Sold My Position in Dell
Posted by Eddy Elfenbein on September 16th, 2009 at 12:56 pm

I used to be a big fan of Dell (DELL) which was a horrible mistake on my part. Nevertheless, any investor will have good ideas and dumb ideas. This was a dumb one.
I initially bought Dell in late 2005 around $30.50 a share and rode it all the way down to $8 earlier this year. When you’re down that much, the temptation is to say “Screw this” and sell out at any price. Fortunately, I fought that and held on for a bit more.
I decided to come up with a fair price and wait until Dell came within range. The fair price I chose was $15 a share. The stock recently hit it though I held out for a little more and sold today at $17.

It’s easy to talk about your winners but I wanted to share some of my big losers as well. Still, the lesson is the same and that’s not to let your emotions get the best of you.

Archbishop of Canterbury: Bankers Have Failed to Repent
Posted by Eddy Elfenbein on September 16th, 2009 at 10:31 am

The Archbishop of Canterbury, Dr. Rowan Williams, has said that bankers have failed to repent for the financial crisis.

Dr Williams said: “There hasn’t been a feeling of closure about what happened last year. There hasn’t been what I would, as a Christian, call repentance. We haven’t heard people saying ‘well actually, no, we got it wrong and the whole fundamental principle on which we worked was unreal, empty’.”
Asked if the City was returning to business as usual he said: “I worry. I feel that’s precisely what I call the ‘lack of closure’ coming home to roost. It’s a failure to name what was wrong. To name that, what I called last year ‘idolatry’, that projecting of reality and substance onto things that don’t have them.”

Dr. Williams has already shown himself to be economically illiterate (“Every transaction in the developed economies of the West can be interpreted as an act of aggression against the economic losers in the worldwide game”), but this last statement is truly bizarre. More importantly, it has zero understanding of the credit crisis. As Oliver Kamm points out: “You could have saints and archangels trading derivatives, but if their risk models are wrong then you’ll get the same result.”

One Year Ago Today
Posted by Eddy Elfenbein on September 15th, 2009 at 12:21 pm

Me one year ago today:
The Fed’s Suez Crisis
Something that struck me about Lehman’s demise is how little power the Federal Reserve really has. Don’t get me wrong, the Fed is darn powerful, but it’s not all-knowing and all-seeing, despite what some folks think. The Fed is powerful because people think it’s powerful.
Analysts hang on every word in a statement or testimony, but in the case of Lehman Brothers (LEH), the Fed really couldn’t do much. Wall Street basically stood up to the Fed and the central bank was exposed. Since Bear was the first, the Fed can open its mouth and get its way. But the Fed can’t make the weaker argument the stronger, and that’s what was needed with Lehman.
I’d say the Lehman story was a combination of too much debt—at one time they were leverage 40-to-1, they didn’t know what they owned, and they refused to listen to any criticism. To top it off, they had horrible luck too. That’s not a good combination.
With Level 3 assets (these are basically assets that can’t be priced easily so we have to trust Lehman for the price), Lehman once claim they their Level 3 stuff was up 9%, even though the market was down by 10%. When people called them on it, Lehman got mad and blamed the shorts. That’s just arrogance. Then they spent something like $22 billion on Archstone? I mean, what the hell? Talk about the wrong price, the wrong industry at the wrong time. Aside from that, it was a great deal!
Einhirn and other shorts said they didn’t know what their stuff was worth and they were undercapitalized. Fuld & Co. just refused to listen. I don’t think they’re crooks at all, they sincerely believed in what they were doing. Until the end, the company was offering assurance to investors.
With Bear and Lehman we often heard about counterparty risk. Well, that theory got shot down with Lehman. I’m going to go on the idea that the reason there wasn’t a deal for Lehman is that no one wanted one. If someone wanted, it would have happened. Novel thinking I know. But it tells us that the Street is hardly concerned about counterparty risk. JPM was concerned about with Bear because it was mostly their risk.
I heard Hank Paulson talk about bringing stability to the markets. Yeah, right. That’s basically like the flea giving orders to the dog. The Fed and the Treasury do not have this thing contained. If the housing market recovers, then the problem goes away. It’s as simple as that.

Boo Hoo Column of the Day
Posted by Eddy Elfenbein on September 15th, 2009 at 12:17 pm

The following is from Jane Pedreira, a former senior Veep at Lehman:

I was robbed first by Ben Bernanke, the Federal Reserve chairman, and Henry Paulson, the former Treasury secretary, who refused to support a sale of the company, and later by the bankruptcy judge who approved the sale of Lehman to Barclays for peanuts.
I am still unable to pay all of my bills. I know the public at large doesn’t have sympathy for Wall Street employees, but did I deserve to be robbed because of the mistakes of others?

Oh brother.
(Via: Carney)

Bernanke: Recession Probably Over
Posted by Eddy Elfenbein on September 15th, 2009 at 12:00 pm

From the AP:

Federal Reserve Chairman Ben Bernanke said Tuesday that the worst U.S. recession since the 1930s is probably over.
Mr. Bernanke said the economy likely is growing now, but it won’t be sufficient to prevent the unemployment rate, now at a 26-year high of 9.7 per cent, from rising.
“The recession is very likely over at this point,” Mr. Bernanke said in responding to questions at the Brookings Institution.
The Fed chief also said he is confident Congress will enact a revamp of the nation’s financial rule book to prevent a future crisis from happening.
“I feel quite confident that a comprehensive reform will be forthcoming,” Mr. Bernanke said. It has been “too big a calamity” over the past year, with the near meltdown of the U.S. financial system, for Congress not to take action, he added.

Quote of the Day
Posted by Eddy Elfenbein on September 15th, 2009 at 11:39 am

From Arnold Kling:

All of the main elements of the financial crisis were policy-driven, because of self-defeating housing policy and bank capital policy.

How Much Natural Gas to Buy the S&P 500
Posted by Eddy Elfenbein on September 14th, 2009 at 9:13 pm

The price of natural gas recently hit a seven-year low. As bad as it’s been, natural gas has actually outperformed the S&P 500 for many several years.
Here’s a look at how many hundreds of cubic meters of natural gas it would take to buy the S&P 500:

The Best Stocks Post Lehman
Posted by Eddy Elfenbein on September 14th, 2009 at 7:45 pm

Bespoke lists the best performing stock S&P 500 stocks since Lehman went under:

There are no financials.

“We Will Not Go Back To the Days of Reckless Behavior and Unchecked Excess”
Posted by Eddy Elfenbein on September 14th, 2009 at 2:37 pm

The president speaks on Wall Street:
Thank you all for being here and for your warm welcome. It’s a privilege to be in historic Federal Hall. It was here more than two centuries ago that our first Congress served and our first President was inaugurated. It was here, in the early days of our Republic, that Hamilton and Jefferson debated how best to administer a young economy and to ensure that our nation rewarded the talents and drive of its people. Two centuries later, we still grapple with these questions — questions made more acute in moments of crisis.
It was one year ago that we experienced just such a crisis. As investors and pension-holders watched with dread and dismay, and after a series of emergency meetings often conducted in the dead of the night, several of the world’s largest and oldest financial institutions had fallen, either bankrupt, bought, or bailed out: Lehman Brothers, Merrill Lynch, AIG, Washington Mutual, Wachovia. A week before this began, Fannie Mae and Freddie Mac had been taken over by the government. Other large firms teetered on the brink of insolvency. Credit markets froze as banks refused to lend not only to families and businesses but to one another. Five trillion dollars of Americans’ household wealth evaporated in the span of just three months.

Read more…

Roubini on Lehman, Global Financial Crisis
Posted by Eddy Elfenbein on September 14th, 2009 at 12:39 pm