Archive for November, 2008

  • RIP: Tanta
    , November 30th, 2008 at 9:38 pm

    This is just awful news. Doris Dungey, aka Tanta of Calculated Risk, died this morning. I’m absolutely speechless. This is from the New York Times:

    The blogger Tanta, an influential voice on the mortgage collapse, died Sunday morning in Columbus, Ohio.
    Tanta, who wrote for Calculated Risk, a finance and economics blog, was a pseudonym for Doris Dungey, 47, who until recently had lived in Upper Marlboro, Md. The cause of death was ovarian cancer, her sister, Cathy Stickelmaier, said.
    Thanks in large part to Tanta’s contributions, Calculated Risk became a crucial source of prescient analysis as the housing market at first faltered, then collapsed and finally spawned a full-blown credit crisis.
    Tanta used her extensive knowledge of the loan industry to comment, castigate and above all instruct. Her fans ranged from the Nobel laureate Paul Krugman, an Op-Ed columnist for The New York Times who cited her in his blog, to analysts at the Federal Reserve, who cited her in a paper on “Understanding the Securitization of Subprime Mortgage Credit.”
    She wrote under a pseudonym because she hoped some day to go back to work in the mortgage industry, and the increasing renown of Tanta in that world might have precluded that. Tanta was Ms. Dungey’s longtime family nickname, Ms. Stickelmaier said.
    Calculated Risk, which gets about 75,000 visitors a day, was started in early 2005 by a retired technology executive named Bill McBride. The housing market was soaring, but Mr. McBride sensed that the industry was about to peak, and he posted articles and data that made his case.
    The blog quickly drew a lively and informed group of commentators, few livelier and none more informed than someone who called herself Tanta. She began by correcting some of Mr. McBride’s posts. “She would tell me either I was wrong or the article I was quoting was wrong,” he said Sunday. “It was clear she really knew her stuff. And she was funny about it.”
    Tanta soon graduated from merely commenting to being a full-scale partner. Her first post, in December 2006, took issue with an optimistic Citigroup report that maintained that the mortgage industry would “rationalize” in 2007, to the benefit of larger players like, well, Citigroup.
    “Bear with me while I ask some stupid questions,” Tanta wrote, and proceeded to assert that the industry was less likely to “rationalize” than fall apart, which it did. Citigroup was bailed out by the government last month.
    She loved the intricacies of mortgage financing and would joke about being not just a nerd on the subject but a nerd’s nerd. She eventually wrote, for the Calculated Risk site, “The Compleat ÜberNerd,” 13 lengthy articles on mortgage origination channels, mortgage-backed securities and foreclosures that constituted a definitive word on the subject.
    The rest of the time, Tanta liked to chew on the follies of regulators, the idiocies of lenders and — a particular favorite — clueless reporters, which according to her was just about all of them. She did not approve, she once wrote, of “parading one’s ignorance about mortgages in an article full of high-minded tut-tutting over ignorance about mortgages.”
    In March 2006, Ms. Dungey was diagnosed with late-stage ovarian cancer.
    Ms. Dungey was raised in Bloomington-Normal, Ill., had a graduate degree in English, and worked as a writer and trainer for a variety of lenders, including Champion Federal and AmerUs Mortgage.
    One of Tanta’s last posts was written as the $700 billion bailout was first being debated in mid-September, and it seemed that the Treasury Department might buy bad assets directly from troubled banks.
    Tanta argued that for every asset that banks unloaded on the government, the chief executives should be required to explain “why they acquired or originated this asset to begin with, what’s really wrong with it in detail, what they have learned from this experience, and what steps they are taking to make sure it never happens again.”

    My deepest sympathies to her family.

  • Krugman on What to Do
    , November 30th, 2008 at 12:50 pm

    Paul Krugman favors lots more spending:

    What the world needs right now is a rescue operation. The global credit system is in a state of paralysis, and a global slump is building momentum as I write this. Reform of the weaknesses that made this crisis possible is essential, but it can wait a little while. First, we need to deal with the clear and present danger. To do this, policymakers around the world need to do two things: get credit flowing again and prop up spending.
    The first task is the harder of the two, but it must be done, and soon. Hardly a day goes by without news of some further disaster wreaked by the freezing up of credit. As I was writing this, for example, reports were coming in of the collapse of letters of credit, the key financing method for world trade. Suddenly, buyers of imports, especially in developing countries, can’t carry through on their deals, and ships are standing idle: the Baltic Dry Index, a widely used measure of shipping costs, has fallen 89 percent this year.
    What lies behind the credit squeeze is the combination of reduced trust in and decimated capital at financial institutions. People and institutions, including the financial institutions, don’t want to deal with anyone unless they have substantial capital to back up their promises, yet the crisis has depleted capital across the board.
    The obvious solution is to put in more capital. In fact, that’s a standard response in financial crises. In 1933 the Roosevelt administration used the Reconstruction Finance Corporation to recapitalize banks by buying preferred stock—stock that had priority over common stock in terms of its claims on profits. When Sweden experienced a financial crisis in the early 1990s, the government stepped in and provided the banks with additional capital equal to 4 percent of the country’s GDP—the equivalent of about $600 billion for the United States today—in return for a partial ownership. When Japan moved to rescue its banks in 1998, it purchased more than $500 billion in preferred stock, the equivalent relative to GDP of around a $2 trillion capital injection in the United States. In each case, the provision of capital helped restore the ability of banks to lend, and unfroze the credit markets.

  • Rescue Plan Strained by Lack of Staff
    , November 28th, 2008 at 10:17 pm

    If you’re looking for a job, there’s one government agency that’s desperately short of people:

    President-elect Barack Obama has made his most important Treasury Department personnel choice, but Timothy Geithner has big personnel challenges of his own.
    The current Treasury has so far struggled to keep up with the task of hiring enough people to handle the $700 billion financial rescue package passed by Congress in October. The man now in charge of running the Troubled Asset Relief Program, Assistant Secretary Neel Kashkari, said the department’s Office of Financial Stability, with about 40 full-time employees, is operating at half-staff.
    Federal banking regulators, who must approve the applications from banks before they go to Treasury, said there is a backlog of unprocessed applications for relief. Outside observers said the difficulty of quickly building a qualified staff may be one reason the Treasury abandoned its original plans to use the TARP to purchase assets from financial institutions, deciding instead to inject capital into the banking system.

    So we have $700 billion that’s to be spent by 40 people. I think I know how this story will end.

  • Almanac Day
    , November 28th, 2008 at 8:23 pm

    For reasons I may never know, I’m an extreme dataphile. I love numbers. Even better, numbers in charts! Or numbers in tables!! Historical data. Stock data. Sports data. Voting data. It really doesn’t matter, I’ll read it.
    That’s why I’ve always been a big fan of the World Almanac. All of us dataphiles love the World Almanac. As I kid, I used to digest these books whole.
    The new version always comes out around Thanksgiving time, and I made my annual trek to the book store to get it. Nope, I can’t even wait for Amazon.
    I have on my bookshelf the last 20 World Almanacs, and I guess I’ll be collecting them for the rest of my life. I just spent the last few hours reading the newest version from cover to cover. Imagine Burgess Meredith in that classic Twilight Zone episode. That’s me, just World Almanacs.
    Sigh….

  • Heads You Lose, Tails You Lose
    , November 27th, 2008 at 5:57 pm

    Six days ago, The New York Times ran an article looking at the victims of lower prices for crops. Here’s a sample:

    Now, with the suddenness of a hailstorm flattening a field, hard times are back on the American farmstead. The price paid for crops is dropping much faster than the cost of growing them.
    The government reported this week that the cost of goods and services nationwide fell by a record amount in October as frantic businesses tried to lure customers. While lower prices are good for consumers in the short run, a prolonged stretch of deflation would wreak havoc as companies struggled to stay afloat.
    In this lonesome stretch near the Texas border, farmers are getting an early taste of a deflationary world. They have finished planting next year’s winter wheat, turning the fields a brilliant emerald green. But it cost about $6 a bushel in fuel, seed and fertilizer to put the crop in. That is $1 more than they could sell it for today, and never mind other expenses like renting land.
    This looming loss sharpens their regret that they did not unload more of this year’s crop back when they harvested it in May. They knew the boom would end, but not so soon.

    Sounds pretty rough. Fortunately, just six days later, the same paper finds that food prices are expected to keep going up. Of course, that’s also bad news:

    Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.
    The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.
    Some economists project even steeper increases next year. For instance, Bill Lapp, principal at Advanced Economic Solutions in Omaha, said he expected food prices to jump 7 to 9 percent next year.

  • Happy Thanksgiving
    , November 27th, 2008 at 11:25 am

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  • 15 Stocks to Short
    , November 26th, 2008 at 12:48 pm

    Tim Sykes, my favorite short-selling blogger, has 15 names that he calls potential shorts:

    RDNT is also nearly a double off its lows
    CSUN reported bad earnings, but was probly priced in considering the stock jumped big, no w a double off its lows in just 3 days…I don’t like earnings plays, but I’m watching.
    JRCC is also a double off its lows, just a stock that’s gotten wrecked, no other reason, potential short.
    SRI was a great short for a 15% gain, $1,700 profit, detailed post coming, now the stock is dead to me.
    STXS looked like it was gonna roll over yesterday, spiked last few minutes, support everywhere so shorting doesn’t look too good.
    PRST up from $1 to $2 after a death spiral, potential short
    FMD is waaay up off its lows but its also a finance company, no thanks
    NCT is another finance place, ow with solid intraday support everywhere, no thanks, I need spiking action, much more likely to reverse!
    KFS is a finance spiker, but only its first up day, watching it
    TWB had its first up day, $2 to $3 after being in a yearlong death spiral, please oh God let there be a further squeeze.
    LNC is a finance company that was trading at $50 just a few weeks ago, no thanks
    YGE is like CSUN, alternative energy bouncer, almost a double off its lows.
    YRCW continues squeezes shorts, I won’t be one of them.
    SSW is up a bit off its lows, but it’s a real company, no thanks.

    Most of these are low-priced stocks that are hemorrhaging money. One stock I recognize is Presstek (PRST) which was THE STOCK TO OWN in 1995 and 1996. The stock jumped about 25-fold in two years. At its current price of $2, let’s just say it’s come down since then.

  • Donaldson’s First-Quarter Earnings
    , November 26th, 2008 at 12:42 pm

    If you’re read this site for awhile, you know that I’m a big fan of Donaldson (DCI), the filtration company. The company has delivered record earnings for 19 straight years.
    On Monday, Donaldson reported earnings for its fiscal first quarter and it looks like they’re on their way to a 20th record year. For Q1, Donaldson earned 60 cents a share That’s up from 53 cents last year. Revenue jumped 9.1% to $573.3 million. Wall Street was expecting 54 cents a share on revenue of $561.8 million.
    Donaldson now expects full-year EPS to range from $2.16 to $2.36. Bill Cook, the CEO, said: “While we had a solid start to our new fiscal year, we also foresee a challenging global economic environment in front of us. As a result, we have been proactively managing our business and working aggressively to reduce our expense levels. Our progress to date is evident as our operating expenses decreased to 20.4 percent of sales this quarter compared to 22.0 percent in the fourth quarter of FY08. We expect that the combination of our continued focus on operating expense controls, product and process cost reductions, and the strength of our diversified portfolio of filtration businesses will allow us to achieve our 20th consecutive year of record earnings.”
    The stock rose 7.0% on Friday, 6.5% on Monday, 6.7% yesterday and it’s up another 7.9% today.
    Year……………..Sales………………….EPS
    1999…………..$944.14……………..$0.65
    2000…………..$1,092.29…………..$0.75
    2001…………..$1,137.02…………..$0.83
    2002…………..$1,126.01…………..$0.95
    2003…………..$1,218.25…………..$1.05
    2004…………..$1,414.98…………..$1.18
    2005…………..$1,595.73…………..$1.27
    2006…………..$1,694.33…………..$1.55
    2007…………..$1,918.83…………..$1.83
    2008…………..$2,232.52…………..$2.12
    Here’s the earnings call from Seeking Alpha.

  • More on TIP Yields
    , November 26th, 2008 at 12:20 pm

    Arnold Kling comments on the high short-term TIP yields:

    The overall return on a seasoned TIP consists of three things. First, there is the coupon on the security. Second, there is the appreciation or depreciation of price. Third, there is the change in the accrued inflation factor. The coupon on the 1/15/09 TIP is 3.875 percent, so interest accumulates at that annual rate between now and then. So you can expect about 0.5 percent in interest (taking the number of days between now and January 15th, dividing by 365, and multiplying by the coupon rate). The price this morning was roughly 98.35, and if you hold it until January 15th it will effectively go to 100. So, you have a 1.65 percent gain from that. Annualize that number, and there’s your double-digit yield.
    The catch concerns the accrued inflation factor. Because the bond has been outstanding for almost ten years, the accrued inflation factor as of December 1st is 1.33 and headed down, because of the decline in the Consumer Price Index in October, to 1.32 on December 31 or a little less than a one percent drop.
    I am guessing that the inflation factor for January 1st through 15th depends on the November CPI. If the November CPI declines by, say, one percent, then my guess is that the inflation factor would decline by another 0.5 percent. If that happens, then by my calculation your yield will be 0.5 + 1.65 – 1.5 = 0.65, over a period of roughly 50 days. At an annual rate, it is something just over 4.5 percent. Nice for a short-term Treasury, but nothing like double digits.
    On the other hand, if we get an enormous drop in the CPI (keep in mind that gas prices are certainly going to be lower), you could actually lose money. If I’m doing the arithmetic right, with a 2.3 percent drop in the CPI, the accrued inflation factor would go down another 1.15 percentage points, and your total yield would be zero.

  • Introducing the Free Lakota Bank
    , November 25th, 2008 at 10:09 am

    From their website:

    The Free Lakota Bank is the world’s first non-reserve, non-fractional bank that issues, accepts for deposit, and circulates REAL money…silver and gold. All of our deposits are liquid, meaning they can be withdrawn at any time in minted rounds.
    At the Free Lakota Bank, we issue, circulate and accept for deposit only AOCS-Approved silver and gold currencies. Silver & gold are a store of value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Since we deal only in real money, we do not participate in any central bank looting schemes.
    Money is made possible only by those who produce. Paper is not money, instead merely a promise to pay. We hope that some day the rest of the world will awaken from the American Dream: the dream that a person can sustain life by consuming more than producing. We call it the American Dream because you must be asleep to believe it. Well, that dream now has a silver lining; as people discover the dream is really a nightmare, the only solution is a return to value: value that comes from production and honest trade.