How Best to Describe California
Posted by Eddy Elfenbein on December 23rd, 2008 at 3:16 pm

Imagine if Lehman Brothers had been allowed to issue license plates:

In fact, there has been very little interest among institutional investors in municipal bonds since the financial markets began to collapse this fall, and states have had to rely on individual investors — far less plentiful and reliable than institutional investors — to buy bonds.
Right after Washington cobbled together its plan to bail out banks, California, which uses bonds to pay for projects as well as to cover its short-term cash needs, sold $5 billion in notes, and 80 percent of the buyers, rather than the typical 30 percent, were individuals.
Last month, when the state tried to restructure existing debt with an additional $523 million offering, it had to reduce the offering by two-thirds, said Tom Dresslar, the spokesman for Bill Lockyer, the California treasurer.
“The institutional investor interest was nil,” Mr. Dresslar said.
Further, the State Legislature’s inability, with the governor, to figure out a way to deal with the state’s $15 billion budget gap has weakened the market’s confidence in California, something other states could face if the fiscal situation deteriorates.
This month, Standard & Poor’s downgraded the $5 billion in revenue bonds issued by California last month and put more than $50 billion of debt on watch for a downgrade.
“The bottom line is we are not viewed as a quality investment,” Mr. Dresslar said, adding that California is not in position to offer the sort of fat interest rates needed to get offerings off the ground.

Ouch
Posted by Eddy Elfenbein on December 23rd, 2008 at 3:03 pm

One year ago, Business Week looked at what the pros were staying:

Garzarelli is advising investors to buy some of the most beaten-down stocks, including those of giant financial institutions such as Lehman Brothers (LEH), Bear Stearns (BSC), and Merrill Lynch (MER). What would cause her to turn bearish? Not much. “Our indicators are extremely bullish.”

Of course, there are six stocks on my Buy List that are down by over 50% this year, and I’m still beating the market by a fe point.

Despite Bailout, Market Thinks GM Is a Goner
Posted by Eddy Elfenbein on December 23rd, 2008 at 1:44 pm

I think the government ought to pay attention to the market on this one.

GM dropped as much as 18 percent today in New York trading to extend yesterday’s 22 percent plunge, while credit-default swaps on GM bonds rose 0.5 percentage point in a sign of increasing concern that the Bush administration’s bailout may end in a default.
The stock-price slide erased the 23 percent gain on Dec. 19, when Detroit-based GM received a federal aid package to help the automaker stay in business until March 31 while it crafts a plan to shut plants, shed brands and reduce debt.
“It’s almost impossible for a management that invested in the assets, that hired the people, that put forth the strategy, to change so dramatically in such a short period of time,” Edward Altman, a New York University finance professor who created the Z-score formula to measure bankruptcy risk, said in a Bloomberg Television interview.
There is a “high” likelihood of a GM bankruptcy, Standard & Poor’s said yesterday in reducing the rating on the company’s unsecured debt to C, or 11 grades below investment quality. Robert Schulz, an S&P analyst in New York, said creditors can expect “negligible recovery” should the automaker default.
GM has slashed output and won union concessions since saying Nov. 7 it may run out of operating cash by year’s end. The automaker said it would need as much as $18 billion in aid or face a possible bankruptcy.

How it Happened
Posted by Eddy Elfenbein on December 22nd, 2008 at 4:04 pm

The Onion explains it all:

This Doesn’t Look Good
Posted by Eddy Elfenbein on December 22nd, 2008 at 4:01 pm

Man found dead hanging by his belt in British hotel.
Did I mention that he was naked? Or the head of insurance at HSBC?
“His death is being treated as non-suspicious.”
Speak for yourself.

Bernie’s Cribs
Posted by Eddy Elfenbein on December 22nd, 2008 at 12:16 pm

Nice. Very nice.

TED Spreads Narrow
Posted by Eddy Elfenbein on December 22nd, 2008 at 12:06 pm

TED spreads are at their narrowest since before Lehman went under.

The TED spread, a gauge of banks’ willingness to lend, slipped below 150 basis points for the first time since before the collapse of Lehman Brothers Holdings Inc. amid speculation U.S. borrowing costs near zero and promises of further government cash will help unfreeze credit.
The spread, the difference between what banks and the U.S. government pay to borrow money, narrowed as the London interbank offered rate, or Libor, for three-month dollar loans fell and Treasury borrowing costs rose. The Libor dropped three basis points, or 0.03 percentage point, to 1.47 percent, the British Bankers’ Association said today. The rate on the three-month Treasury bill added rose basis points to minus 0.009 percent.
“There are expectations central banks will keep liquidity in the market and we have more or less a zero rate in the U.S., so over time the fixings should ease off,” said Jan Misch, a money-market trader in Stuttgart at Landesbank Baden- Wuerttemberg, Germany’s biggest state-owned lender. “After the turn of the New Year we should see a softening of these rates.”
Central banks are pumping money into the financial system to combat the worst economic slump since the Great Depression. Credit markets, which seized up after Lehman’s bankruptcy, remain locked amid almost $1 trillion in losses and writedowns tied to mortgage-related securities. The Federal Reserve cut its benchmark rate to as low as zero last week and said it will flood the economy with cash.

Slowly I Return
Posted by Eddy Elfenbein on December 19th, 2008 at 2:32 pm

Once again, let me apologize for the lack of blogging this week. I can’t remember the last time I knocked so hard by ill-health.
I wish I could say I did a lot of reading this week, but almost all I did was sleep. I’m feeling much better, and I want to thank everyone who sent their regards. I plan to be up to full-speed soon.
There’s one item I felt I had to mention and that’s the passing of the great Irish journalist Conor Cruise O’Brien. What an extraordinary life he led. This is part of the obit from the Telegraph:

Conor Cruise O’Brien, who has died aged 91, was the leading Irish intellectual of his generation, though he assumed so many guises – diplomatist, historian, literary critic, proconsul, professor, playwright, government minister, columnist and editor – that he defies further categorisation.
His views were as variable as his career. At one time responsible for Irish government propaganda which peddled an irredentist Republican policy on Northern Ireland, he later became a campaigning unionist and the bête noire of Sinn Fein and the IRA.
Critics charged that he was more interested in exercising his intellectual sinews than in resolving difficulties. But his recognition that the divisions in Ireland were rooted in two irreconcilable traditions led to increasing isolation within his own country, and required considerable moral – and occasionally physical – courage.
Equally, his awareness that the problems of South Africa had no easy answers, and his determined support for Israel, cut him off from the Left, with which he had once been associated. Yet O’Brien never drifted, in the conventional way, from Left to Right. Rather he remained consistently radical in his willingness to bring a fresh mind to bear on issues normally treated with entrenched prejudice.

Lack of Posts
Posted by Eddy Elfenbein on December 18th, 2008 at 2:09 pm

I have to apologize for the dearth of posts this week. I haven’t been feeling well. I hope to return to full blog-mode soon.

Quote of the Day
Posted by Eddy Elfenbein on December 17th, 2008 at 12:23 pm

In modern business it is not the crook who is to be feared most, it is the honest man who doesn’t know what he is doing.
– William Wordsworth