like assholes

 Douche Bank is a party pooper, tries to manage expectations for the upcoming year.

 More happy fun home times.

“I looked at my house as a bank account that was going to accrue interest on a daily, monthly, annual basis,” she said. “I’m looking at not gaining money on this stock that I call a house, and may actually lose money.”

 People sure did buy into the whole “build wealth by home-ownership” bit, almost as much as the diamond ring.  It CAN happen, but it certainly shouldn’t be the centerpiece of your investment strategy.

 In an attempt to recap the shit out of the Case-Shiller home price index for you, I’ll let you know that 14 of the 20 surveyed markets saw a bigger price drop from Dec to Jan than from Nov to Dec.  Also, the survey found that potential buyers are spooked by declining prices, and are electing to rent homes instead of buying them.

 So, more bad news from the manufacturing industry, durable goods orders drop 1.7%.  Also:

 The Commerce Department reported Wednesday that new home sales dropped 1.8 percent last month to a seasonally adjusted annual rate of 590,000 units, the slowest sales pace since February 1995. The decline was slightly worse than expected.

 Giggle.

This is bad, man. I’ve got bad vibes here.

 Also, Motorola casts off the boat anchor it’s been carrying around, plans to spin off cell phone handset unit.

 See, a good week and a half on the stock market, and really, where did it get us?  Only to the next batch of Armageddon like economic reports.  Tsk tsk.

 As the software industry faces the same piracy problems as the music industry, some developers suggest making good games might be more important that worrying about pirates.  I think there’s a little irony in the use of Sins of a Solar Empire has an example, since it brings my system to its knees, but it is hell damn fun.  I also bought it, which is something that i do with products I like.

He came to the same conclusion: they [pirates] weren’t customers, they might never be customers, so spending money to try to stop them serves no purpose. 

“The reason why we don’t put copy protection on our games isn’t because we’re nice guys. We do it because the people who actually buy games don’t like to mess with it. Our customers make the rules, not the pirates. Pirates don’t count,” Wardell argues. “When Sins popped up as the #1 best selling game at retail a couple weeks ago, a game that has no copy protect whatsoever, that should tell you that piracy is not the primary issue.”

 Note to music industry….  Thanks to Austin for the article.

 Some funny from economist.com (SocGen being the French bank with the rogue trader a couple months back)

 I’m under sniper fire,

 John Stockton

 Post script:

 How could I forget that Ford has decided that Jaguar and Land Rover are now worth less than half what they paid for them a few years ago, sell to Indian car company Tata.  Love’s me some tata’s.

 Today is Tuesday, and my name is not B. R. Eastman.

A spicy Thai western.

 What’s Thai got to do with it?

 Really?  Sometimes I wonder about our society.  It’s like we place to much emphasis on the wrong things.  I’m probably just imagining things, since there is nothing more important than achieving maximum juggage.

 NY Gov. Patterson is still hanging out in the confessional.  Two words: Full.  Throttle.

 Meanwhile, Clinton might want to consider dialing back on the exaggeration a little bit.

“I went to 80 countries, you know. I gave contemporaneous accounts, I wrote about a lot of this in my book. You know, I think that, a minor blip, you know, if I said something that, you know, I say a lot of things — millions of words a day — so if I misspoke, that was just a misstatement,” she said.

 Look, yeah, I know I said I wasn’t married when we were chatting at the bar last night, but, you know, I was talking a lot and so, you know, if I lied, you know, it was just a misstatement.  Sorry, got to go, don’t call me.

You’re just a nameless corpse

 No to be outdone on the “Doh!” meter, Obama take break from campaign… in the Virgin Islands.  A campaign as long and torturous as this one certainly earns the right to a break every now and then.

 But dude, if you are trying to paint yourself as a man of the people, who is connected to their hardship and “feels their pain”… the Virgin Islands?  It’s bad enough you’re a rich lawyer living in a big expensive house.  How ’bout you kick back in your digs in ‘Nois for a few days instead of jetting off to the freaking Caribbean?

I know now I can never own your heart, but I can still own your body!

Detroit knows how to elect them a mayor.  Marion Barry Jr. or something.

 To close, the New Republic has some hand ringing and angst over the Democratic nomination fight.

Pay no attention to the man behind the curtain.

Danger? I love danger!

 The Case-Shiller Home Price Index says home prices fell 11.4% in January, the biggest one month drop on record (records date only to 1987).  This undercuts the some of the Fed’s effort to keep people in their homes by cutting interest rates, as people who owe $500K on a house that is now “worth” $400K or possibly even less are much more likely to just walk away from it even if they can technically afford the mortgage.

 It’s important to remember that an item’s value is equal to either its intrinsic value to the current owner or to what someone is willing to pay for it, whichever is higher.  In the case of a house, the only intrinsic value to most people is as a place to live (and maybe some sentimental value).  One could assume that people who view their home primarily as an investment have a low opinion of the intrinsic value of the property, and are only concerned with the “what other people are willing to pay” side of the equation.  If that is less than they owe on the property, I foresee a great temptation to abandon the home and go back to renting.  I didn’t say it was a SMART thing to do.

Don’t you recognize an old hoodlum?

 While I’m not overly impressed with analysts’ ability to give precise predictions about the future, one thing an analyst can do is analyze the hell out of some numbers.  This guy has a very interesting take on JPMorgan’s acquisition of Bear Stearns.

 Chinese banks seem to have avoided worst of credit crisis, this article says.  Not mentioned amidst all the glowing profit reports is that Chinese accounting regs are as queer as a three dollar bill in that their accounting allows for booking unrealized gains on investments as profit.  Given the banks participation in the super hot (last year) Chinese stock market and their ability to profit from underwriting a host of IPOs of growing Chinese companies, you’d expect impressive profit numbers.  It makes judging their results a little difficult sometimes.

Sergeant Yam, show them your bomb throw.

 Apparently the spirit of the still living Volcker has taken up residence in Iceland, where their central bank drops trow and screams: “Look at my huge testicles!”

 Think the banks only wish they could get a do over on the mortgage deal?  Not just that, but also how about all the Private Equity leveraged buy outs they financed?  Probably those, too.

But their private equity owners mostly shrug off the problem, pointing out that often covenants on the debt are either very loose or non-existent, so they have time to wait for conditions to improve.

Paul Drake, Standard & Poor’s head of leverage finance and recovery in Europe, says: “Most private equity firms’ reaction when the market tanked last year was that it was not their problem.”

Mr Drake adds that banks’ loan recovery rates could fall if they are without the tools to rein in problem companies.

“There is no trigger to bring private equity to the table, so you have to ask if loss rates will be higher. That is a real risk,” he says.

 My name is Rapin.

 Also, Sirius and XM combine their powers to dominate the skywaves.  Put your foil hats on.

 “A LONG, ugly, deep recession.” That was how Chrysler’s chief financial officer Jerry York described his outlook for America’s economy at a recent gathering of fellow finance executives. The latest poll of over 1,000 chief financial officers conducted by Duke University, Tilburg University and CFO, a sister publication of The Economist, largely supports this view. In America economic confidence is in short supply, with pessimists outnumbering optimists by a nine-to-one margin in the first quarter of 2008. In Europe, pessimists outnumber optimists by six to one. And to add to the gloom, finance chiefs in Asia are now more pessimistic than optimistic for the first time in five years.

 Bullets, Beans, and Band-aids have high intrinsic value,

  Jack Ruby