Few Gain, Many Lose from Frannie Bailout

Monday, September 8th, 2008

UK bank shares are having a huge day (above are the 9:20 a.m. (Eastern Time) prices of UK bank stocks, September 8, 2008), following this weekends Frannie bailout announcement.

It appears that the short squeeze in bank stocks is in this morning’s trading.

Here are some excerpts from the saavy folks at DealBook.

Over the years, Fannie Mae and Freddie Mac showered riches on many winners: their executives, Wall Street bankers and Washington lobbyists. Now the foundering mortgage giants are leaving some losers in their wake, notably their shareholders, rank-and-file employees and, in the worst case, American taxpayers.

Golden Parachutes all around:

Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay…

Richard F. Syron, the departing chief executive of Freddie Mac, could receive an exit package of at least $14.1 million

Its not clear that these former Frannie executives will actually get compensated.

But worst of all, long investors in either are getting killed:

The shareholders of Fannie Mae and Freddie Mac, including many employees, will not be so lucky. The companies’ share prices have plunged about 90 percent this year, wiping out about $70 billion of shareholder value. The shares are likely to be worth little or nothing under the government’s rescue plan.

As a result, Wall Street money managers and everyday investors alike stand to lose big. Bill Miller, the star mutual fund manager at Legg Mason, increased his bet on Freddie Mac even as the company’s shares plummeted this year. Last week, when Freddie Mac stock was trading at about $5, Legg Mason disclosed that it had bought an additional 30 million shares. Other value-oriented investors, including Rich Pzena, David Dreman and Martin Whitman, also placed big bets that the mortgage companies would recover. None of these money managers returned calls for comment.

“I am just shocked how they missed this, and why, when it became completely clear that the problem was snowballing, guys like Bill Miller doubled down,” Douglas A. Kass, head of Seabreeze Partners and an outspoken short-seller, told The Times.

And the few investors that gain:

Among the most vocal short-sellers betting against the companies is William A. Ackman, who runs a hedge fund called Pershing Square Capital. Mr. Ackman was among the earliest to warn of the credit crisis, and he is believed to have landed a windfall after shorting both companies, according to The Times, which cited a person with direct knowledge of a recent investment letter.

Tags: Banks, Fannie Mae, Financials, Freddie Mac, GSE, Paulson
Posted in Banks, Credit Markets, Economy, Financials, Investment Strategy, Markets | No Comments »

Let Fannie, Freddie Fail: Jim Rogers

Monday, September 1st, 2008

Fannie Mae and Freddie Mac should not be saved if they go bankrupt, and economic stimulus packages do more harm to economies in the long run than good in the short term, Jim Rogers, CEO of Rogers Holdings, told CNBC Friday, August 29, 2008 at 3:15AM from Singapore.

View Part 1, Click Play

View Part 2, Click Play

Tags: Credit Markets, Derivatives, Fannie Mae, Financials, Freddie Mac, Jim Rogers, Mortgage
Posted in Banks, Credit Markets, Economy, Financials, Geo-political, Gold, Markets, Monetary Policy, Strategy, US Stocks, wisdom | No Comments »

PIMCO Co-CEO: When Markets Collide

Sunday, August 31st, 2008

About a month ago, Charlie Rose interviewed PIMCO’s Mohamed El Erian. El Erian is one of the country’s most successful money managers. He’s the co-CEO of the Pacific Investment Management Company, better known as PIMCO which oversees more than 829 billion dollars. He previously led Harvard University’s endowment to substantial returns on investment. In the interview, which is available below, Charlie Rose speaks to him about his new book “When Markets Collide” and how he sees the global economy today.

View Part 1, Click Play

View Part 2, Click Play

View Part 3, Click Play

Tags: credit market, Derivatives, El-Erian, PIMCO
Posted in Banks, China, Credit Markets, Economy, Emerging Markets, Financials, Fixed Income, Gold, India, Investment Strategy, Markets, Monetary Policy | No Comments »

Hendry: Speculation is Dead, Gold is Heading to $600

Saturday, August 30th, 2008

As you know, GreenLightAdvisor.com is a huge fan of the outspoken Hugh Hendry, CIO, Eclectica Asset, who has been a unique, eloquent, and brash voice in this market. Its our sense that Hendry is also uniquely alone, and lucid, in the marketplace in terms of his outlook, and for this reason should be added to your must see/must listen to list.

click image to watch

The segment which aired August 19, 2008 on CNBC Europe, also contains midway, a terrific interview with GE CEO Jeff Immelt.

“There is no role for speculation or speculators today. This is kaput,” Hendry said. “If we were Second World War generals, we’ve exposed our flanks. We’ve been wiped out. This is about fundamentals … this is about losing money.”

As the crisis unfolds, the policymakers’ focus should shift from the threat of inflation to that of the world economic downturn, which could be more severe than economists anticipate, he said. (Watch Hendry’s interview below for more on the economy, inflation and commodities).

China, which many believe will balance out slowdowns elsewhere, will struggle if difficulties in the U.S. continue, while the current spike in producer prices is just a hangover from rising oil prices earlier this year, Hendry said.

“I fear that the central bankers of the world are fighting yesterday’s battle,” he said.

As for the banking sector, it is “insolvent,” Hendry said, adding he can’t tell just how low those stocks will go.

Tags: Banks, Commodities, Economy, Hugh Hendry, Monetary Policy, Recession
Posted in BRIC, Banks, Brazil, China, Commodities, Credit Markets, Crude Oil, Economy, Emerging Markets, Financials, Fixed Income, Gold, India, International Markets, Markets, inflation | No Comments »

Largest Companies in the World

Wednesday, August 27th, 2008

Once again, we continue to be impressed by the charting and tabling work that Bespoke Investment Group compiles on a daily basis. Here below is the latest survey which compiles the largest market capitalizations of companies from around the world.

One notable standout is the size difference between Exxon Mobil ($438-billion) and Gazprom ($237-billion). We point this out simply because while Exxon is worth close to twice as much in market cap, Gazprom happens to be 6 times larger according to their total hydrocarbon reserves, and a reserve life index of roughly 28 years or so, vs. Exxon’s 17-18 years. This is the post Georgia debacle, post-oil-price-downturn price. Russian energy companies are cheap, cheap, cheap.

And, even after the huge haircut that PetroChina and China’s largest banks and companies have gotten the last year, PetroChina still commands 2nd place at $341-billion, China Mobile at 5th place, ICBC at 7th place, and CCB in the 15th spot.

Finally, where is India? We give 3-5 years before several Indian outfits make it to the market cap pantheon. That spells opportunity.

Below we highlight the 30 largest companies in the World by market cap ($). As shown, Exxon Mobil is the top dog by about $70 billion. Exxon is trailed by another energy company, Petrochina, then General Electric and Microsoft. Eleven of the top 30 are based in the United States. The Energy sector has the largest representation at 8, followed by Technology at 5. Only 3 companies in the top 30 are up in 2008 — Wal-Mart, IBM and Johnson&Johnson. And Apple and Google followers will be happy to see them ranked 25th and 26th in the World.

Tags: Market Cap
Posted in BRIC, Banks, China, Crude Oil, Emerging Markets, India, Markets, Oil & Gas, Russia, US Stocks | No Comments »

Video: Faber Says Fannie, Freddie Should Split Up, Not Get Aid

Friday, July 25th, 2008

Investor Marc Faber, publisher of the Gloom, Boom & Doom Report, talks about the future of Fannie Mae and Freddie Mac, the global economy, and the outlook for stocks and commodities. Faber said Freddie Mac and Fannie Mae should close down their business or split into private companies and not get government aid.

click for video

00:00 “The world is in recession already.”
01:35 Earnings to “decelerate”; technology stocks
02:59 Need to close down or split Fannie, Freddie
05:11 Concerns about technology stocks
05:41 S&P 500 forecast; outlook for interest rates
07:50 “The Fed is totally ineffective.”
08:39 Outlook for oil prices, commodity markets
10:35 Credit crunch, impact on economy
11:24 Overseas interest in U.S. assets; China
13:46 U.S. resource companies “attractive” to Asia
14:47 Worst case: “colossal bust with inflation”

Source:

Faber Says Fannie, Freddie Should Split Up, Not Get Aid

Bloomberg, July 23, 2008 07:22 EDT

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=af89KR4uyEGI

Tags: Bail Out, Credit Crisis, Fannie Mae, Freddie Mac, Marc Faber
Posted in Banks, Commodities, Credit Markets, Financials, Geo-political, Gold, Markets | No Comments »

The Bonfire of the Vanities, the Sequel

Thursday, June 26th, 2008

June 26, 2008 - Andrew Ross Sorkin, of the New York Times, writes about how prophetic Tom Wolfe’s declaration was on the day of the Blackstone debut: “We may be witnessing the end of capitalism as we know it.”

When you get to the end of an era, marking the timeline with watershed events is always therapeutic. Here are some excerpts from Sorkin’s NYTimes article:

… Mr. Wolfe must be in attendance — was that the Blackstone Group, the big private equity firm, was minutes away from going public, the largest initial public offering in the United States since 2002. (At the time, he told The New York Observer that a friend was giving him a tour.)

Just then, a CNBC reporter pulled Mr. Wolfe aside to ask him what he made of all the hubbub. Mr. Wolfe paused for a moment to contemplate his answer.

And then, with a wry smile, he delivered a prophetic declaration: “We may be witnessing the end of capitalism as we know it.”

 

One year later …

Blackstone’s stock has gone nowhere but down since it went public, dropping nearly 50 percent from its high the day it started trading. But that’s the least of it.

The once mighty Wall Street investment banks have been brought to their knees, sending out pink slips to more than 83,000 employees worldwide, racking up billions of dollars in losses as a results of their foolish forays into subprime mortgages. Bear Stearns all but went out of business before being “saved.” Some hedge funds have gone belly up.

Those lords of private equity, many of which were preparing to follow Blackstone into the public markets, have been put on semipermanent hiatus. (Kohlberg Kravis Roberts & Company refuses to withdraw its I.P.O filing, almost a year after submitting it, with no immediate hope in sight.) Their deal-making has all but stopped.

As Mr. Wolfe nicely put it, “It sounds like even the firms that aren’t in trouble are in trouble.”

And, what of credit …

And yet, there has been a perverse, and misguided, optimism that somehow the situation will improve in the second half of 2008. How? Sure, the big banks may take fewer write-downs — but there is no way of knowing that. The news a few days ago that the big bond insurers were being downgraded will create new havoc — and losses — for holders of toxic subprime debt. Indeed, the bigger issue is what kind of business is going to generate any return for its investors. When you can’t lend or trade — and you can’t invest with the leverage that juiced returns to support seven- and eight-figure bonuses — how exactly are you going to make money?

“It has always interested me that the word ‘credit’ comes from the word ‘credere,’ which means ‘to believe,’ ” Mr. Wolfe said. “It only works if people believe in it.” He’s right, of course: one reason the credit markets have tanked is that people don’t believe anymore.

Complete Article:

A “Bonfire” Returns as Heartburn, Andrew Ross Sorkin, NYTimes, June 24, 2008

Tags: Andrew Ross Sorkin, Banks, Bear Stearns, Blackstone, capitalism, Dealbook, Financials, Markets, Tom Wolfe
Posted in Banks, Credit Markets, Economy, Financials, Markets, Satire, US Stocks | No Comments »

Derek Webb Interview, Part 1 - Outlook and Investment Strategy

Tuesday, May 13th, 2008

May 12, 2008 - GreenLightAdvisor.com recently interviewed [Part 1] Derek Webb, Portfolio Manager, Webb Asset Management. Here are some excerpts from Part 1, in which Mr. Webb shares his outlook and his thoughts about how he trades in volatile and range bound markets. Here are some excerpts:

Regarding the Fed’s recent moves…

Anytime the Fed puts this much liquidity in to the system it’s like blowing into a pipe; all that pressure has to go somewhere—When the Fed drops hay bails of money out of the helicopter, those hay bails of money are like molecules. They have to attach themselves to something.

When you look at the huge amount of money put into the system because of the Long Term Capital Meltdown and Russia—now that liquidity event created the internet bubble. This is no different.

All of this liquidity is going to find a home. I’ll tell you that I think it’s finding its home right now. Fundamentally I am very bullish because of all this liquidity.

On his investment focus…

Through our quantitative homework we found that the delta or change in earnings is the only thing that’s predictable in terms of determining the direction of a stock’s price. That’s all we focus on; that’s all our research focuses on. So, where is that delta accelerating right now—it’s in commodities. Agriculture is number one, Oil and gas are number two, some base metals number three, like copper—The shine has kind of come out of precious metals in the short run, but I don’t think that trade’s over, I think it’s more of a seasonal thing right now.

On when to sell:

[Firstly], If we saw one analyst lower EPS forecasts for Potash, for example, WE WOULD BE OUT. Analysts are out there doing site visits. They’re doing their homework – as long as they’re raising their numbers we’re going to be long. As soon as we would see them hold steady or lower their numbers we would be out.

Secondly, if the earnings themselves just start to de-accelerate, meaning we are looking at a smooth line of earnings, not to get complicated, but we look from 3 quarters ago out to the next quarter and if that rate of change de-accelerates were out.

Thirdly, one negative earnings surprise and we’re out.

And lastly, if the relative strength indicator of the stock de-accelerates were out.

We’re ruthless on all our positions.

And lastly, if the relative strength indicator of the stock de-accelerates were out.

PART 1: Derek Webb Interview, GreenLightAdvisor.com.

Visit Webb Asset Management for more information.

Tags: Agriculture, bifurcation, Derek Webb, Fed, Investment Strategy, liquidity, Markets, Metals, Monetary Policy, Oil and Gas, Webb Asset Management
Posted in Agriculture, Banks, Canadian Stocks, Commodities, Credit Markets, Crude Oil, Economy, Financials, Gold, Markets, Oil & Gas, inflation | No Comments »

Chart: US M3 Money Supply Growth

Wednesday, May 7th, 2008

May 7, 2008 -  Courtesy: Nick Barisheff, The Bullion Buzz Newsletter, Bullion Management Group Inc.

US M3 Money Supply Growth

M3, which is no longer published by the US Federal Reserve, is the broadest measure of money supply. It includes M2, as well as certain accounts held by banks and thrift institutions (including balances in money market mutual funds held by institutional investors). Since March 2006, M3b, a reconstructed version of M3, has grown by nearly $4 trillion, from approximately $10.5 trillion to about $14.2 trillion. To put this in perspective, total M3 in 1971, when the US cut the dollar’s link to gold, was less than $800 billion. The current annualized rate of increase is now about 20%. Since the classical definition of inflation is an increase in money supply that leads to an increase in goods and services, the price increases we are now experiencing are destined to accelerate. Given these inflation realities, portfolios need to be rebalanced to ensure that purchasing power is preserved. As precious metals are proven hedges for inflation, portfolio holdings should be rebalanced to ensure adequate allocations are held.

http://www.nowandfutures.com/key_stats.html

Tags: Currency, Economy, inflation, M3, M3 Money Supply Growth, precious metals
Posted in Banks, Credit Markets, Economy, Financials, Fixed Income, Gold, Markets, Monetary Policy, inflation | No Comments »

Don Coxe’s Recommendations (Basic Points, 04/29/2008)

Monday, May 5th, 2008

May 5, 2008 – Here we feature the recommendations of Don Coxe, BMO Capital’s Chief Investment Strategist. As usual, his paragraphs are eloquent and provide significant guidance.

Don Coxe’s Investment Recommendations,  excerpted from Basic Points, The Hinge of History II, April 29, 2008

1. In long-only equity portfolios, continue to underweight Wall Street banks and others that have been reporting high exposure to perfumed products of indeterminable value, including those which last year revealed—under duress— high exposure to SIVs. Within the financials, emphasize those whose loan losses are of the traditional, cyclical variety—not in derivatives or in untraditional banking businesses. Good banks that have stuck to their knitting—and whose CEOs compensation has suffered along with their stock prices—should be retained.

2. In long/short portfolios, be long commodity stocks and short bank stocks that make headlines for untraditional losses. That trade hasn’t been working lately, but it remains an overall portfolio risk-reducer. The list of banks that have shown great skill and profitability by going heavily into new kinds of products and new kinds of accounting is roughly as long as the list of major copper, oil and gas producers that profited by selling heavily forward.

3. A financial-led bear market within a financial-led recession can be particularly perilous if central banks run out of ways to reflate the system—and surprisingly benign if the central banks’ rescues remain timely. To date, the central banks have been up to the job—if propping up a badly-behaving financial sector is a key component of their job descriptions. Result: the overall stock market has outperformed our expectations. We still don’t like the risk/reward ratio.

4. Dividends become more attractive as central banks cut rates. The problem for investors is that many of “The Great Dividend-Paying Stocks” are financials that have been reporting ghastly blunders. In many cases, their payout ratios have climbed far above the 50% threshold that has made these stocks better investments than bonds. Opportunities remain—and dividends may be the only positive return most US stocks will deliver this year.

5. Although North American consumers have yet to see the cost pass-through in major foodstuffs of $6 corn and $8 wheat, it will come sooner or later. Based on past periods of food inflation, one of the first consumer cutbacks is on eating out. Restaurant stocks are especially unappetizing when food costs soar out of control.

6. Gold has pulled back from its high because the dollar stopped falling and the bank bailouts seem to be working. Remain overweight gold as a clear-cut hedge against further bad news on both those fronts.

7. The Canadian dollar decoupled from the euro, failing to rally to new peaks—which makes little sense to us. US clients should continue to use Canadian government bonds and Canadian short-term investments as alternatives to Treasuries and US cash.

8. Within the commodity group, continue to accumulate the leading agricultural stocks. Given the spectacular performance of the fertilizer stocks, the best bargains currently on offer are in the farm machinery companies. The global food crisis will almost surely cripple the opposition to GM seeds, which means the seed stocks have great upside room.

9. Within debt portfolios, continue to emphasize inflation hedge bonds—preferably in strong currencies. Treasuries remain overvalued, despite the recent strong run-up in yields from barely-observable levels.

Tags: Agricultural commodities, Agriculture, Bank stocks, BMO Capital Markets, Commodities, Donald Coxe, Emerging Markets, energy, Financials, Grain prices, Investment Strategy, Markets
Posted in Agriculture, Banks, Commodities, Credit Markets, Crude Oil, Economy, Financials, Fixed Income, India, Markets, contango, energy, gold stocks, inflation | 1 Comment »

Jeff Rubin: The Age of Scarcity (04/24/08)

Wednesday, April 30th, 2008

April 30, 2008 - CIBC World Markets Chief Strategist, Jeff Rubin, says that Oil will eventually reach $150/barrel in 2010 and over $200/barrel by 2012. He cites among the leading reasons, the advent of cheap cars from India and China, or rather Tatas and Cherys, that will enable millions of middle class Asians who couldn’t previously afford a car, to do so, Take these developments and place them agaisnt the backdrop of peak oil and a decline in oil exports from key suppliers, Saudi Arabia, Russia and Kuwait, and we are in the midst of a long term supply/demand imbalance. Here are couple of excerpts:

Whether we are already at the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity.

Our latest review of probable supply suggests oil production will hardly grow at all, with average daily production between now and 2012 rising by barely more than a million barrels per day (see pages 4-7). Despite the recent record jump in oil prices, the outlook suggests that oil prices will continue to rise steadily over the next five years, almost doubling from current levels.

While global oil supply is not growing, global gasoline demand is, and will continue to grow as cheap cars from Tata and Chery dramatically cut barriers to car ownership in the developing world. Millions of new households will suddenly have straws to start sucking at the world’s rapidly shrinking oil reserves.

Car purchases in Russia, for example, are exploding as US sales stagnate (Chart 2), while in India the advent of the Tata Nano, a car that will sell for as little as US$2,500 will allow millions of households in the developing world to own automobiles when they otherwise could not. It is the savings necessary to buy a car, not the price of gasoline that poses the greatest obstacle to fuel demand growth in those countries. But between rapidly rising domestic incomes and rapidly falling car prices, that obstacle is becoming more and more surmountable.

To read the complete report, click here:

StrategEcon: The Age of Scarcity, CIBC World Markets, April 24, 2008

Tags: Asia, Chery, CIBC World Markets, Economy, energy, India, Jeff Rubin, Middle Class, oil, Russia, Scarcity, Tata
Posted in Agriculture, Banks, Brazil, CPI, China, Commodities, Credit Markets, Crude Oil, Economy, Emerging Markets, Financials, Geo-political, Gold, India, International Markets, Latin America, Oil & Gas, Russia, energy | No Comments »