The Year 2008: While Atlas Shrugged, Buffett Bought

(Buffetologist.com) In almost every conversation I have these days, the topic of Ayn Rand’s epic novel, Atlas Shrugged, seems to rear its head. I happened to dust it off of my bookshelf early this past summer, and what a time to re-read it, as the parallels to what happened in 2008’s market panic were stunningly ironic.

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Cash at 18-Year High Makes Stocks a Buy at Leuthold

(Bloomberg.com) There’s more cash available to buy shares than at any time in almost two decades, a sign to some of the most successful investors that equities will rebound after the worst year for U.S. stocks since the Great Depression.

The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg.

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Merrill’s Rosenberg Inspired by Farrell in Foreseeing Crash

A little about David Rosenberg of Merrill Lynch. One of the few to get 2008 right.

(Bloomberg) David Rosenberg drew on inspiration from market-rules theorist Robert Farrell and asset-bubble historian Charles Kindleberger to predict the economy’s demise this year.

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They Told Me That Madoff Never Lost Money

When things look too good to be true, they usually are. Ben Stein was dead on with his Madoff analysis.

(NY Times/Ben Stein Column) ABOUT two years ago, a little delegation from a major investment bank arrived at my home in Beverly Hills. These nice young people were from the bank’s “wealth management division.” I told them straight away that I didn’t have anywhere near enough wealth to make their trip worth their time, but they smilingly insisted that we could help each other.


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2008 Lookback: Surprise, Surprise

(MarketBeat Blog/Wall Street Journal) It is often said that markets hate uncertainty, but in 2008, one of the few certainties was just that — uncertainty. Even investors who believed they had witnessed every strange trick and bizarre outcome found their head spinning after some of what occurred in 2008. “In 28 years in the business, I’ve never seen a year quite like this,” said Don Galante, senior vice president at MF Global. Here, then, is a list of the most surprising moments of the year, the jaw-dropping events that left many speechless. Feel free to include your own overlooked moments in the comments.

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Doug Kass's 20 Surprises Of 2009

(Clusterstock.com) Seabreeze partner Doug Kass was kind enough to send us his 20 surprise predictions for 2009. As Doug explains, these predictions are outliers, not events that have a high likelihood of occuring (if they did, they wouldn't be surprises).

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Christopher Cox Comes Out Swinging; Slams Bernanke And Paulson

Now Cox comes out and says Bernanke and Paulson pressured him into the short-selling ban. Interesting article.

(Clusterstock.com) Wow, guess Hank Paulson and Ben Bernanke won't be spending Christmas at Christopher Cox's party tonight? The outgoing SEC chief, whose agency was under extreme fire since well before the Bernie Madoff affair, used an interview with the Washington Post to defend his reputation and lay some blame on the other guys. It's not subtle:

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CRE Developers: We Need a Bailout, Too

(Housingwire.com) And so the bailout net continues to spread ever wider: not long after news of a bailout for the U.S. auto industry last week, commercial property developers are now making their case for federal dollars, according to a Wall Street Journal report on Monday.


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Last Minute Christmas Gifts

Here are some book recommendations for the value investor...all worth reading

Go see the list here

2008 Lookback: Best Calls of the Year

(Wall Street Journal-MarketBeat Blog) In a year when major stock indexes, real estate, hedge funds, oil, grains, emerging markets, dollar/yen, long/short hedging strategies (thanks to the short-selling ban), high-yield bonds, bank loans, diversification, and the Super Bowl Indicator failed investors, there were precious few “calls” that worked out well.


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Investment Strategy by Jeffrey Saut 12/22/08

(RaymondJames.com) Winter officially began yesterday morning with the arrival of the Winter Solstice. Recall that solstice means “standing-still sun;” and on December 21st at 7:04 a.m. (EST) the sun “stood still” over the southern Pacific Ocean (Tropic of Capricorn). At that time the sun’s rays were directly overhead, giving the impression that the sun was truly standing still. This phenomenon occurs twice a year (winter solstice and summer solstice), for as Earth orbits the Sun the north-south position of the Sun changes due to the Earth’s changing “tilt.” The dates of maximum tilt to the Earth’s equator correspond to the winter and summer solstice, while the dates of zero tilt are termed the vernal and autumnal equinox. In these latitudes most people “frame” the winter solstice as the shortest day of the year. We, however, have always liked the French version, which avers that it is rather the longest night of the year. In the northern “climes” this will mean roughly nine hours of sunlight, and 15 hours of darkness, and that light-to-dark ratio tends to produce “Seasonally Affected Disorder Syndrome” (or SADS) in certain folks.*

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Microsoft, Cheap Enough To Buy Itself ?

(Ritholtz.com/The Big Picture)

Views the video from Barrons Online about Microsoft

Twelve Days of Christmas

(Wall Street Journal/Deal Journal Blog)

2008 TWELVE DAYS OF X-MAS

My true love sent to me:
12 percent unemployment
11 bankers bankrupt
10 lawyers lying
9 zillion pink slips
8 CEOs crying
7 hedge funds sinking
6 bonds defaulting
5 TARPs
4 Fannie Freddie Fuld
3 auto failures
2 big to fail
and a bailout from the Treasury.

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Is the Medicine Worse Than the Illness?

(Wall Street Journal) May require registration

(James Grant) It is a sorry place at which we Americans find ourselves this none-too-festive holiday season. The biggest names on Wall Street have gone to their rewards or into partnership with the U.S. Treasury. Foreigners stare wide-eyed from across the waters. A $50 billion Ponzi scheme (baited with, of all things in this age of excess, the promise of low, spuriously predictable returns)? Interest rates over which tiny Japanese rates fairly tower? Regulatory policy seemingly set by a weather vane? A Federal Reserve that can't make up its mind: Is it in the business of central banking or of central planning? And to think -- our disappointed foreign friends mutter -- all of these enormities taking place under a Republican administration.

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More on the 2001 Barron's Madoff Story

(portfolio.com) In the spring of 2001, a Barron's reporter was among the first to publicly question Bernie Madoff's record. She tells Portfolio.com how she did it.

Read the article here

November 7, 2005: World's Largest Hedge Fund is a Fraud

(Ritholtz.com) What follows is the Harry Markopolos complaint to the SEC, circa November 2005, identifying 29 red flags that Madoff was a fraud. This highly detailed complaint was filed regarding the apparent Fraud at Madoff Securities.

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FOX Business Gives Self Lump Of Coal With Cramer Grinch Card

(alleyinsider.com) We continue to be bewildered by FOX Business's strategy.

First, there is the apparent conceit that there is a vast audience of casual business viewers who don't want to watch the geeky Bloomberg or ESPN-like CNBC. By captivating this "mid-market" audience, the theory goes, FOX will grab a toehold and then shove its competitors into the small high end of the market, the way it did in general news. FOX is embracing this strategy because it worked for FOX News. But the same "mid-market" that cares about murders, car crashes, and fair and balanced politics couldn't care less about business.

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Madoff's Top Salesman Still Partying

(Clusterstock.com) Walter Noel, the Greenwich based patriarch who runs the "fund-of-funds" known as Fairfield Greenwich Group, isn't letting the $7.5 billion of his clients' money that Bernie vaporized get him down. In fact, he's still showing up at black-tie parties, according the New York society blog Guest of a Guest:

It’s unclear yet where Noel stands with respect to repercussions both legally and financially, but socially he seems to be bouncing back at least for the moment. A tipster writes:

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Get Ready to Scrimp and Save, Says Economist Shilling

(yahoo finance/tech ticker) Hoping for a quick return to the consumer spending habits of past quarter-century, when "financial discipline" meant remembering to withdraw enough home equity to get a new SUV every two years? Forget about it, says Gary Shilling.

We are indeed going to return to the past, but it's going to be the enforced frugality of the 1930s and 1940s, not the debt-fueled orgy of the past couple of decades.

Go here to watch the video and read the rest of the story

Even in Losing, Warren Buffett Wins

(NY Times/Dealbook Blog) Electricite de France has beaten MidAmerican Energy Holdings for a deal with Constellation Energy.

Even so, says Breakingviews, Warren E. Buffett, who controls MidAmerican through Berkshire Hathaway, will more than double the $1 billion he has already invested inside a year — not bad for a broken deal.

MidAmerican swooped in last September when Constellation ran into financial trouble in the heat of the credit crisis. Mr. Buffett’s team offered $26.50 a share — for a total value of $4.7 billion. Deals in the highly regulated sector take months to close. But this one came with a potentially life-saving, immediate infusion of $1 billion in the form of preferred stock.

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On Wall Street, Bonuses, Not Profits, Were Real

(NY Times/Dealbook Blog) For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million.

The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill’s mortgage business.

Mr. Kim’s colleagues, not only at his level, but far down the ranks, also pocketed large paychecks. In all, Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.

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Busting Bernie Madoff: One Man's 10 Year Crusade

(Clusterstock.com) The Wall Street Journal has published a detailed account of private fraud investigator Harry Markopolos's efforts over the past 10 years to persuade the SEC that Bernie Madoff was running a gigantic Ponzi scheme (or, at best, was front-running).

Markopolos submitted extensive analysis to the SEC in 2005, which we've embedded below. The SEC did conduct an investigation thereafter, in the course of which Bernie Madoff "mislead" them about the nature of some of his dealings with his primary fund-of-funds promoter Fairfield Greenwich Group.


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Yale Money Mauled: Did David Swensen Screw Up?

(Clusterstock.com) While other money managers scrambled to survive the financial market meltdown, value investor extraordinaire Seth Klarman (MBA ’82), president of The Baupost Group in Boston, cautiously pursued buying opportunities. After sitting patiently on the sidelines with a mountain of cash — 40 to 50 percent of Baupost’s $14 billion–plus in assets — for several years, the firm’s recent investments have cut its cash stash in half. Distress selling, it seems, breeds the kind of bargains Klarman lives for.

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Seth Klarman: Harvard Business School Bulletin

(alumni.hbs.edu) While other money managers scrambled to survive the financial market meltdown, value investor extraordinaire Seth Klarman (MBA ’82), president of The Baupost Group in Boston, cautiously pursued buying opportunities. After sitting patiently on the sidelines with a mountain of cash — 40 to 50 percent of Baupost’s $14 billion–plus in assets — for several years, the firm’s recent investments have cut its cash stash in half. Distress selling, it seems, breeds the kind of bargains Klarman lives for.


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Live, From GE: Immelt Will Be the Show

(Wall Street Journal) ....One change analysts suspect may be coming: a decision to stop offering quarterly earnings forecasts. Mr. Immelt began the practice to highlight GE's consistent earnings. The forecasts built confidence both on Wall Street and on Main Street (individual investors hold 41% of GE shares). A GE spokesman on Monday said only: "Jeff will provide investors with our annual outlook tomorrow."...

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Merrill Lynch Oil Guru Blanch Shifts From Bull to Bear and Back

(Bloomberg) Francisco Blanch, the Merrill Lynch & Co. analyst who called the $147.27 record crude-oil price nearly on the nose, sent markets into a tailspin with his forecast that the next move may be back to $25 a barrel in 2009. Such relief for consumers may be short-lived once the global recession ends, he said.

“If we reignite economic growth to a very fast level, we will have a shortage of energy again,” said the 35-year-old head of global commodity research at Merrill Lynch in London. Oil may rise to $150 in two or three years, said Blanch. World growth will reach 2.2 percent next year and rise to 4.8 percent by 2011, according to the International Monetary Fund.

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Don't Ask, Don't Tell

Barron's had the Madoff hedge fund figured out in 2001. When something looks to good to be true it usually is.

(Barrons.com/May 7, 2001) Bernie Madoff might as well hang that sign on his secretive hedge-fund empire. Even adoring investors can't explain his enviably steady gains.

Read the entire story. May require registration.

Fed Refuses to Disclose Recipients of $2 Trillion

(Bloomberg) The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.


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U.S. Treasury Ready to Prevent Failure of Automakers

Hank...what is next? Newspapers? Retailers? Fast Food Restaurants? Gotta love Capitalism!

(Bloomberg) The Bush administration dropped its opposition to using the $700 billion bank bailout fund to provide financing for U.S. automakers after the Senate yesterday failed to approve emergency loans.

The administration’s willingness to give short-term help to General Motors Corp. and Chrysler LLC eased the concern of at least some investors that the companies will collapse and worsen what is already the longest recession since the early 1980s. Stocks pared their losses.

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I Knew Bernie Madoff Was Cheating--That's Why I Invested with Him

(yahoo/finance--Tech-Ticker) Specifically, we're hearing that the smart money KNEW Bernie had to be cheating, because the returns he was generating were impossibly good. Many Wall Streeters suspected the wrong rigged game, though: They thought it was insider trading, not a Ponzi scheme. And here's the best part: That's why they invested with him.

For years and years I've heard people say that [Bernie's] investment performance was too good to be true. The returns were too steady -- like GE earnings under Welch -- and too high given the supposed strategy.

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U.S. households pay down debts for first time since 1952

(Marketwatch.com) Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down their debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday.

As of Sept. 30, households' total outstanding debt shrank at an annualized rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.

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Whitney: Banks On Life Support Next 18 Months

(CNBC.com) Influential bank analyst Meredith Whitney remains bearish about the economy, and her outlook for the banks that "lubricate the economy" is grim.

"The big banks are going to be on life support for at least 18 months, if not 36 months,"
Oppenheimer's executive director of equity research told CNBC Wednesday morning. "The big banks will not fail, but the big banks will not grow, in my opinion, for at least another two years."

She echoed other analysts who see the funds from the TARP program being used to fill holes, and do nothing to stimulate the economy.

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Pimco’s Bill Gross Regrets Not Buying Treasuries Amid Rally

(Bloomberg) Bill Gross, manager of the world’s biggest bond fund, says he regrets not buying Treasuries in what is shaping up to be the best year for U.S. government debt since 2000.

“If we had our druthers, if we went back 12 months and we had known then what we know now, it would have been all invested in Treasuries,” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview from Newport Beach, California. “The question going forward is ‘Is it the winner over the next 12 to 24 months?’ We don’t think so.”

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Oracles of Doom

(NYMag.com) They always knew the economy would collapse. What do they think will happen next?

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Admit It: You're Worried You Missed The Bottom

(Clusterstock.com) Two weeks ago, everyone agreed: It was a second Great Depression, and the DOW was going to 5,000. Only a fool would step in and buy the S&P 500 at 750, everyone said, because it was obviously going to 600. The economy was headed to hell in a handbasket, Q4 earnings were going to be horrendous, and there was nothing that could be done to stop any of it.

But now, of course, with the S&P 500 up 20% from its low, things look a bit different. Specifically, it looks as though the market might already be looking past ghastly Q4 earnings and hideous unemployment and discounting the eventual recovery. Suddenly, the chatter on CNBC has gotten more positive, and it doesn't seem quite so clear that the DOW is going to 5,000 and the S&P 500 to 600. In fact, it looks as though you might have missed the bottom.

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Treasury Bills Trade at Negative Rates as Haven Demand Surges

(Bloomberg.com) Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

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Why China will recover first

(moneycentral.msn.com) Bill Fleckenstein on why China will recover first.

Recently I traveled to China to deliver a series of speeches. During visits to Beijing, Shanghai and Hangzhou, I was fortunate enough to meet with some people who know a lot about how the country functions. In this week's column, let me share the highlights of what I learned.

I think the most important thing for folks to understand is that China has not suffered the epic credit binge that much of the rest of the world has. China's savings rate is high. Mortgages require sensible down payments. Credit is something that hasn't quite come to China yet (although I understand that credit cards have recently become more available, especially in the big cities).

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Where have all your savings gone?

(Economist.com) FOR American and European savers it has been a lost decade. After two booms and two busts, stockmarkets have earned them nothing, or less, in the past ten years. Low interest rates have made bonds and bank deposits unrewarding too. Were it not for the tax relief they receive, contributors to personal pension plans would have been better off keeping their money under their mattresses. It will be little consolation to Westerners that savers in Japan have known this empty feeling for far longer.

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A Little History on Hedge Funds

From Fortune Magazine (Carol Loomis) in 1966

The Jones Nobody Keeps up With

Insight: Return-free risk

(FT.com) US Treasuries are the investment asset of the year. The less they yield, the more their fans adore them. Then, again, these fearful days, yield seems to have nothing to do with investment calculation. Purported safety is all.

“Super-safe Treasuries”, the papers call these emissions of a government that, this year, will take in $2,500bn but spend $3,500bn. “Toxic assets” is how the same papers characterise orphaned mortgage-backed securities—or, for that matter, secured bank loans, convertible bonds, junk bonds or almost any other kind of debt obligation not bearing the US imprimatur.

“There are no bad bonds, only bad prices,” the traders used to say. They should say it again, only louder. In the spring of 1984, long-dated Treasuries went begging at yields of nearly 14 per cent in the context of an inflation rate of just 4 per cent. Those, too, were fearful times, the recollected horror being the great inflation of the 1970s. Inflation was ineradicable, the bondphobes said. Now a new generation of creditors espouses the opposite proposition. Deflation is baked in the cake, they say.

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4.5% Mortgages: Deja Vu All Over Again

(Clusterstock.com) Stop us if you've heard this one before.

The Treasury is planning to do something or other to get long term fixed mortgage rates down to 4.5% in order to halt the slide in home prices. The idea is that low rates will allow borrowers to afford more expensive homes and bigger mortgages, which will drive up home values.

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Dr. Doom Foresees Much More Pain: So Why Is Roubini's 401(k) All in Stocks?

(yahoo.com/tech-ticker) Nouriel Roubini, economics professor at NYU Stern School and chairman of RGE Monitor, has earned the nickname "Dr. Doom" for his dire predictions about the economy over the last couple of years (most of which have come true).

So it was a shocker when word got out on Wall Street that Roubini was the most bullish guy in the room at a recent dinner he hosted in NYC. There were even rumors Roubini's retirement account was 100% in stocks (since confirmed).

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Four Buffett Market Calls

Whitney Tilson has compiled four market calls made by Warren Buffett. Those who view Buffett as out of touch might want to read the following articles assembled by Mr. Tilson.

(TilsonFunds.com) Read the articles here.

Bill Miller Investment Commentary

Actually pretty good piece from the battle scarred Bill Miller.

(LeggMason.com) Read the letter here.

Treasury Schemes To Reduce Mortgage Rates Even More

Schemes is right! Whatever happened to free markets? Paulson and the Goldman boys are changing the very landscape of what made our country great..just my opinion of course.

(Clusterstock.com)Still very few details on this, though CNBC added some more odd reporting, namely that the idea is to spur the purchase of new housing units, not necessarily to producer more refis. We can see why the Treasury would like to do that, since the housing glut is a killer, but how do you go about targeting reduced rates at new housing, and not refis? Plus, there's the concern we addressed below: Who would take out a mortgage today with this news hanging out there?

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PIMCO's Investment Outlook

(PIMCO.com) Here I go again! Gosh it was only six years ago that I cemented my place in stock market history by predicting that the Dow would fall from 8,500 to 5,000, instead of going up to 14,000 where it peaked in October of 2007. Well, I could use the standard set of excuses: 1) No one else saw it coming, 2) I was misinterpreted, and taken out of context, 3) I was tired, overworked, and had family problems, or 4) I had just come out of rehab. But these days what really works is a full confession. I mean, like, uh, it was totally my fault and I take full responsibility. The fact is I was only off by 9,000 points. That’s my story, and I’m stickin’ to it.

Read the entire letter here

The issuance issue

(Economist.com) “ROLL up, roll up. Get your government bonds here. They may not pay much, but they’re safe. Buy ’em now in case stockmarkets don’t last.”

As the recession deepens, finance ministers round the world may be forced to resort to the tactics of the market stallholder. Politicians hope that deficit financing will be the way to stimulate the economy. But someone has to buy all those bonds.

Read the entire article here

North Carolina: Watching and Waiting

(Economist.com) America’s second-biggest banking city comes to terms with the crisis

Read the entire article

Turning Japanese?

I thought we were trying to avoid the same mistakes the Japanese made?

(Bloomberg) Federal Reserve Chairman Ben S. Bernanke signaled he’s ready to dig deeper into the central bank’s toolkit after cutting interest rates almost as much as he can, opening the door to a shift by policy makers this month.

Bernanke yesterday said he may use less conventional policies, such as buying Treasury securities, to revive the economy, because his room to lower the main U.S. rate from the current 1 percent level is “obviously limited.” Even so, reducing the rate is “certainly feasible,” he said.

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Treasuries In Bubble Phase, Merrill’s Rosenberg Says

(Bloomberg) Demand for Treasuries has reached the ‘bubble” phase seen among technology stocks in 2000 and real estate six years later, according to David Rosenberg, chief North American economist at Merrill Lynch & Co.

“The 10-year note yield is now firmly below the 3 percent threshold and this next leg down in yield will undoubtedly represent the classic mania-turn-to-bubble phase that quite plausibly sees an overshoot to or even through the April 1954 lows of 2.3 percent,” New York-based Rosenberg said in a research note today.

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Congratulations, Its (Officially) a Recession

(Ritholtz.com) The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

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Reaping the Whirlwind!

(GMO-Jeremey Grantham Qtly Letter)

Read the letter here

The Return of Tall Paul

(Ritholtz.com/The Big Picture) President-elect Barack Obama will appoint former Federal Reserve Chairman Paul Volcker on Wednesday to be the chairman of a new White House advisory board tasked with helping to lift the nation from recession and stabilize financial markets, Democratic officials say.

The panel will be called the President’s Economic Recovery Advisory Board.

Volcker is one of the true heroes of Central Banking and American economics. He is the rare political player who is willing to make the difficult and unpopular decision, regardless of the polls and politics. Some people believe you just have to do what’s right, and not what’s expedient. If a President wanted to get the real story — stright up no chaser — than you cannot do any better than Volcker.


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Treasury considered plan to bust Citi shorts

The government has gotten way too involved in our markets. The Plunge Protection Team (PPT) also known has the President's Working Group appears to have been working overtime.

(FT.com) US regulators considered a proposal to buy Citigroup shares in the secondary market before deciding on a plan to buttress the bank with $20 billion in fresh capital and $306 billion in guarantees for distressed assets, people involved in the talks said.

Under the plan revealed on Sunday, the Treasury will invest $20 billion in preferred shares in Citi -- in addition to the $25 billion it has already put into the group.

However, regulators briefly considered investing as much as $30 billion in Citi -- including $15 billion in preferred shares and $15 billion in common stock to be bought in the secondary market, participants in the talks said.

By buying Citi common stock in the open market, regulators could have increased pressure on investors who sold Citi shares short -- selling borrowed shares in the hopes of buying them back to profit from a fall in the price. The Hong Kong Monetary Authority employed a similar strategy during the Asian financial crisis.

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Citi, AIG Won't Drop Big Sports Sponsorships

If you pay the government a big sum for taxes, perhaps you should call your representative in Congress and tell them you would like the box for a game next year.

(ABC News) AIG, Citibank and a number of other federally bailed-out financial institutions have no plans to cancel hundreds of millions of dollars in sports team sponsorships, even as they take billions in taxpayer support, ABC News has found.

Read the story here

Paulson Says New Fed, Treasury Steps Will Help Lending, Housing

Paulson wants to encourage us to borrow on our credit cards...maybe I'm wrong but I thought that was part of the problem. Enough from the government.

(Bloomberg) U.S. Treasury Secretary Henry Paulson said a Federal Reserve lending program announced today will enable banks to extend more credit to consumers and businesses.

“I and my regulatory colleagues are committed to using all the tools at our disposal to preserve the strength of our financial institutions and stabilize our financial markets, to minimize the spillover into the rest of the economy,” Paulson said in a statement at a press conference in Washington.


Read the entire article

Rogers Says Dollar to Be `Devalued,' Buys Commodities

(Bloomberg) The U.S. dollar will be ``devalued'' as policy makers seek to weaken it, undermining the greenback's role as an international reserve currency, said Jim Rogers, chairman of Rogers Holdings in Singapore.

``They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term,'' said Rogers. The ICE's Dollar Index has gained 19 percent since Rogers said in an interview on April 27 he expected a dollar rally ``about now.''

Read the entire story from Bloomberg

Wachovia execs could get $98.1 mln severance

Anybody else repulsed by this?

(Reuters) Wachovia Corp, which lost $33 billion in the last two quarters, said 10 of its top executives may be entitled to as much as $98.1 million in severance pay after the bank is acquired by Wells Fargo & Co.

In a U.S. Securities and Exchange Commission filing, Wachovia said the executives would receive severance under their employment agreements if the merger closes by Dec. 31, as expected. Wachovia said shareholders will vote on the merger on Dec. 23.

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Buffett’s Berkshire Will Give More Information on Derivatives

(Bloomberg) Billionaire investor Warren Buffett will provide more information to investors on how he calculates losses on his Berkshire Hathaway Inc.’s derivative bets in the firm’s annual report early next year.

The report will disclose “all aspects of valuation” and cover “deficiencies in the formula” for pricing the derivatives, “which we nevertheless use,” Buffett said in an e- mail sent by his assistant, Debbie Bosanek.

Read the entire article

Jeremy Grantham Video

(Consuelo Mack--WealthTrack)

See the video here

Japan's `Least Ugly' Economy May Beat U.S., Europe in Crisis

(Bloomberg) Japan's newly declared recession may be a chance to show that the world's second-largest economy can finally outperform the U.S. and Europe.

As the West faces the worst financial crisis since the Great Depression, Japan will contract at a fraction of the pace of its major counterparts next year, according to the Organization for Economic Cooperation and Development.

Read the entire article

Deal of the Month: Buy a Toaster, Get a Free Bank!

(FT Alphaville)

Get your coupons here!

Buffett on the Market Downturn

(Fox Business News)

Watch the video here

Citigroup Reported to Seek New Ban on Short Sales

Here we go again, why not just put the uptick rule back in?

(NY Times DealBook Blog) Citigroup is taking the short sellers to task after its stock fell more than 25 percent on Thursday. The sell-off occurred even though Prince al-Walid bin Talal of Saudi Arabia said he planned to increase his stake in the banking giant to 5 percent and expressed support for Citi’s leadership and strategy.

Citigroup urged the Securities and Exchange Commission to reinstate the agency’s expired ban on short selling of financial stocks, The Wall Street Journal and Bloomberg News report, citing people familiar with the matter.

Read the entire story

Fairfax Financial's Prem Watsa removes equity hedges

(Fairfax Financial's website)

Read the press release

Let Detroit Go Bankrupt

(NY Times-OP/ED contributed by Mitt Romney)

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

Read the entire editorial

Fundamental Analysts Belated Downgrades

(Ritholtz.com) One of the strange aspects of running a quant shop is watching some of the fundie guys downgrade previously beloved names long after they have been spanked. Let’s cherry pick a few charts and work our way through them.

We’ve noticed this with GM, AIG, and many others recently. Today’s silly downgrade is US Steel.

Read the entire article

Berkshire's Credit Risk Soars on Buffett's $37 Billion Bet

(Bloomberg) The cost of protecting against default by Warren Buffett's AAA-rated Berkshire Hathaway Inc. has almost tripled in two months, a sign of just how skittish investors have become amid the global financial crisis.

The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Cos. At those levels, the swaps are typical of companies rated Baa3 by Moody's Investors Service, one level above junk. The price may have risen on concern that the billionaire's firm could lose a $37 billion bet on world stock market values more than a decade from now

Read the entire story

Tepper, Barakett Abandon Stocks as Funds Cut Holdings

(Bloomberg) Hedge-fund manager David Tepper entered the third quarter with $3.1 billion of U.S. stocks and exited with $648 million, selling most holdings to reduce risk and raise cash as carnage spread across the financial markets.

``We moved a lot out early because we didn't want to lose money,'' said Tepper, 51, president of Appaloosa Management LP in Chatham, New Jersey. The firm, which switched some money to bonds, has between 30 percent and 40 percent of assets in cash.

Read the entire article

Jubak: Fire the Whole Treasury Team

(moneycentral.msn.com)

Watch the video here

Trillions down and still bailing

(Bill Fleckenstein--moneycentral.msn.com) Unfortunately, despite some 12 financing facilities created by the Treasury and the Fed, massive interest rate cuts and various bailouts, the government has little to show for its attempts to dictate where markets should trade.

The Fed's own balance sheet has exploded from roughly $900 billion worth of debt in August to around $2 trillion as of last week. Knowledgeable sources expect that to reach $3 trillion by the end of the year.

Read the entire article

Goldman Chief Blankfein, Top Executives to Forgo 2008 Bonuses

Isn't that special. The compensation these guys have gotten over the years has been obscene.

(Bloomberg) Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein and six senior executive officers will go without year-end bonuses, a spokesman for the firm said.

Read the entire article

Hartford Financial's (HIG) Brilliant Turnaround Plan (HIG)

More on the absurdity of the TARP plan.

Read about it here

Hartford, Lincoln, Genworth Buy S&Ls, May Gain Treasury Funds

We find it interesting that AIG gets money thrown at it, yet insurers such as Hartford and Lincoln National have no access to government funds. While we don't like the bailout at all, the way funds are distributed (you are eligible--you are not) are completely at the whim of the Treasury Department (or should I say Hank Paulson). Well the way around it for the insurers are through buying thrifts. Bloomberg discusses this below.

Read the article

Buffett’s Berkshire Boosts Stake in ConocoPhillips on Oil Bet

(Bloomberg) Warren Buffett’s Berkshire Hathaway Inc. became the largest shareholder in oil producer ConocoPhillips and took a stake in manufacturer Eaton Corp. in the third quarter as stock markets tumbled.

Read the entire article

Bill Miller's 3rd Quarter Letter

In case anybody still listens to or likes to read Bill Miller's views, the 3rd quarter letter is now available.

Read it here

Longleaf Partners Qtly Report Available

Mason Hawkins dicusses the bear market and what actions Longleaf is currently taking.

Read the report here

Can you count on GE's dividend?

(Fortune.com) Is GE's dividend safe? That question is likely on the minds of many shareholders who have watched the value of their GE shares sink more than 50% over past year, mainly over worries about the potential for more losses at the company's financial arm, GE Capital.

Read the entire story

Bail-Outrage: Misuse of Funds, Lack of Transparency a National Disgrace

(yahoo.com/Tech-Ticker) Many Americans are understandably outraged by the bailout fever that has gripped Washington this year. But even those who believe the bailouts are a "necessary evil" would have a hard time defending some of the bailout-related items that have come to light in recent days, including:

Read the entire story/watch the video

Revised AIG Terms Begin Treasury Transfusions to 'Zombie' Firms

Anybody that frequents this blog knows we are no fans of Paulson or the Bailout. Apparently some other agree.

(Bloomberg) The revised bailout of American International Group Inc. marks a new phase in the government's effort to shore up financial markets: It's the first time cash from the rescue fund Congress created last month has been committed to a failing company.

The Federal Reserve, which saved the insurer from collapse two months ago with an $85 billion loan, yesterday reduced that loan and offered lower rates, while the Treasury chipped in $40 billion from its bank-rescue fund to buy preferred shares. The new terms represent a departure for Secretary Henry Paulson, who until now has said he only wants to invest Treasury funds in ``healthy'' firms.

Read the entire story

Bonuses for Wall Street Should Go to Zero, U.S. Taxpayers Say

(Bloomberg) U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don't want executives' bonuses reduced. They want them eliminated.

``I may not understand everything, but I do understand common sense, and when you lend money to someone, you don't want to see them at a new-car dealer the next day,'' said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Illinois. ``The bailout money shouldn't have been given to them in the first place.''

Read the entire article

Afternoon Reading: Online Outrage Over Larger AIG Bailout

(Wall St Journal--Deal Journal Blog) The rescue of American International Group just keeps growing and growing and growing.

Already the insurer has hit up the U.S. government for aid and this morning it was back again. This time the U.S. government unveiled a revised bailout package for AIG valued at around $150 billion, easing terms on the insurer as it reported a $24.47 billion third-quarter loss.

Read the entire article

Emanuel Was Director Of Freddie Mac During Scandal

(ABC News.com) President-elect Barack Obama's newly appointed chief of staff, Rahm Emanuel, served on the board of directors of the federal mortgage firm Freddie Mac at a time when scandal was brewing at the troubled agency and the board failed to spot "red flags," according to government reports reviewed by ABCNews.com.

Read the entire article

Deutsche Bank: GM Is Worth Nothing

(Wall St Journal-MarketBeat Blog) Deutsche Bank said publicly today what many detractors of General Motors Inc. have been thinking for some time — the company is worthless.

Read the entire article

Fuld Solicited Buffett Offer CEO Could Refuse as Lehman Fizzled

(Bloomberg) It was the afternoon of Sept. 9, and tensions were rising in the 31st-floor office of Lehman Brothers Holdings Inc. Chief Executive Officer Richard S. Fuld Jr.

That morning news broke that the Korea Development Bank had pulled out of talks to buy a stake in the New York-based securities firm. By 1 p.m., Lehman's already battered stock had plunged another 43 percent.

Read the entire article

Great expectations

(Economist.com) NO ONE should doubt the magnitude of what Barack Obama achieved this week. When the president-elect was born, in 1961, many states, and not just in the South, had laws on their books that enforced segregation, banned mixed-race unions like that of his parents and restricted voting rights. This week America can claim more credibly than any other western country to have at last become politically colour-blind. Other milestones along the road to civil rights have been passed amid bitterness and bloodshed.

Read the entire article

NBER's Hall Sees `Conclusive' Evidence of Recession

(Bloomberg) The head of the panel that officially dates U.S. economic cycles said there's no doubt now that a recession is under way following a surge in the unemployment rate to a 14-year high.

``The evidence is more than compelling,'' Robert Hall, the Stanford University economist who leads the National Bureau of Economic Research's business cycle dating committee, said in an interview. ``It's conclusive, in my personal opinion.''

Read the entire article

AIG: We Need More Money

(The Big Picture-Barry Ritholtz) AIG is asking the US government for a new bail-out less than two months after the Federal Reserve came to the rescue of the stricken insurer with an $85bn loan, according to people close to the situation.

Read the entire story here

Tweedy Browne's Quarterly Letter

Read what Tweedy Browne had to say about the turbulent third quarter

Go to the letter

Q&A with Investing Legend Jim Rogers

(Time.com/Time Magazine) Jim Rogers became an investing legend in the 1970s while running a spectacularly successful hedge fund with George Soros. Since then, the Alabama native has traveled around the world more than once — on motorcycle and in a car — writing about his experiences, and his thoughts on investing, along the way. Last year, he moved to Singapore, to be close to the economic growth engine that is Asia, and also saw the launch of tradeable securities tied to a commodities index he created. TIME's Barbara Kiviat caught up with him by phone while he was on the road from Brussels to Amsterdam to ask him about what he makes of the state of the financial world today.

Read the entire article

Just How Bad Was October 2008 ?

(The Big Picture-Barry Ritholtz) Not too shabby a week -- plus 11% across the major indices, with some areas even stronger. Of course, that comes from deeply oversold levels, with stocks peak trough down 27% within October. The key question going forward is whether or not this past week's snapback rally has legs. But rather than guess about that, let's look at some of the more intriguing data points from October 2008.

Read the entire article

InvestorLetterPalooza Day I

(Nakedshorts.typepad.com) Naked shorts has come up with an excellent collection of hedge fund letters that are just being mailed out to investors. The include those of the Maverick Fund (Lee Ainslee) and the Baupost Group (Seth Klarman). Well worth reading.

Read the letters here

Robert Rubin's Free Ride

(TheBigMoney.com) How does Clinton's Treasury secretary escape blame for the market meltdown?

Read the story here

Too Late to Order Halloween Masks?

Wish I had seen this earlier!


Super spooky Ben Bernanke and Henry Paulson limited edition horned masks.

Go here to check it out

Small-Caps Trail S&P 500 By Most in 6 Years on Hedge Fund Sales

(Bloomberg) The smallest U.S. companies are trailing larger stocks by the widest margin in six years after hedge funds sold equities to pay back customers.

The Russell 2000 Index, where hedge funds own an average 13 percent of shares, lost 24 percent in October, ending a five- month streak of beating the Standard & Poor's 500 Index, data compiled by Bloomberg and Citigroup Inc. show. Hedge funds hold 10 percent of S&P 500 companies, according to Citigroup data.

Read the entire article

Bailout Funds To Pay Dividends?

Still way to many unanswered questions on Paulson's bank bailout package.


Watch the video here

Paulson's Swindle Revealed

(thenation.com) The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.

Read the entire story

Pension fund gap hits $100bn

(FT.com) US companies will need to inject more than $100bn into their pension funds to cover market losses, putting them in a cash squeeze at a time when it is difficult to raise money.

The cash payment, estimated by several pension industry executives, would be spread over this financial year and next year.

Read the entire article

A Question for A.I.G.: Where Did the Cash Go?

(NY Times) The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

"You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Read the entire article

Short Sellers Aren't Jackals, They're Bears, Fleckenstein Says

(Bloomberg) A six-foot stuffed grizzly bear guards the entrance to the offices of Fleckenstein Capital Inc., located on a quiet, leafy street in the Capitol Hill neighborhood of Seattle. The bear sends a clear message: The man inside, Bill Fleckenstein, founder and president of the firm, is a short seller and proud of it.

Read the entire article

VW Briefly Rivals Exxon for Biggest Market Cap

(CNBC.com) Scarcity of stocks in Volkswagen—after Porsche bought up nearly all the remaining free float—triggered a short squeeze that pushed VW's market capitalization above that of oil major Exxon Mobil at one point Tuesday.

VW shares rose almost 150 percent Monday after Porsche announced Sunday it held stock and options equivalent to 74 percent of Volkswagen. Short sellers then scrambled to cover positions.

Read the entire article

Munger View On The Environment

You can listen to Maria Bartriromo, Mark Haines, David Faber, Jim Cramer, and the Fast Money boys or you can listen to Warren Buffett and Charles Munger. Munger's thoughts below are most interesting.

...We are setting the base for a 10 - 15 year bull run. The stock market has never performed worse in the last 10 years, yet corporate profit expansion has never been better...

Read the entire article

Governor Schwarzenegger Discusses the Economy with Warren Buffett at the 2008 Women's Conference

Interesting interview with Buffett and the California Governor from 10/22/08.

Read the transcript or watch the video here

Greenspan: "I Suck"

More on the Greenspan testimony from Barry Ritholtz at the Big Picture

(Big Picture-Barry Ritholtz) Former Federal Reserve Chairman Alan Greenspan said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

............Greenspan: Bad FOMC Chair, or the Worst FOMC chair?

Read the entire story

Greenspan Concedes to `Flaw' in His Market Ideology

(Bloomberg) Former Federal Reserve Chairman Alan Greenspan said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

``Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''

Read the entire article

Why Warren Buffett is Right (and Why Nobody Cares)

(Hussmanfunds.com) The best way to begin this comment is to reiterate that U.S. stocks are now undervalued. I realize how unusual that might sound, given my persistent assertions during the past decade that stocks were strenuously overvalued (with a brief exception in 2003). Still, it is important to understand that a price decline of over 40% (and even more in some indices) completely changes the game. Last week, we also observed early indications of an improvement in the quality of market action, and an easing of the upward pressure on risk premiums. te

Read the entire article

Jean-Marie Eveillard Interview

(Executiveinterviews.com)

Excellent interview with one of the best value investors around

Watch the interview here

Rating Agencies on the Griddle

(Footnoted.org) Despite the blustery weather in New York today, I’m guessing there’s a few New Yorkers who wish they were ensconced on the quiet car of the Acela instead of being chewed out by a parade of Congressmen (and women) for their role in the credit crisis. For the past four hours, I’ve had the Committee on Oversight and Government Reform on in the background as it has poked and prodded a number of different witnesses, including the CEOs of Moody’s (MCO), Standard & Poor’s (a unit of MHP) and Fitchon the role that the different agencies played leading up to the current mess we’ve found ourselves in.

Read the entire article

Whitman Sampler Of Value Stocks

(Forbes.com) Few investors in the market today are as bear-market-seasoned and savvy as Marty Whitman, 84-year-old founder of M.J. Whitman LLC, chairman and founder of Third Avenue Management and portfolio manager of Third Avenue Value Fund. Like Sam Zell, Leon Black and Eddie Lampert, Whitman's roots are in distressed-company investing.

Read the entire story

AIG CEO Demands Apology from Mad Money’s Jim Cramer

(Wall St Journal-Deal Journal Blog) Great financial slapfights in history: Aaron Burr and Alexander Hamilton. J.P. Morgan and William Jennings Bryan.

And now, AIG CEO Edward Liddy and CNBC investor and ‘Mad Money’ host Jim Cramer.

Read the entire article

Fed Sets Up New Program To Buy Money-Fund Assets

The Fed facility rewards investors who took higher risk and received higher interest rates. (Those who sat in government money market funds received lower returns). Yes, there is a free lunch--and it is paid for by the taxpayers.

(Bloomberg) The Federal Reserve will help finance purchases of up to $600 billion in assets from money- market mutual funds roiled by redemptions from investors seeking the safety of government debt.

``The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests,'' the Fed said in a statement released in Washington today. About $500 billion has flowed out of prime money-market funds since August, a central bank official said.

Read the entire article

Volcker Makes a Comeback as Part of Obama Brain Trust

(Wall St Journal) At 81 years old, former Federal Reserve chairman Paul Volcker is getting a second chance to shape his legacy with a presidential hopeful more than 30 years his junior.

Mr. Volcker has emerged as a top economic adviser to Sen. Barack Obama during a presidential campaign dominated by a global financial crisis. Their growing bond is paying dividends for each man.

Read the entire article

Turmoil May Make Americans Savers, Worsening `Nasty' Recession

(Bloomberg) The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not.

With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending.

Read the entire article

The Economist

I was surfing the net and attempting to log on to The Economist Magazine at http://www.theeconomist.com/ and guess what I found. Ruined my weekend.

Check it out.

Capital Gains Taxes

I agree with Mr. Ritholtz on this issue.

(Big Picture-Barry Ritholtz) I think the debate on Capital Gains Taxes is now irrelevant. Why? The huge stock market losses.

Read the entire article

Read our latest Investment Outlook-Fall 2008

Read Jolley Asset Management's thoughts on the bailout and financial markets.

Read the Fall 2008 Investment Outlook

The Confidence Game

(Wall Street Journal) There used to be too much of it. Now there's not enough. James Grant argues that the real lack of confidence is in Washington, with the administration losing faith in capitalism.

Read Jim Grant's entire piece

The Big Bear

(Economist.com/Buttonwood) AT THE end of 1964 the Dow Jones Industrial Average traded at 874.1. Seventeen years later, despite rapid inflation, the average had inched forward only to 875. It was the kind of grinding bear market that drove investors to despair. Near its end, Business Week famously proclaimed “The Death of Equities”.

Read the entire story

The Debt Trap

(NY Times) A series about the surge in consumer debt and the lenders who made it possible.

Interactive article here

Buy American. I Am

In an Op-Ed in the NY Times, Buffett explains why he is buying stocks now.

(NY Times) THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

Read the entire Op-Ed from the NY Times

New Bailout Price Tag: $2.25 Trillion Dollars

(Big Picture-Barry Ritholtz) On Monday, I said that the total cost of this bailout could scale up to $3 trillion -- I just didn't imagine it would happen by Wednesday.

We learned yesterday that the size of the bailout just tripled, from $750b to $3T. Here is the cost structure:

• $250 billion of capital into banks;
• Guarantee $1.5 trillion in new senior debt issued by banks;
• Insure $500 billion in deposits in noninterest-bearing accounts (primarily businesses accts).

Read the entire story

Four at Four: The Vortex of Selling

(Wall St Journal-MarketBeat Blog) The two-day respite has ended. After a soaring rally to open the week and a middling Tuesday that at least didn’t turn into a rout, the markets barfed out another horrific session Wednesday, culminating in another one of those late-day swoons that left major indexes not far from their closing levels Friday. The selling was wide and deep, as the brief euphoria in the banking sector was washed down the drain with a 10.7% decline in the Financial Select Sector SPDRs fund, which tracks the S&P 500’s financial sector. Heavy losses were sustained by technology, small-cap stocks, transports, and cyclicals — pretty much everybody on a day when the S&P lost 9% of its value, much of it, again, coming in the final hour.

Read the entire article

Explaining Uncle Sam’s Bet on U.S. Banks

(Wall St Journal-Deal Journal Blog) The U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp. quietly nationalized much of the U.S. banking system Tuesday. If the banking system sold its soul, we hoped it had at least gained pretty decent terms. So we went digging and found good explanations, particularly from Oppenheimer & Co. analyst Meredith Whitney. Deal Journal provides a practical breakdown on Treasury’s plan below.

Read the entire article

Comparing This Week To The '87 Crash

(Bespoke Investment Group) Most Dow stocks were down more this week than during the week of the '87 crash. As shown, GM was down 45%, AA was down 41%, BAC was down 39%, CVX was down 27%, and AXP was down 25%. Only two Dow stocks were down less than 10% this week: JPM (-9%) and GE (-0.32%). Maybe the most important takeaway is the returns these Dow stocks have had since the '87 crash. Who knows when, but we will go up again.

Read the entire article

How Oversold? Very Oversold

(Wall Street Journal--MarketBeat Blog) The last hour of activity Friday, when buyers finally emerged from their slumber, has helped erase some of the day’s massive losses. Needless to say, the market is still experiencing a so-called oversold condition, where various technical and sentiment-related indicators suggest buyers should be asserting themselves.

The market has a long way to go after the Dow Jones Industrial Average lost more points in one week than in any in its 112-year history. The brief burst of optimism aside, investors are still in a big hole when compared with only two weeks ago. The ongoing concerns around the banking system, for now, trump all considerations of value.

Read the entire article

TIGER CUBS MEOW DURING SEPTEMBER

(NY Post) Some of the legendary Wizard of Wall Street's so-called Tiger Cubs were cut down to size last month, suggesting even the best and brightest in the hedge fund industry have been unable to tame today's treacherous markets.

Tiger Cubs are fund managers who trained under Julian Robertson of Tiger Management, who was known for generating average returns of 25 percent a year for more than 20 years.

Lee Ainslie, for example, saw his Maverick fund drop nearly 19 percent in September alone. What's more, Ainslie's Maverick Leveraged fund, which makes greater use of borrowed money, dropped a whopping 35.5 percent for the month, The Post has learned.

Read the entire article

Dow's Worst Week Comes to an End

(Wall Street Journal) Stocks endured the widest intraday swing on record, in a fitting end to one of the most turbulent weeks in financial history.

For the first time in its 112-year existence, the Dow Jones Industrial Average swung in a range of more than one thousand points on an intraday basis. The blue-chip gauge had dropped sharply in early trading, falling nearly 700 points and dropping through the 8000 level for the first time in five years. But stocks quickly came off their lows, and by the afternoon the industrials jumped more than 300 points.

Read the entire article

U.S. May Take Ownership Stake in Banks

(NY Times-DealBook Blog) Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, The New York Times’s Edmund L. Andrews and Mark Landler reported, citing government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

Read the entire article

Taking Hard New Look at a Greenspan Legacy

(NY Times) Excellent piece from the NY Times discussing how we got here. Thanks Alan.

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Read the entire article

Days after AIG's $85bn rescue, insurer hosted banquets

(Guardian.co.uk) The world's largest insurance company, AIG, spent $440,000 on a lavish corporate retreat at one of California's top beachside resorts a few days after accepting an $85bn emergency loan from the US government to stave off bankruptcy.

Details of the week-long getaway enraged legislators at a congressional hearing yesterday where AIG's former bosses were accused of spending taxpayers' money on pedicures, golf games and cocktails.

Read the entire story

How to Ruin the U.S. Economy

(Ben Stein)

1) Have a fiscal policy that creates immense deficits in good times and bad, burdening America's posterity with staggering burdens of repaying the debt.
2) Eliminate regulation of Wall Street and/or fail to enforce the regulations that already exist, instead trusting Wall Street and other money managers and speculators to manage other people's money with few or no regulations and little oversight.

Read the rest of Ben Stein's column here

Contrary Cramer Buy Call ?

(Big Picture-Barry Ritholtz) As I have said in the past, I don't like to harp on any one person. I also don't want to be a Cramer stalker. But DAMN if that headline doesn't smell like a giant buy signal.

Read the entire article

Bad Medicine

(James Grant--Washington Post) Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you.

The unblinkable fact is that Americans own too much house. We overpaid and overborrowed, and many of us are "upside down," as the car dealers say. What to do? Recognize the losses and write them off. What not to do? Inflate the currency and debase accounting standards.

Read the entire article

Quote of the Day: Net Capital Rule

(Paul Kedrosky's Infectious Greed) Anyone care to guess who made this statement?

"....we and other global firms have, for many years, urged the SEC to reform its net capital rule..."

Read the entire story

Finance crisis: in graphics

(BBC News) It is shaping up to be one of the most tumultuous times on record in the global financial markets.

The financial landscape is going through a period of upheaval with some major firms folding, other operations merging and a limited number of companies in both the Europe and the US, being rescued at a governmental level.

Read the entire article

Can Citigroup Kill the Wells Fargo-Wachovia Deal?

(Wall St. Journal-Deal Journal Blog) What does a $6.5 billion merger involving chemicals companies Hexion and Huntsman have to do with the gigantic proposed $15.4 billion proposed deal between Wells Fargo and Wachovia?

Maybe everything.

This week, a Delaware judge ruled that Apollo-owned Hexion could not squirm out of its agreement to buy Huntsman. Hexion, the judge said, signed a deal and had to make a good-faith effort to go through with it even if the credit crunch made conditions harder. For lawyers, the Hexion-Huntsman decision was a shocker, and it showed that the Delaware courts are becoming highly intolerant of any attempts to walk away from deals.

Read the entire article

Warren Buffett's Interview with Charlie Rose

(CNBC and the Charlie Rose Program) Warren Buffett: "I Haven't Seen As Much Economic Fear In My Adult Lifetime."

Read the complete transcript

Bailout by the Numbers: How much is $700 Billion?

(Portfolio.com) Portfolio.com has an interesting interactive take on the bailout.

Go to Bailout by the Numbers

Quote of the Day: Fair Value Accounting

(The Big Picture-Barry Ritholtz) As talks about changing "mark to market" accounting we found the following to be dead on.

Read the entire article

Does Warren Buffett Think Goldman is more Credit Worthy Than GE?

(Bespoke Investment Group) Bespoke looks at Warren Buffett's investments in General Electric and Goldman Sachs---their findings are quite interesting.

Read about it here

Government Bailout will not be a quick fix for this

Click on chart to enlarge

Rogers Says U.S. Should Let Banks Fail, Clean Out System

(Bloomberg)

Watch the video here

The Market Gets Nothing, and Doesn’t Like It

(Wall St Journal -MarketBeat Blog) Criticism of the bailout plan in the form it morphed into over the weekend was rife — some were concerned about the equity participation, some about the hesitant structure — but most were of agreement that something was better than nothing. Instead, the market got a whole lot of nothing Monday, as the bill was swallowed by partisan bickering and strange attempts to blame the House speaker for ruffling feathers. “We had taken for granted that we had a bill passed and we are shocked to find out that was not the case,” says Art Hogan, chief market strategist at Jefferies & Co. “Now we need to see if we can get back to the drawing board and get something passed this week.”

Read the entire article

A fate worse than debt

(Economist.com) IT IS ugly, but deleveraging is the word of the moment. Financial institutions, desperate to repair the damage inflicted on their balance-sheets by mortgage-related securities, sell assets. In doing so, they exacerbate the problem. Forced sales push down the prices of assets, worsening the balance-sheets of other investors, forcing more asset sales, and so on. In the end, the government is the only entity left in the game with a balance-sheet strong enough to keep buying.

The Bush administration’s bail-out plan, even if it gets through Congress, may not be the end of the finance industry’s problems. The travails of investment banks will inevitably cause problems for hedge funds, which depend for their finances on institutions such as Goldman Sachs and Morgan Stanley.

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Warren Buffett lifts the lid on his secrets

(Timesonline.co.uk) Warren Buffett always had spectacular timing. As Wall Street burns, the billionaire investor is the hero of the hour after predicting the financial meltdown and riding to the rescue — $5 billion (£2.7 billion) in hand — of Goldman Sachs.

Tomorrow marks the release of The Snowball, the first and only, Buffett says, biography to be written with his co-operation. The book’s author is Alice Schroeder, a former analyst who spent “literally thousands” of hours with Buffett and his family.

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Order Alice Schroeder's new book on Buffett titled The Snowball

A Memo Found in the Street

(The Big Picture-Barry Ritholtz)

Dear D.C.,

WOW, WE'VE MADE QUITE A MESS OF THINGS here on Wall Street: Fannie and Freddie in conservatorship, investment banks in the tank, AIG nationalized. Thanks for sending us your new trillion-dollar bailout.

We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.

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Wall Street Executives Made $3 Billion Before Crisis

No wonder the public is outraged by the proposed bailout.

Wall Street's five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system.

Merrill Lynch & Co. paid its chief executives the most, with Stanley O'Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion on Sept. 15. Bear Stearns Cos.'s James ``Jimmy'' Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in June.

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BB&T chief exec slams bailout plan

(Charlotte Business Journal) A significant and immediate tax credit for financial institutions to purchase homes would be a more effective solution for the financial crisis than the proposed $700 billion federal bailout, says BB&T Chief Executive John Allison.

The federal government should also buy homes, and not securities backed by mortgages, he wrote in a Sept. 23 letter to the U.S. Congress.

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Warren Buffett: Walk Like a Banker, Talk Like a Sailor?

(Wall Street Journal-Deal Journal Blog) Many deal makers use the language of relationships to describe M&A. An acquisition often is said to be a “marriage,” a bidder is a “suitor,” and early talks are “courtship.”

But Warren Buffett often employs, well, earthier imagery that belies his wholesome, Cherry Coke-sipping image. We were reminded of this in reading this Wall Street Journal in which the Oracle of Omaha explained his reaction this year when asked if he wanted to hear more about investing in Bear Stearns.
“I’m calling about Bear Stearns,’” the private investor began, according to Mr. Buffett. “Should I go on?’” Mr. Buffett recalls thinking: “It’s like a woman taking off half her clothes and asking, ‘Should I continue?’ Even if you’re a 90-year-old eunuch, you let ‘em finish.”

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Berkshire to GS: "I Got $5 Billion, but Its Gonna Cost Ya"

More on how much the Buffett investment is going to actually cost Goldman. Desperation?

(The Big Picture-Barry Ritholtz) Tonight's Goldman Sachs/Warren Buffett deal is a classic example of our post 2001 news: Looks good as a headline, is godawful underneath. Of course, futures popped on the announcement.

The WSJ subhead read "Move by Famed Investor Amid Crisis Seen as Vote of Confidence in Banking System."
Puh-leeze.

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Goldman to Raise $7.5 Billion From Berkshire, Public

Once again Buffett gets terms that others only dream of...read below

(Bloomberg) Goldman Sachs Group Inc. will raise at least $7.5 billion from Warren Buffett's Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm's borrowing costs and hurt its stock.

Berkshire is buying $5 billion of perpetual preferred shares, New York-based Goldman said today in a statement. Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank by assets, also plans to raise at least $2.5 billion by selling common stock in a public offering.

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14 Questions for Paulson & Bernanke

(The Big Picture-Barry Ritholtz) Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke are scheduled to testify today before Congress on their massive bailout program.


Here are some questions I would like to hear asked:

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Ross says Fed actions don't address root

(Reuters) Bankruptcy expert and investor Wilbur Ross said on Monday that none of the recent actions to stabilize the financial system addressed the root of the problem -- helping Americans make their mortgage payments.

Ross told the Reuters Restructuring Summit that a recession could last at least through next year, and said that a large part of what happens to the economy depends on what the new U.S. administration does.

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Henry Paulson, Socialist

(Jamers Ledbetter-The Big Money from Slate) For years, the Republican Party has preached the virtues of the "ownership society." Americans should own their own homes, goes the songbook; they should own stocks; they should take ownership of social benefits like heath care; they should approach their lives as if they are in charge rather than look for dependency-inducing welfare programs.

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The New Power in Banking

Interesting take on the Federal Reserve by Portfolio.com

The Federal Reserve is looking more like a Wall Street bank. Here's how the Fed's website might look in an alternative universe.

Go to Portfolio.com

Goldman, Morgan Stanley Bring Down Curtain on an Era

Goldman Sachs and Morgan Stanley gains Fed approval to become banks.

(Bloomberg) The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken.

The Federal Reserve's approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.

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