Archive for October, 2008

  • Lehman’s Last Days
    , October 6th, 2008 at 10:25 am

    In today’s must-read article, the WSJ has Lehman Brothers dead to rights:

    In the weeks before it collapsed, Lehman Brothers Holdings Inc. went to great lengths to conceal how fast it was careening toward the financial precipice.
    The ailing securities firm quietly tapped the European Central Bank and the Federal Reserve as financial lifelines. On Sept. 10, one day after Lehman executives calculated the firm needed at least $3 billion in fresh capital, the firm assured investors on a conference call it needed no new capital at all. Lehman said its massive real-estate portfolio was valued properly, but Wall Street executives who have seen it say it was overvalued by more than $10 billion. As hedge-fund clients began yanking their money from Lehman, the firm assured them it was on solid financial footing.
    On Sept. 11, J.P. Morgan Chase & Co. effectively ended Lehman’s campaign to appear strong. In its capacity as a middleman between Lehman and its clients, J.P. Morgan knew more about Lehman’s predicament than most outsiders, and it didn’t like what it saw. J.P. Morgan demanded from Lehman $5 billion in additional collateral — easy-to-sell securities to cover lending positions that J.P. Morgan’s clients had with Lehman — repeating an unmet request from a week earlier, people familiar with the situation say.
    It was a knockout blow. That $5 billion collateral call, coupled with a huge outflow of money from Lehman’s hedge-fund clients, so weakened the 158-year-old Wall Street firm that it sought Chapter 11 bankruptcy protection four days later.

    The worst thing a bank can do is have people lose confidence in it. At one point, Lehman said its Level 3 assets were up 9% while the stock market was down 10%. When people called fouled, the bank got mad at the messengers. That’s a sign right there that things aren’t going well.
    Ultimately, a bank’s product is trust. That’s what they sell. So a bank in trouble has to exude confidence even though it may be crumbling internally. If you look weak, clients will abandon you and you’ll become weak.

  • Once More unto the Breach
    , October 6th, 2008 at 10:01 am

    The market is getting smacked around again. As I write this, the Dow is off over 300 points and we’re below 10,000. This takes us back to the beginning of 1999. The good news is that commodities are also down, so at least investors aren’t seeking refuge there.
    Things are even worse in Russia where the stock market was shut down for the second time. The MICEX plunged 16.7% before trading was halted.

    In September, growing financial turmoil in the United States and a wave of margin calls sent the Russian stock markets into their biggest downward spiral since 1998. The MICEX lost 25 percent in just three days, and prompted regulators to shut down the markets to stem the decline. They have since used that tool on several occasions when drops have become severe – to lesser effect.
    Russia’s stock market in recent years has boomed amid high prices for oil and natural gas. But it began falling sharply in midsummer amid concerns about government interference with businesses, and the drop accelerated as the global economic crisis intensified. Oil prices, the backbone of Russia’s economy, have been sharply down in recent days – dropping to $90 a barrel – and investors have also been spooked by August’s five-day war between Russia and Georgia. The RTS is now down by 62 percent from its May peak.

  • Uh Oh
    , October 3rd, 2008 at 6:00 pm

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    I wonder if this is some sort of metaphor:

    Armed Bank Robbers Hit Wachovia in Northwest D.C.
    WASHINGTON, D.C. – Police in the District are searching for a pair of armed bank robbers who burst into a Wachovia Bank in Northwest D.C. on Friday afternoon and demanded cash from the teller.
    Investigators say it happened just as people were sitting down to lunch outside the Wachovia Bank on Connecticut Avenue NW near Van Ness. They say one of the robbers was armed with a shotgun and the other with a handgun.
    According to police, the two men ordered the teller to open the vault, and then pistol-whipped her when she couldn’t. They say instead, the men bagged cash from the drawers and then took off.
    One witness who asked not to be identified told FOX 5 that’s when he encountered the suspects up close.
    “Two guys came running by the building and I bumped into one of them, brushed him and see his– what looks like a gun he’s carrying– and the two of them carrying garbage bags with what looks like money,” the witness told FOX 5.

  • Below 1100
    , October 3rd, 2008 at 4:20 pm

    The S&P 500 closed below 1100 for the first time in four years. The index finished the day at 1099.23. The S&P 500 first closed above 1100 over ten years ago, on March 24, 1998. The last time the S&P 500 closed below 1100 was on October 25, 2004.

  • Life Imitating Art
    , October 3rd, 2008 at 12:13 am

    From the IMDB plot summary of the movie Wall Street:

    Soon, Bud finds himself getting information from any source and using to gain an advantage. It all comes to a head however when Gekko targets Blue Star airlines, the company where Bud’s father has worked for 24 years, secretly planning to break it up and plunder the employees’ retirement fund.

    A Bloomberg article from today:

    Blackstone Said to Complete BlueStar Purchase, First in China

    Schwarzman, how could you!

  • The Stimulus Plan that Didn’t Stimulate
    , October 2nd, 2008 at 9:52 pm

    Remember how those stimulus checks were supposed to help the economy. Well, they didn’t:

    The US Congress and the Bush administration enacted a $100 billion tax rebate in an attempt to stimulate consumer spending. Those of us who supported this policy generally knew that history and economic theory implied that such one-time fiscal transfers have little effect, but we thought that this time might be different. Our support was, in the words of Samuel Johnson, a triumph of hope over experience.
    In the end, our hopes were frustrated. The official national income accounting data for the second quarter are now available, and they show that the rebates did very little to stimulate spending. More than 80% of the rebate dollars were saved or used to pay down debt. Very little was added to current spending.

  • The Oracle Speaketh
    , October 2nd, 2008 at 1:25 pm

    Warren Buffett on Charlie Rose for the full hour.

  • Looks Tempting
    , October 2nd, 2008 at 9:46 am

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    I have to admit that shares of Apple (AAPL) are starting to look attractive. The stock has come down a lot, but this is still an incredibly strong business. I think investors are getting understandably nervous about this holiday season.
    The company said to expect Q4 earnings (ending September 30) of $1 a share. However, the company always low-balls its forecasts so it can say that it beat forecasts. My quick guess is that Apple will probably report about $1.15 to $1.20 a share.
    The concern is that Apple will come out with a lousy forecast for 2009, and the market will think that it’s not low-balling. Even if the company only grows its earnings-per-share by a little bit, the current price won’t be a bad entry price. I wouldn’t bite just yet, but an $80 share price would be hard to ignore.

  • Yahoo at New 52-Week Low
    , October 2nd, 2008 at 9:31 am

    For a long time now, I’ve been criticizing Yahoo’s (YHOO) share price. I just couldn’t see how or why the stock was going for $31 a share. I said on several occasions that I wouldn’t pay half that much. Now the stock is finally close to half that level, and I’m still not buying.

  • Senate Says Yep
    , October 1st, 2008 at 10:43 pm

    The Senate passed the bailout bill by a vote of 74-25. Here’s the roll call.
    For now, I’m long wooden arrows.