"Morgan Stanley, the No. 2 U.S. investment bank, reported a $9.4 billion writedown on Wednesday from bad bets on mortgage-related debt, leading it to take a $5 billion infusion from an arm of the Chinese government." AP via Yahoo today.
And so begins the Wednesday before Christmas, where still another firm announces losses of an extraordinary measure. One wonders if John Mack will be sufficiently tarnished to the point where he has step down. I doubt it.
Forgive me for beating a dead horse, raising it from the dead, and rebeating, but one thinks back to Mr. O'Neal of Merrill and the feathering (post tarring) he took, and the continued story arc that Merrill under Thane is returning to a more sensible and loving corporate environment, including the bringing back of previously hacked off hands.
Can we cross our fingers and see Mr. Mack on the unemployment line? For consistencies sake? Or is Zoe Cruz his stand in and the sole responsible party for the dark arts of efficiently losing a lot money?
Not that I think Mack should be fired. Nor do I think Mr. O'Neal should have been fired. Well, actually, they all should, or they all shouldn't, and one should make a case for consistency in standards.
In an industry where everyone was running the same plays, one ought not to penalize some while others get a free pass.
Merrill aside, Morgan now joins the long list of companies self pimping to foreign buyers, following in the footsteps of Citi with China, and Bear in selling a little bit of its soul to Abu Dhabi*.
(*I have no qualms about foreign owners, as I think it's a good sign of western ways becoming the norm in places where they were not in the past. However, there is some loss of dignity in the manner in which this is taking place, or is that me?)
Wednesday, December 19, 2007
Saturday, December 15, 2007
Goldman Sachs' Brains Hurt Others and Peers
Certain things are not accidental or coincidental, and one can assume that the December 14th article in the Wall Street Journal by Kate Kelly was one of those non-accidental journalism moments.
In it we learn how Goldman Sachs managed to maintain its earnings momentum while its peers suffered. In fact Goldman has faired so well that is has caught the attention of the masses, and Washington. More than a few people seem hung up on the fact that Goldman, while selling CDO's to investors and others, decided not to drink its own potion, hedging its huge exposure.
People have trouble holding two opposite ideas in their head and in this particular financial downturn, there are a number of facts that people are failing to grasp, while looking for easy answers and scapegoats. Thus, the same people who could lambast Merrill for its early announcement of big losses, can also cry fraud and cabal when Goldman shows the wisdom that Merrill obviously lacked.
Of course the average citizen knows nothing about hedging or protecting the downside, aside from the insurance they reluctantly buy. If left up to their own devices a huge amount of people would go without any sort of insurance altogether, Merrill UBS'ing their way through life.
And for each increase in the insurance cost, and for every ounce they pay, they say, "Well, I am an excellent driver" or "My home will never flood and I am being ripped off" or "I am paying for nothing, I never get any payouts". The flipside to this is the insurance company making a payout to them as they sit comfy in paraplegic chair, but that never seems to occur to them. To most people hedging is a mystery even though they do it in their daily lives. When finance types do it, it smacks of something vaguely underhanded.
So one must ask these people, these rumor mongers and ignorantly wise cynics, is it better to be Merrill, or UBS, or Citi, announcing huge losses and taking investments from overseas to shore up the balance sheet, or is it better to be Goldman, awash in profits due to the prudent laying off of risk.
Nobody is really going to take the time to pose the right questions, opting instead to come to the most ridiculous conclusions that vacillate between envy, ignorance and vain imaginings.
That being the climate, it comes as no surprise to see the Journal article lifting the veil. We get to observe how early and sensible Goldman staff were in coming to the conclusions they came to. The question is asked, "Why did Goldman continue to peddle CDOs to customers early this year while its own traders were betting that CDO values would fall?"
Question asked, and question answered a few paragraphs later:
Well Goldman was, and across the leadership of the firm.
The screenplay for this particular financial disaster is being written as we speak, and the writers are trying to suggest that this entire mortgage ponzilooza was due to the sellers. That would be Wall Street, your bank, your local mortgage merchants. Like our drug problems, it is so much easier to blame the sellers and not the buyers, and especially when the buyers are that nice little couple down the street who are, in some glorified theoretical world, "playing by the rules".
Under this line of thinking the little guy is assumed to be honest, if a little stupid, and duped all the way into the house that dwarfs his income.
But lets be real for a moment. Often enough we hear of the aggressive tactics of mortgage dealers who apparently were telling people, "Don't worry about the structure of this mortgage, you can refinance." Retrospectively this was almost criminal, ridiculous advice... that is, for those mortgage dealers who had psychic abilities. Who really imagined that home prices would suddenly stop rising? The buyers were willing to gamble on a tight deal structure because they were calculating that values would rise and that incomes would stay in a general range and that at worst if it got tight, they could flip it off to someone else for a small to large profit.
Why should the person selling the loan have greater market insight? Sales people are not in fact economic pronosticators, nor the swiftest and finest.
What really caused everything to come apart?
If CDO's were dropping in value, one must assume that the underlying components were losing value. And why would that happen? What might make a mortgage backed security lose value?
Well we know. Somewhere deep in the heart of many people is a level of greed that matches anything you might see on Wall Street. It manifests itself in little things and ways, like trying to own things you can't afford. The contract signed, and suddenly, the ducks fall out of line: divorce there, job loss here, increase of gas prices yonder and then quick default. Times one. Times two. Times Ten Thousand. Times some guy in some Wall Street firm saying, "Oh gosh, look at this."
Goldman came to that "Oh gosh" moment quicker than most, and wisely protected itself. One cannot fault the firms for adding to liquidity and getting Americans into homes, nor can you fault a given firm for hedging its risk, but you can fault the millions of little defaults that are the root cause of all of this mess.
Mirror mirror on the American wall, who is the biggest fool of all?
In it we learn how Goldman Sachs managed to maintain its earnings momentum while its peers suffered. In fact Goldman has faired so well that is has caught the attention of the masses, and Washington. More than a few people seem hung up on the fact that Goldman, while selling CDO's to investors and others, decided not to drink its own potion, hedging its huge exposure.
People have trouble holding two opposite ideas in their head and in this particular financial downturn, there are a number of facts that people are failing to grasp, while looking for easy answers and scapegoats. Thus, the same people who could lambast Merrill for its early announcement of big losses, can also cry fraud and cabal when Goldman shows the wisdom that Merrill obviously lacked.
Of course the average citizen knows nothing about hedging or protecting the downside, aside from the insurance they reluctantly buy. If left up to their own devices a huge amount of people would go without any sort of insurance altogether, Merrill UBS'ing their way through life.
And for each increase in the insurance cost, and for every ounce they pay, they say, "Well, I am an excellent driver" or "My home will never flood and I am being ripped off" or "I am paying for nothing, I never get any payouts". The flipside to this is the insurance company making a payout to them as they sit comfy in paraplegic chair, but that never seems to occur to them. To most people hedging is a mystery even though they do it in their daily lives. When finance types do it, it smacks of something vaguely underhanded.
So one must ask these people, these rumor mongers and ignorantly wise cynics, is it better to be Merrill, or UBS, or Citi, announcing huge losses and taking investments from overseas to shore up the balance sheet, or is it better to be Goldman, awash in profits due to the prudent laying off of risk.
Nobody is really going to take the time to pose the right questions, opting instead to come to the most ridiculous conclusions that vacillate between envy, ignorance and vain imaginings.
That being the climate, it comes as no surprise to see the Journal article lifting the veil. We get to observe how early and sensible Goldman staff were in coming to the conclusions they came to. The question is asked, "Why did Goldman continue to peddle CDOs to customers early this year while its own traders were betting that CDO values would fall?"
Question asked, and question answered a few paragraphs later:
"Last December, David Viniar, Goldman's chief financial officer, gave the group a big push, suggesting that it adopt a more-bearish posture on the subprime market, according to people familiar with his instructions. During a discussion with Mr. Sparks and others, Mr. Viniar noted that Goldman had big exposure to the subprime mortgage market because of CDOs and other complex securities it was holding, these people say. Emerging signs of weakness in the market, meant that Goldman needed to hedge its bets, the group concluded, these people say."Last December of 2006? Who among us was thinking about any of this last December? Maybe people working on Wall Street in some fashion and to greater or lesser degrees. But was the average politician really thinking about this? Were average folks thinking about this stuff? Was I? (Certainly being one of those average folks, living paycheck to mouth, barely able to save).
Well Goldman was, and across the leadership of the firm.
The screenplay for this particular financial disaster is being written as we speak, and the writers are trying to suggest that this entire mortgage ponzilooza was due to the sellers. That would be Wall Street, your bank, your local mortgage merchants. Like our drug problems, it is so much easier to blame the sellers and not the buyers, and especially when the buyers are that nice little couple down the street who are, in some glorified theoretical world, "playing by the rules".
Under this line of thinking the little guy is assumed to be honest, if a little stupid, and duped all the way into the house that dwarfs his income.
But lets be real for a moment. Often enough we hear of the aggressive tactics of mortgage dealers who apparently were telling people, "Don't worry about the structure of this mortgage, you can refinance." Retrospectively this was almost criminal, ridiculous advice... that is, for those mortgage dealers who had psychic abilities. Who really imagined that home prices would suddenly stop rising? The buyers were willing to gamble on a tight deal structure because they were calculating that values would rise and that incomes would stay in a general range and that at worst if it got tight, they could flip it off to someone else for a small to large profit.
Why should the person selling the loan have greater market insight? Sales people are not in fact economic pronosticators, nor the swiftest and finest.
What really caused everything to come apart?
If CDO's were dropping in value, one must assume that the underlying components were losing value. And why would that happen? What might make a mortgage backed security lose value?
Well we know. Somewhere deep in the heart of many people is a level of greed that matches anything you might see on Wall Street. It manifests itself in little things and ways, like trying to own things you can't afford. The contract signed, and suddenly, the ducks fall out of line: divorce there, job loss here, increase of gas prices yonder and then quick default. Times one. Times two. Times Ten Thousand. Times some guy in some Wall Street firm saying, "Oh gosh, look at this."
Goldman came to that "Oh gosh" moment quicker than most, and wisely protected itself. One cannot fault the firms for adding to liquidity and getting Americans into homes, nor can you fault a given firm for hedging its risk, but you can fault the millions of little defaults that are the root cause of all of this mess.
Mirror mirror on the American wall, who is the biggest fool of all?
Friday, November 30, 2007
Treasury: Freezing Sins, Dispensing Hope
Jesus, at the behest of U.S. Treasury Gods, is coming to a town near you to save mortgages. Now if I have my theology correct, the appearance of Jesus is usually followed by all hell breaking loose on the remaining sinners of the world.
Perhaps that is why I am not particularly enthused by this effort by the government to keep the average overextended homeowner from being punished for their sins. Forgiving sins is a tricky business, and especially when the sinner class is reveling in victim mode, blaming everyone from pitched forked mortgage brokers to their nagging wives who just had to have that house over on Apple Lane. "Honey, the mortgage guy says we can't sit here waiting for Godot, we have to act!" says the wife.
Someone is going to get crucified and if the government is not using tax dollars for it's act of deity-like forgiveness, then you should be looking around to see who is going to be the counter-party.
If Jesus, (birthday coming up, by the way, shout out!) got stuck with the sins of you and me in retro-future physics defying fashion, and we have largely learned nothing from the act (sin being generally fun or at minimum, convenient), one can be sure that the home owners will learn very little at the expense of those who will be made to suffer.
And who is that counter-party, that Jesus returned?
Well that would be various Wall Street firms and other investors in mortgage backed securities. The N.Y. Times suggests they are balking at the plan, not entirely thrilled with taking the hit by being the invisible Jesus that saves and gets killed.
Granted it's not really death. It's taking a shave here, less interest there, a write down or two perhaps. We can be sure that in no time at all, like 3 days, or three years, (or five years) such firms will be reborn and live to provide happy profits years into the future for their respective shareholder believers. Meh bee.
In any case, the market seemed to take this coming of Christ with a certain amount of euphoria. This bailout, or freeze or whatever it is, combined with a possible Fed rate cut at the next meeting, had financial stocks levitating like the rapture was upon us.
Are they assuming that greater stability in the housing market should raise the value of mortgage assets on the books overall, and in a manner that supercedes any stalled or reduced payment flow? And are they assuming that people foolish enough to get themselves into a tight spot will use the extra latitude to change their behavior? Are they assuming there won't be lawsuits when the mortgage backed securities you bet yay or nay on get slain in the spirit of the Hope Now project?
I don't know. But the nature of man is, uhm, sinful and sinfully repetitive. Or as Dylan once said, "We do what's most convenient, and then repent".
We certainly don't know how these complicated situations will play out for stockholders. In our effort to grow our little pot (of money), we take each investment one month at a time, trying to get a general range of price movement for certain stocks over a 20 day period or so. With financials that is increasingly difficult, not knowing what is revealed, what is hidden, and what news will come out of nowhere to lift or tank the sector.
The only concrete thing we can gather from this recent news is that if Paulson met with Countrywide, among others involved in the process, there is probably little reason to assume immediate collapse of that company.
Machinations by Gods, saviors and sinners does not help our process.
Perhaps that is why I am not particularly enthused by this effort by the government to keep the average overextended homeowner from being punished for their sins. Forgiving sins is a tricky business, and especially when the sinner class is reveling in victim mode, blaming everyone from pitched forked mortgage brokers to their nagging wives who just had to have that house over on Apple Lane. "Honey, the mortgage guy says we can't sit here waiting for Godot, we have to act!" says the wife.
Someone is going to get crucified and if the government is not using tax dollars for it's act of deity-like forgiveness, then you should be looking around to see who is going to be the counter-party.
If Jesus, (birthday coming up, by the way, shout out!) got stuck with the sins of you and me in retro-future physics defying fashion, and we have largely learned nothing from the act (sin being generally fun or at minimum, convenient), one can be sure that the home owners will learn very little at the expense of those who will be made to suffer.
And who is that counter-party, that Jesus returned?
Well that would be various Wall Street firms and other investors in mortgage backed securities. The N.Y. Times suggests they are balking at the plan, not entirely thrilled with taking the hit by being the invisible Jesus that saves and gets killed.
Granted it's not really death. It's taking a shave here, less interest there, a write down or two perhaps. We can be sure that in no time at all, like 3 days, or three years, (or five years) such firms will be reborn and live to provide happy profits years into the future for their respective shareholder believers. Meh bee.
In any case, the market seemed to take this coming of Christ with a certain amount of euphoria. This bailout, or freeze or whatever it is, combined with a possible Fed rate cut at the next meeting, had financial stocks levitating like the rapture was upon us.
Are they assuming that greater stability in the housing market should raise the value of mortgage assets on the books overall, and in a manner that supercedes any stalled or reduced payment flow? And are they assuming that people foolish enough to get themselves into a tight spot will use the extra latitude to change their behavior? Are they assuming there won't be lawsuits when the mortgage backed securities you bet yay or nay on get slain in the spirit of the Hope Now project?
I don't know. But the nature of man is, uhm, sinful and sinfully repetitive. Or as Dylan once said, "We do what's most convenient, and then repent".
We certainly don't know how these complicated situations will play out for stockholders. In our effort to grow our little pot (of money), we take each investment one month at a time, trying to get a general range of price movement for certain stocks over a 20 day period or so. With financials that is increasingly difficult, not knowing what is revealed, what is hidden, and what news will come out of nowhere to lift or tank the sector.
The only concrete thing we can gather from this recent news is that if Paulson met with Countrywide, among others involved in the process, there is probably little reason to assume immediate collapse of that company.
Machinations by Gods, saviors and sinners does not help our process.
Wednesday, November 28, 2007
SAC Capital, Completely Comfortably Wrong
In an obvious but entirely appropriate piece in the N.Y.Times on Tuesday, we are warned not to take advice from hedge funds, they being like strangers with hard bad candy, and we being like kids (gullible).
It seems all is not pure gold up there in the comfy comfy of Connecticut, where one hugely successful Steven runs SAC Capital in complete secretude. In the recent past, the desire for profits overwhelmed the desire for genteel invisibility, causing SAC to dance with Jana Partners in an attempt to encourage TD Ameritrade to explore financially fornicatory mergings with Etrade. Such drama, and the leprechauns in the woods raise their eyebrows.
Says the Times:
In reading this, one wonders what a true credit risk might be, and whether SAC was really concerned about long term risk at all. Probably not.
Of course the accuracy of SAC's shortcut methods to wealth enhancement is not of real importance. They will probably earn their take, making up for this, with that. It is also easy for us to recognize self dealing and bad advice in hindsight. We all have our smarty pants on. NOW.
However, we can take discomfort in the notion that certain entities and special interests can apply inappropriate influence in order to obtain undeserved profit; a profit that can come at the expense of the companies in question and their shareholders.
If I am invested in a theoretical company, the last thing I want is some nun who owns one share appearing at the shareholders meeting telling the CEO how tofu makes for a better beef burger. Nor do I want any other special (and soon passing) interest to try to compel the company to do long term damage for short term gain.
That some Icon or Icahn of business can waltz in, throw down, collect, and then waltz out the back door is a trend that should not be allowed to continue no matter how much said parties pretend to be helping the company.
We, the leprechauns of the world, should take note and pay close attention. Who is saying what, and how do they stand to gain? Are they patient, or are they watching the clock, and stepping atop your head on their way to catch the money train back to the Comfy.
It seems all is not pure gold up there in the comfy comfy of Connecticut, where one hugely successful Steven runs SAC Capital in complete secretude. In the recent past, the desire for profits overwhelmed the desire for genteel invisibility, causing SAC to dance with Jana Partners in an attempt to encourage TD Ameritrade to explore financially fornicatory mergings with Etrade. Such drama, and the leprechauns in the woods raise their eyebrows.
Says the Times:
In their letters, they harshly criticized certain members of TD Ameritrade’s board as “self-serving” and having “glaring and untenable conflicts of interest.” And they suggested that E*Trade would be a relatively safe merger partner, in part because it “assumes only modest credit risk.”
In reading this, one wonders what a true credit risk might be, and whether SAC was really concerned about long term risk at all. Probably not.
Of course the accuracy of SAC's shortcut methods to wealth enhancement is not of real importance. They will probably earn their take, making up for this, with that. It is also easy for us to recognize self dealing and bad advice in hindsight. We all have our smarty pants on. NOW.
However, we can take discomfort in the notion that certain entities and special interests can apply inappropriate influence in order to obtain undeserved profit; a profit that can come at the expense of the companies in question and their shareholders.
If I am invested in a theoretical company, the last thing I want is some nun who owns one share appearing at the shareholders meeting telling the CEO how tofu makes for a better beef burger. Nor do I want any other special (and soon passing) interest to try to compel the company to do long term damage for short term gain.
That some Icon or Icahn of business can waltz in, throw down, collect, and then waltz out the back door is a trend that should not be allowed to continue no matter how much said parties pretend to be helping the company.
We, the leprechauns of the world, should take note and pay close attention. Who is saying what, and how do they stand to gain? Are they patient, or are they watching the clock, and stepping atop your head on their way to catch the money train back to the Comfy.
Thursday, November 22, 2007
U.S.A. Today Obscures, We Ignore
Every year we can be sure that when it comes to Thanksgiving and Christmas, there will be a few articles in the major newspapers that seek to deflate the enthusiasm for the holiday at hand via deconstructon or re-evaluation. Meanings will be slighted, founders critiqued, motives questioned, and dates adjusted, all so that some not particularly relevant point can be made.
So if it is Christmas, you will be reading about those who are depressed, or flying to the Bahamas to escape the holiday. Christmas will be flattened into a bland holiday crepe sauced over with Kwanzaa, solstice and Diwali. Santa will be on hand, Jesus on hold.
If it is Easter, you will reading about Jesus being rediscovered as temple Al Sharpton, or father of ten, or various other divinity busting careers. The newspapers will help you to select the prettiest bonnet to wear when taking your child to Central Park to meet Jesus's understudy (that would be the Easter bunny), but hardly review the best church to hear the resurrection story retold.
And if it is Thanksgiving, you will be informed that you are feasting on dual holocaust days, for turkeys and Native Americans. (Which makes you wonder if we can eat at all, given the past African American experience of slavery 365 days a year, or the suffering of nearly every ethnicity at the hand of someone at every moment of world history).
But we are blessed with USA Today's efforts on Wednesday, and an attempt by a woman, whose name I will ignore, to propose that the first Thanksgiving had much to do with a Spanish explorer celebrating with Timcua Indians in St. Augustine Florida back on September 8th 1865.
This effort fits quite nicely with the modern day sleight of educational hand that has transformed a near religious moment of thanking God for providing, into one of thanking Native Americans for the act of being on hand with snacks and food advice. But then again, if one does not have a strong belief in God, or how he might use others to help you, then one probably cannot see beyond the people to thank the God that sent them.
The efforts in Florida take us further in the direction of obscuring the events of those who played the formative role in the founding of the nation.
So this holiday I am thankful for the USA Today, because now I have a place to put my plate of turkey without ruining my mom's table.
So if it is Christmas, you will be reading about those who are depressed, or flying to the Bahamas to escape the holiday. Christmas will be flattened into a bland holiday crepe sauced over with Kwanzaa, solstice and Diwali. Santa will be on hand, Jesus on hold.
If it is Easter, you will reading about Jesus being rediscovered as temple Al Sharpton, or father of ten, or various other divinity busting careers. The newspapers will help you to select the prettiest bonnet to wear when taking your child to Central Park to meet Jesus's understudy (that would be the Easter bunny), but hardly review the best church to hear the resurrection story retold.
And if it is Thanksgiving, you will be informed that you are feasting on dual holocaust days, for turkeys and Native Americans. (Which makes you wonder if we can eat at all, given the past African American experience of slavery 365 days a year, or the suffering of nearly every ethnicity at the hand of someone at every moment of world history).
But we are blessed with USA Today's efforts on Wednesday, and an attempt by a woman, whose name I will ignore, to propose that the first Thanksgiving had much to do with a Spanish explorer celebrating with Timcua Indians in St. Augustine Florida back on September 8th 1865.
This effort fits quite nicely with the modern day sleight of educational hand that has transformed a near religious moment of thanking God for providing, into one of thanking Native Americans for the act of being on hand with snacks and food advice. But then again, if one does not have a strong belief in God, or how he might use others to help you, then one probably cannot see beyond the people to thank the God that sent them.
The efforts in Florida take us further in the direction of obscuring the events of those who played the formative role in the founding of the nation.
So this holiday I am thankful for the USA Today, because now I have a place to put my plate of turkey without ruining my mom's table.
Tuesday, November 20, 2007
Revisions
Sometimes I wish I were paid for things nobody knew, and I would sit there, rich as Buffet, content as a fruit basket atop the head of a voluptuous woman (don't stop me when I am feeling literary), tsk-tsking like Solomon, and letting man's freewill and lack of judgement reign.
For example, nobody knew that when mortgage lenders or home buyers chose to lie or accidentally mistate qualifications for loans, thus increasing home ownership nationwide, that scores of companies would end up taking massive losses. Who knew that increased home ownership at astronomical pricing would become an inverse indicator of the success of certain financial firms?
We know that now.
Or take embryonic stem cells. Or maybe don't take them. The the recent, yet tentative, discovery (as reported in the N.Y. Times) that adding certain genes into skin cells reprograms them into embryonic stem cells--much to the delight of those concerned about using actual embryos--should point out the rewards of patience and due diligence. Who would have realized that we need not rush into creating massive medical farms filled with potential baby material redirected to curing the skin cancer of suburban moms? Did Bush know? Did those rushing to say that the death and diseases of those alive now are paramount above all other issues, did they know?
Well we seem to know a bit more now.
And in the same way that preventing death to the living was paramount to those in favor of any sort of stem cell solution, so too that mode of reasoning extended to views on Iraq. The mantra has been, "Bring them home, because they are dying".
I've oft imagined what some mothers in the southern states might have said come the Civil War's end. "Damn, we lost a lot of owa young'ins, 'n fer what? A bunch of "blacks" and Nowthen business interests. Lawd what a waste of beautiful lives."
Yet the news out of Iraq is changing, modifying, so that the facts are starting to sound louder and clearer than the ability of others to distort them. It becomes a surprise, and a problem, for some, when there is no fighting in Basra, in the western sands, in Kurdish regions, and now in Baghdad. Who could have imagined?
We are discovering now.
Such reversals ought to be enligtening. Often encouraging. At the point when we think we have it all figured out, and when everything has been done, with every bit of knowledge learned, every God rendered irrelevant, things unseen reveal themselves.
For example, nobody knew that when mortgage lenders or home buyers chose to lie or accidentally mistate qualifications for loans, thus increasing home ownership nationwide, that scores of companies would end up taking massive losses. Who knew that increased home ownership at astronomical pricing would become an inverse indicator of the success of certain financial firms?
We know that now.
Or take embryonic stem cells. Or maybe don't take them. The the recent, yet tentative, discovery (as reported in the N.Y. Times) that adding certain genes into skin cells reprograms them into embryonic stem cells--much to the delight of those concerned about using actual embryos--should point out the rewards of patience and due diligence. Who would have realized that we need not rush into creating massive medical farms filled with potential baby material redirected to curing the skin cancer of suburban moms? Did Bush know? Did those rushing to say that the death and diseases of those alive now are paramount above all other issues, did they know?
Well we seem to know a bit more now.
And in the same way that preventing death to the living was paramount to those in favor of any sort of stem cell solution, so too that mode of reasoning extended to views on Iraq. The mantra has been, "Bring them home, because they are dying".
I've oft imagined what some mothers in the southern states might have said come the Civil War's end. "Damn, we lost a lot of owa young'ins, 'n fer what? A bunch of "blacks" and Nowthen business interests. Lawd what a waste of beautiful lives."
Yet the news out of Iraq is changing, modifying, so that the facts are starting to sound louder and clearer than the ability of others to distort them. It becomes a surprise, and a problem, for some, when there is no fighting in Basra, in the western sands, in Kurdish regions, and now in Baghdad. Who could have imagined?
We are discovering now.
Such reversals ought to be enligtening. Often encouraging. At the point when we think we have it all figured out, and when everything has been done, with every bit of knowledge learned, every God rendered irrelevant, things unseen reveal themselves.
Wednesday, November 7, 2007
When Cheng Siwei Speaks, the Dollar Bindeezes
Today the market fell a whole bunch of 2.5%, or more, and you could pick your poison:
The more worrying factor is that people probably have not realized how iffy and topsy things can get. The last thing you really need, on the way to a financial meltdown, is the inability to do anything constructive, from a Federal Reserve action perspective. And yet, we are fast approaching that point.
If the dollar was stronger, and the United States was the only game in town, and it's not, and it's not... we might be able to be somewhat cavalier and contemplate more central bank liquidity drippings. The Fed could lower rates, and we could sit around and wait for everything to work itself out. Creating a comfort zone for financial firms might be the GED version of getting the economy to graduate to normal productivity, but it has been done before.
But we stand at the point now where the world is in competition, and where money not parked here, can be parked perfectly well in other places, like Euroland, in Europlaymoney. Other nations in Asia and the Middle East now have the types of pools of capital worthy of preservation and active management.
Which is to say, while we don't necessarily need their money (aside from its handiness in proping up our government budget, staving off complete collapse, and us all taking to the fields to eat grass for dinner), they are fast hitting the point where they don't need our money or investments, and that is new, and not entirely helpful given our nation's budget contraints and debt binges.
- Chinese officials making wise points about not putting your money (all 1.5 trillion of it) into depreciating assets (the dollar), while simultaneously selling us still more multipurpose toys (Bindeez) that you can either play with or comatize yourself.
- Various companies, from Washington Mutual to Morgan Stanley to General Motors announcing slightly massive losses, reaffirming a central thesis (as in, OUR central thesis) that the head of Merrill Lynch is owed a collective apology for not being uniquely incompetent, but well in line with the collective incompetence.
- Certain ambitious New York attorney generals deciding to put pressure on various financial firms for possible fraud in their evaluation and dispensation of loans to the masses (masses who, we might add, are all innocent, having had no hand in the massive body blow to our nation's financial posture).
The more worrying factor is that people probably have not realized how iffy and topsy things can get. The last thing you really need, on the way to a financial meltdown, is the inability to do anything constructive, from a Federal Reserve action perspective. And yet, we are fast approaching that point.
If the dollar was stronger, and the United States was the only game in town, and it's not, and it's not... we might be able to be somewhat cavalier and contemplate more central bank liquidity drippings. The Fed could lower rates, and we could sit around and wait for everything to work itself out. Creating a comfort zone for financial firms might be the GED version of getting the economy to graduate to normal productivity, but it has been done before.
But we stand at the point now where the world is in competition, and where money not parked here, can be parked perfectly well in other places, like Euroland, in Europlaymoney. Other nations in Asia and the Middle East now have the types of pools of capital worthy of preservation and active management.
Which is to say, while we don't necessarily need their money (aside from its handiness in proping up our government budget, staving off complete collapse, and us all taking to the fields to eat grass for dinner), they are fast hitting the point where they don't need our money or investments, and that is new, and not entirely helpful given our nation's budget contraints and debt binges.
Monday, November 5, 2007
Prince of the Citi Falls, Analysts "Rethink"
Well it took awhile, but the collective wisdom has finally turned its attention away from the Stanley O'Neal crucification process. Other companies are starting to do last-acknowledge losses and reprice portfolios- what Merrill and its CEO did first.
One was beginning to wonder about people's internals, as though isolating O'Neal as the worst CEO in the universe might somehow protect them from the fact that nearly everyone messed up, miscalculated, or mispriced, and that a blizzard of economic craziness is on its way.
This week we are graced with the retirement of one Charles Prince, who peeped not a peep while O' Neal was tarred blacker than black for having created Merrill's quarterly loss of about $2.5 billion. Now Citi has come forward, estimating writedowns and losses that match or exceed Merrill's, to date. Somewhere someone is doing a happy dance, while tossing $160 million dollars in the air, misery loving company.
Today the Wall Street Journal in their "Heard on the Street" column suggests that analysts are now coming to the conclusion that Merrill's write downs were not such an anomally after all. No kidding.
So now it's not O'Neal singular wrongness, it's the pricing models? He can come out of the corner with the dunce cap on, or, at least, be joined in that corner by a broad swathe of the financial industry as the days and weeks pass.
One was beginning to wonder about people's internals, as though isolating O'Neal as the worst CEO in the universe might somehow protect them from the fact that nearly everyone messed up, miscalculated, or mispriced, and that a blizzard of economic craziness is on its way.
This week we are graced with the retirement of one Charles Prince, who peeped not a peep while O' Neal was tarred blacker than black for having created Merrill's quarterly loss of about $2.5 billion. Now Citi has come forward, estimating writedowns and losses that match or exceed Merrill's, to date. Somewhere someone is doing a happy dance, while tossing $160 million dollars in the air, misery loving company.
Today the Wall Street Journal in their "Heard on the Street" column suggests that analysts are now coming to the conclusion that Merrill's write downs were not such an anomally after all. No kidding.
So now it's not O'Neal singular wrongness, it's the pricing models? He can come out of the corner with the dunce cap on, or, at least, be joined in that corner by a broad swathe of the financial industry as the days and weeks pass.
Friday, November 2, 2007
Cayne and O'Neal, Smoke and Mirrors
If one is not a rather deliberate optimist, of late it is rather hard to see that the sky is not fallen under foot. Chrysler is laying off thousands for somewhat unrelated reasons to the multitude of other firms laying off for mortgage related miscalculations. Of course, the way these things fall out, it is so easy to deride Stanley O' Neal, the former head of Merrill Lynch, for his one quarter of possibly understated losses, than it is to knock the years and years of mismanagement and mismanagers of the airline and car industries, or even others in the financial industry.
Stan is held up for a particular type of beating, namely because he let the firm drift into highly risky methods of making money while at the same time failing to be appropriately clubby with his underlings. One usually does not like to factor race into the ridicule, and when you have written down $8 billion, and with possibly more losses to follow, it's easy to leap to levels of anger not quite appropriate to Merrill's 3rd quarter loss of $2.5 billion or so. One might think, from the outcry, that Merrill has been unprofitable for the year thus far, or for the length of O'Neal's reign. One might also think that the head's of Citibank, Countrywide Financial, and Bear Stearns were never born.
One can read around and see the suggestions that O' Neal should not be allowed to depart with his stock grants intact, that he should somehow forfeit past pay, though all those investors in and out of the stock- the little people now complaining- invariably gained. Indeed, as of now, the stock remains above where it was when he first took charge.
But the comments have been withering, with those who know better in the industry applying a gleeful smirk to their criticism. Those less informed, the average individual, inclined to dislike the massive payouts of Wall Street to begin with, and without the knowledge of why Wall Street is even necessary or how much financial firms grease the economy, are quick to say that O'Neal is akin to Enron's Skilling and should have his pay revoked by government action. People, generally, being mentally hyperbolic and economically retarded, cannot tell the difference between legitimate business risk and outright fraud and are fully willing to judge a person's entire career via a snapshot of activity, or... by color of skin.
There are the veiled comments that suggest that nobody should be surprised at the loss, given affirmative action, and O'Neal's race, and this despite the evidence that the entire financial world was on its bum in the 3rd quarter of this year. If you disqualify O'Neal based on 3rd quarter results, you must logicially disqualify all the profits as well, and from every period, as the methods that created profits were largely the same.
Nobody blinks too much of an eye when the CEO of Bear Stearns, James Cayne, is portrayed by the Wall Street Journal (on Thursday in an article by Kate Kelly ) as being an avid pot user who found it easy to be down south playing in bridge tourneys as the firm went through its contortions rooking investors inside its two collapsed funds now under government investigation. Or that one of the two funds was so highly leveraged, that it in fact probably impacted other firms (like Merrill Lynch) as their values dropped to zero.
And even in an article that purports to critique Cayne's running of Bear, it is chock full of enough ego floating characterizations that one could, if Cayne, walk away thinking, "Yea baby, I'm a tough talking, weed smoking, chick getting, Mother Merrill F***ker" (as one can question whether the assets Merrill seized for debts owed could be offloaded at sufficient value).
That's how it goes. Stan takes the hit, and the new CEO, when someone has the courage to step up, will take the glory as assets are eventually revalued (upwards) or all the errors are corrected. Obviously Merrill was hitting on all cylinders in most of its businesses, and in previous years, but people have memories that are locked on the present.
They also have minds that are fixed on O'Neal, when in fact, there is every indication that a bunch of financial firms are scrambling to mask, delay, and otherwise ghost away potential losses on assets that should probably be accounted for in more obvious fashion. But why focus on the forest when one tree is so interesting.
Nor will anyone currently castigating O'Neal lower the bar a bit, and hold the mirror to masses. One could argue that we are in the state we are in NOT because money was easy, or because Wall Street miscalculated how to value CDO's, but rather, because the average man on the street was far too greedy, and when handed the opportunity to buy a home beyond their means, grabbed the bull by the horns with all their might and gored themselves.
Of course, when you read the sad sack homeowner profiles in USA Today or your local paper, all the suffering homeowners, in over their heads and struggling to pay, claim personal ignorance and fraud on the part of their mortgage lenders. Apparently the ability to know your means, your income, and your monthly payment capabilities escaped the masses like a plague in reverse.
O'Neal will survive, and find something to do in eighteen months or so when his non-compete clause runs out. He was allowed to retire (fired) in part for approaching Wachovia for some kind of merger deal, among other options presented to the board. Cayne hopped his plane to China to exchange capital with a foreign firm via billion dollar mutual investments. Cayne will likely continue on, talking tough, telling folks to "Keep your Irish Down", as he calmly nagivates Bear Stearns next disaster from the comfort of his smoke filled bridge table. But let's hope not.
Stan is held up for a particular type of beating, namely because he let the firm drift into highly risky methods of making money while at the same time failing to be appropriately clubby with his underlings. One usually does not like to factor race into the ridicule, and when you have written down $8 billion, and with possibly more losses to follow, it's easy to leap to levels of anger not quite appropriate to Merrill's 3rd quarter loss of $2.5 billion or so. One might think, from the outcry, that Merrill has been unprofitable for the year thus far, or for the length of O'Neal's reign. One might also think that the head's of Citibank, Countrywide Financial, and Bear Stearns were never born.
One can read around and see the suggestions that O' Neal should not be allowed to depart with his stock grants intact, that he should somehow forfeit past pay, though all those investors in and out of the stock- the little people now complaining- invariably gained. Indeed, as of now, the stock remains above where it was when he first took charge.
But the comments have been withering, with those who know better in the industry applying a gleeful smirk to their criticism. Those less informed, the average individual, inclined to dislike the massive payouts of Wall Street to begin with, and without the knowledge of why Wall Street is even necessary or how much financial firms grease the economy, are quick to say that O'Neal is akin to Enron's Skilling and should have his pay revoked by government action. People, generally, being mentally hyperbolic and economically retarded, cannot tell the difference between legitimate business risk and outright fraud and are fully willing to judge a person's entire career via a snapshot of activity, or... by color of skin.
There are the veiled comments that suggest that nobody should be surprised at the loss, given affirmative action, and O'Neal's race, and this despite the evidence that the entire financial world was on its bum in the 3rd quarter of this year. If you disqualify O'Neal based on 3rd quarter results, you must logicially disqualify all the profits as well, and from every period, as the methods that created profits were largely the same.
Nobody blinks too much of an eye when the CEO of Bear Stearns, James Cayne, is portrayed by the Wall Street Journal (on Thursday in an article by Kate Kelly ) as being an avid pot user who found it easy to be down south playing in bridge tourneys as the firm went through its contortions rooking investors inside its two collapsed funds now under government investigation. Or that one of the two funds was so highly leveraged, that it in fact probably impacted other firms (like Merrill Lynch) as their values dropped to zero.
And even in an article that purports to critique Cayne's running of Bear, it is chock full of enough ego floating characterizations that one could, if Cayne, walk away thinking, "Yea baby, I'm a tough talking, weed smoking, chick getting, Mother Merrill F***ker" (as one can question whether the assets Merrill seized for debts owed could be offloaded at sufficient value).
That's how it goes. Stan takes the hit, and the new CEO, when someone has the courage to step up, will take the glory as assets are eventually revalued (upwards) or all the errors are corrected. Obviously Merrill was hitting on all cylinders in most of its businesses, and in previous years, but people have memories that are locked on the present.
They also have minds that are fixed on O'Neal, when in fact, there is every indication that a bunch of financial firms are scrambling to mask, delay, and otherwise ghost away potential losses on assets that should probably be accounted for in more obvious fashion. But why focus on the forest when one tree is so interesting.
Nor will anyone currently castigating O'Neal lower the bar a bit, and hold the mirror to masses. One could argue that we are in the state we are in NOT because money was easy, or because Wall Street miscalculated how to value CDO's, but rather, because the average man on the street was far too greedy, and when handed the opportunity to buy a home beyond their means, grabbed the bull by the horns with all their might and gored themselves.
Of course, when you read the sad sack homeowner profiles in USA Today or your local paper, all the suffering homeowners, in over their heads and struggling to pay, claim personal ignorance and fraud on the part of their mortgage lenders. Apparently the ability to know your means, your income, and your monthly payment capabilities escaped the masses like a plague in reverse.
O'Neal will survive, and find something to do in eighteen months or so when his non-compete clause runs out. He was allowed to retire (fired) in part for approaching Wachovia for some kind of merger deal, among other options presented to the board. Cayne hopped his plane to China to exchange capital with a foreign firm via billion dollar mutual investments. Cayne will likely continue on, talking tough, telling folks to "Keep your Irish Down", as he calmly nagivates Bear Stearns next disaster from the comfort of his smoke filled bridge table. But let's hope not.
Monday, October 8, 2007
Baubles for Business
Among the more interesting pieces about the thrill of the grilled cheese sandwich and the Koreas making coy eyes of love to each other, we can find two articles in the NY Times today that reveal a lack of substance at the heart of some internet business models. One can detect an almost fiddle while Rome burns on YouTube ethic to much of this, with seriously brilliant minds brought down to creating the perfectly useless, and timely (as in "not timeless") widget.
In the first piece, we are given the details of how Saturday Night Live created its second comedic hit video on You Tube, with over 300,000 downloads. In mocking Mahmoud Ahmadinejad, the president of Iran, and his statement that Iran is without homosexuals, the video managed to hit the right combination of humor and social commentary, with swipes at pop culture and its earnest yet contrived presentation of nonsense.
It is in fact a funny video, even if you are smart enough to read between Ahmadinejad's eyebrows to know that he is not stupid enough to believe that there are no homosexuals in Iran, but rather, that you will search long and hard before you find someone willing to admit they are. Thus, they don't exist.
In any case we have a laugh at the idea of the head of an oppressive regime brought down to the level of just another nice guy in love. The writers have used his own image-he of the casual jacket and "I love all the existing people" attitude- and taken it a step further, softening him up to the point of a cushion for various rhetorical pins.
Politics aside, we can't argue that with effort expended, and downloads done, this adds not a dime to NBC's bank. The article reminds us that ratings are no higher than the year before. Nobody is really laughing all the way to the bank, which, one would assume, should be the general idea with most business endeavors.
The same can be said about all those companies creating widgets and little add on features for Facebook. The whole world and their collective uncles have come to the conclusion that social networking is the apex of modern internet efforts. Some relatively smart minds are calculating that with just the right combination of luck, lightening, bridge buyers, sunny skies and general delusion, profits will roll in.
The problem is that the more that people are willing to reveal about themselves, the less they are going to want advertisers and others mucking around in their stuff. With Facebook, it offered a particular haven, combining the personal with a largely invisible advertising environment. In the case of the many companies making craplets for Facebook, they are faced with the difficulty of being unable to monetize their work. People will accept something that is free, but ultimately if you are going to make money you either have to offer them something they will gladly put a dollar value on, or convince them to look at your advertising.
To the extent Facebook allows its central interface to get cluttered up, they become just another Myspace. While that may appear to be good now, in the long run, and like every social network before, the fascination will fade. Facebook has the chance to embrace adults who stay with a product if it works, as opposed to the younger audience who will bleat their way to the next new thing out of boredom or the influence of equally bored peers.
In many ways the best minds and the managers of the biggest piles of cash are acting like a new mother spending tons of money on giving her five month old the best wardrobe ever. As if nothing changes and all the new clothes won't be outgrown. In a world with so many unsolved problems and so many possibilities, one wonders if businesses built on adding one more bauble to the crib are worth the attention they receive.
In the first piece, we are given the details of how Saturday Night Live created its second comedic hit video on You Tube, with over 300,000 downloads. In mocking Mahmoud Ahmadinejad, the president of Iran, and his statement that Iran is without homosexuals, the video managed to hit the right combination of humor and social commentary, with swipes at pop culture and its earnest yet contrived presentation of nonsense.
It is in fact a funny video, even if you are smart enough to read between Ahmadinejad's eyebrows to know that he is not stupid enough to believe that there are no homosexuals in Iran, but rather, that you will search long and hard before you find someone willing to admit they are. Thus, they don't exist.
In any case we have a laugh at the idea of the head of an oppressive regime brought down to the level of just another nice guy in love. The writers have used his own image-he of the casual jacket and "I love all the existing people" attitude- and taken it a step further, softening him up to the point of a cushion for various rhetorical pins.
Politics aside, we can't argue that with effort expended, and downloads done, this adds not a dime to NBC's bank. The article reminds us that ratings are no higher than the year before. Nobody is really laughing all the way to the bank, which, one would assume, should be the general idea with most business endeavors.
The same can be said about all those companies creating widgets and little add on features for Facebook. The whole world and their collective uncles have come to the conclusion that social networking is the apex of modern internet efforts. Some relatively smart minds are calculating that with just the right combination of luck, lightening, bridge buyers, sunny skies and general delusion, profits will roll in.
The problem is that the more that people are willing to reveal about themselves, the less they are going to want advertisers and others mucking around in their stuff. With Facebook, it offered a particular haven, combining the personal with a largely invisible advertising environment. In the case of the many companies making craplets for Facebook, they are faced with the difficulty of being unable to monetize their work. People will accept something that is free, but ultimately if you are going to make money you either have to offer them something they will gladly put a dollar value on, or convince them to look at your advertising.
To the extent Facebook allows its central interface to get cluttered up, they become just another Myspace. While that may appear to be good now, in the long run, and like every social network before, the fascination will fade. Facebook has the chance to embrace adults who stay with a product if it works, as opposed to the younger audience who will bleat their way to the next new thing out of boredom or the influence of equally bored peers.
In many ways the best minds and the managers of the biggest piles of cash are acting like a new mother spending tons of money on giving her five month old the best wardrobe ever. As if nothing changes and all the new clothes won't be outgrown. In a world with so many unsolved problems and so many possibilities, one wonders if businesses built on adding one more bauble to the crib are worth the attention they receive.
Thursday, October 4, 2007
Things Routinely Done Countrywide
In an article in today's New York Times by Gretchen Morgenson titled "Inside the Countrywide Lending Spree", we are given illuminating insight into Countrywide's aggressive lending practices.
Of course it's rather a billion dollars short, and several thousand days late, to call the company and its practices into question, but then again, if we are to learn anything, such stories are still worthwhile. Nevermind that the NY Times itself published its fair share of profiles of people reaching for what we now know is the impossible: the attainment of homes that could not have been achievable via normal methods of honest acquisition or reasonable lending practices.
So there is blame to go around. In the article we learn that:
Then too, we cannot wholely blame the filthy lucrists at Countrywide, or the reflexively late reporting of the nation's journalists for the situation we find ourselves in.
We must look in the mirror. (We meaning, YOU).
We are either a nation chock full of extremely stupid people, able to be repetitively swindled and swonked, or (and more likely), we are a nation of extremely morally challenged people, willing to shave off a bit of our better judgement or jolly goodness in order to cut ourselves a slice.
Thusly:
Of course it's rather a billion dollars short, and several thousand days late, to call the company and its practices into question, but then again, if we are to learn anything, such stories are still worthwhile. Nevermind that the NY Times itself published its fair share of profiles of people reaching for what we now know is the impossible: the attainment of homes that could not have been achievable via normal methods of honest acquisition or reasonable lending practices.
So there is blame to go around. In the article we learn that:
- Countrywide routinely disregarded borrower assets in order to put them in a class of loans that garnered more fees. (Done no doubt to encourage pride of ownership since the more you pay, the more you value what you have overpaid for).
- Countrywide routinely charged blacks and hispanics more for the loans they received. (Because, well, the cost of pigmentation, like other commodities, has been rising around the world. Or, as one recently executed toy factory manager in China said, "Less pigmentation, more lead," when creating action figures).
- Countrywide avoided steering low income and new borrowers toward FHA government loans due to profit considerations. (And because the government has its hands full with Maliki in Iraq, poppies in Afghanistan, and a high number of congressman under investigation. Loan processing times would invariably slow, along with profits).
- Countrywide routinely charged more for mortgage related services than its competitors while verbally suggesting they provided the best loan possible "in the universe". (Or as they probably framed it during weekly team meetings, "High cost value-adds SHOULD cost an arm and a leg and your home")
- Countrywide's head, Mr. Mozilo, routinely purchased zero new shares in the last ten years, while at the same time routinely selling unpurchased shares (options grants) in order to remain highly diversified. (I imagine he will need the extra money to stay out of the big house. Then again, Mr. Mozilo will not suffer the fate of businessmen in China, who, when they mess up, get disposed of, and merely for poisoning the world's pets with funky food. (But oddly, not for poisoning the world's children with lead)).
- Countrywide routinely, right up into February and March, sold piggyback loans, sold loans covering 95% of the appraised price, and loans without income documentation. (Because trusting people is good, and them trusting you is even better, especially when they have no money).
- Countrywide routinely rewarded its employees in its incentive structure for selling high cost, riskier loans. (You cannot argue with compensating employees well, can you? Besides the extra income will be handy when they face the eventual individual and class action suits, or when they get laid off when Bank of America takes over and decides they like inventory and systems more than extra employees).
Then too, we cannot wholely blame the filthy lucrists at Countrywide, or the reflexively late reporting of the nation's journalists for the situation we find ourselves in.
We must look in the mirror. (We meaning, YOU).
We are either a nation chock full of extremely stupid people, able to be repetitively swindled and swonked, or (and more likely), we are a nation of extremely morally challenged people, willing to shave off a bit of our better judgement or jolly goodness in order to cut ourselves a slice.
Thusly:
- We are routinely willing to lie about our income, or expand on our income, or pretend money does not exist at all, in order to get what we think we deserve. (Proper accounting not being relevent to most things).
- We routinely take on risks under the assumption that income today will be no different tomorrow, except more, but not less. (Or that, all things working for good, the world will end or we will win the Powerball, or the rapture will come, or society will collapse, or our parents will die leaving us money, thus saving us from the decision we made when the mortgage broker ventured into undiscovered laws of math by assuring us that if we signed "here", that our non-income and lifestyle would not be adversely impacted by monthly mortgage payments of $300 that would reset to $4000 dollars after a year if and only if the rare occasion of 365 days in a row occured.)
- We routinely are too impatient to do close reading, perfectly willing to let preachers, teachers, neighbors, email forwards, and loan originators explain to us concepts in one sentence that are better read in full paragraphs and fine print. (Once undone, we mistily recall our long ago desire to graduate kindergarten and go straight to Harvard, only to be held back by dyslexia and complicated stuff like letters and numbers arranged in a sentece on a piece of paper signed by our blood in front of a horned mortgage lender trainee).
- We routinely find ways to cut corners, like piggy backing on other people's credit histories in order to find houses big enough to hold all the stuff we bought with our own credit cards. (Imagining that we can drive over to a bad neighborhood and sell it to the crack addicted for half price, or on Ebay for twice the price, if times get sketchy).
Monday, October 1, 2007
3:10 to Yuma
Ostensibly the writing here is supposed to be about our little financial adventure, maybe economics, with a little politics, personal fluff, and ax grinding thrown in, but today I will drift a bit.
When I left the office this afternoon I waited about an hour for the bus. I sipped on a lemon soda and watched the clouds and cars roll by. People were on their way to lunch, or taking walks down the quiet street trying to get in some exercise before heading back to the desk.
It was Phoenix, with the sun lurking, but not too hot, with most of the year's blaze starting to fade and a coolness swaying tree branches and brushing my face.
I was listening to my mp3 player as usual, and put my baseball cap on to remind myself I was free from work. Kelly Clarkson was singing about breaking away. I had added that one song of hers to my music rotation a few days back, though typically I am not a fan of female pop singers. I like bands,and usually male bands that play their own instruments.
As I sat there waiting, I was thinking about emotions. (Well, actually, I was thinking about a lot of stuff, from bills, to money, to why am I in Arizona, to I'm hungry). But mostly I was thinking about emotions, and how for some people it takes disaster, even self induced, to feel like you are alive or in control.
Sometimes you walk through life and there is nothing particularly dramatic going on. You eat, work, sleep, and repetez, with never enough deviation in the day's events or the heart's emotions to make the next day slant off on a different more satisfying tangent.
If you drift long enough in that mode, and do not do something smart and make adjustments, you will find yourself doing something accidentally stupid, and with unintended consequences.
Later in the day I ended up at the Deer Valley AMC theatre seeing 3:10 to Yuma, the story of a humble farmer stepping out of his normal routine to do something slightly different today in order to change the arc of his life. Russell Crowe plays the outlaw, who, near the end and deadened by the pattern of his existence, decides to do something out of the ordinary as well. He chooses to do something good by wiping out his own posse, albeit a move I was not wholly fond of, given their loyalty to him. But he was trying to break a pattern, at least in his own heart, if not in his actual life.
Breaking patterns, removing the auto-pilot, is important, but the method chosen makes all the difference in the world. The right way to set off in a different direction is to plan the correct steps and calculate the cost. The wrong method is to let the subconcious mind or your emotions make you impulsive, where you do in fact change your life, but become like a bottle rocket without a stick, swirling around on fire and with no direction.
That is how it is with most things. There are ways and there are ways. So, for example, it is not enough to do good, but rather, to choose the right good that needs to be done (not all good being approrpiate to the time, the place, or your efforts). In changing your life it matters too how you go about doing it. Change can be good to the extent it is organized change and not merely emotionally driven responses to the status quo.
My bus eventually arrived and I got on, wondering if I was headed in a good direction.
When I left the office this afternoon I waited about an hour for the bus. I sipped on a lemon soda and watched the clouds and cars roll by. People were on their way to lunch, or taking walks down the quiet street trying to get in some exercise before heading back to the desk.
It was Phoenix, with the sun lurking, but not too hot, with most of the year's blaze starting to fade and a coolness swaying tree branches and brushing my face.
I was listening to my mp3 player as usual, and put my baseball cap on to remind myself I was free from work. Kelly Clarkson was singing about breaking away. I had added that one song of hers to my music rotation a few days back, though typically I am not a fan of female pop singers. I like bands,and usually male bands that play their own instruments.
As I sat there waiting, I was thinking about emotions. (Well, actually, I was thinking about a lot of stuff, from bills, to money, to why am I in Arizona, to I'm hungry). But mostly I was thinking about emotions, and how for some people it takes disaster, even self induced, to feel like you are alive or in control.
Sometimes you walk through life and there is nothing particularly dramatic going on. You eat, work, sleep, and repetez, with never enough deviation in the day's events or the heart's emotions to make the next day slant off on a different more satisfying tangent.
If you drift long enough in that mode, and do not do something smart and make adjustments, you will find yourself doing something accidentally stupid, and with unintended consequences.
Later in the day I ended up at the Deer Valley AMC theatre seeing 3:10 to Yuma, the story of a humble farmer stepping out of his normal routine to do something slightly different today in order to change the arc of his life. Russell Crowe plays the outlaw, who, near the end and deadened by the pattern of his existence, decides to do something out of the ordinary as well. He chooses to do something good by wiping out his own posse, albeit a move I was not wholly fond of, given their loyalty to him. But he was trying to break a pattern, at least in his own heart, if not in his actual life.
Breaking patterns, removing the auto-pilot, is important, but the method chosen makes all the difference in the world. The right way to set off in a different direction is to plan the correct steps and calculate the cost. The wrong method is to let the subconcious mind or your emotions make you impulsive, where you do in fact change your life, but become like a bottle rocket without a stick, swirling around on fire and with no direction.
That is how it is with most things. There are ways and there are ways. So, for example, it is not enough to do good, but rather, to choose the right good that needs to be done (not all good being approrpiate to the time, the place, or your efforts). In changing your life it matters too how you go about doing it. Change can be good to the extent it is organized change and not merely emotionally driven responses to the status quo.
My bus eventually arrived and I got on, wondering if I was headed in a good direction.
Tuesday, August 21, 2007
Blackstonecoldstupid
Is that the flavorful grease of a succulent goose I see dripping down the face of Stephen A. Schwarzman, the "boldly going where no private equity fund has gone before" head of the Blackstone Group?
He had to eat the whole thing, taking his firm public in a manner both ostentatious and foul, all in a bid, I assume, to accummulate the capital necessary to pursue deals big enough to make his competitors feel a bit inadequate.
Certainly this is not merely about money--personal money--as most private equity firms and hedge funds provide ample reward, and out of the site of the salivating jaws of congressmen and those with inclinations toward envy or conspiracy. (And we all know that type, who insist that every lawyer, politician, teacher, cop, wealthy person, or anyone remotely better off, more productive, or happy is part of a vast conspiratorial force that bends corners to achieve ends that will ultimately lead to... well, goodness knows what).
The problem-and there is one-is that this was a deal that need not be made, resulting in short term gain and the type of close government scrutiny that will inevitably put the kibosh on taking advantage of that new public status. Every now and again moneyed types on the Upper East Coast manage to forget that power in the form of your local Washington Congressman can beat the dickens out of your wad (of cash).
And Friday it came, with Dems lining up to sock it to firms by converting carried interest taxed as capital gains (15%) into income taxed at rates (35%) beneficial not to government coffers necessarily, but to political campaigns.
Despite this, Schwarzman has spent a more than a prudent amount of time doing a happy dance with a bullseye mask on his face, and one can hardly believe that Kohlberg, Kravis, Roberts is going to join in this dance.
Then again, these masked men are smart, and perhaps the dance is a safety dance, and during a peak in the market, they are selling? Perhaps we are all thinking expansion, or bigger deals, when they are thinking the hustle is done and it's time for a rest.
Or do they believe the new status and access to extra cash will let them go after ever larger quarry? Maybe putting a bid on the United States itself? Buying all the U.S. debt in the hands of Chinese and others, taking America private, kicking out the citizens, and selling off the states piece by piece to countries looking for additional real estate. Japan salivates, Monaco drools, Mexico dreams of empire.
Really. What is the point, and was it particularly well thought out? It is hard to determine who will benefit the most from this turn of events: Washington, the firm owners, or the new investors. I tend to doubt anyone benefits.
I am betting having that fat goose in the quiet of your corner of Connecticut, and without consideration of third parties, will prove infinitely more rewarding. I don't at all underestimate the likelihood of Washington reaching down Schwarzman's throat to retrieve a perceived golden egg.
Oh Steven, sixty going on six, fatboy with goose on your face. Look what you have done.
He had to eat the whole thing, taking his firm public in a manner both ostentatious and foul, all in a bid, I assume, to accummulate the capital necessary to pursue deals big enough to make his competitors feel a bit inadequate.
Certainly this is not merely about money--personal money--as most private equity firms and hedge funds provide ample reward, and out of the site of the salivating jaws of congressmen and those with inclinations toward envy or conspiracy. (And we all know that type, who insist that every lawyer, politician, teacher, cop, wealthy person, or anyone remotely better off, more productive, or happy is part of a vast conspiratorial force that bends corners to achieve ends that will ultimately lead to... well, goodness knows what).
The problem-and there is one-is that this was a deal that need not be made, resulting in short term gain and the type of close government scrutiny that will inevitably put the kibosh on taking advantage of that new public status. Every now and again moneyed types on the Upper East Coast manage to forget that power in the form of your local Washington Congressman can beat the dickens out of your wad (of cash).
And Friday it came, with Dems lining up to sock it to firms by converting carried interest taxed as capital gains (15%) into income taxed at rates (35%) beneficial not to government coffers necessarily, but to political campaigns.
Despite this, Schwarzman has spent a more than a prudent amount of time doing a happy dance with a bullseye mask on his face, and one can hardly believe that Kohlberg, Kravis, Roberts is going to join in this dance.
Then again, these masked men are smart, and perhaps the dance is a safety dance, and during a peak in the market, they are selling? Perhaps we are all thinking expansion, or bigger deals, when they are thinking the hustle is done and it's time for a rest.
Or do they believe the new status and access to extra cash will let them go after ever larger quarry? Maybe putting a bid on the United States itself? Buying all the U.S. debt in the hands of Chinese and others, taking America private, kicking out the citizens, and selling off the states piece by piece to countries looking for additional real estate. Japan salivates, Monaco drools, Mexico dreams of empire.
Really. What is the point, and was it particularly well thought out? It is hard to determine who will benefit the most from this turn of events: Washington, the firm owners, or the new investors. I tend to doubt anyone benefits.
I am betting having that fat goose in the quiet of your corner of Connecticut, and without consideration of third parties, will prove infinitely more rewarding. I don't at all underestimate the likelihood of Washington reaching down Schwarzman's throat to retrieve a perceived golden egg.
Oh Steven, sixty going on six, fatboy with goose on your face. Look what you have done.
Sunday, June 3, 2007
Kick to Curb, Private Equity Style
I was sprawled out relaxing and reached for Friday's Wall Street Journal. On page C3 was an article on Blackstone Group's soon spewing of Orbitz back into the public markets after less than a year.
It hopes to "raize" up to $750 million, and I suppose they will spin out the remaining portions of Travelport, the parent company, in due time and at maximum reward. After all, they have $4.3 billion to recoup, which means they probably have more like $6 billion they would like to recoup.
But reading on, we find that Orbitz has a "history of operating losses and said it would continue to incur significant sales and marketing expenses."
So here we have Blackstone offloading a company they took over, after a brief period, and without furthering the company's prospects at all. On top of that, according to the Journal, Orbitz will not receive any of the proceeds once tossed back into the public world.
Seeing a problem here? Cause I really see a problem here. And in the same paper we read of the $17.6 billion buyout of Freescale Semiconductor holdings, and how the private equity firms who now control it (including Blackstone) must figure out a way to balance debt payments they loaded on the company with the company's actual business prospects and cash flow.
In reporting the news, it is not necessarily the Wall Street Journal's task to comment on the rightness of any of this. Though we imagine someone should have eyebrows appropriately raised to high heaven.
It hopes to "raize" up to $750 million, and I suppose they will spin out the remaining portions of Travelport, the parent company, in due time and at maximum reward. After all, they have $4.3 billion to recoup, which means they probably have more like $6 billion they would like to recoup.
But reading on, we find that Orbitz has a "history of operating losses and said it would continue to incur significant sales and marketing expenses."
So here we have Blackstone offloading a company they took over, after a brief period, and without furthering the company's prospects at all. On top of that, according to the Journal, Orbitz will not receive any of the proceeds once tossed back into the public world.
Seeing a problem here? Cause I really see a problem here. And in the same paper we read of the $17.6 billion buyout of Freescale Semiconductor holdings, and how the private equity firms who now control it (including Blackstone) must figure out a way to balance debt payments they loaded on the company with the company's actual business prospects and cash flow.
In reporting the news, it is not necessarily the Wall Street Journal's task to comment on the rightness of any of this. Though we imagine someone should have eyebrows appropriately raised to high heaven.
Shaking Wendy's
Let's chat about the Wall Street Journal for a moment. Monday's paper (4/30)--under the guise of financial insight--takes a look at Wendy's International, and how activist investors are once again trying to massage the stock upwards. This process is all sinister touch rather than loving care.
The problem with many of these activists, and hedge fund/private equity activists in particular, is that they are not always concerned about the long term viability of the business, but rather, a short term burst in the stock, or a method by which they can take control of the company, manipulate the balance sheet a bit and cash out, leaving the average bloke with not much more than what he had, perhaps a bit more efficient, with the efficiences going to pay off greater debt.
And it pains me to see Wendy's being mishandled in such a manner. Fundamentally it has a good product, and one I have been consuming for years. Never have spicy chicken sandwiches deserved such a precarious future.
The article mentions an investor who in 2005 built up a large enough position to push the company to sell off it's Canadian donut unit. That individual, founder of Pershing Square Capital, walked away with a 70% increase in the stock's price.
And yet here we are again, with people agitating for Wendy's to do something. Too often doing something financial (or something that causes immediate financial readjustments) is valued above doing something that actually creates long term benefit.
This time it's suggested that maybe Nelson Peltz, owner of Triarc, owner of Arby's, might have his hands around Wendy's, feigning a loving embrace.
One might think the Journal, or the commentary they allow in their paper, would be more suspect, or circumspect, about whether selling Wendy's to Arby's is actually good for Wendy's, or whether the immediate run up right now due to buyout speculation might ultimately mean ten years of failure or mediocre returns once sold.
The fact that the stock rose some 70% (according to the article) from April 2005 to late 2006 in the first activist moment, and is now still assumed to be ailing, with the original activist long gone, is rather telling. Nobody seems willing to let management focus on actually running the business.
Granted, management can do both, working on the actual product while seeking efficiences in its structure that reward shareholders. One certainly imagines that they can bite burger and sip shake in the same breath.
The bigger issue here is the reporting, the analysis. The idea of a sale to Triarc would surely--as it has been doing--loft the share price. But a sale to Triarc does not necessarily solve any problems in the fundamental business. Indeed if we are to recommend Triarc, the burger universe would have to have begun in September 2006 so as to remain oblivious to Triarc's mediorce performance in the preceding years.
Triarc can certainly bid for Wendy's and raise the share price, making nice returns for stockholders, but will the company's actual business be any better? Perhaps we should find Bill Ackman at Pershing. Maybe he has some answers, but I doubt it.
Our stock market is peaking, and it might be nice to have a monumental correction, if only to put the breaks on those who like to take companies into their own hands and for their own dark pleasure.
The problem with many of these activists, and hedge fund/private equity activists in particular, is that they are not always concerned about the long term viability of the business, but rather, a short term burst in the stock, or a method by which they can take control of the company, manipulate the balance sheet a bit and cash out, leaving the average bloke with not much more than what he had, perhaps a bit more efficient, with the efficiences going to pay off greater debt.
And it pains me to see Wendy's being mishandled in such a manner. Fundamentally it has a good product, and one I have been consuming for years. Never have spicy chicken sandwiches deserved such a precarious future.
The article mentions an investor who in 2005 built up a large enough position to push the company to sell off it's Canadian donut unit. That individual, founder of Pershing Square Capital, walked away with a 70% increase in the stock's price.
And yet here we are again, with people agitating for Wendy's to do something. Too often doing something financial (or something that causes immediate financial readjustments) is valued above doing something that actually creates long term benefit.
This time it's suggested that maybe Nelson Peltz, owner of Triarc, owner of Arby's, might have his hands around Wendy's, feigning a loving embrace.
One might think the Journal, or the commentary they allow in their paper, would be more suspect, or circumspect, about whether selling Wendy's to Arby's is actually good for Wendy's, or whether the immediate run up right now due to buyout speculation might ultimately mean ten years of failure or mediocre returns once sold.
The fact that the stock rose some 70% (according to the article) from April 2005 to late 2006 in the first activist moment, and is now still assumed to be ailing, with the original activist long gone, is rather telling. Nobody seems willing to let management focus on actually running the business.
Granted, management can do both, working on the actual product while seeking efficiences in its structure that reward shareholders. One certainly imagines that they can bite burger and sip shake in the same breath.
The bigger issue here is the reporting, the analysis. The idea of a sale to Triarc would surely--as it has been doing--loft the share price. But a sale to Triarc does not necessarily solve any problems in the fundamental business. Indeed if we are to recommend Triarc, the burger universe would have to have begun in September 2006 so as to remain oblivious to Triarc's mediorce performance in the preceding years.
Triarc can certainly bid for Wendy's and raise the share price, making nice returns for stockholders, but will the company's actual business be any better? Perhaps we should find Bill Ackman at Pershing. Maybe he has some answers, but I doubt it.
Our stock market is peaking, and it might be nice to have a monumental correction, if only to put the breaks on those who like to take companies into their own hands and for their own dark pleasure.
Monday, April 2, 2007
KKR
I admire a firm like Kohlberg, Kravis, Roberts, but probably not in an entirely practical way. When I look at private equity firms, and to a greater extent, hedge funds, it's like watching Errol Flynn in Robin Hood, one of my favorite films. You know how it goes: a bunch of guys, loyal only to each other, hanging out in the forest making mayhem, stealing the hearts of adoring women and the money of others, eating huge turkey and pig legs staight off the roasting fire. KKR is kind of the financial version of male freedom. They use dollars and debt instead of bows and arrows to acomplish the task. It's a battle, with money and financial ingenuity as the weapons.
Private money firms are the last vestiges of activity (along with Islamic clericdom) that go largely untouched by the process of feminization. And while a good many things need that woman's touch, such soothing hands rather squeeze the world of all its vitality and spirit. The male sense of adventure and conquest gets reduced--especially in the corporate world-- to joining some team in charge of employee moral and other masturbatory fruitlessnesses.
(I recall my boss asking me to join a team in charge of "fun", a role I declined, but which ultimately resulted in some not quite tasty Mexican food brought upstairs from "Prison Chef", the guy who runs the company cafe and who seems inches and a day out of prison).
It's grand to see KKR tearing it up, and for so long, like a beast roaming the financial jungle, consuming as it wills, and daring other carnivores to snatch its meal.
There is, however, a moment where we must take a pause and set the turkey leg down to ask what is going on here in the forest and at Robin's table. While I enjoy seeing private businesses doing their thing well, I do not necessarily enjoy seeing massive companies taken private, then sucked to the bone and spit back out into the public market. I am not entirely keen on financial transactions for the sake of transactions.
When I look at KKR and it's $29 billion dollar bid for First Data revealed today, or its ongoing attempt to rope in Texas energy company TXU, I wonder what the ultimate goal is. Or maybe, what the secondary goal is because ultimately deals are done for money, and I understand that. But after that, is there some vision being applied in these acquistions that will make it all worthwhile for the employees and customers of these huge companies? It's always an eyebrow raiser when such firms begin to cash out of the companies by borrowing funds to pay out huge dividends, basically using the companies as pack horses or whores, loading them up with debt and junk before setting them free back into the markets, all spent and walking funny.
There ought to be a benefit all the way around. The companies should be made more efficient, stronger, healthier, more financially flexible, while also rewarding all investors and stake holders (which I limit to investors and employees, and extend to the community if the company is drawing benefits from that community in some fashion).
If it turns out that the KKR's of the world are merely enriching themselves at the expense of formerly public companies and their employees, it is only a matter of time before various governments around the world begin to pass laws prohibiting the free movement and activity of private money. That would be the true shame. Then all adventure would be gone from the world. No battles to be fought, nothing to be discovered and no fortunes to be had.
Private money firms are the last vestiges of activity (along with Islamic clericdom) that go largely untouched by the process of feminization. And while a good many things need that woman's touch, such soothing hands rather squeeze the world of all its vitality and spirit. The male sense of adventure and conquest gets reduced--especially in the corporate world-- to joining some team in charge of employee moral and other masturbatory fruitlessnesses.
(I recall my boss asking me to join a team in charge of "fun", a role I declined, but which ultimately resulted in some not quite tasty Mexican food brought upstairs from "Prison Chef", the guy who runs the company cafe and who seems inches and a day out of prison).
It's grand to see KKR tearing it up, and for so long, like a beast roaming the financial jungle, consuming as it wills, and daring other carnivores to snatch its meal.
There is, however, a moment where we must take a pause and set the turkey leg down to ask what is going on here in the forest and at Robin's table. While I enjoy seeing private businesses doing their thing well, I do not necessarily enjoy seeing massive companies taken private, then sucked to the bone and spit back out into the public market. I am not entirely keen on financial transactions for the sake of transactions.
When I look at KKR and it's $29 billion dollar bid for First Data revealed today, or its ongoing attempt to rope in Texas energy company TXU, I wonder what the ultimate goal is. Or maybe, what the secondary goal is because ultimately deals are done for money, and I understand that. But after that, is there some vision being applied in these acquistions that will make it all worthwhile for the employees and customers of these huge companies? It's always an eyebrow raiser when such firms begin to cash out of the companies by borrowing funds to pay out huge dividends, basically using the companies as pack horses or whores, loading them up with debt and junk before setting them free back into the markets, all spent and walking funny.
There ought to be a benefit all the way around. The companies should be made more efficient, stronger, healthier, more financially flexible, while also rewarding all investors and stake holders (which I limit to investors and employees, and extend to the community if the company is drawing benefits from that community in some fashion).
If it turns out that the KKR's of the world are merely enriching themselves at the expense of formerly public companies and their employees, it is only a matter of time before various governments around the world begin to pass laws prohibiting the free movement and activity of private money. That would be the true shame. Then all adventure would be gone from the world. No battles to be fought, nothing to be discovered and no fortunes to be had.
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