Bush’s Speech
Posted by Eddy Elfenbein on September 25th, 2008 at 11:57 am

Here’s part of the president’s speech from last night:

First, how did our economy reach this point? Well, most economists agree that the problems we’re witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad because our country is an attractive and secure place to do business.
This large influx of money to U.S. banks and financial institutions, along with low interest rates, made it easier for Americans to get credit. These developments allowed more families to borrow money for cars, and homes, and college tuition, some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.
Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.
Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.
Optimism about housing values also led to a boom in home construction. Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.
BUSH: Borrowers with adjustable-rate mortgages, who had been planning to sell or refinance their homes at a higher price, were stuck with homes worth less than expected, along with mortgage payments they could not afford.
As a result, many mortgage-holders began to default. These widespread defaults had effects far beyond the housing market.
See, in today’s mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world.
Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac.
Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses.
Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and Lehman Brothers, found themselves saddled with large amounts of assets they could not sell. They ran out of money needed to meet their immediate obligations, and they faced imminent collapse.
Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.

Bed, Bath & Beyond’s Earnings
Posted by Eddy Elfenbein on September 25th, 2008 at 9:48 am

Amid all the credit market ruckus, Bed, Bath & Beyond (BBBY) reported earnings of 46 cents a share yesterday which was inline with the Street’s consensus. For the same quarter last year, the company earned 55 cents a share.
The market seems to be responding well to the earnings report. For this quarter, BBBY is expecting earnings-per-share between 41 and 47 cents, compared with last year’s 52 cents. The Street is expecting 45 cents.
Here are the earnings results going back a few years:

Jessica Hagy on the Paulson Plan
Posted by Eddy Elfenbein on September 24th, 2008 at 2:34 pm

Perfect.

More Market History
Posted by Eddy Elfenbein on September 24th, 2008 at 1:13 pm

Today is the 139th anniversary of Black Friday. This was when Jay Gould and Jim Fiske tried to corner the gold market. It didn’t work and the bottom fell out of the gold market on September 24, 1869. Fisk was ruined and eventually shot by an angry creditor.
Forty-three years ago, President Eisenhower had a heart attack and that sent the market down 6.5%. This was a time of very low volatility so that sell-off was one of the biggest in years.
(Via: Gary Alexander)

The Eurozone is Officially in a Recession
Posted by Eddy Elfenbein on September 24th, 2008 at 10:20 am

There’s been a debate on whether the U.S. economy is in a recession. The pro-recession crowd says that it’s obvious we are. The anti side tells us the numbers keep saying no. Now the Financial Times says the Eurozone is now in a recession:

The eurozone has fallen into recession, with industry particularly badly hit by the fall-out from global economic turmoil, results of a closely watched survey indicated on Tuesday.
Private sector output in the 15-country region contracted in September for the fourth consecutive month, according to eurozone purchasing managers’ indices. The pace of decline was the fastest since the aftermath of the September 2001 terrorist attacks in the US, with manufacturing faring worse than services.
The latest data indicated that, even if the crisis on Wall Street has yet to have a direct impact on eurozone economies, global economic storms have pushed the region into a technical recession – two quarters of contracting gross domestic product.
The eurozone composite purchasing managers’ index – covering services as well as manufacturing – fell from 48.2 in August to 47 this month. A figure below 50 is meant to indicate a contraction in activity.

FactSet Research Systems’ Earnings
Posted by Eddy Elfenbein on September 23rd, 2008 at 9:37 pm

FactSet Research Systems (FDS) reported decent earnings today. For its fiscal fourth quarter (ending August 31), the company earned 68 cents a share which was four cents a share better than Street estimates. For last year’s Q4, the company earned 58 cents a share. Sales were up 18.7% to 153.7 million. For Q1, the company sees sales of $154 to $157 million and operating margins between 31.5% and 33%.
The CEO said, “The macro environment has now been challenging for more than a year, yet it is gratifying that again this quarter FactSet grew both its user base and client count. The results point to significant progress in our efforts to increase the engagement level of users and add incremental value to clients. We were also very pleased that our previously announced acquisition of Thomson Fundamentals closed during the fourth quarter. We believe that the estimated market opportunity for fundamental data just among our existing client base is in excess of $100 million, representing a large new source of potential revenue growth for FactSet.”
FDS is often seen as a proxy for the health of the financial sector. I don’t think that’s correct. The company has been holding up very well during the recent unpleasantness. Last quarter, the client count increased by 41 to 2,085, and the number of users climbed by 510 to 40,120.
Year……………..Sales……………….EPS
1998……………$78.91……………..$0.26
1999……………$103.83……………$0.37
2000……………$134.18……………$0.49
2001……………$167.56……………$0.64
2002……………$198.29……………$0.78
2003……………$222.30……………$0.98
2004……………$251.91……………$1.15
2005……………$312.64……………$1.43
2006……………$387.35……………$1.64
2007……………$475.80……………$2.14
2008……………$575.52……………$2.50

Thanks Hugo
Posted by Eddy Elfenbein on September 23rd, 2008 at 1:46 pm

From Comrade Chavez:
“I nationalize strategic companies and get criticized, but when Bush does it, it’s OK,” Chavez said on weekly television program Sept. 21. “Bush is turning socialist. How are you, comrade Bush?”
(Via: DealBreaker)

We’re All Zimbabweans Now
Posted by Eddy Elfenbein on September 22nd, 2008 at 12:23 pm

The chart says it all.

Goldman, Morgan to become holding companies
Posted by Eddy Elfenbein on September 22nd, 2008 at 12:18 pm

MarketWatch reports:

In yet another extraordinary development for Wall Street, the Federal Reserve said late Sunday night that venerable investment banks Goldman Sachs and Morgan Stanley will become bank holding companies, subjecting themselves to stricter federal oversight.
The Wall Street titans will be allowed to transition into holding companies following a mandatory five-day waiting period, and will be able to take advantage of credit from the Federal Reserve Bank of New York in order to complete the transition.

So does this mean I’ll soon be seeing Goldman Sachs ATMs around town?

The Bailout Plan
Posted by Eddy Elfenbein on September 22nd, 2008 at 11:15 am

I’m going to be the first to call it, this bailout plan is going down. I don’t know how or when, but I don’t see this thing lasting. At best, it’s going to be dramatically revised.
The plan has all the hallmarks of something the American public hates. It’s too expensive. It’s secretive…we just woke up one day and were told we needed it. We don’t know if it will work. It seems un-American.