The Ticker
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Remember What A 'Bad Bank' Really Is
Continue reading… 39 CommentsSecond verse, same as the first. The idea to create a "bad bank" to buy up those pesky billions worth of bad assets still on the books at big banks is the latest twist in our long bailout saga. Estimates for what it might cost (up to $4 billion) and whether creating such an institution to sort out those assets would even work are unclear, mostly because nobody is sure how to go about setting prices. The idea is reportedly meeting some dissent, and reactions have been harsh given the usual lack of clarity.
As the WSJ's David Gaffen puts it:
The current proposal combines purchases of the assets on the balance sheets of the nation’s largest institutions, along with the guarantee against future losses on other assets, and once again, it leaves investors grappling for specifics as the wheels turn slowly.
The frustrating thing is that this is exactly the problem we've had all along. Six months into the worst credit crisis in memory, and we're still facing precise dilemma the first $700 billion bailout was designed to fix (remember: the super-rushed first version of the TARP was going to buy those assets).
So there's no reason to get excited by the plan, other than the likelihood we'll get to watch policymakers get anxious and aggressive in pushing through a new, expensive idea that might or might not get to the heart of the problem. That's because the one thing we do know about these assets is that banks haven't really been working all that hard to figure out how to price them until they see a plan from the government that might get them more money than they'd otherwise be paid if they sold the assets on the open market. In the meantime, the economy suffers as bankers hope for a sweeter deal.
So keep that in mind. What a 'bad bank' would most likely do is over-pay for bad assets.
In an interview with Fortune today, Oppenheimer analyst Meredith Whitney says as much. If this idea gains traction, just remember this quote:
"The bad bank is a covert way to recapitalize banks by paying more for the assets than the market would, she said. "Then the banks might be able to write up the value of the securities. This would give them, on paper, more tangible equity. In theory they would look stronger."
Bankers seem to think if they wait long enough, they'll still get to dictate price. They might be right.
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GDP Report Is Bad For Stocks, But Earnings Are Worse
Continue reading… 0 CommentsEverybody expected the latest GDP report to be bad, and it was (though not nearly as terrible as a lot of folks had feared). Growth fell at a 3.8 percent annualized rate, better than the 5.5 percent drop economists were expecting. That's the good news. Unfortunately, capital spending and consumption are still weak, and economists generally say that while quarterly growth was less bad, the damage could simply move into the first quarter of 2009. Some interesting takes on the numbers (bold is mine):
Action Economics: "One hates to say that a massive GDP overshoot of market forecasts, as seen in this morning's U.S. Q4 GDP report, "doesn't matter." Yet, the gap entirely reflects diverging assumptions between the BEA and market economists over the allocation of observed price declines between Q4 and Q1, leaving a report that has robbed Peter (Q1) to pay Paul (Q4)."
High Frequency Economics extends that theme, noting a surprise rise in inventories will have to reverse by some amount which "makes us more bearish for Q1 . . . In short, we are not comforted."
Goldman Sachs outlines what the report says about consumer spending: "An interesting and potentially meaningful aspect of this report is the sharp 8.9% annualized decline reported for nominal consumer spending. This is the largest quarterly setback on record (since 1947) and it is the only such occurrence that combines declines in both real spending and the PCE price index. In essence, this says that US consumers took lower gasoline prices to the bank instead of using them to increase their acquisitions of real goods and services, which they have routinely done in the past."
At any rate, stocks are falling today even on a better headline number for the GDP. The report isn't really what's moving stocks, since fears of a terrible Q4 have been around for months. Instead, here's a quick list of mixed earnings reports that are behind today's drop, especially in the drug and consumer sectors:
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Peter Schiff Responds
Continue reading… 14 CommentsPermabear pundit Peter Schiff has had a rough week (see: Peter Schiff: Right On The Crisis, Wrong On Investing?). Today he responds to blogger Mike Shedlock and this WSJ story questioning the performance of his client's investments through his firm, Euro Pacific Capital.
In a long post on Seeking Alpha (Peter Schiff Answers His Critics), he backs his bearish forecasts and his investment strategy, concluding with this:
My critics have often referred to me as a stopped clock. I believe that the accusation is best leveled at the accusers. Having been wrong for so long, they are now enjoying their brief moment in the sun. They should enjoy it while it lasts. For now, they are creating fodder for some future "Peter Schiff was Right" piece where those who now criticize my investment performance will look just as foolish as those who once criticized my economic forecasts.
The full text of his response is after the jump.
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Today Only: Free Retirement Financial Advice
Continue reading… 3 CommentsUntil 6 p.m. eastern time today, Kiplinger's and the National Association of Personal Financial Advisors will answer your financial questions for free over the phone.
Normally, these fee-only planners, who are well versed in investments, taxes, insurance, estate planning, and saving for college and retirement, charge clients $100 to $250 an hour. But on Jump-Start Days, you don't pay a cent -- not even for the phone call. Just dial 888-919-2345 and a NAPFA adviser will respond to your question. Or, if you prefer, you can participate in an online discussion with a NAPFA adviser anytime from 9 a.m. to 6 p.m. eastern time on January 13 or January 30 by visiting our Jump-Start Your Retirement Center.
Get your financial statements together and take advantage of an opportunity to ask the experts.
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Smartphone Fight: First Palm, Now Dell May Challenge Apple and RIM
Continue reading… 5 CommentsThe WSJ is reporting Dell has built prototypes using Google's Android operating system and Windows Mobile, with two versions including sliding keyboard and touch screens.
Kaufman Bros. analyst Shaw Wu says in a note that the WSJ story is consistent with his checks and Dell's phone could drop as soon as mid-February. Wu says it makes sense for PC firms to move into phones as high-tech handsets encroach on the notebook space.
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Scan-doll: It's a Pocket-Sized Madoff!
Continue reading… 1 CommentCreate your own mini-Ponzi schemes at home! Get your very own limited edition Bernie Madoff* action figure from Herobuilders.com ( Via Clusterstock). He comes with a fist-full of tiny hundreds, and his special power is managing to spend his stint under house arrest in a $7 million Manhattan apartment.
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Um, Just So You Know: World Growth Grinds to Virtual Halt
Continue reading… 1 CommentA few pretty awful highlights culled from the IMF's latest World Economic Outlook:
- World growth is projected to fall to just half of one percent in 2009, its lowest rate in 60 years.
- Potential losses in U.S. originated credit assets held by banks and others are estimate at $2.2 trillion, up from $1.4 trillion last October.
- In India, growth is expected to slow to 5 percent, while China is expected to slow to 6.75 percent.
- Deflation is now a risk.
- The IMF's answer for worsening economic woes? More stimulus, pretty much everywhere.
For a more on China today see Floyd Norris, and for an even worse prediction on banking troubles there is (as always) NYU's Nouriel Roubini, who puts banking losses at $3.6 trillion.
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Target Layoffs, Consumer Worries
Continue reading… 15 CommentsToday Target (TGT) becomes the latest big U.S. company to shed jobs.
From the Minneapolis Star Tribune:
The discount retailer would not disclose how many employees would lose their jobs, saying they first had to notify its employees. The layoffs will occur at headquarters, a spokeswoman said, and not in the company's stores.
"Like many other companies, Target is taking actions to manage payroll and non-payroll expense in the current economic environment," Target said in a prepared statement. "We believe the decisions we are making, though difficult, represent appropriate actions to manage our business and maintain our competitive advantage going forward."
A spokeswoman said the retailer would provide more information later in the day after fully notifying employees.
The latest bad news on employment comes on top of nearly 60,000 job cuts announced Monday by Pfizer, Home Depot, Caterpillar and others. As for Target, it's no surprise retailers are being hurt too as consumer confidence sinks to its lowest level ever.
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TARPGate! Cuomo Subpoenas Thain Over Bonuses
Continue reading… 0 CommentsNew York Attorney General Andrew Cuomo is trying to figure out exactly who knew what regarding some $4 billion worth of bonuses hastily shoveled to Merrill Lynch employees ahead of its merger with Bank of America (and just as BofA was asking the government for another $20 billion in TARP money to get the deal done).
From the WSJ:
In a statement Tuesday, Mr. Cuomo said his office is seeking testimony from Mr. Thain and J. Steele Alphin, Bank of America's chief administrative officer, as he looks into executive compensation issues at firms that have received money under the U.S. government's Troubled Asset Relief Program.
"These subpoenas are part of an ongoing inquiry into billions of dollars in bonuses paid by Merrill Lynch late last year just days before Merrill was taken over by Bank of America," Mr. Cuomo said. "The fact that Merrill Lynch appears to have moved up the timetable to pay bonuses before its merger with Bank of America is troubling to say the least and warrants further investigation."
The FT has Cuomo's statement.
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Will CV Therapeutics Get A Higher Price From Astellas?
Continue reading… 0 CommentsTokyo-based pharma company Astellas Pharma offered $1 billion in cash or $16 a share for CV Therapeutics (CVTX), which makes small molecule cardiovascular drugs including angina treatment Ranexa. The deal is a 41 percent premium to CVTX's closing price, and shares promptly jumped today in expectation of a deal. Here's the recent history: Astellas made an identical offer in November, but CVTX's board rejected the deal. Now, by making the big public and asking CVTX to reconsider, analysts say the deal could happen and the price could rise.
Citigroup analysts say the second offer indicates Astellas is willing to negotiate a higher price, and call Ranexa is a "promising" drug with a possible market potential of $400 million. Unless another bidder emerges, Citi says, "we suspect it will be difficult for CVT's Board to thwart Astellas's aggressive overtures, and believe that a deal in the high teens to low $20s range is likely."
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And Also Peter Schiff May Want to Run For Senate . . .
Continue reading… 5 CommentsSupporters of permabear Peter Schiff want him to take on Chris Dodd (CT) in the 2010 Senate race. This just popped into my inbox:
In less than six weeks, the Peter Schiff for Senate 2010 Facebook group has exploded past 1,000 new members. Liberty minded individuals are flocking to the grassroots campaign to draft Peter Schiff for a potential 2010 senatorial bid against Chris Dodd in the state of Connecticut.
The Political Exploratory and Awareness Committee (PEAC) is extremely excited by the outpouring of interest in these early stages. Already, the possibility of a Schiff run has been featured in a local, Connecticut newspaper, several political blogs, and CNN Money. A logo re-design contest garnered seventy talented entries, and a top notch, highly professional campaign website is nearing completion.
No word yet on whether Schiff would consider a run (he has no connection to the group), but I'll bet he'd be at home among the Ron Paulites, libertarians and tax protesters.
See also: Peter Schiff: Right On The Crisis, Wrong On Investing?
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Peter Schiff: Right On The Crisis, Wrong On Investing?
Continue reading… 38 CommentsThere's no doubt that Euro Pacific Capital's Peter Schiff has struck a chord among the legions of angry Americans looking to make sense of the financial crisis. He's a constant and controversial presence on cable news shows, and over the past few years has built his free-market, hands-off approach to fixing the crisis into a formidable one-man brand, including two books in addition to his money management business.
So how do Schiff's clients actually fare? Mike Shedlock a.k.a. Mish says not so well. In a long discussion of Euro Pacific's strategy, he lays out Schiff's investing thesis and lists "12 Ways Schiff Was Wrong in 2008":
Schiff's Investment Thesis
- US Dollar Will Go To Zero (Hyperinflation).
- Decoupling (The rest of the world would be immune to a US slowdown.
- Buy foreign equities and commodities and hold them with no exit strategy.
12 Ways Schiff Was Wrong in 2008
- Wrong about hyperinflation
- Wrong about the dollar
- Wrong about commodities except for gold
- Wrong about foreign currencies except for the Yen
- Wrong about foreign equities
- Wrong in timing
- Wrong in risk management
- Wrong in buy and hold thesis
- Wrong on decoupling
- Wrong on China
- Wrong on US treasuries
- Wrong on interest rates, both foreign and domestic
That's a lot of things to be wrong about, especially given all the "Peter Schiff Was Right" videos floating around everywhere. The one thing he was right about was the collapse of US equities and no part of his investment strategy sought to make a gain from that prediction.
Peter Schiff concludes many of his articles, books, etc. with the claim he saw this coming and positioned his clients accordingly."If you're a Schiff fan or a critic, read the whole post. I'm sure Peter will respond (Update: He does so here to the Baltimore Sun's Jay Hancock), but for further consideration take a look at a few predictions from my Q&A with him back in May 2008:
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Job Cuts Get Brutal: Sprint, Pfizer, Home Depot, Caterpillar
Continue reading… 5 CommentsThe job loss tally so far today: 54,500. Cuts are coming across industries as further weakness in the economy keeps major employers slashing away.
On the same day it agreed to buy rival drugmaker Wyeth, Pfizer said it would cut 15 percent from its combined workforce (that's a bit less than 19,500 jobs). Meanwhile, Caterpillar is faring poorly in the global recession. It's cutting its workforce by 20,000 including 11 percent of its workforce, or 12,000 jobs, and 8,000 contractors. Home Depot, a lingering victim of the downturn in both consumer spending and housing, said it would slash another 7,000 jobs as it shutters its high-end EXPO business. And finally, Sprint Nextel is eliminating 14 percent of its workforce, or 8,000 jobs.
Update: Add another 6,000 to the tally above. Philips Electronics is cutting too.
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Pfizer Buys Wyeth For $68 Billion
Continue reading… 0 CommentsIt's a $68 billion cash-and-stock deal, with Wyeth shareholders getting $50.19 a share - $33 in cash and 0.985 a share in Pfizer stock. That's 29 percent above where the stock closed last Thursday before the WSJ reported a deal was in the works.
The big question is this: Does this deal get Pfizer out of a tough spot as its blockbuster Lipitor goes off-patent? Chief Executive Jeff Kindler says yes, calling the deal a way to "definitively" address the threat from an end to Lipitor's exclusivity set for 2011. By 2012, he said no single drug will represent more than 10 percent of the combined company's sales.
That doesn't mean the drugmaker isn't struggling. Pfizer announced it would cut 15 percent of its combined workforce, slashed its dividend, and said it will borrow $22.5 billion to finance the deal (that's partially good news, since at least somebody is getting a loan). Pfizer shares slumped more than 8 percent in early trade, though the deal seemed to cheer broader markets hungry for any sort of dealmaking.
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Geron Jumps: Is Stem Cell Investing Back?
Continue reading… 3 CommentsShares of Menlo Park, Calif.-based biotech Geron Corp. (GERN) are up more than 50 percent today after the U.S. Food & Drug Administration appeared ready to clear the way for human trials of its treatments derived from embryonic stem cells.
For investors, the real story is the FDA's decision to allow stem cell trials, rather than a nod towards the success or failure of Geron's treatments. Other stem cell treatment names including StemCells Inc. (STEM) and Osiris Therapeutics (OSIR) climbed on the news.
Still, WBB Securities upgraded Geron on the news with a price target of $19 a share from $16.50, saying that even though there's no guarantee of success for the new drugs "we believe that the large and extensive intellectual property portfolio that GERN possesses, with the Research and Development track record it has for a wide range of medical applications, gives GERN a tremendous advantage" in the human embryonic stem cell arena. Needham also upgraded the stock to a "buy."
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Warren Buffett: "Nobody Knows" If Gov't Fixes Will Work
Continue reading… 4 CommentsSusie Gharib interviews Warren Buffett tonight on Nightly Business Report. The interview includes some good advice and a few unsettling views on markets and the economy (bold is mine):
SUSIE GHARIB, ANCHOR, NIGHTLY BUSINESS REPORT: Are we overly optimistic about what President Obama can do?
WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: Well I think if you think that he can turn things around in a month or three months or six months and there’s going to be some magical transformation since he took office on the 20th that can’t happen and wouldn’t happen. So you don’t want to get into Superman-type expectations. On the other hand, I don’t think there’s anybody better than you could have had; have in the presidency than Barack Obama at this time. He understands economics. He’s a very smart guy. He’s a cool rational-type thinker. He will work with the right kind of people. So you’ve got the right person in the operating room, but it doesn’t mean the patient is going to leave the hospital tomorrow.
SG: Mr. Buffett, I know that you’re close to President Obama, what are you advising him?
WB: Well I’m not advising him really, but if I were I wouldn’t be able to talk about it. I am available any time. But he’s got all kinds of talent right back there with him in Washington. Plus he’s a talent himself so if I never contributed anything for him, fine.
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John Thain Goes, Leaves His $87,000 Rug
Continue reading… 11 CommentsJohn Thain was a Goldman Sachs golden boy, held up as the NYSE's savior, and the architect of Merrill Lynch's last stand. Now he's out after the Ken Lewis Bank of America finally figured out what it was really buying (a $15 billion loss that sent BofA running back to the government for even more bailout cash).
There's plenty (slightly petty) reasons to cheer his departure. CNBC's Charlie Gasparino broke the news of his $1.2 million office renovation in the Daily Beast where the purchases included $87,000 for a conference room rug, a "mahogany pedestal table" for $25,000 a "19th Century Credenza" for $68,000, etc. Then, there's those bonuses. Some $3 billion to $4 billion worth of Merrill bonuses were pushed through during December according to the Financial Times, and CNBC is now reporting that Merrill's 2008 bonuses were actually higher than a year ago. Update: New York Attorney General Andrew Cuomo is now investigating those bonuses, CNBC reports.
MarketWatch's David Weidner says that while Bank of America is probably smarting at the revelations surrounding Merrill's losses, Merrill's shareholders should be grateful for getting the bank sold for a decent price at almost the exact moment Lehman Bros. was burning. Related: A little walk down memory lane from New York Magazine in 2007: The Brain in Thain
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Apple Shines, But Mum On Steve Jobs Health
Continue reading… 1 CommentOn Friday, I was sitting around a table with six people. Four of them had iPhones, and the remaining holdouts (myself included) weren't even thinking about upgrading to anything else (not a Blackberry, not a Palm Pre). We obviously weren't alone, as Apple posts another blowout quarter.
The highlights:
- Revenue passes the $10 billion mark, hitting $10.17 billion on a record net quarterly profit of $1.61 billion, or $1.78 per diluted share. Analysts were expecting about $1.40 a share as the consumer apparently continued to love iPods, iPhones and the Mac.
- Specifically, Apple sold 2,524,000 Macs in the quarter, up nine percent from a year ago.
- iPod sales hit 22.7 million, up 3 percent, which Collins Stewart analyst Ashok Kumar called the "best we can expect" given the macro backdrop.
- iPhone sales jumped 88 percent from a year ago to 4.36 million
- Guidance for Q2 was $7.6 billion to $8 billion, with earnings of 90 cents to $1 a share (just like this quarter that'll be conservative).
- Gross margins were steady at 34.7 percent -- an accomplishment given the currently weak retail environment.
“Even in these economically challenging times, we are incredibly pleased to report our best quarterly revenue and earnings in Apple history—surpassing $10 billion in quarterly revenue for the first time ever,” said Steve Jobs, Apple’s CEO. He didn't mention his health in the release, though in the latest twist the SEC is apparently interested.
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Sasha and Malia Love J. Crew. Should Investors?
Continue reading… 0 CommentsShares of J. Crew Group (JCG) are up more than 10 percent today after the younger half of the First Family spent the Inauguration Day sporting the retailers' signature gear.
From the NY Daily News:
The First Daughters chose bright hues for Dad's inauguration: Malia, 10, in periwinkle blue with a coral dress, and Sasha, 7, in a guava coat with an orange scarf and gloves.
Shoppers can pick up highlights from the custom-made outfits in the Fall 2009 line.
So, as their father looks to boost the infrastructure sector with his stimulus package (See 5 Stocks Obama Could Boost), can Sasha and Malia spark a real revival in shares of the beleaguered retailer?
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Saudi Prince Burned By Citigroup
Continue reading… 1 CommentThe fate of oil-rich billionaires doesn't often elicit much sympathy among everyday investors but the waning fortunes of foreign buyers of U.S. assets are worth watching closely. That's because foreign demand for American assets is waning as problems at U.S. banks continue to tarnish America's long history as the globe's favorite investment spot.
From Reuters:
RIYADH, Saudi Arabia (Reuters) — The Kingdom Holding Company, owned by the Saudi billionaire Prince Walid bin Talal, posted a $8.26 billion net loss in the fourth quarter after a drop in the value of its assets, including a substantial stake in Citigroup.
The earnings announcement, which came after the Saudi stock exchange’s close, could add to investors’ concern on the impact of the global crisis on local companies. The company is also the largest private shareholder on the Saudi exchange.
“The loss is shocking,” said Ibrahim al-Alwan, deputy chief executive at KSB Capital Group.
There was the usual uproar last year when sovereign wealth funds and deep-pocketed Asian and Middle Eastern investors moved in to invest in U.S. banks at fire-sale prices. Unfortunately, those investors are taking hefty losses now when most large pools of capital seem to have dried up (except in the U.S. Treasury). Also, there are worrying signs that foreign buyers today are becoming less inclined to buy American debt. As researchers at CreditSights recently noted (via Research Recap), demand for U.S. securities fell in November, with foreign investors selling a net $22.88 billion, the biggest net monthly sales in two decades. For more, see the always excellent Brad Setser today when he asks, "Should the US worry about the drop in foreign demand for US long-term assets?" Some highlights:
If the US weren’t the US, I suspect analysts would now be worried about a fall in the quality of financing for the US external deficit. The US external deficit is increasingly financed at the short-end of the curve (usually a danger sign) and by the sale of the United States existing portfolio of external assets, not by the sale of long-term debt.
