Author Archive

  • Tribune Co. Files for Bankruptcy
    , December 8th, 2008 at 8:55 pm

    The Tribune Company files for bankruptcy. I know because it says so in the New York Times.
    Meanwhile, the New York Times (NYT) takes out a second mortgage.

  • T-Bills Hit Lowest Rate Since 1929
    , December 8th, 2008 at 8:50 pm

    I forget. What else happened in 1929?
    Oh, right. That.

    The Treasury sold $27 billion in three-month bills at the lowest rate since it starting auctioning the securities in 1929 amid record demand for the safety of U.S. debt during the worst financial crisis since the Great Depression.
    The bills were sold at a high discount rate of 0.005 percent, the Treasury said today in Washington. At last week’s auction, the bills drew a rate of 0.05 percent. The government received bids for the bills totaling more than triple the amount sold.
    “It’s all about capital preservation,” said John Canavan, a fixed-income analyst in Princeton, New Jersey, at Stone & McCarthy Research Associates. “People are afraid to put their money anywhere else so they aren’t terribly concerned about returns.”
    The Treasury also sold $27 billion in six-month bills at a high discount rate of 0.30 percent, the lowest since at least 1958. At last week’s auction, the six-month bills drew a rate of 0.43 percent.

    Paul Krugman said recently about a stimulus that we shouldn’t worry about a size limit, and spend as much as we can. I’m still for flooding the market with a massive short-term auction. I think this would soften two problems. It would hopefully force money off the sidelines, while also raising money for the Treasury to buy high yield preferreds in troubled banks.

  • Danaher Cuts Guidance
    , December 8th, 2008 at 8:46 pm

    Today, Danaher (DHR) pared back its Q4 guidance to a range of $1.03 to $1.10 a share from its previous forecast of $1.17 to $1.25 a share. The CEO said, “Global economic conditions have continued to deteriorate over the last several weeks impacting many of our customers as well as a number of our businesses. In addition, the strengthening of the dollar against other global currencies has created additional headwinds that will negatively impact our financial results.”
    As bad as that sounds, the change in guidance is far less than what the rest of the market is experiencing. The projections for 2009 earnings at the start of 2008 were way off the mark. I was impressed to see shares of Danaher rally today on its lower forecast. The stock is still a very good buy.

  • Brad DeLong on the Crisis
    , December 8th, 2008 at 8:36 pm

    From Cato Unbound, Professor DeLong jumps to the heart of the matter.

    Things are even worse as far as the risk discount is concerned. Our models predict that in normal times, with the ability to diversify portfolios that exists today, the risk discount on assets like corporate equities should be around 1% per year. It is more like 5% per year in normal times — and more like 10% per year today. And our models for why the risk discount has taken such a huge upward leap in the past year and a half are little better than simple handwaving and just-so stories. Our current financial crisis remains largely a mystery: a $2 trillion impulse in lost value of securitized mortgages has set in motion a financial accelerator that we do not understand at any deep level but that has led to ten times the total losses in financial wealth of the impulse.

    There’s not much else to say. With this crisis, some ideological humility is needed. Someday, a bright economist will develop a theory for what’s going on today. But for right now, much of it is a mystery.
    (H/T: Arnold Kling)

  • Light Posting Today
    , December 8th, 2008 at 6:53 am

    I have jury duty.

  • The Catastrophe Capitalist
    , December 7th, 2008 at 11:10 pm

    NY Mag looks at short-seller Jim Chanos.

  • Leucadia’s Unmined Potential
    , December 6th, 2008 at 9:37 pm

    One more Barron’s link. The magazine says there’s good value in Leucadia National (LUK). This is great to see since the media rarely does stories on Leucadia. The two principles, naturally, “couldn’t be reached for comment.”

    Fans argue that Leucadia is oversold, noting that it rarely has traded below book in the past decade and in recent years typically has commanded 1.5 to two times book. The stock could hit $30 in the next year if the company’s equity holdings turn around and if Steinberg and Cumming take advantage of the current financial distress to display their old stock-picking magic. Says one Leucadia holder: “I don’t think that they suddenly took stupid pills.” Given market declines since Sept. 30, Leucadia’s book value has now probably fallen closer to $20 a share.
    Steinberg and Cumming, who couldn’t be reached for comment, focus on minimizing Leucadia’s tax bill. The company now has $1.6 billion of deferred tax assets, indicating that it expects to shield some $5 billion of future profits from federal income taxes. Strip out that tax asset to reflect no future gains, and estimated book falls to around $14 a share. “That’s a worst-case assumption. You’re not paying much above that for the stock,” says a recent Leucadia investor.

    The stock is down from $57 to $18. Thirty years ago it was going for a split-adjusted price of 3.3 cents a share.

  • Bubbles in the Lab
    , December 6th, 2008 at 9:31 pm

    Virginia Postrel has a fascinating article in The Atlantic about economists who have created asset bubble in simulated markets.

    The great thing about a laboratory experiment is that you can control the environment. Wall Street securities carry uncertainties—more, lately, than many people expected—but this experimental security is a sure thing. “The fundamental value is unambiguously defined,” says the economist Charles Noussair, a professor at Tilburg University, in the Netherlands, who has run many of these experiments. “It’s the expected value of the future dividend stream at any given time”: 15 times 24 cents, or $3.60 at the end of the first round; 14 times 24 cents, or $3.36 at the end of the second; $3.12 at the end of the third; and so on down to zero. Participants don’t even have to do the math. They can see the total expected dividends on their computer screens.
    Here, finally, is a security with security—no doubt about its true value, no hidden risks, no crazy ups and downs, no bubbles and panics. The trading price should stick close to the expected value.
    At least that’s what economists would have thought before Vernon Smith, who won a 2002 Nobel Prize for developing experimental economics, first ran the test in the mid-1980s. But that’s not what happens. Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then, as the 15th round nears, it crashes. The problem doesn’t seem to be that participants are bored and fooling around. The difference between a good trading performance and a bad one is about $80 for a three-hour session, enough to motivate cash-strapped students to do their best. Besides, Noussair emphasizes, “you don’t just get random noise. You get bubbles and crashes.” Ninety percent of the time.

    Read the whole thing.

  • Barry in Barron’s
    , December 6th, 2008 at 9:17 pm

    Barry Ritholtz is interviewed in this weekend’s Barron’s. Here’s a sample:

    Given the uncertainty in the market at large, what appeals to you right now?
    We’ve been trading the two-to-one leveraged [exchange-traded funds].
    One is the Ultra S&P ProShares [ticker: SSO] — for every dollar the Standard & Poor’s 500 moves, it moves two dollars. And there’s also Ultra Triple Q ProShares [QLD], the Nasdaq 100-version of the SSO. The flip of the QLDs are the QIDs, which are the negative two-for-ones on the Nasdaq. We’re starting to look at that. We are now running about 70% cash, which is inordinately high, but some of the names we’re watching, and have owned in the past, are NuVasive [NUVA], a medical-device company, Stanley Works [SWK], a great infrastructure story, LG Display [LPL] and Luminex [LMNX]. Industries we like are infrastructure, defense, biotech and medical devices.

    Barry’s book, Bailout Nation, is due out next year.
    (H/T: Kedrosky)

  • Best Goal You’ll See All Day
    , December 5th, 2008 at 6:22 pm