Monday, September 29, 2008

Better Than Expected

The Paulson plan emerged from Congress better than I expected, and certainly much better than the plan as announced on Thursday by the Democrats. Maybe McCain and the R revolt helped. I don't know, but it's a far better plan now than Thursday. [My commentary is based on this morning's WSJ summary as of about 4AM.]

The $700 billion survived. $250 billion at once, then $100 billion on request and then last $350 billion is approved on request and can only be blocked with a vote of Congress, which could be vetoed by the President. So a real revolt in Congress will be needed to block the last $350 billion. No delay until May for it. And the fact that it will take Treasury a bit of time to get going, and conduct the auctions, the phasing seems OK.

The warrants are minimal for assets the Treasury buys in auction. For direct buys, the warrants are a lot, but that's what Treasury got in AIG, etc. The requirement for recovery of losses is just a requirement for a plan to be submitted. SEC is required to review mark-to-market accounting. Good.

And the Fed gets authority to pay interest on reserves. Very good. The Fed can now push money into the monetary base without causing the Fed Funds rate to collapse.

And no mortgage cramdown provision. Very good, too.

So overall, I like it.

As implemented, this should really help stop disintermediation from pushing more banks into insolvency. But of course a bank has to survive until the plan gets going.

From recent events, WB might not make it. C and WFC are looking over buying it. But I suspect a WM-style purchase is needed to give the buyers enough cushion on the option ARM writedowns.

Huge Belgian bank, Fortis, was 50% nationalized. Mid-sized lender Bradford & Bingley in the UK failed and was sold to Banco Santander.

MS says the Mitsuibishi investment is perking along.

So what other banks are on the hit list ? Right now, interestingly, none come to mind. I suppose NCC and a few other regionals are problems, but rather manageable as long as runs or walks on the bank don't occur.

So let's wait & see. Congress needs to pass the bill, though. I just heard a vote is expected around Noon.

More

From Barron's I see the Fed finally increased the monetary base substantially - $70 billion in the last two weeks. Very good.

Share buybacks are now more widely recognized as very poor uses of corporate cash. One can see that financial firms wasted huge sums buying shares at high prices, but now issue new stock at low prices. And GE made a similar mistake, buying high and now cutting the buybacks when prices are low. An article in FT shows that buybacks are really just used to prop up sock prices so executives can cash in options at higher prices. Really, they are a fraud on the stockholders. Maybe FT reads this blog, as I've written to that effect often.

Share buybacks encourage short term investing and thinking. Regular dividends encourage long term thinking and investing.

Markets

A mini-euro panic seems occurring this morning, likely due to a realization that their schadenfreude of last week was wrong, as their banks have big problems, too, which are not solely due to investments in the US mortgage markets.

On Friday I bought small, starter positions in three dry bulk shipping companies (DRYS, GNK and EXM). This is a speculation on the world NOT ending. The Baltic Dry Freight index has been collapsing and beefers have been crushing these stocks. But they have over 50% of their charters locked in for a couple years. And some of the drop in he Baltic Dry Index is due to a stand-off between China and RIO over iron ore prices. Financial Times had an illuminating article. So I will give them some time and add slowly to avoid large losses on my usual "early" positioning.

PS: I am stunned that Congress did not pass the bill. I am very worried for first time in awhile. My partner, who lived through Penn Central debacle, expressed concern to me about firms failing due to inability to roll over commercial paper. So I figured it wasn't worth the risk to stick with even my excellent stocks.

Word of the Day

"Purblind" - adjective [$10]
Purblind means lacking in vision, insight or understanding.
Sentence: Will the purblind public scare enough pusillanimous Congressmen to defeat the Paulson plan ?

[btw, pusillanimous means cowardly]

Quote of the Week - a new feature of this blog.

From "The Impossible H. L. Mencken", pg. 595 in an article written to cover the Scopes "monkey" trial in 1925 on teaching Darwin's theory of evolution in high schools. The event provoking the quote was an inane speech by William Jennings Bryan, a famous populist politician and religious fundamentalist.

"As Bryan said that learning is dangerous, that nothing is true that is not in the Bible, that a yokel who goes to church regularly knows more than any scientist ever heard of. The thing went to fantastic lengths. It became a farrago of puerilities without coherence or sense."

Ferrago means a hodge-podge, a confused mixture. [An old $10 word of the day]
Puerile means immature, childish. [ a recent $10 word of the day]

66 comments:

Bunkerman said...

Meredith going on Babblevision. Click, turning to Blabberg.

mfl59 said...

Mush about to speak....futures should dive a bit further...

Bunkerman said...

What the ???

Oppenheimer (Meredith ?) likes NCC ?

6:37 Oppenheimer upgraded National City (NCC) to Outperform from Perform

Bunkerman said...

The FDIC announces that Citigroup Inc. will acquire the banking operations of Wachovia Corporation; Charlotte, North Carolina, in a transaction facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury in consultation with the President. All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail

Bunkerman said...

Citigroup Inc. will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen

Debt not wiped out. Some relief there.

mern said...

Cytherea


if anyone needs their lawn watered, she is gud for the job!

http://www.huffingtonpost.com/2008/09/27/tina-fey-as-sarah-palin-k_n_129956.html

id vote for tina fey before palin, what is so about this skit, is the interview pretty much went down like that.

my 24 yr old girlfriend disagrees with me that palin is retarded. agrees has a low iq, but isnt retarded becuase she is dumb and this close to having her finger on the red button.

had to agree.


quote of the weekend from derya. we were at the zoo with her 3 yr old daughter ( OBVIOUSLY I WILL NEVER LEARN!). there is a 9 yr old kid, u a carriage as a ramming machine behind us. then the carriage comes rolling down a path and i stopped about 6 inches before it took her daughter out, Ski (nice name, seriously).

the mother runs up and says, "OMG i am so sorry"

Dyra: "SO!"

a few seconds later, she says to me. if that wud have hit ski, i wud have fucked that bitch up. u wud had to bail me out.

like this one!

glad i keep slightly less than 100 WB.

just your typical mid cycle slowdown.................

i wonder how much leaves GS today and finds its way into my office.

20, 30, 50 billion............

"one man gathers what a another man spills"

Bunkerman said...

hmm who knows how to value mortgages, Bill Gross or Meredith ?

Sheesh ...

And she doesn't even realize C will writedown the $42B of WB loans in the purchase accounting befoe they hit C's books.

Uh ... guys ... she got lucky .. is a lightweight.

Blew it on JPM, WFC, BAC ...

And except for CA, AZ, FL and NV (sun & surf), home prices are at bottom.

mfl59 said...

girlfriend? 3 yr old daughter? oh man...

what day does the Mets playoff series start?

Bunkerman said...

I'd guess C has some big foreign capital to put towards the WB deposits.

Bunkerman said...

I guess the FDIC $12B of preferred counts as C capital to support the WB acquisition.

I suppose C will have a conference call.
Liesman's Fed "club" = C, JPM, BAC, GS, MS. Probably WFC, too, but it has no problems.

Bunkerman said...

some panic out there.

beefers being liquidated ?

Or public panicking ?

Or both ?

Bunkerman said...

Battleship Ben fires nine 16" gun salvos.

Bunkerman said...

Gotta bridge Paulson plan which will take a couple weeks to get going.

Bunkerman said...

Remember that point I made about money market funds $$$ getting passed thru to Europe - obviously no more:

Dollar funding rates abroad have been elevated relative to dollar funding rates available in the United States, reflecting a structural dollar funding shortfall outside of the United States

mfl59 said...

Bunkerman any interest in putting WFC on the sheets sir?

Bunkerman said...

no, I have well-sized postions in BAC and JPM. I think WFC is a bit staid for me ... unimaginative (which was good for this mess). I can't see dropping either of BAC or JPM for them.

I added that bit of EXM.

Looks like I was early on FCX adds. Ugh, as usual. No more.

Bunkerman said...

I guess all those resource-oil beefers & mutual funds are getting big withdrawals for end of Q3.

Just a guess.

Bunkerman said...

Sheesh, Mrs. B is crushing the ball ... has only invested 15% of her big capital infusion.

What a patient shopper !

Spin-em said...

raw land near Hickory getting cheaper

she sounds lovely "mark"

Bud said...

who loses at home to maryland ??? what ???

what the F is a terrapin anyway?


top 25 killer indeed

Frosty said...

Mern what is the tirple load point CHK GS.

mfl59 said...

Ill tell ya what...

any team that can shut down a dangerous Morgan St attack deserves some kudos....

"way to go Mike Teel"

lmaoooooooooo.....pitiful

Spin-em said...

http://www.scoutsongs.com/lyrics/swinglow.html

Spin-em said...

If elected..I promise..a chicken in every pot!!

Spin-em said...

at Christmas......we got an orange.....and we were dayum glad to get it.......

mfl59 said...

what sort of stocks will Mrs B look to scoop up after the dust settles Bunkerman?

recession proof industries? :)

Frosty said...

no claw update for weeks...polishing the caddy skills pehaps....look at the wax build up on these shoes I want that wax stripped off there, then I want them creamed and buffed with a fine chamois, and I want them now. Chop chop.

Bunkerman said...

hard to say ... she has a lot of those ... JNJ, MCD, etc.

She is eclectic.

Frosty said...

Bunky...what level would intensify your panic sir.

Frosty said...

S&P rated WB AAA on friday, any chance they will lower their rating today...perhaps they review the ratings of others this week.

maverick said...

Bowden either goes to ACC championship or he is gone!!!

Bunkerman said...

oh frosty, how can a survivalist like me panic ?

Maybe a war.

Bunkerman said...

I did a good job selling some stocks down at much higher prices to protect myself and have plenty of buying power ready to go.

My big banks BAC and JPM are holding up well.

I have modest losses on FCX and RIG, but they have great cash flows. Otherwise, am very solid.

I think this is a beefer liquidation panic for EOQ.

Fed doing good job now ... as long as Congress performs, "all is well" lolol.

Bunkerman said...

starting French lesson ... back later.

Frosty said...

oh frosty, how can a survivalist like me panic ?

Maybe a war.

uh Bunky...war...a war...the middle east a tea party...bunktinis must cause brain damage.

Spin-em said...

not to worry fellow bunkerhobo's...mfl on the harmonica

http://www.trainsinger.com/train/clips2.html

Bud said...

acc championship ???

you better worry about the demon deacons son........


they not a hi-school team

mfl59 said...

Bunkerman do you have a poster of Edward Markey in your barn sir?

maverick said...

no worry ...either he wins or he is gone. Athlete talent is there gameday coaching is not

mern said...

a rare and different tune, TERRAPIN STATION!

yes spin she is perfect for me.

tons of drama, dead beat ex. adorable 3 yr daughter.

24 yr old from trinidad tabaego.

5'4 110 lbs. paint and piercings everywhere.

everything is now 120 bucks.

8 balls, dinner, DAYCARE............

LMAOOOOOOOOOOOOOO

in way over my head on this deal!

mern said...

eagles sux

its the phillies yr!

i can feel it!

we have 3 legit #1's.

moyer and his ARP card. myers and his alcoholism and wife beating. and hamels who says his arm is dead.

can u win the MVP batting 250?

mern said...

ja haap is marty bystrom from 1980.

its all happening!

the wheels are in motion.

the city of champions is back!

Frosty said...

Mern...she cool with azzlicken round the tps typing pool...nononono way..."sure mark, bring her home...lil white meat balances the diet"

mfl59 said...

is this a recession?

Bunkerman said...

remarkable irresponsibility by the R's

Bunkerman said...

no re Markey.

mfl59 said...

Bunkerman Im on way to Massachusetts...open the gate sir!!!

Frosty said...

Bunky...are the servants that swarm your grounds demanding to be paid in turnips sir.

Bunkerman said...

no servants ... I am a populist libertarian.

Bunkerman said...

ok mfl, I'll get get your M1 prepped.

;-)

Bunkerman said...

that's no war now, frosty, in Middle east - it's now a police action ... aka mop up ... being well run now at least.

Frosty said...

a war coming to a neighborhood near you...hearing rumors of many small mid size private companies that will miss payroll.

mfl59 said...

anyone else see looting in the streets in their neighborhood?

Bunkerman said...

yeah, a cat tried to get some birds here - terrier patrol fended it off.

And some aquirrels raided my bird feeders ... terrier patrol chased them off, too.

mfl59 said...

well played bunkerman....well played sir...lol

Frosty said...

remarkable irresponsibility by the R's

they just saved your heros $150billion (market cap decline)...they are just real buyers waiting for better prices.

Bunkerman said...

Well, I sold all my Alpha Fund stocks.

I'm tired of these big swings.

My partner thinks some firms will be unable to roll commerical papaer and fail. He might be right.

Maybe this signals the bottom.

Frosty said...

"Bunky...what level would intensify your panic sir."

non poster all you needed to say...war...ppffttt....thanks a bunch pal.

Bunkerman said...

talking to my partner - an old-timer who lived through commercial paper debacle of Penn Cenral - made me get more worried.

Bunkerman said...

I was pretty optimistic coming into this day ... I thought the plan was good and would pass & that WB was the last one to go.

Ugh ....

Screwy world.

Spin-em said...

bean salad recipe would be handy....me,big city,goodolboy gonna catch a west bounder meet up with tin can

Frosty said...

LMAOOOOO...tin cup indeed...tap tap tap

Frosty said...

Bunky...just a lil lipstick...I hear ya...no problem.

Bunkerman said...

I thought I had a good feeling for how the economy was going and this bill not passing when it was a pretty good one, has made me decide to protect myself more.

verdacity said...

bunkerman - would love to hear more about your partner's experience during previous bears (commercial paper failing etc). I've only lived through the 2002 bear, so am now crossing over from personal experience into academic knowledge. Anyway, if you have the time for a post on the subject, would be much appreciated.

Bunkerman said...

verdacity - I will write tomorrow.

And drinking heavily now.

;-)