• The Palin Fund
    Posted by on September 9th, 2008 at 2:39 pm

    Here’s the governor’s financial disclosure form. The last two pages have the First Dude’s IRA and 401K.

  • Nouriel Roubini Blames Free Market Ideologues for Socialism, or Something Like That
    Posted by on September 9th, 2008 at 1:54 pm

    Stand back.

    Comrades Bush, Paulson and Bernanke Welcome You to the USSRA (United Socialist State Republic of America)
    The now inevitable nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trends was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.
    Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).

    A little overheated, no? It actually gets worse.

  • Investing in Volatility
    Posted by on September 9th, 2008 at 12:35 pm

    Did you know you can invest in volatility? Some hedge funds are finding it quite profitable this year.

    Hedge funds that profit from turbulence in the financial markets are beating stock, bond and commodity investments for the first time in five years.
    Volatility hedge funds returned 7.3 percent this year through August, according to the Newedge Volatility Trading Index, which started in 2003. Hedge funds overall lost 4.8 percent in the same period, according to Hedge Fund Research Inc. in Chicago.

    The size of daily fluctuations have increased this year.

    The S&P 500 fluctuated by more than 1 percent on 71 trading days this year, the most since 2003 and exceeding the 61-day annual average since 1928, said Howard Silverblatt, an analyst at S&P in New York. The index may have its most volatile year since 2002, when there were 125 swings of more than 1 percent.

    I wouldn’t say we’re in a highly volatile environment, but that volatility has returned to normal after a period of very low volatility.

  • American Voices
    Posted by on September 9th, 2008 at 12:27 pm

    From The Onion:

    The federal government announced this weekend that it would seize control of Freddie Mac and Fannie Mae, the country’s two biggest mortgage firms, in order to keep them afloat. What do you think?
    Marc Rose,
    Welder
    “Crap! Almost my entire Fantasy Privatized Social Security portfolio was in Freddie Mac.”
    Julie Meyer,
    Farmer
    “Nothing rectifies out-of-control market failures like a healthy dose of government intervention and mountains of bureaucracy.”
    Max Ramzi,
    Roofer
    “I think the government should let them go broke and give some of America’s mom-and-pop mortgage lenders a chance.”

    I actually agree with Max.

  • 30 Years of Fannie Mae
    Posted by on September 9th, 2008 at 11:33 am

    image710.png
    A year ago, the shares were close to $70.

  • NYT: Why the Bear Is Alive and Well
    Posted by on September 9th, 2008 at 11:00 am

    Over the weekend, Paul J. Lim wrote in the New York Times:

    If there’s a silver lining to bear markets, it is that they make stocks cheap for the next wave of investors. But so far in this downturn, it isn’t working out that way.
    Based on the price-to-earnings ratio, stocks have actually become more expensive even as share prices have come tumbling down. In fact, the P/E ratio for the Standard & Poor’s 500-stock index, based on earnings over the previous four quarters, has risen to just over 24 from around 19, according to S.& P.

    Superficially, that’s correct. The problem is that the earnings decline is heavily weighted toward certain sectors — most particularly financials.
    We don’t have the final numbers in yet, but the earnings of the financial stocks in the S&P 500 will probably be about -0.01. The S&P 500 Financials Index is currently around 300. So that’s a P/E ratio of…negative a lot. Consider that financials make up about 16% of the index, and I think we’ve found the squeaky wheel. Compare that with Health Care which is currently going for 15.6 times earnings or Staples (18.0), Tech (18.1) and Industrials (13.8).
    Bear markets generall come in one of two forms. Either stock prices shoot past reality as they did in 1987 and 2000. Or fundamentals crumble beneath prices, which is what happen in 1990 and is happening again.

  • United Shares Plummet on Six-Year Old Story
    Posted by on September 9th, 2008 at 10:55 am

    Yesterday, a financial newsletter circulated a story that United Airlines was seeking bankruptcy protection, which lead to a sell-off in its shares. The story was correct but there was one important detail — it was from 2002.

    Investors clearly took the article as news that the Chicago-based airline had once again sought protection from creditors, a scenario that had grown less remote in the past year as jet fuel prices skyrocketed.
    United had refuted a report by late morning in New York, but not before the stock lost more than 75 per cent of its value. The shares appeared to trade at 1 cent, the default price assigned following its halt.

    UAL.png

  • RIP: Georges Yared
    Posted by on September 8th, 2008 at 4:54 pm

    I wanted to express my condolences to the family and friends of Georges Yared. I always enjoyed Georges’ market commentary and found him to be a sane voice in often insane times. He will be missed.

  • Chart of the Day
    Posted by on September 8th, 2008 at 11:32 am

    Here’s the S&P 500 Energy Index divided by the S&P 500 Financial Index.
    image709.png

  • The Fannie and Freddie Take Over
    Posted by on September 8th, 2008 at 11:01 am

    John Hempton at Bronte Capital has an excellent summary of the takeover of Fannie and Freddie. It’s odd to say this, but the markets forced the government’s hand. The WSJ looks at the events leading up to the takeover.

    In the end, Fannie Mae and Freddie Mac had no choice.
    Summoned to separate meetings on Friday with Treasury Secretary Henry Paulson and other top officials, the two mortgage giants were told they could either agree to a government takeover or one would be foisted upon them.
    “We have the grounds to do this on an involuntary basis, and we will go that course if needed,” Mr. Paulson told senior executives at the two companies, who had little idea such a move was coming, according to three people familiar with the meetings.
    There was no dramatic trigger, nor was there fear of imminent collapse. Instead, the sweeping government intervention stemmed from a growing realization by Treasury and Federal Reserve officials that the two companies couldn’t survive in their present forms, and that any collapse would be devastating to the economy.
    The decision was hashed out over weeks of meetings. They included a conclave of Federal Reserve officials during their annual retreat at Jackson Hole, Wyo.; a mid-August polling of bond-market players by Morgan Stanley bankers advising Treasury; and a marathon session over the Labor Day weekend, fueled in part by Diet Coke and Coke Zero.
    Dozens of bankers and lawyers were involved in the process. One junior banker joked that the round-the-clock schedule was tougher than prison — at least there, you got three square meals a day.
    In the end, Mr. Paulson, Federal Reserve Chairman Ben Bernanke and James Lockhart, head of the companies’ regulator, the Federal Housing Finance Agency, concluded that the two companies had lost the confidence of the markets and couldn’t survive as currently structured. No one could say how much money from the Treasury, either via a loan or an equity investment, would be enough to get them through the housing mess. Hence, the need for the government to step in and stabilize what has become a vital cog for the housing and mortgage market.

    I’m not against the government’s move and I see that it had to happen. Don’t believe any of the nonsense that this will “cost the taxpayer” fill-in-the-blank billions of the dollars. It won’t at all. What the companies needed as much as money is time and that’s what the government has given them.
    This is sorta of like sausage-making. I only care about the end result and I’d rather not know how it happens. My problem is that the takeover should (must!) lead to full privatization. This can’t be a trip to the repair shop because the problem will happen again. That’s not a prediction. It will happen again.