Bank of Kuwait Clients Wait Not Too Long

It's rather amazing that it's a Middle Eastern financial firm that has chosen to make its clients whole after they were exposed through the bank to ponzi-master Bernard Madoff's criminal money vacuum. While other banks and firms have been a bit mum, denying and in denial, waiting for enough clarity that would enable them to avoid any culpability, a few others are seeking to get in front of the problem.

People close to NBK, one of the Arab world’s largest financial institutions, saw the measure as a way to strengthen its relationships with its clients. The NBK move puts pressure on other banks and fund managers whose clients lost money in Mr Madoff’s alleged fraud. “Other banks should similarly acknowledge responsibility for investing their clients’ monies in Madoff’s fraudulent enterprise, and with the threat of reputational losses and litigation, we would not be surprised to see other banks doing right by their clients,” said Mark Gross, of the US-based Pomerantz law firm, which represents European and US clients who lost money to Mr Madoff’s operation.

(F.T.-UK)

Banco Santander, the Spanish firm, also made limited moves in the direction of aiding those have suffered loss, though in a half hearted manner, offering its own stock to cover part of the losses.

In a time when too many are still playing financial games during great crisis, the National Bank of Kuwait offers a prime example of how certain companies should be behaving. While we believe, and as the article suggests, that it was an easy decision for them given the small amount of client losses, it nevertheless should be the proper example for those hoping to be the bank of choice when it comes to wealth management.

One needs to be able to stand behind, even guarantee, one's own expertise when one has guided others toward fraud.  That's why people give you the money in the first place.

Putin Losing Faith in Dollar (frown), But Shuns Protectionism (smile).

Putin, ostensibly not the leader of Russia, but still pretty much the leader of Russia, waxed both reassuring and ominous (for those of us sitting here in the United States of American Excellence). While speaking at the World Economic Forum in Davos, Vladimir touched on the importance of nations not resorting to military buildup to stimulate their economies, or relying on state control. Ah, but with the soothing wisdom out of the mouth of the mouth of Russia, along comes something a bit unsettling.

The BBC reports him as saying:

"Excessive dependence on what is essentially the only reserve currency is dangerous for the world economy, therefore it would be expedient to encourage an objective process for the emergence of several strong regional currencies in the future," he said.

Sometimes, when imaginging ourselves the leaders of Asia, the Middle East, or Europe, we think the very same thought. Why should the United States' dollar be the primary reserve currency? Of course there are very good reasons, number one being our general ability to bring stability and tons of good stuff (Ipods, etc) to the world.  Still, we are not surprised that foreigners might tremble a bit over the full faith and credit of the American way, and especially after recent financial shenanigans here.

Russia is not the first, and won't be the last, to push the idea of a multi-polar reserve currency world. We hope the United States is ready for this when it sneaks up on us.

Italians Pay Billions of Nothing For Chrysler, China Goes Short

In their continued attempts to get Federal support without actually making cold, concrete changes to the way they do business, Chrysler has struck up a most extraordinary deal with the Italians, owners of Fiat. Chrysler decided to "sell" itself to Fiat, giving that company a 35% ownership stake. When reading the headlines, we immediately thought, "Why how stupid of the Italians to think they could do what the Germans clearly could not do, and how smart of the firm--Cerberus--to find some exceptionally foolish people to carry their coffins."

On close inspection, the Italians were not so stupid, essentially signing on to a cashless deal.

The speed and terms of the Chrysler-Fiat talks illustrated the emergency facing Chrysler, which was willing to give away more than a third of the company, essentially free. Yet the deal offers assurance to the Treasury Department and to the auto industry that Chrysler is attractive enough to find a partner.

(N.Y.Times)

How this possibly convinces the Treasury that Chrysler can find a partner remains a mystery. It is a like a woman who walks down the street naked, offering herself to anyone at all. She is naked, and free, and of course there will be takers. But will there be commitment?

What we have here is the Italians having a little fun, with nothing to lose, aside from a little dignity.

*

In equally disturbing news, the Wall Street Journal reported (Tuesday) that China adjusted the mix of U.S. Treasuries that it holds. They are migrating away from long term holdings and increasing the short term debt in their possession. Their holdings near $700 billion.

The Journal wonders why, suggesting that the Chinese confidence in the U.S. financial system is beginning to slack a wee bit. Or, could it be that U.S. rates have nowhere to go but up, always bad for bonds?

Regardless, one more little bit of news that leaves us concerned.

Obama, the President, Speaks

It was an interesting and emotional day, anchored by Obama's speech to the nation. On first listen it seemed merely okay, and somewhat somber, but in reading the transcript, it resonates more deeply. Here is a portion, taken from a transcript in the New York Times:

So let us mark this day in remembrance of who we are and how far we have traveled.


In the year of America's birth, in the coldest of months, a small band of patriots huddled by nine campfires on the shores of an icy river.

The capital was abandoned. The enemy was advancing. The snow was stained with blood.

At a moment when the outcome of our revolution was most in doubt, the father of our nation ordered these words be read to the people:

"Let it be told to the future world that in the depth of winter, when nothing but hope and virtue could survive, that the city and the country, alarmed at one common danger, came forth to meet it."

America, in the face of our common dangers, in this winter of our hardship, let us remember these timeless words; with hope and virtue, let us brave once more the icy currents, and endure what storms may come; let it be said by our children's children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God's grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations.

Thank you. God bless you.

Russians Struggle and Wait

There are people who hope the new president fails, and who are looking for an opportunity to have their biases and false theories proven correct. I recall a friend who took glee in the idea of President Obama turning the nation into a version of France, and socialist, after four years. People make these statements while giving Bush, a man of principled ill execution but true sincerity, a free pass for the state in which he has left the nation. One could make the argument that Bush took us to socialism, and over the years, when the government pulls out of the private sector, Obama will return us to the way things should be, with our without his "magic" powers.

Meanwhile, around the world, the chaotic toll of our flawed choices continues.  Though Russia continues to slip, let us hope that the interiews in this BBC piece accurately reflect a broad consensus of Russians.

Konstantin says that in the worst-case scenario, he will be able to provide for his family for a year, as they have a flat and "all the primal needs are fulfilled - without foreign trips and big spending".

Speaking of the main lessons he has learned during the crisis, Konstantin says that when things get back to normal, he will try to put aside enough money to tide him over for two years, not the three to six months he thought was enough before.

It is good to know that Russians see this as a situation to learn from and are not inclined to reject capitalism in the face of current troubles. The idea of things "getting back to normal" is comforting from the mouth of a Russian and is a sign that western ways have been internalized.
Seems as though Russians can still recognize capitalism, even if certain disgruntled Americans have lost the ability to differentiate between truth and a lie, or capitalism and socialism.

2009 Predictions

It may have made more sense to come out with our 2009 predictions at the start of the year, but we are in sluggish mood. However late is better than soon if clarity is added to the mix, and we have had some time to dip our feet into the year's waters and confirm that the economic situation still leaves those waters rather hot, if not scalding.

We made predictions with the idea of freewill in mind, and that, the future depends on man choosing between better and worse options. In essence, choosing the bad option makes the prediction true, but such choices are not written in stone. We can, in kind of Biblical fashion, "turn from our wicked ways" and create an alternate reality.

Of course human nature being as is, we tend to doubt that the better choices are the likely ones.

Without much ado, we predict:

• Russia will implode: Given that their economy was built atop a pit of oil, they will surely get burned so long as barrel prices remain down in the $50 and under range. This should create a lot of turmoil in Russia and former satellites, some of it leaning toward the violent.
• Oil prices should remain below $50 a barrel: This, we assume, will happen so long as the world's economies continue to slow. Tensions between the Middle East and the West will grow.
• Interest rates will rise: With no place to go but up, this is quite a cheap prediction, akin to predicting the rise of the sun. However, wethinks the world will grow less and less eager to finance American spending via the purchase of our bonds without adequate reward in interest.
• Unemployment will rise to 10% by the end of 2009, with growing anger in a population that still won't be quite angry enough to understand the totality of why things have gone as they have.
• Latin America will see an explosion of falling markets and criminal activity in and out of those markets. Mainly because there is so much talk now of those nations having skirted the current problems and that strikes us as highly unlikely; if Iceland can fall, most surely South America can.
• The dollar will weaken against the Euro and by the end of the year the Middle East will have in place it's program to convert to a joint currency, to take effect in 2010.
• Wall Street will reconstitute itself with new firms, and old.

These are not bold predictions, but rather likely ones. Hence no end of the world, no Jesus in the skies, no specific declarations about a coming depression. A lot depends upon how Obama handles the set of choices placed in front of him. Balancing the financial situation here in the United States should prove difficult, but moving in that direction could be the basis of future stability. We bet on nothing.

Michigan Bank Eats Tarp, Tries Not to Die

There seems to be some surprise that the money from the U.S. government's TARP (Troubled Asset Relief Program) fund has not been used by banks to lend to customers.  The New York Times has a story about a Michigan bank that remains reluctant to lend out the $72 million dollars it received.

But Independent, hard put to find good borrowers in a suffering economy, and fearful of making the kind of mistakes that got it into trouble in the first place, is not doing much lending these days. So far it is using all of the government’s money to shore up its own weak finances by repaying short-term loans from the Federal Reserve. “It is like if you are in an airplane and the oxygen mask comes down,” said Stefanie Kimball, the bank’s chief lending officer. “First thing you do is put your own mask on, stabilize yourself.”

(N.Y.T.)

That banks would seek to save their own balance sheets should have been obvious from the very beginning. Further, had the Feds actually stuck to removing "troubled assets" from the banks, then things might be further along. The whole focus on trying to get banks to lend, or get people to seek loans for housing or other items, is absurd. The necessary result from our gross inflation of everything is to let values fall, let people and businesses retrench, and let a fundamental return to sound financial practice take place.

The economy, in essence, needs to reset at a lower level. Having stabilized the largest banks, and preferably by buying out their junk assets, you then leave the bulk of the nation to return to what their wallets can truly afford.

But no. People are trying to keep the balloon lofted in the air, imaginging that banks should, can, or will continue lending in an environment where lending got them into trouble in the first place.

Put another way, and foolishly:

In Congress, anger over the management of the TARP program runs deep. Many lawmakers say that there is little oversight, and that they can see no evidence that the taxpayer money is making its way from the coffers of banks to businesses and consumers.

TARP money should do nothing more than keep our financial system from collapsing. It should not seek to prop up business, or reverse the fortunes of consumers who made any number of deliberate irrational choices. The quicker those in power realize this, the better off we will be.

Even now we have Bank of America going back to the government for help to complete its purchase of Merrill Lynch in a deal that was rather dubious to begin with. Presumably Bank of America should be out there too, vigorously lending huge amounts of money?

Another element of the deal could involve a loss-sharing agreement, typically reserved for deeply troubled institutions, under which the government would guarantee billions of dollars of risky assets, said the people briefed on the talks. That provision would be similar to the one Citigroup struck with regulators in late November, when its stock collapsed.
It was not that long ago that Bank of America was viewed as a pillar in the banking sector. But in recent months, its stock has plummeted as investors worried it has acquired companies with their own set of financial baggage.

(N.Y.T.)

The fact that Republicans are dithering over the confirmation of Tim Geithner as Treasury secretary only confirms the lack of clear thinking in the process.

GM and Ford's Wet Electric Dream

Standing on the edge of the abyss ought to lead to a certain heightened clarity of action, but G.M and Chrysler remain stuck in fantasy mode, offering us the electric car as solution to their (and our) current woes.

General Motors Corp. and Chrysler LLC, kept in business by $17.4 billion in emergency loans, are showing off electric vehicles at the Detroit auto show that stretch the limits of current technology.

(Bloomberg)

While such technological ambitions are worthy, given the right time and place and conditions, we nevertheless remain in doubt as to their optimistic assumption that Americans will suddenly flock to these vehicles. Perhaps they might, but this display of engineering plumage does nothing but obscure the immediate problems of cost, compensation, and size. What the companies seem to be doing is the tossing of playthings into our collective crib, hoping we don't notice that mom and dad have no food for us, and are crack parents.

Honda also displays their skepticism:

"...the world leader in today’s hybrid- powered vehicles, Toyota, has said it’s not sure how many consumers in the U.S. would actually buy a pure electric car. Its plans for electric vehicles are much more modest than GM’s or Chrysler’s."

Some modesty on the part of American automakers is in order.

Bank of America and Citibank: Land of Confusion

We can't make heads or tales. Bank of America buys Merrill Lynch, thus reaffirming the "universal bank" concept. Citibank is considering ridding itself, in part, of its Smith Barney unit in a move that may prove that the concept of the universal bank is dead.

One can read the same paper, and see both sides of that coin facing up.

Of course these broad themes usually have no merit. Statements like "Wall Street is dead" or "Hedge funds are dead" is simply analysis by people who refuse to admit that there is something around the corner that they can't see; that "something" will in all likelihood resemble the street on which they are now walking, give or take a few characteristics.

Stocks Begin 2009 Optimistically Confused

Well here we are in a new year, 2009, and as if to signal that all will be well, the stock market spent Friday rising. Along with that rise we get the spontaneously materializing commentary that things are not so bad, that a corner has been turned, a low point reached.

The upward movement was largely on low volume, so it remains to be seen if the hordes and huns returning to work on Monday will follow the lead of Friday's euphoria by ignoring all relevant economic data. At year's start, we should always expect a bit of portfolio management, with those funds who are expected to buy, or adjust portfolios, to do just that. But we should also expect a bit of discrection.

That certainly was not reflected in the market's rise at the same time that the Institute for Supply Management was telling us that their index fell to 32.4, a 28 year low, reflecting slow going for manufacturing.

"The decline covers the full breadth of manufacturing industries, as none of the
industries in the sector report growth at this time," said Norbert Ore, chairman
of the Institute for Supply Management. U.S. stocks, meanwhile, climbed in
2009's first day of trading, with the Dow Jones Industrial Average up triple
digits. See full story. The institute said that new orders now have contracted
for 13 consecutive months, and are at the lowest level on record going back to
January 1948. Manufacturing payrolls also shrank as the employment index fell to
29.9% from November's 34.2%.

(Marketwatch)

This is not always a reality based market, given that the participants themselves are not necessarily reality based. We affirm our one true fact to carry you forward through the year: the markets are not always rational or efficient. They are merely a reflection of the people, who themselves can be motivated by fear, greed, stupidity, or lack of due diligence. So when all are saying "peace, peace" then be prepared for sudden destruction. Likewise when all have concluded that they have pinpointed the time and place for disaster, be wary of the profits of doom.