Greenspan Clarifies
Posted by Eddy Elfenbein on March 1st, 2007 at 9:25 am

I thought this is what he said all along, but now Greenspan wants to be perfectly clear. Or, at least, as clear as he ever is:

“By the end of the year, there is the possibility, but not the probability of the U.S. moving into recession,” Greenspan said, according to notes taken by Bernard Key, a former economics professor at Tama University in Tokyo, who attended the event.
Greenspan’s comments may be an attempt to clarify remarks he made on Feb. 26 that some traders say contributed to a global plunge in stocks the following day. He told an audience in Hong Kong three days ago that he couldn’t rule out a recession this year in part because slowing growth in profit margins suggests the expansion might be winding down, the Associated Press reported.
His earlier statement was “probably misinterpreted, that’s why we see a clarification today,” said Glenn Maguire, chief Asia economist for Societe Generale SA in Hong Kong. “To hint at the possibility of a recession won’t make Bernanke’s life any easier,” he added, referring to Greenspan’s successor.

We Finally Found the Culprit Behind the Market’s Sell-Off. You!
Posted by Eddy Elfenbein on March 1st, 2007 at 7:34 am

No, it wasn’t Greenspan. Or the computers. Or the carried away carry trades.
Nope, it was none of the things.
The Wall Street Journal has determined that Tuesday’s crack-up was all your fault. By you, of course, I mean the investing public. Yep, it turns out that you (they) are insuffiently virtuous (who knew?):

This week’s plunge in stocks and the prices of risky debt raises the possibility that investors, who had been displaying an unusual appetite for risk, are becoming risk-averse. Such a development could have big consequences for the U.S. and world economies.
In recent years, investors have poured money into risky investments from subprime mortgages and emerging-market debt to Chinese stocks. In the process, they have accepted ever-narrower returns, or “risk premiums.” That has helped distressed companies avoid bankruptcy, financed a record leveraged-buyout spree, fueled surging profits on Wall Street, enabled poor countries to finance domestic spending and even made insurance easier for consumers to obtain.

Self-interest may somehow be playing a role here.

Patrick Byrne and Movie References
Posted by Eddy Elfenbein on February 28th, 2007 at 4:00 pm

Overstock’s CEO, Patrick Byrne has already refered to one short-seller as the “Sith Lord.” Apparently, he’s working his way through his NetFlix queue. Here is complaining about Utah overturning its law designed to curb stock manipulation:

Tuesday night, Overstock Chief Executive Patrick Byrne compared Bramble’s about-face on the issue to a betrayal, using a reference to the movie Jerry Maguire to make his point. “It’s like that scene where Jerry McGuire figures out that a prospect’s father has sold him out by signing with a competitor. McGuire says, ‘Now. Wait. Tell me you didn’t sign. Because I’m still sort of moved by your “my word is stronger’n oak” thing,’ ” Bryne wrote in an e-mail.

The Salt Lake Tribune reports:

During the increasingly angry banter that followed, Ostermiller and Byrne began talking about which side of the debate had more “guts.” At some point – accounts differ who first uttered the phrase – the words “take it outside” came up. According to Jonathan Johnson, Overstock’s senior vice president for legal and corporate affairs, it was Byrne who responded: “Is that an offer?”

I really wish he had said, “You talkin’ to me?”

Gold Drops $14.70 an Ounce
Posted by Eddy Elfenbein on February 28th, 2007 at 2:31 pm

April gold futures dropped $14.70 an ounce today. At one point, gold was down over $23 an ounce.

This is good news that money is leaving gold and going into stocks.

Goldman’s Hybrid Limousines
Posted by Eddy Elfenbein on February 28th, 2007 at 1:49 pm

From a New York Times article on the TXU deal:

People involved in the negotiations said that Goldman Sachs, an adviser and lender to the buyers, helped broker peace with environmental groups and sought their support for the transaction. Goldman Sachs has been one of the most aggressive firms on Wall Street about taking action on climate change; the company sends its bankers home at night in hybrid limousines.

Unfortunately, I walk so I don’t get a chance to save the environment.

The Mortgage Lender Implode-O-Meter
Posted by Eddy Elfenbein on February 28th, 2007 at 12:33 pm

What a great idea for a Web site:

Latest count of major US mortgage lenders that have croaked since late 2006: 27

U.S. Dollar Drops Against Counterfeit U.S. Dollar
Posted by Eddy Elfenbein on February 28th, 2007 at 12:22 pm

The Onion is on the scene:

NEW YORK—At the close of trading Monday, the U.S. dollar dipped to a record low of $.60 against the counterfeit U.S. dollar, which also outpaced the dollar against the euro and the yen.
“We don’t even accept regular U.S. dollars anymore,” said Union, NJ 7-Eleven manager Rick Grove, echoing the sentiments of merchants nationwide. “We’ve gotten stung a few times taking in the real ones. I always tell my cashiers, if it feels fake to the touch, and you can’t see both sides when you hold it up to the light, it’s fine.”
Concerned about further devalutation of standard U.S. currency, Federal Reserve Chairman Ben Bernanke has suggested that Congress outlaw counterfeit bills entirely.

As funny as this sounds, there is a real life parallel. In 1869, Jay Gould and Jim Fisk tried to corner the gold market. The price of gold, expressed as a premium to dollars, went to 160. On September 24, Black Friday, the government dumped gold on the market, and the premium instantly fell to 130. Here’s a cartoon.

Wall Street Through the Looking Glass
Posted by Eddy Elfenbein on February 28th, 2007 at 11:49 am

One more word about yesterday: The sell-off was not caused by a computer glitch.
The sell-off was already happening. The glitch was in the accurate reporting of what was happening. This is Wall Street going through the looking glass. If stocks are going down, and no one reports it, are they really going down?
When the computers finally caught up with the trades (see video), some traders thought it was an obvious misprint. No, everything until that point was incorrect. Only when they learned what they really had been doing did they start to panic. At which point, stocks started to rise.

What’s Happening to Goldman’s China Goldmine?
Posted by Eddy Elfenbein on February 28th, 2007 at 11:06 am

Shares of Goldman Sachs (GS) were whacked especially hard yesterday. I noted that it was the eighth-worst performing stock in the entire S&P 500.
The reason may have to do with the Industrial & Commercial Bank of China, or ICBC (1398.HK). Last year, Goldman put up $2.6 billion for 5% of the bank. Hank Paulson made several trips to China to secure a role in the IPO. In the end, Goldman lost out to Merrill, Credit Suisse and Deutsche Bank.
Despite the snub, when the shares went public last year, Goldman made a huge profit. In fact, it was probably the largest profit for any trade anywhere. In less than nine months, Goldman made $4 billion. The investment was made with Goldman’s GS Capital Partners V fund, which is heavily owned by Goldman’s top execs.
But look at ICBC lately:

Today’s GDP Revision
Posted by Eddy Elfenbein on February 28th, 2007 at 10:19 am

The government updated its fourth-quarter GDP report today. Instead of growing by 3.5%, it turns out that the economy only grew by 2.2%. That’s the biggest revision in ten years. Still, if you look at it in the larger context, it’s not that big of a change.
Here, if you squint real hard, you might be able to make it out:

What’s interesting is that this is the third straight quarter of below-trend GDP growth. But it’s not that far below trend. From September 2003 to March 2006, the economy grew at annualized rate of 3.4%. For the last three quarters, it has averaged 2.2% growth. That’s slower growth, but there’s still no evidence of a recession.