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.”

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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.

Read the entire article

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.

Read the entire memo

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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Greenspan’s sins return to haunt us

(FT.com) Back in 2002, when his reputation as “The Man Who Saved the World” was at its peak, Alan Greenspan, former chairman of the Federal Reserve, came to Britain to pick up his knighthood. His biggest fan, Gordon Brown, now the UK prime minister, had ensured that the citation said it was being awarded for promoting “economic stability”.

During his trip, Mr Greenspan visited the Bank of England’s monetary policy committee. He told them the US financial system had been resilient amid the bursting of the internet bubble. Share prices had halved and there had been massive bond defaults, but no big bank collapses. Mr Greenspan lauded the fact that risk had been spread, using complex derivative instruments. One of the MPC members asked: how could this be? Someone must have lost all that money; who was it? A look of quiet satisfaction came across Mr Greenspan’s face as he answered: “European insurance companies.”

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October 18, 1930: NYT on Short Selling

(The Big Picture-Barry Ritholtz) The following editorial on SHORT SELLING was originally published in the New York Times on October 18, 1930. It is so relevant to the current environment, that I have decided to reproduce it here. What makes this so significant is that none of the issues have changed -- and the US Government seems to be increasingly heading down a path of "The ends justifies the means" form of intervention.

Other than the names involved, one can hardly discern that this was written 3/4 of a century ago . . .

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Frank Seeks More Oversight of Paulson's Bad Debt Plan

At least efforts are being made to protect the American taxpayer

...Frank also recommended limits on executive compensation of companies participating in the debt purchase plan, called the Troubled Asset Relief Program, or ``TARP.'' Frank's additions to Paulson's request yesterday urged the Treasury to broaden efforts to help homeowners in danger of foreclosure.....

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Regulators Close West Virginia Bank

Apparently West Virginia too far from Wall Street

The financial crisis claimed another victim Friday as federal regulators shut down Ameribank, a $104 million institution based in Northfork, W. Va.

The closure marks the 12th U.S. bank failure this year, The Wall Street Journal noted.

In a news release, the government's Office of Thrift Supervision said it had appointed the Federal Deposit Insurance Corporation as receiver.

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Don Harrold's Rescue Plan for the People

Sorry to admit it, but Don essentially is right about the bailout.

Watch Don's video here

Backlash Over Bailouts Grows in Congress, Wall Street

(Bloomberg) As the U.S. government takes stronger measures to stabilize financial markets, some former Federal Reserve officials, lawmakers and Wall Street executives are saying too much has already been done.

``Every time they intervene, they do more harm than good,'' said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut, a brokerage that manages $1 billion.

Read the entire story

Treasury Seeks Authority to Buy Mortgages Unchecked by Courts

(Bloomberg) ......``He's (Paulson) asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''

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The Snowball: Warren Buffett and the Business of Life

(RandomHouse.com) Q&A with Alice Schroeder, author ofThe Snowball: Warren Buffett and the Business of Life

When did you first meet Warren Buffet, and what was your first impression?

His company, Berkshire Hathaway, bought a company whose stock I followed while working as a Wall Street analyst. I sent him a letter asking to bring some clients to Omaha to meet with him. He called me back in person. I was immensely flattered and impressed that someone like him would call me. He came across as down-to-earth and grandfatherly.

Because you were essentially handpicked by Buffett to write his biography, was it ever difficult to remain objective throughout the process?

By the time I started the book I’d known him for five years. My initial awe gave way to curiosity as I began to understand him as a human being. He became a fascinating puzzle that I wanted to solve. Gradually, I realized that writing the book meant putting my relationship with him on the line. Whether your subject will do future interviews with you, how he will react to what you’ve written, whether he or his powerful friends will approve of you afterward — until you accept the worst outcomes to these questions, the relationship is steering the writing. As somebody once put it, you have to write as though both you and your subject are dead. That’s a tall order, but I tried.

Read the entire interview with Alice Schroeder

Order The Snowball: Warren Buffett and the Business of Life

Markets Soar, but New Rules Upset Traders

It is a difficult environment when they keep changing the rules.

(NY Times) After a week of escalating panic in the markets, stocks soared for the second consecutive day on Friday, and many investors rejoiced. But below the surface, a new sense of turmoil set in. When Washington changed the rules of Wall Street, winners were turned into losers and losers were turned into winners, and both camps were left fearful about what would come next.

In a day of chaotic trading, the currents in the financial world changed course on Friday morning after the Bush administration moved to prop up faltering financial institutions.

Read the entire article

Five Reasons: Why the Short-Selling Ban Stinks

(Wall Street Journal-MarketBeat Blog) One could suppose that the government’s next step to shore up the flailing equity market would be to order all sales to be on upticks only, or for floor traders to break out in spontaneous applause at the Big Board every 10 minutes, or something.

The equity market rebound over the last two sessions is probably more related to the talk of a government entity to buy some of the ugly assets held by the nation’s banks and brokerages — but the more heated rhetoric, including words out of President Bush, has been aimed at those that take short positions. “Short-sellers have been the historical scapegoats for weak markets and that trend continues,” says author and trader Michael Panzner.

Read the entire article

The "New" New Deal

(Barry Ritholtz-The Big Picture) I am having a hard time keeping up with all of the bailouts and special facilities created for dealing with this crisis. Am I missing any?

- Bear Stearns - Economic Stimulus progam- Housing Bailout Program- Fannie & Freddie- AIG- No Short selling rules- Fed liquidity programs (Term Lending facility, Term Auction facility) - Money Market fund insurance program- Special Loans for GM & Ford.

Read the entire article

Paulson, Bernanke Expand U.S. Power to Rescue Markets

Government decides Main Street should bail out Wall Street. Don't forget Paulson came from Goldman Sachs. How much will this all cost the taxpayer.

(Bloomberg) The U.S. government moved to cleanse banks of troubled assets and halt an exodus of investors from money markets in the biggest expansion of federal power over the financial system since the Great Depression.

``We're talking hundreds of billions,'' Treasury Secretary Henry Paulson said in a press conference. ``This needs to be big enough to make a real difference and get to the heart of the problem.''

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Buffett's MidAmerican Energy to Buy Constellation

Buffett answers the phone call from Constellation Energy

(Bloomberg) Warren Buffett's MidAmerican Energy Holdings Co. agreed to buy Constellation Energy Group Inc. for about $4.7 billion, snapping up the largest U.S. power marketer at less than half its market value prior to this week.

The cash deal is worth $26.50 a share, the companies said today in a statement. That's 7 percent higher than yesterday's close. The stock plunged 58 percent this week on concern turmoil in financial markets would wreck Constellation's energy-trading business.

Read the entire story

Jim Cramer: Mr Irrelevant

Don Harrold's video is another classic

Watch the video here

Buffett's Phone Rings `Off the Hook,' Stock Jumps:

(Bloomberg) Sept. 17 (Bloomberg) -- Warren Buffett's phone is probably ``ringing off the hook'' because distressed sellers are turning to the world's richest person as credit markets seize up, according to T2 Partners LLC's Whitney Tilson.

The 4.3 percent jump in Berkshire's Class A stock yesterday, the biggest since April 2003, tracked the surge in the TED spread to the highest level this year. Banks' borrowing costs more than doubled yesterday after the collapse of Lehman Brothers Holdings Inc. and credit downgrades of American International Group Inc.

Read the entire story

Gross's Total Return Falls the Most in Three Years

(Bloomberg.com) Sept. 17 (Bloomberg) -- Bill Gross's Pimco Total Return Fund, the world's largest bond fund, fell 1.4 percent yesterday, the biggest one-day decline in more than three years, according to data compiled by Bloomberg.

The loss, which compared with the 0.38 percent drop by the benchmark Lehman Brothers Aggregate Bond Index, came as the U.S. government moved to seize American International Group Inc., the largest U.S. insurer. The fund guaranteed $760 million of AIG debt as of June 30, part of a larger bet by Gross that some beaten-down corporate bonds will recover because they are too important for the government to let fail.

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Morgan Stanley in Talks with Chinese Bank Citic

(CNBC.com) Morgan Stanley is in talks to possibly be acquired by Chinese bank Citic, sources in the U.S. and China have told CNBC.

No deal is certain at this time, however, and sources said that none was likely to be finalized Wednesday.

Word of the talks follows an earlier report in the New York Times that Morgan Stanley—one of the two last independent, U.S.-based investment banks—is considering a merger with Wachovia or another bank.

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Fed to Offer Bridge Loan to A.I.G. and Take Control of Firm

(NY Times-DealBook)

The Federal Reserve plans to offer an $85 billion bridge loan to the American International Group in return for control of the ailing insurance giant, people briefed on the matter said Tuesday night.

In an intense discussion at the Federal Reserve Bank of New York on Tuesday afternoon, the Fed and a group of executives from JPMorgan Chase, Goldman Sachs and other firms agreed that a banking syndicate to provide the $75 billion in emergency financing could not be arranged by Tuesday night.

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Reserve Primary Money Fund Falls Below $1 a Share

(Bloomberg) Sept. 16 (Bloomberg) -- Reserve Primary Fund became the first money-market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.

The fund, whose assets plunged more 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck. Primary Reserve, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days.

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Pimco, Vanguard Are Biggest Lehman Bond Fund Losers

Bill Gross tonned it on the bailout of Fannie Mae and Freddie Mac, but Hank left him holding the bag on Lehman Brothers. Read about it below:

(Bloomberg) Pimco Advisors LP, Vanguard Group Inc. and Franklin Advisers Inc. are among investment companies that may face losses of at least $86 billion stemming from the collapse of Lehman Brothers Holdings Inc., the biggest bankruptcy in history.

Mutual fund companies' filings show they hold more than $143 billion of bonds, led by Newport Beach, California-based Pacific Investment Management Co., manager of the world's biggest bond fund, and Valley Forge, Pennsylvania-based Vanguard, according to data compiled by Bloomberg as of June 30.

Read the entire story

Merrill's Thain, Montag May Get Payouts of $47 Million on Sale

This is one of the big problems in corporate America. Anyone else outraged?

Bloomberg-Sept. 16 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer John Thain and trading-division head Thomas Montag may reap payouts totaling more than $47 million if they leave or are given lesser roles after Bank of America Corp. buys the firm.

Thain, hired last December following the ouster of Stan O'Neal, stands to collect about $11 million on the vesting of free shares if he doesn't stay after the sale, said Graef Crystal, a Santa Rosa, California-based compensation consultant. Montag, who joined in August and is a former colleague of Thain's from Goldman Sachs Group Inc., would get $30 million in accelerated stock awards and at least $6.4 million in options if he's dismissed or his duties are diminished after a change of control, Crystal said.

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Nightmare on Wall Street

(Economist.com) A weekend of high drama reshapes American finance

EVEN by the standards of the worst financial crisis for at least a generation, the events of Sunday September 14th and the day before were extraordinary. The weekend began with hopes that a deal could be struck, with or without government backing, to save Lehman Brothers, America’s fourth-largest investment bank. Early Monday morning Lehman filed for Chapter 11 bankruptcy protection. It has more than $613 billion of debt.

Read the entire article

U.S. Stocks Drop, S&P 500 Sinks Most Since 2001 Terror Attacks

(Bloomberg) -U.S. stocks tumbled, pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc.'s bankruptcy and declining commodities increased speculation that credit-market losses and the economic slowdown will worsen.

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The Mother of All Mondays

(Wall St Journal-MarketBeat Blog) Investors world-wide have rarely rolled out of bed to face a Monday morning quite like the one they’ll contend with this Monday.

Sundays have long been host to important corporate news, from big mergers to bankruptcies. But this weekend, in an extraordinary meeting that recalled the summit called ten years ago amid the meltdown of hedge fund Long-Term Capital Management and J. Pierpont Morgan’s efforts more than 100 years ago to rescue a series of ailing banks, Wall Street’s most senior deal makers and regulators raced to find a deal that would keep storied Lehman Brothers Holdings from collapse. At this hour, their efforts have yet to yield any fruit. Barclays, which had come to be viewed over the weekend as the most likely bidder for the badly ailing Lehman, pushed away from the bargaining table on Sunday. The main impediment appeared to be that the U.S. government is reluctant to backstop a deal, as it had amid the Bear Stearns meltdown in March.

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US in 'once-in-a-century' financial crisis : Greenspan

More insight from Greenspan, he sure sees well in a rear-view mirror.

(Breitbart.com) The United States is mired in a "once-in-a century" financial crisis which is now more than likely to spark a recession, former Federal Reserve chief Alan Greenspan said Sunday.

The talismanic ex-central banker said that the crisis was the worst he had seen in his career, still had a long way to go and would continue to effect home prices in the United States.

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US retail sales fall unexpectedly

(FT.com) US retail sales stores fell last month for the second month in a row as the boost from tax rebates slipped away and a sharp decline in energy prices failed to encourage consumers to spend on other goods, data from the Commerce Department showed on Friday.

Retail sales fell 0.3 per cent in August, against economists’ expectations of a 0.2 per cent rise.

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A turn for the worse

(The Economist) The outlook is deteriorating even for the best-performing firms, let alone the troubled ones

THE second quarter of this year was the most profitable ever for Big Oil: the six largest Western oil companies reported a 40% jump in profits, to a combined $51.6 billion. Exxon Mobil, the biggest of them all, banked $11.7 billion, the highest-ever quarterly profit reported by an American firm, beating its own record. But nobody expects a repeat of such feats of capitalism in the quarter soon ending, thanks to the tumble in the oil price from its peak of $147 in July. And given all the recent talk about levying windfall taxes on them, the oil giants may think that is just as well.

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The bail-out of Fannie Mae and Freddie Mac was inevitable. It may not be the last

(The Economist) IF HANK PAULSON had not already lost all his hair, he would surely be tearing it out right now. America’s treasury secretary must have thought saving Fannie Mae and Freddie Mac, the government-sponsored housing enterprises, would restore confidence to the financial system. But the stockmarket rally lasted just one day, before investors switched their worries to Lehman Brothers, a struggling investment bank.

Read the entire story

Marty Whitman One on One

(CNBC.com) Whitman lashes back at Hank Paulson and discusses some of his current investment themes.


See the video here

Where's The Ref?

(Forbes.com)
The credit crunch. Bear Stearns. The housing crisis. Fannie Mae and Freddie Mac. And as of today, Lehman Brothers, Wachovia and possibly even such august firms like AIG and Merrill Lynch.

These are the bailouts of the past 12 months and the potential bailouts of the next 12 months. The U.S. is experiencing a set of financial crises unlike anything since the Great Depression. It has forced long-held ideologies to be closely re-examined, destroyed enormous amounts of wealth, quashed hundreds of thousands of jobs and ruined the reputations of corporate titans and former Fed chairs alike.

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Take this weekend off, Hank

(FT.com) do not know what plans Hank Paulson, the US Treasury secretary, has for the weekend. Bird-watching, perhaps. Whatever they are, may I suggest that he sticks to them?

Mr Paulson is a keen ornithologist but he is also an energetic intervener in financial markets and, when he has worked on weekends recently, the US taxpayer has paid dearly.

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Lehman Said to Be in Discussions About Potential Sale

"The road goes on forever, and the bailouts never end?" Unbelievable times we live in.

(Bloomberg) Lehman Brothers Holdings Inc. entered into talks with potential buyers of the securities firm after Moody's Investors Service said the company must find a ``stronger financial partner'' and the shares plummeted.

Bankers from other firms are reviewing Lehman's books today, people with knowledge of the situation said, declining to identify the potential acquirers. Mark Lane, a spokesman for Lehman, declined to comment.

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Bail-out hands Pimco $1.7bn payday

(FT.com) The Bill Gross-managed Pimco Total Return fund reaped a $1.7bn payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac.

While shareholders in Fannie and Freddie suffered deep losses, the world’s biggest bond fund saw its highest ever one-day rise against its benchmark index on Monday, benefiting from the bet made by Mr Gross on mortgage bonds issued by the agencies.

Read the entire article

Bank of America Says Losses Shift to Commercial Loans

(Bloomberg) Bank of America Corp., the biggest U.S. consumer bank, said credit weakness is spreading to commercial borrowers from residential customers and loan losses probably will deepen in the third quarter.

Read the entire Bloomberg article

Berkshire, in Blow to Banks, Reins In Its Deposit Insurer

(Wall Street Journal) Warren Buffett's Berkshire Hathaway Inc. has told one of its subsidiaries to stop insuring bank deposits above the amount guaranteed by the federal government, dealing a fresh blow to the financial-services industry as it tries to assuage anxious customers.

The subsidiary, Kansas Bankers Surety Co., is notifying about 1,500 banks in more than 30 states that it will no longer offer a program called "bank deposit guaranty bonds." KBS is an 18-employee subsidiary of Berkshire Hathaway, according to the parent firm's 2007 annual report. It is one of a handful of firms that offer such insurance, a big selling point for banks trying to attract wealthy customers.

Read the entire article

Is it the S&P 500, the S&P 498, or the S&P 381?

Interesting piece from Bespoke Investment Group about the S&P 500

(Bespoke Investment Group) As expected, Standard and Poor's announced today that Fannie Mae (FNM) and Freddie Mac (FRE) would be removed from the S&P 500 effective September 10th after the close. In their place, Salesforce.com (CRM) and Fastenal (FAST) will be added after the close on September 12th. Besides the fact that the additions will not take place until two days after the two stocks being removed will be taken out (Will it be the S&P 498 for two days?), there are other inconsistencies with the reasoning surrounding the removals.

Read the entire article

More `Chaos' Ahead for U.S. Banks, Investor Jim Rogers Predicts

(Bloomberg) U.S. financials face more ``chaos'' as the credit market worsens, investor Jim Rogers predicted.

``Balance sheets of many of these financial institutions are still terribly impaired and there are more problems to come,'' he said during a Bloomberg Television interview. ``We had the worst credit bubble in the history of the world. You don't clean that out in a year or two or three.''

Read the entire article

Fannie, Freddie Takeover Jolts Preferred Market as Prices Fall

Bloomberg) Treasury Secretary Henry Paulson's takeover of Fannie Mae and Freddie Mac is roiling the market for preferred securities.

Prices of fixed-rate preferred stock fell an average of 9 cents to 71.5 cents on the dollar this week, according to Merrill Lynch & Co. index data, the biggest two-day drop in more than a decade. The 11 percent decline compares with a 1.4 percent drop in the Standard & Poor's 500 index over the same time.

Read the entire article

Hedge Funds Cool Their Heels

(Wall Street Journal-MarketBeat blog) If you don’t have much idea where the market is going, chill out — some of the more sophisticated investors are having a hard time answering that question also.

Hedge funds have, for the most part, performed dismally this year, and while the aggregate hedge fund is still doing better than the Standard & Poor’s 500-stock index, that’s hardly the goal of these investors, which seek positive returns no matter what the environment.

Read the entire article

Henry Paulson’s Itchy Trigger Finger

(NY Times-Deal Book Blog) Why did Treasury Secretary Henry M. Paulson pull the trigger on a government takeover of Fannie Mae and Freddie Mac when he did?

That is the question Andrew Ross Sorkin tackles in his latest DealBook column. Mr. Paulson’s decision to bring the two mortgage giants into conservatorship, Mr. Sorkin argues, seems to be a philosophical one, rather than one made under the threat of imminent economic calamity.

Read entire story

Don Harrold with yet another Cramer Classic

Don Harrold on Cramer's Phantom "Bottom" Call of July 15


See Don's video here

Stock Picking Performance of Fast Money Experts

We all know what Mad Money can do for us (just kidding), but what about Fast Money?

CXO Adivsory examines the stock picks of the Fast Money talking heads.

(CXO Advisory.com)
As suggested by a reader, this entry examines the stock picking performance of experts featured on CNBC's Fast Money. According to CNBC, these experts "give you the information normally reserved for the Wall Street trading floor, enabling you to make decisions that can make you money." Do their stock picks actually make money fast? Do they outperform the broad stock market? Using stock picks recorded in entries entitled "Your First Move for Monday…" (or Tuesday when Monday is a holiday) in the Fast Money Rapid Recap archive and weekly price data for those picks over the period 8/10/07 through 8/1/08, we find that:

Read the entire study by CXO Advisory

CNBC: Treasury "Did Exactly the Right Thing" on Fannie/Freddie

(CNBC.com) Becky Quick: Mr. Buffett, thank you for joining us this morning. I want to get your thoughts on this plan for Fannie Mae and Freddie Mac.

Warren Buffett: Well, I think the Secretary (Paulson) did exactly the right thing. I don't think there was an alternative that was anywhere close to this one in terms of calming the markets, in terms of providing an ongoing function for the two that makes any change less abrupt, the changes that are going to occur with the two companies. So I couldn't, I wouldn't have changed anything in the plan myself.

Read the entire transcript

Google Leads Drop in Companies Owned by Hedge Funds

Dislocations at many hedge funds impacting a number of stocks, this Bloomberg article explains.

(Bloomberg) Companies with the most hedge-fund ownership slid for the fifth time in six days, defying the rally spurred by the government's takeover of Fannie Mae and Freddie Mac, as money managers sold shares to cover client redemptions, analysts said.

Goldman Sachs Group Inc.'s index of the 49 most-common holdings of hedge funds lost 0.1 percent, led by Google Inc. and Potash Corporation of Saskatchewan Inc., extending its drop since Aug. 28 to 8 percent. The world's biggest securities firm created the Hedge Fund VIP List more than two years ago based on the holdings of 745 funds with $881 billion in stocks.

Read the entire article

Weekend Bailouts and Subsequent Market Reactions

(The Big Picture-Barry Ritholtz) Another weekend, another bailout, another market reaction:

How many Sunday press releases is it going to take to save the financial system from ruin? If you’re are keeping score at home, this is now the sixth Sunday night/Monday morning press release in 14 months aimed at saving the financial system. Consider the recent history of these weekend rescues:

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U.S. Losses on Fannie, Freddie May Be $300 Billion, Poole Says

(Bloomberg) William Poole, former president of the Federal Reserve Bank of St. Louis, said taxpayers may face a $300 billion bill to revive Fannie Mae and Freddie Mac, the mortgage giants being taken over by the Federal government.

``I would not be surprised if their total losses aggregate about 5 percent of their obligations'' of about $6 trillion, Poole said today in an interview on Bloomberg Radio. ``Five percent does not seem to me to be an outrageous guess.''

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GSE Treasury Takeover: Overview

(Big Picture-Barry Ritholtz) I am still working my way through the details of the GSE takeover by Treasury, but here is my initial read of the details:
• FHFA will act as conservator of the two firms -- meaning the US government has day-to-day control of Fannie and Freddie;
• The conservator's goals are to (1) put the company in a sound and solvent condition, and (2) carry on the company's business and preserve and conserve the assets and property of the company.

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Official Statement on the Fannie Mae/Freddie Mac Bailout

Statment from the US Tresury Department

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How Warren Buffett Made His First Dime

To pre-order Alice Schroeder's new book The Snowball go here

(Parade.com-Alice Schroeder) The first few cents Warren Buffett earned came from selling chewing gum. And from the day he started selling--at 6 years of age--he showed an unyielding attitude toward his customers that revealed his later style. "I remember a woman saying, 'I'll take one stick of Juicy Fruit,'" he says. "I said, 'We don't break up packs of gum'--I mean, I've got my principles." Making a sale was tempting, but not tempting enough. If he sold one stick to her, he'd have four sticks left to sell, not worth the work or the risk. He made two cents profit per pack.

Warren switched to selling Coca-Cola--he made a nickel for every six bottles--and copies of the Saturday Evening Post and Liberty magazines. By the time he was 9 or 10, he and a pal were selling used golf balls until the cops stopped them. When the police talked to his parents, Howard and Leila weren't concerned. They just considered their son ambitious.

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Roundup: Fannie and Freddie Bailout

(Big Picture--Barry Ritholtz) Last evening, we asked what are the costs and consequences, as well as the market reaction to, the imminent bailout of Fannie Mae (FNM) and Freddie Mac (FRE). Your responses were inspired and informative. (For a brief history of the GSEs, see this earlier commentary).

This morning, its page one news. Here's what the major papers are suggesting is the likely outcome:

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Nevada Bank Becomes 11th Failed Bank in 2008

Apparently these guys weren't big enough or maybe PIMCO didn't own any of their paper!

(CNBC.com) Regulators closed Silver State Bank on Friday, the 11th U.S. bank to fail this year as the struggling economy and falling home prices take their toll on financial institutions.

The Federal Deposit Insurance Corp said the Henderson, Nevada bank had $2 billion in assets and $1.7 billion in deposits as of June 30. The failure is expected to cost the FDIC deposit insurance fund between $450 million and $550 million.

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Paulson Plans to Bring Fannie, Freddie Under Government Control

Fannie and Freddie Bailout is coming, the big question is how do they handle the common shareholders, the preferred shareholders and bondholders. Bondholders appear safe, common shareholders will likely be wiped out or heavily diluted, preferred shareholders unclear (in my opinion they should be wiped out if taxpayer funds are used--but they will likely be protected). Remember many commercial banks hold millions of shares of the FNM/FRE preferreds (will that be enough to protect them?). Investing in todays bailout world is a little like playing monopoly and changing the rules in the middle of the game. Too big to fail should not coexist in a capitalist economy. How much will this cost the taxpayers? Next up the auto-makers? Who is running our financial system anyway? Goldman Sachs? PIMCO (Gross would not answer questions yesterday as to whether he had talked to Paulson about the bailout)? Enough of my sarcasm, below is the story from Bloomberg.

(Bloomberg) Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to brief them on the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

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What's Up With PIMCO?

(The Big Picture-Barry Ritholtz) Strange things are afoot at the biggest bond fund in the world. A weird sense of panic seems to be emanating from the West Coast fixed income specialists.

I suspect it may have something to do with with the fact they are loaded to the gills with paper from Fannie & Freddie (FNM & FRE) -- a trade that has worked out exceedingly well. Despite this -- or perhaps because of it -- the latest noise from the boys from Newport Beach is increasingly odd, even desperate sounding.

I do not know if they are genuinely terrified of a major meltdown in the global economy. Maybe they are looking for an exit, and not finding one.

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Four at Four: Taking Shears to the Hedges

(Wall Street Journal-MarketBeat Blog) The recent market turmoil has been marked by substantial selling in a handful of concentrated areas, particularly resource-related stocks such as coal and oil-and-gas producers. This week’s declines have come at the expense of hedge fund managers, many of whom had bet on integrated oil-and-gas companies and other power producers. What’s happened, however, is that as this selling has accelerated, other investors, smelling blood, have piled on, and popular positions among hedge funds are being preyed on by other investors. “Macro people are shorting the market, thinking more hedge-fund liquidation is to come and they’re just playing the disarray in the hedge-fund community,” says Doug Kass, president of Seabreeze Partners Management in Palm Beach, Fla. Examples of this include the likes of Alpha Natural Resources, a coal company down 20% this week, and Petrohawk Energy, which is off by 19% this week. Both companies are part of a group of 50 stocks identified by Goldman Sachs that “matter most” to hedge funds, because they’re the top holding in a number of funds, and in many cases hedge funds hold a good lot of the equity capitalization of those funds. That group is down 6.7% this week, compared with the 3.6% decline in the S&P 500.

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U.S. Must Buy Assets to Prevent `Tsunami,' Gross Says

(Bloomberg) The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' according to Bill Gross, manager of the world's biggest bond fund.

Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm's Web site today.

``Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' Gross said. ``If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.''

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Year to Date Performance of Dow 30 Members

(Bespoke Investment Group) Below we highlight the year to date performance of the 30 DJIA members with four months remaining in 2008. As shown, Wal-Mart (WMT) tops the list with a gain of 27.5% year to date. WMT is trailed by IBM (14%), McDonald's (8.2%), Johnson&Johnson (7.8%), and Home Depot (6.1%). DuPont (DD) and Disney (DIS) are the other two Dow members that are up on the year. AIG is down the most this year with a decline of 62%, followed by General Motors (-57%), Merck (-38.5%), Citigroup (-33.9%), and Boeing (-23%).

Go to the chart at Bespoke Investment

Charting the Breakdown in Commodities Stocks

(Wall St Journal-MarketBeat Blog) Crude $200″ could be to 2008 what “Dow 14000″ (or “Dow 36000,” if you will) was to the year 2000 — the target that distracted Wall Street while a speculative bubble was getting ready to pop.

During the boom, energy and materials stocks became arguably the most important sectors in the market. Charts of commodity stocks show that the bull market in the sector, which dates to 2002, has reversed,lending credence to the idea that a speculative bubble is bursting. As Tobias Levkovich, chief equity strategist at Citi said recently: “Just because (commodity) stocks have fallen 30% doesn’t mean they can’t fall another 30%.”

“We don’t know where the floor is,” said Michael Darda, an economist with MKM Partners. Given the popularity of commodities with hedge funds and other “fast money,” there could be more “explosive” selloffs to come, he added.

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U.S. Stocks at 25.8 Times Profit Means Rally May End

(Bloomberg) The best already may be over for the U.S. stock market this year.

The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent.

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Value Talk: Buffett’s Partner, Charlie Munger

(Guru Focus-Charles Mizrahi) A graduate of Harvard Law School, Charlie Munger was given some solid advice by Warren Buffett, who said that law was fine as a hobby, but he could do better. A few years later, Munger left his law firm and started investing. Today he works with Buffett as vice chairman of Berkshire Hathaway. His net worth is about $1.6 billion. He guided Buffett from a pure Graham style of investing, which looked only at the financials of a company, to focus more on the quality of the business. Buffett gives him the credit for much of the enormous success of Berkshire Hathaway and always refers to Munger as “my partner.”

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Warren Buffett's Best Man

(Smart Money) WHILE JASMINE AND wisteria scent the air on Caltech's Pasadena campus, a spillover crowd buzzes in anticipation in a roomy auditorium. Most of the people here are seasoned money managers, and they've come from all over the world to catch sight of something rarer than a Berkshire Hathaway stock split: Charlie Munger, without his famous partner, Warren Buffett.

Munger, 84 and blind in one eye, walks stiffly to the stage. A prestigious physics professor waits to interview him, but once the lanky, thick-bespectacled guest starts blaspheming some favorite targets, the prof rarely gets a word in edgewise. Munger's topic du jour is the spiraling credit crisis: He flings vitriol at bankers, saying they've been selling investors "a hapless mess of super-complexity." The accounting profession has "disgraced itself" with its lax standards, and so has academia. "The idea that we need derivatives is just so much twaddle," he says. Yet despite all this inanity and skullduggery, Munger still sees the investing world as a place where common sense can triumph -- if only because "it isn't so common."

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Ospraie to Close Flagship Hedge Fund After 27% Tumble

(NY Times-Dealbook/Reuters) The hedge fund manager Ospraie Management will close its flagship fund after it fell 27 percent in August on losses in energy, mining and natural resources equity holdings, in one of the biggest ever closures of a commodities-focused hedge fund.

The closure of the fund, announced Tuesday by the firm’s founder, Dwight Anderson, in a letter to investors, could be more bad news for Lehman Brothers Holdings, which took a 20 percent stake in the hedge fund manager in 2005.

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Some Funds Pull Back on Bank Shorts, for Now

(NY Times-Deal Book blog) The trade of the moment in the hedge fund industry - betting on falling financial stocks and rising commodities - is offering further profit despite a setback in July, but fund managers may have to alter their tactics.

Hedge funds could well benefit from betting that the bounce in battered financial stocks and the decline in commodities in July were only blips in a longer-term trend, since the fundamental reasons for selling bank stocks and holding commodities remained intact.

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A Nightmare on Wall Street

(Economist.com) Why the credit crunch has lasted so long

LIKE a Hollywood monster that is impervious to bullets, the credit crisis refuses to lie down and die. The authorities have bombarded it with interest-rate reductions, tax cuts, special liquidity schemes and bank bail-outs, but still the creature lumbers forward, threatening new victims with every step. Global stockmarkets are suffering double-digit losses this year, and credit markets are once again gummed up.

For investors who cut their teeth in the 1980s and 1990s, the persistence of the crisis must be a surprise. Prompt action by central banks, after Black Monday in 1987 (when America’s stockmarket fell by almost 23%), or following the collapse of Long-Term Capital Management, a hedge fund, in 1998, suggested it was always worthwhile to “buy on the dips”.

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