Archive for August, 2008

  • I am Outta Here
    , August 30th, 2008 at 11:18 am

    I’m off to the Outer Banks for the week. I’ll be returning next Monday–tan, rested and ready.
    In the meantime, please check out the many fine bloggers on my blogroll. Before I go, I’ll leave you with this:

    Have a happy and safe Labor Day!

  • Ouch!
    , August 29th, 2008 at 3:57 pm

    From the FT:

    Merrill Lynch’s losses in the past 18 months amount to about a quarter of the profits it has made in its 36 years as a listed company, according to Financial Times research that highlights the extent of the global banking crisis.
    Since the onset of the credit crunch last year, Merrill has suffered after-tax losses of more than $14bn as its balance sheet has been savaged by almost $52bn in writedowns and credit-related losses.
    Merrill’s total inflation-adjusted profits between its 1971 listing and 2006 were about $56bn, according to figures from Thomson Reuters Fundamentals and an FT analysis of reported earnings.
    The $14bn in losses for 2007 and the first two quarters of 2008 equal half of Merrill’s profits since the beginning of the ­decade.

  • A Sell Signal
    , August 29th, 2008 at 1:10 pm

    From Marketwatch:

    Mitch Williams to Ring the NASDAQ Stock Market Opening Bell

    Afterward, he walked the next five traders.

  • Did the Political Markets Fail?
    , August 29th, 2008 at 11:50 am

    Barry and Felix weigh in on Intrade’s call on the Palin selection. As I’ve said many times, the futures markets are not predictions markets. They’re really odds setting markets.
    The markets didn’t “fail” simply because a low-priced contract paid off. Did the markets fail when Google was at $100 a share? Not at all, the long-shot paid off.
    Futures markets aren’t particularly useful in this instance because the Veep pick is entirely the selection of one person. They’re more useful with events that are transparent, like an election or the Super Bowl. The markets can’t read Senator McCain’s mind, particularly when he’s trying to give off false signals (hence the dance with Lieberman) and go for an unconventional pick.
    The political markets work because they can process lots of information very quickly. With a Veep selection, however, there’s no information. So with these types of events, you have to expect hyper-volatility as the decision time approaches.

  • What If There Was a Recession and Nobody Came?
    , August 29th, 2008 at 11:42 am

    From today’s IBD:

    We keep looking for the much-anticipated recession, but it doesn’t seem to have gotten here yet. Could it be that many of those expecting a downturn were wrong, and the economy’s not going into the tank?
    Going out on a limb to predict what the economy will do is a tricky business. It’s possible, though by no means likely, that the economy briefly lapsed into recession late last year or early this year, based on weak GDP data, falling home sales, rising oil prices and a jump in unemployment. We won’t know for sure until months — maybe years — after it ends.
    Even so, we were struck by Thursday’s news that second-quarter GDP was revised up from 1.9% to 3.3%, more in line with boom than bust. The consensus estimate was for 2.7% growth.
    As more than one economist has noted, nearly all of that growth — some 3.1% of it — came from stronger exports, a result of the weak dollar. The rest came from inventories. Take those away, and the economy crawled at a weak 0.2% pace for the quarter.
    Fair enough. But we did our own calculations. The slowdown in the economy is mainly due to one thing: housing. We indexed overall GDP to housing GDP back to 2000.
    As the chart shows, it’s a very stark picture. We crunched even more numbers. Since 2006, the economy minus the ailing housing sector has grown at an average 3.3% rate. Add housing back in, and GDP growth has averaged just 2.4%. So housing’s collapse has cost us roughly 1% of GDP.
    Housing is still weak, with sales off 35% year over year and values depreciating at double-digit rates. Banks can’t boost lending much, since they’re writing off old loans and have to shrink capital. This will take time.
    But listening to the media and the Democrats in Denver, you’d think the economy was in a depression. Well, it’s not. In fact, we’re modestly optimistic. By the end of this year, all the really bad year-to-year comparisons in growth will be over. Sales and prices will start to look more normal. And the panic will leave the market.
    As noted, exports have supported the economy this year. To critics, a stronger dollar means export growth will slow. Maybe so. But falling oil prices mean our import tab will also drop.
    Moreover, oil demand now is falling. The Energy Department recently reported a shocking statistic that got little attention: U.S. demand in June plummeted 1.17 million barrels a day from last year, and a spokesman said prices could fall below $100 a barrel due to rising output in the U.S., Brazil and Canada.
    Other data also suggest grounds for optimism. Just this week, the Census Department reported median household income hit $50,233 in 2007, after inflation, a gain of 1.6% since 2001.
    Despite the slowdown in growth, the number of people without health insurance fell one million last year, while the poverty rate was unchanged at 12.5% of the population. And believe it or not, the average unemployment and poverty rates under President Bush have been slightly lower than under President Clinton.
    Sure, bad things can happen. But we don’t have to will them into existence. As it stands, the much anticipated recession — thanks to Bush’s tax cuts and timely Fed actions — might just be a no-show.

  • My Boldest Prediction Yet
    , August 28th, 2008 at 10:22 am

    Write down this time and day, and note that I’m calling a bottom in Pakistan’s stock market.
    In other news, Pakistan has barred stocks from trading below yesterday’s close.
    One more prediction, this won’t end well.
    (Via: Birthday Boy Joseph Weisenthal).

  • Latest Phony Concern: Delistings “Pinching” Exchanges
    , August 28th, 2008 at 10:08 am

    One of things I enjoy about the financial media is finding stories that are negative no matter what the outcome is. For example, you’re read a story about “red lining” and how banks are shutting out lower-income borrowers. Then a few years later, you’ll read a story about “predatory lending,” and how banks are taking advantage of lower-income borrowers. The completely contradict each other, but end results is always bad news. Or worse, it “raises concerns.” One day I hope to write a book, ” How Media Alarmism is Killing Our Children.”
    If you want to be taken seriously as an economic analyst or policy maker, you need to spend much of your day being “worried” and/or “concerned.” You don’t have to do anything. Just say that this latest development “raises troubling questions.” (See Bernanke Warns.)
    Probably the classic example is the worry of corporate consolidation and mega-mergers seamlessly turns into a worry about junk IPOs. I would think you can worry about one of these, but not both. Apparently the latest concern is a wave of stock delistings:

    The combination of more delistings and fewer new listings has pinched the big U.S. exchange operators, as the financial meltdown topples some of their clients and spooks others.
    Midway through this year, more companies than in previous years had been bumped from the Nasdaq Stock Market and, to a lesser extent, from the New York Stock Exchange because they failed to meet the minimum requirements.
    Meanwhile, tumbling stock markets have brought the IPO market to a crawl, compounding the pain for Nasdaq OMX Group and NYSE Euronext, which derive up to 15 percent of their overall revenue from listing fees.
    It’s a negative” for the exchanges, said Ed Ditmire, analyst at Fox-Pitt Kelton. “But it ebbs and flows with the economic cycle.”
    More Nasdaq-listed companies have been delisted for non-compliance so far this year than in either of the previous two years, according to Nasdaq data. Some 54 stocks were bumped as of Aug. 7, compared to 48 in all of last year and 52 in 2006.
    At larger rival NYSE, data show 11 companies had been delisted due to non-compliance as of July 1. That compares to 21 delistings in all of last year and 14 in 2006.

    Let me get this right: A growing wave of delistings is 11 for the first half of this year compared with 21 for all of last year?

  • Q2 GDP Revised to 3.3%
    , August 28th, 2008 at 9:30 am

    The government just revised second-quarter GDP to 3.3% from the original 1.9%. That’s a pretty hefty increase.

    Record exports and the temporary stimulus from the tax rebates prevented the economy from stalling as housing slumped and companies cut expenditures. Consumer spending is now waning and slower growth abroad dims the outlook for foreign sales, signaling last quarter will be the year’s highpoint.
    “Outside of trade, the economy is considerably weaker,” said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. “When you look at the spending, it looks terrible for the second half of the year.”

    I’m not too interested in the debate of, “are we or are we not in a recession.” Consider, however, a few facts.
    Imports have now declined for three straight quarters, and four of the last five.
    Fixed investment has declined for four straight quarters.
    Residential investment has fallen for 10 straight quarters.

  • FDIC May Tap Treasury
    , August 28th, 2008 at 8:37 am

    The FDIC is designed to protect investors’ deposits up to $100,000. The FDIC’s fund currently has $45.2 billion which insures about $4.5 trillion.
    Sooo…who protects the FDIC? If you said “the taxpayer,” congratulations, you can move to the head of the class.

    Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures.
    Ms. Bair said the borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank. The borrowed money would be repaid once the assets of that failed bank are sold.
    The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. That the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis.
    “I would not rule out the possibility that at some point we may need to tap into [short-term] lines of credit with the Treasury for working capital, not to cover our losses, but just for short-term liquidity purposes,” Ms. Bair said in an interview. Ms. Bair said such a scenario was unlikely in the “near term.”
    She said she did not expect the FDIC to take the more dramatic step of tapping a separate $30 billion credit line with Treasury, which has never been used.
    The FDIC said Tuesday its “problem” list of banks at risk of failure had grown to 117 at the end of June, compared with 90 at the end of March.
    The FDIC’s deposit insurance fund reimburses depositors who lost money in a bank failure, typically up to $100,000. The fund’s balance fell in the second quarter to $45.2 billion. That is just 1.01% of all insured deposits, low by historical standards.

    Here’s the key table in the FDIC’s report.

  • An Interest Rate What?
    , August 27th, 2008 at 2:49 pm