-
Remember What A 'Bad Bank' Really Is
Tweet Share on Facebook January 30, 2009 Comment (25)Second verse, same as the first. The idea to create a "bad bank" to buy up those pesky billions worth of bad assets still on the books at big banks is the latest twist in our long bailout saga. Estimates for what it might cost (up to $4 billion) and whether creating such an institution to sort out those assets would even work are unclear, mostly because nobody is sure how to go about setting prices. The idea is reportedly meeting some dissent, and reactions have been harsh given the usual lack of clarity.
As the WSJ's David Gaffen puts it:
The current proposal combines purchases of the assets on the balance sheets of the nation’s largest institutions, along with the guarantee against future losses on other assets, and once again, it leaves investors grappling for specifics as the wheels turn slowly.
The frustrating thing is that this is exactly the problem we've had all along. Six months into the worst credit crisis in memory, and we're still facing precise dilemma the first $700 billion bailout was designed to fix (remember: the super-rushed first version of the TARP was going to buy those assets).
So there's no reason to get excited by the plan, other than the likelihood we'll get to watch policymakers get anxious and aggressive in pushing through a new, expensive idea that might or might not get to the heart of the problem. That's because the one thing we do know about these assets is that banks haven't really been working all that hard to figure out how to price them until they see a plan from the government that might get them more money than they'd otherwise be paid if they sold the assets on the open market. In the meantime, the economy suffers as bankers hope for a sweeter deal.
So keep that in mind. What a 'bad bank' would most likely do is over-pay for bad assets.
In an interview with Fortune today, Oppenheimer analyst Meredith Whitney says as much. If this idea gains traction, just remember this quote:
"The bad bank is a covert way to recapitalize banks by paying more for the assets than the market would, she said. "Then the banks might be able to write up the value of the securities. This would give them, on paper, more tangible equity. In theory they would look stronger."
Bankers seem to think if they wait long enough, they'll still get to dictate price. They might be right.
-
GDP Report Is Bad For Stocks, But Earnings Are Worse
Tweet Share on Facebook January 30, 2009 CommentEverybody expected the latest GDP report to be bad, and it was (though not nearly as terrible as a lot of folks had feared). Growth fell at a 3.8 percent annualized rate, better than the 5.5 percent drop economists were expecting. That's the good news. Unfortunately, capital spending and consumption are still weak, and economists generally say that while quarterly growth was less bad, the damage could simply move into the first quarter of 2009. Some interesting takes on the numbers (bold is mine):
Action Economics: "One hates to say that a massive GDP overshoot of market forecasts, as seen in this morning's U.S. Q4 GDP report, "doesn't matter." Yet, the gap entirely reflects diverging assumptions between the BEA and market economists over the allocation of observed price declines between Q4 and Q1, leaving a report that has robbed Peter (Q1) to pay Paul (Q4)."
High Frequency Economics extends that theme, noting a surprise rise in inventories will have to reverse by some amount which "makes us more bearish for Q1 . . . In short, we are not comforted."
Goldman Sachs outlines what the report says about consumer spending: "An interesting and potentially meaningful aspect of this report is the sharp 8.9% annualized decline reported for nominal consumer spending. This is the largest quarterly setback on record (since 1947) and it is the only such occurrence that combines declines in both real spending and the PCE price index. In essence, this says that US consumers took lower gasoline prices to the bank instead of using them to increase their acquisitions of real goods and services, which they have routinely done in the past."
At any rate, stocks are falling today even on a better headline number for the GDP. The report isn't really what's moving stocks, since fears of a terrible Q4 have been around for months. Instead, here's a quick list of mixed earnings reports that are behind today's drop, especially in the drug and consumer sectors:
-
Peter Schiff Responds
Tweet Share on Facebook January 30, 2009 Comment (14)Permabear pundit Peter Schiff has had a rough week (see: Peter Schiff: Right On The Crisis, Wrong On Investing?). Today he responds to blogger Mike Shedlock and this WSJ story questioning the performance of his client's investments through his firm, Euro Pacific Capital.
In a long post on Seeking Alpha (Peter Schiff Answers His Critics), he backs his bearish forecasts and his investment strategy, concluding with this:
My critics have often referred to me as a stopped clock. I believe that the accusation is best leveled at the accusers. Having been wrong for so long, they are now enjoying their brief moment in the sun. They should enjoy it while it lasts. For now, they are creating fodder for some future "Peter Schiff was Right" piece where those who now criticize my investment performance will look just as foolish as those who once criticized my economic forecasts.
The full text of his response is after the jump.
-
Today Only: Free Retirement Financial Advice
Tweet Share on Facebook January 30, 2009 CommentUntil 6 p.m. eastern time today, Kiplinger's and the National Association of Personal Financial Advisors will answer your financial questions for free over the phone.
Normally, these fee-only planners, who are well versed in investments, taxes, insurance, estate planning, and saving for college and retirement, charge clients $100 to $250 an hour. But on Jump-Start Days, you don't pay a cent -- not even for the phone call. Just dial 888-919-2345 and a NAPFA adviser will respond to your question. Or, if you prefer, you can participate in an online discussion with a NAPFA adviser anytime from 9 a.m. to 6 p.m. eastern time on January 13 or January 30 by visiting our Jump-Start Your Retirement Center.
Get your financial statements together and take advantage of an opportunity to ask the experts.
-
Smartphone Fight: First Palm, Now Dell May Challenge Apple and RIM
Tweet Share on Facebook January 30, 2009 Comment (6)The WSJ is reporting Dell has built prototypes using Google's Android operating system and Windows Mobile, with two versions including sliding keyboard and touch screens.
Kaufman Bros. analyst Shaw Wu says in a note that the WSJ story is consistent with his checks and Dell's phone could drop as soon as mid-February. Wu says it makes sense for PC firms to move into phones as high-tech handsets encroach on the notebook space.
-
Scan-doll: It's a Pocket-Sized Madoff!
Tweet Share on Facebook January 29, 2009 Comment (2)Create your own mini-Ponzi schemes at home! Get your very own limited edition Bernie Madoff* action figure from Herobuilders.com ( Via Clusterstock). He comes with a fist-full of tiny hundreds, and his special power is managing to spend his stint under house arrest in a $7 million Manhattan apartment.
-
Um, Just So You Know: World Growth Grinds to Virtual Halt
Tweet Share on Facebook January 28, 2009 Comment (1)A few pretty awful highlights culled from the IMF's latest World Economic Outlook:
- World growth is projected to fall to just half of one percent in 2009, its lowest rate in 60 years.
- Potential losses in U.S. originated credit assets held by banks and others are estimate at $2.2 trillion, up from $1.4 trillion last October.
- In India, growth is expected to slow to 5 percent, while China is expected to slow to 6.75 percent.
- Deflation is now a risk.
- The IMF's answer for worsening economic woes? More stimulus, pretty much everywhere.
For a more on China today see Floyd Norris, and for an even worse prediction on banking troubles there is (as always) NYU's Nouriel Roubini, who puts banking losses at $3.6 trillion.
-
Target Layoffs, Consumer Worries
Tweet Share on Facebook January 27, 2009 Comment (15)Today Target (TGT) becomes the latest big U.S. company to shed jobs.
From the Minneapolis Star Tribune:
The discount retailer would not disclose how many employees would lose their jobs, saying they first had to notify its employees. The layoffs will occur at headquarters, a spokeswoman said, and not in the company's stores.
"Like many other companies, Target is taking actions to manage payroll and non-payroll expense in the current economic environment," Target said in a prepared statement. "We believe the decisions we are making, though difficult, represent appropriate actions to manage our business and maintain our competitive advantage going forward."
A spokeswoman said the retailer would provide more information later in the day after fully notifying employees.
The latest bad news on employment comes on top of nearly 60,000 job cuts announced Monday by Pfizer, Home Depot, Caterpillar and others. As for Target, it's no surprise retailers are being hurt too as consumer confidence sinks to its lowest level ever.
-
TARPGate! Cuomo Subpoenas Thain Over Bonuses
Tweet Share on Facebook January 27, 2009 CommentNew York Attorney General Andrew Cuomo is trying to figure out exactly who knew what regarding some $4 billion worth of bonuses hastily shoveled to Merrill Lynch employees ahead of its merger with Bank of America (and just as BofA was asking the government for another $20 billion in TARP money to get the deal done).
From the WSJ:
In a statement Tuesday, Mr. Cuomo said his office is seeking testimony from Mr. Thain and J. Steele Alphin, Bank of America's chief administrative officer, as he looks into executive compensation issues at firms that have received money under the U.S. government's Troubled Asset Relief Program.
"These subpoenas are part of an ongoing inquiry into billions of dollars in bonuses paid by Merrill Lynch late last year just days before Merrill was taken over by Bank of America," Mr. Cuomo said. "The fact that Merrill Lynch appears to have moved up the timetable to pay bonuses before its merger with Bank of America is troubling to say the least and warrants further investigation."
The FT has Cuomo's statement.
-
Will CV Therapeutics Get A Higher Price From Astellas?
Tweet Share on Facebook January 27, 2009 CommentTokyo-based pharma company Astellas Pharma offered $1 billion in cash or $16 a share for CV Therapeutics (CVTX), which makes small molecule cardiovascular drugs including angina treatment Ranexa. The deal is a 41 percent premium to CVTX's closing price, and shares promptly jumped today in expectation of a deal. Here's the recent history: Astellas made an identical offer in November, but CVTX's board rejected the deal. Now, by making the big public and asking CVTX to reconsider, analysts say the deal could happen and the price could rise.
Citigroup analysts say the second offer indicates Astellas is willing to negotiate a higher price, and call Ranexa is a "promising" drug with a possible market potential of $400 million. Unless another bidder emerges, Citi says, "we suspect it will be difficult for CVT's Board to thwart Astellas's aggressive overtures, and believe that a deal in the high teens to low $20s range is likely."
