Housing Depression

Wednesday, December 15, 2010

David Stockman on Dylan Ratigan

David Stockman is one of the voice of honesty. Should be a required video for anyone in Washington DC.

Visit msnbc.com for breaking news, world news, and news about the economy

Thursday, November 18, 2010

Thank you Uncle Warren

Dear Uncle Warren,

Thank you for the thank you letter to Uncle Sam. Thank you for acknowledging generosity of Uncle Sam - unlike other financial firms who have ~~stolen~~ received billions.

Here are some suggestions/comments I have on the letter.

First you forgot to mention how much you and the banks have benefited from Uncle Sam's generosity. It would have been great if you mentioned the Goldman Sachs Options you got for doing nothing (or at least that's what we are lead to believe). It probably also helped you because you owned many of the Financial WMDs specifically the put Options you wrote.

You forgot to mention how bailing out AIG indirectly helped your call option gifts from Goldman Sachs. And the fact that Uncle Sam paid 100 cents on the dollar when Goldman had already agreed to receive 50 cents on the dollar.

How would it have affected \ holdings of Wells Fargo?

You forgot to mention how the bailout of the banks have continued since September 2008. Let's not forget that the QE along with the 0 interest rates by fed is directly to support the banks - and taking money away from elderly retired, savers, and tax payers.

You mentioned how 300 million Americans might have been affected, but forgot to mention how the crisis would have affected you - how much money would you have lost if the banks were allowed to fail? And how you benefited the most while many of the Americans are still looking for a Job. How the bailouts have allowed the banks to payout record bonuses.

You also did not mention the cost to tax payers and the future generations. And the fact that Uncle Sam has taken on the risk on behalf of you and the banks.

Btw congratulations on your medal of freedom. The timing could not have been any better.

Regards,

HD

Monday, March 30, 2009

Pension Insurer Shifted to Stocks

Just when you thought you had seen ennough shoes had dropped, here comes another big one. From boston.com

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.

Yes folks, the agency put billions of dollars into stock market before the crash! The agency already has deficits. Now with more companies going bankrupt, it's going to make things worse.

Instead of being conservative, Charles E.F. Millard - the director of strategy during the Bush administration, decided to invest in stock market. These casino players are the once who have ruined America - believing prices just can't go down and everything is a bargain. Why would an insurer be in stocks is beyond my comprehension - let alone at a dangerous time as we have now.

"The truth is, this could be huge," said Zvi Bodie, a Boston University finance professor who in 2002 advised the agency to rely almost entirely on bonds. "This has the potential to be another several hundred billion dollars. If the auto companies go under, they have huge unfunded liabilities" in pension plans that would be passed on to the agency....

However, Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that "the new investment policy is not riskier than the old one."

I would like to know more about how he thinks stocks are not riskier than bonds.

He said the previous strategy of relying mostly on bonds would never garner enough money to eliminate the agency's deficit. "The prior policy virtually guaranteed that some day a multibillion-dollar bailout would be required from Congress," Millard said.

Sounds like someone sitting at a poker table trying to double down. Either this guy should be admitted to gamblers anonymous or be prosecuted for putting tax payer dollar at risk. But most likely nothing will happen to him. He will walks away the way Angelo "Tan-man" Mozilo and Dick Fuld did. The congress held hearings to show Americans that they were taking action.

....Bodie once likened the agency's strategy to a company that insures against hurricane damage and then invests the premiums in beachfront property.

Since he issued that warning, he said, the agency has gone even more aggressively into stocks, which he called "totally crazy."

...Now, they warn about a "perfect storm" scenario in which the agency's fund plummets in value just as more companies go into bankruptcy and pass their pension responsibilities onto the insurance fund. Many analysts say it is inevitable that the agency will face significantly increased liabilities in coming months.

"The worst case scenario is coming to pass," said Mark Ruloff, a fellow at the Pension Finance Institute, an independent group that monitors pensions. He said the agency leaders "fail to realize that they are an insurer of pension plans and therefore should be investing differently than the risk their participants are taking.

Another gift from the Bush Administration.

http://www.boston.com/news/nation/washington/articles/2009/03/30/pension_insurer_shifted_to_stocks/?page=2

The content contained in this blog represents the opinions of HousingDepression.
This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way - such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author. We may hold either long or short positions in securities of various companies discussed in the blog. The information in blog may contain misspellings and other inaccuracies. It is provided "As IS," without express or implied warranties of any kind. HD represents all rights to the information.

Rick Wagoner Out as GM CEO

Oama administration has forced out GM CEO Rick Wagoner. From WSJ:

The Obama administration used the threat of withholding more bailout money to force out General Motors Corp. Chief Executive Rick Wagoner and administer harsh medicine to Chrysler LLC, marking one of the most dramatic government interventions in private industry since the economic crisis began last year.

The administration's auto team announced the departure of Mr. Wagoner on Sunday. In a summary of its findings, the task force added that it doesn't believe Chrysler is viable as a stand-alone company, and suggested that the best chance for success for both GM and Chrysler "may well require utilizing the bankruptcy code in a quick and surgical way."

I have nothing against Rick Wagoner. But I fail to see how he could have remained there for so long after running the company down the ditch. Yes I am aware that the Unions are a big part of the problem.

I am also glad to see the Obama administration finally use bankruptcy to their advantage. After a bankruptcy, the company will evolve much stronger rather than providing a band-aid.

This will also hurt the bondholders - it's worth remembering that bonds are risky also - for a bigger yield.

And the best news here is that they wont be helping a private equity fund by helping Chrysler. I failed to see how anyone can justify bailing out Chrysler as it is owned by Cerebrus - by bailing out Chrysler, you are helping the private equity firm.

So let's hope the administration follows this strategy for the banks also. Rather than keep putting unlimited amounts into banks - and by extenstion it's bondholders and stock owners - they just let the weakest banks go down.

Thursday, March 26, 2009

Treasury Auctions

We wrote about the lack of demand for British bonds yesterday. No sooner did we write the article, US auction for 5-year treasuries yields were higher than expected.

Today, we will be watching the 7-year auction very closely.

The 10-year yield, which was down to almost 2.50%, is now back up to 2.82% today.

Wednesday, March 25, 2009

British Bond Auction Failure

In an earlier post, we had written about Quantative Easing and governemnt keeping rates artificially low. We had worried whether the there will be ennough investors out there to buy the bonds.

The 40-year UK auction did not have ennough demand.

Bank of England Governor Mervyn King told a U.K. parliamentary committee Tuesday that the government needs to be "cautious" about further fiscal stimulus.

This is the kind of news that scares you. Just imagine UK/US unable to sell their record bonds at the time they need the most. This is why the government spending an enormous amount may come back to haunt later.

This auction will also determine how successful the governments are in QE.

Mr. King spooked the market Tuesday by saying that the central bank wouldn't necessarily need to buy the full 75 billion pounds of gilts it first announced. That came on a day when consumer price inflation was shown to have risen in the year to February, raising questions about the extent of further quantitative easing required

http://online.wsj.com/article/SB123799043956938621.html

Wednesday, March 18, 2009

Fed buying upto $1.3 trillion in bonds

The fed is buying upto $750 billion in mortgage-backed securities and upto $300 billion in longer term treasuries. They are putting additional 1.05 Trillion to buy bonds and further expanding their balance sheets.

With fed being about 25% of the mortgage market, how is there going to be price discovery? This will keep the bond yields artificially low.

It's going to be interesting how China reacts to this. On one hand, they already own a big chunk of treasuries whose prices just went up. But the yields are going to be artificially low on the new treasuries they are going to be buying.

If you are a regular investor, would you buy the treasuries? As the yields on these bonds are artificially low. So it's going to be interesting to see if there is less demand for the bonds. Remember Warren Buffett said last week that there was a bubble in treasury. Now it's a bigger bubble.