Tom Lindmark

Paulson Throws Bernanke Under the Bus, Backs Ken Lewis

MAC means material adverse change. Many contracts contain MAC's which allows one party or the other to back out if an event happens that alters the basis for entering into the contract. They're very hard to enforce.


On Apr 23 03:56 PM Jim Benham wrote:

> Mr. Lindmark:
>
> What does MAC stand for?

Breathing Room for Option ARMs

No, most were written with a reset triggered by the earlier occurence of hitting the cap on negative amortization or at the five year anniversary.


On Apr 22 01:03 AM oldtrdr wrote:

> I note you mentioned that the reset is contingent on either the 5
> year anniversary of the loan, OR when the deferred interest reaches
> a specified level....should I assume that some mortagages were written
> one way, and oithers the other? If so, some will benefit (for a while),
> but others won't (the ones that reset according to anniversary date).

Caterpillar's Loss Not a Good Harbinger of Economic Things to Come

Ricard,

The statement was meant to differentiate Cat's results from what we normally associate with economic indicators. Things like consumer confidence and employment. Your comment is absolutely valid.


On Apr 21 09:50 PM Ricard wrote:

> Tom,
>
> I'm not sure why you consider Caterpillar an unconventional indicator
> for US economic activity. Its business is at the heart of nearly
> every other US business, i.e., building something with heavy equipment.
> If Caterpillar's outlook is positive (as it is in China), then people
> are making plant investments and larger capital purchases. The uncertainty
> regarding America mirrors the uncertainty in Caterpillar's earnings
> projections. The correlation is very strong.

Caterpillar's Loss Not a Good Harbinger of Economic Things to Come

Thanks for that item about the misquote. I hadn't heard that before.


On Apr 21 08:04 PM Third Party Guy wrote:

> "...the U.S. fiscal stimulus program is insufficient to offset the
> decline in private domestic demand....once again, evidence that despite
> the big numbers being thrown around in Washington too little is being
> directed where it would do the most good."
>
> If you will remember, President Obama visited CAT earlier in the
> year shortly after CAT announced 20,000 layoffs. In his speech,
> Obama misquoted CEO Owens in saying that they agreed that the stimulus
> would alloy CAT to rehire many of its employees. In reality, Owens
> said a reasonably packaged stimulus would allow that rehiring (not
> necessarily Obama's Stimulus).
>
> I imagine this chatter is a poke back at the administration.

Caterpillar's Loss Not a Good Harbinger of Economic Things to Come

Thanks.

Can GM Really Abandon Trucks and SUVs?

One of the most misunderstood things about CAFE standards is that they do not allow any car company to import cars in order to meet the standards. It is known as the "two fleet rule."

Only domestically produced automobiles are used to compute compliance with the law. GM could import Opels - a very popular, fuel efficient car it makes in Europe - to its heart's content and it would have zero effect on its compliance with CAFE limits.

The law was written in this manner to protect U.S. labor. Legislators recognized at the time they wrote the law that without this provision the manufacturers would just import autos that they already made overseas in order to meet the standard. In effect, the "two fleet rule" is a job protection provision.

Note that this applies to Toyota as much as it does to Ford or GM.


On Apr 17 12:37 PM Toddms wrote:

> From Miken : "It's very difficult for a car company to profitably
> build these small cars in the U.S., so the logical thing for the
> multi national companies to do is build them elsewhere and bring
> them in. That not only applies to the UAW companies, but the Toyota
> Yaris, Prius and Honda Fit are built outside this country and imported.
>
>
> So, as often happens, the government is working at odds with itself.
> They are driving auto manufacturing away, while pretending to help
> preserve jobs."
>
> Probably one of the most poignant comments I've seen, and a point
> missed almost entirely in the media and by the govt. This is truly
> the heart of the matter.
>
> Lindmark has another good point - GMC buyers pay a premium over
> Chevrolet buyers for the presige and quality (percveived or real).
> Same reason Honda sells an Accord for more by calling it an Acura
> TL. Same for Nissan/Infiniti and Toyota/Lexus and Ford/Mercury/Lincoln.
> GM's unique problem is that instead of 2 tiers which is reasonable,
> GM had originally 5 tiers from Chevy to Pontiac to Olds to Buick
> to Cadillac. This is the "excess brand" problem - there just isn't
> enought room for that much differentiation within one company using
> the same platforms and powertrains. But getting rid of GMC on the
> same principle would be a giant error - it is already a proven success
> (moneymaker).
>
> Another comment - with as much public outcry as we seem to hear about
> needing higher mileage cars, it has been a fact ever since CAFE kicked
> in around 1977, that trucks have been the most profitable vehicles
> assuming reasonable fuel prices. The public (and govt) seem to vote
> one way with their mouths and another with their pocketbooks, and
> then bad mouth the auto companies for obeying market forces. If
> GM, Ford, Chrysler had been really savvy, they would have stopped
> making the unprofitable small cars in the US completely as Miken
> suggests, and gone to importing them from low wage countries ala
> the Chevy Aveo. How would that have gone over in the press, or with
> the UAW for that matter? GM could have just paid the CAFE fines
> like BMW and Mercedes do, as a cost of doing business. This would
> have made way more sense than building 300,000 Cavaliers a year at
> a loss of $2000 each (just 1 of many examples) just to avoid a few
> million $ in CAFE fines. Instead GM kept the jobs in the US and
> met CAFE standards, even if the prime motivator was to appease the
> UAW, it is what everyone wanted at the time. But as they say, no
> good deed goes unpunished...
>
> We are the only country that has anything like CAFE - everyone else
> manipulates auto purchase behavior (ultimately fuel consumption)
> via fuel taxes. But we seem wedded to the bass ackwards CAFE approach
> which does nothing but confuse and inflame the public and cause our
> manufacturers to make ridiculous business decisions, while doing
> nothing except encouraging people to drive more, while not conserving
> fuel.

Can GM Really Abandon Trucks and SUVs?

samroll and mcl_mixer,

I appreciate the comments but you may also want to do some research. Here is a point at which you might want to start. It's from the WSJ. Facts and figures.

As a lifelong truck salesman, he wonders if the task force appreciates the deep loyalty of GMC owners. "There are many GMC drivers who would never buy a Chevrolet," he said.

In the American truck culture, there's a belief among many owners that GMC pickups are higher quality than Chevrolets. GMC's Sierra tends to retain a higher resale value than a Chevy Silverado with identical options.

Amid the 2008 sales slump the Sierra outperformed rivals. While sales dropped 26% for the Ford F150-350, 30% for the Toyota Tundra and 25% for the Chevy Silverado, the GMC Sierra saw only a 19% drop, according to Autodata, a market-research firm.

On Apr 17 12:13 AM Samroll wrote:

> Poor, poor research on this article. As the poster above stated the
> exact same models are made by Chevrolet. Getting rid of GMC is simply
> getting rid of inefficient duplication of models. Maybe this is why
> the government thinks GMC should be dropped? Try understanding something
> about the auto industry before you write your next article about
> it.

Triad Guaranty Ordered to Reduce Payments on Claims

Nice thought! I guess there are limits to how many institutions you can corrupt.


On Apr 03 02:01 PM Allan Frain wrote:

> It seems that Triad counterparties failed to place former employees
> within the ranks of the state regulators. Worked for GS.

Economic News Roundup: It Could Be Worse

I appreciate your comment but job creation won't come until after the economy starts recovering. Employment growth always lags recovery. Always has always will.


On Apr 01 10:06 PM Menard wrote:

> "But new orders rose to 41.2 from 33.1 in February. A reading of
> 50 indicates stability so we are at least moving back in that direction"
>
>
> That is putting a real positive spin on things!
>
> The economy won't recover until it starts creating jobs. It is still
> destroying them in high numbers. The economy is still contracting.
> That is the bottom line and there's no way to spin that.

Economic News Roundup: It Could Be Worse

OK all you naysayers. I picked this up from Twitter today.

"hearing that some Asian semico plants have seen huge inventory-rebuild spikes in capacity usage in recent weeks, from 30% to 100%."

The guy who wrote it is a well known writer, blogger and investor. I won't use his name as that doesn't seem kosher.

Don't get stuck in the conventional wisdom. This thing could turn positive faster than you think. Of course, that just means we pull forward the second recession.

The GM Poker Game - Is Obama Bluffing?

Randy,
I don't think that very many people hate the UAW, What they might not like is the UAW or executives at AIG or CEO's of companies that refuse to make sacrifices while asking the taxpayer to help them out.

When anyone loses his or her job, it is a negative for the country. The fact that they belong to the UAW doesn't make it a bigger or smaller tragedy.

The fact that others might be assisting their auto companies doesn't necessarily mean it's the right thing for the U.S. to do. We aren't talking about assisting the entire industry just two of its weakest players.


On Mar 31 04:47 PM RandyFLA wrote:

> If GM and Chrysler go into bankruptcy, expect 12% to 13% unemployment.
> Please answer me, why do most Americans seem to hate the UAW. It
> will soon be that anyone can start a union anywhere in America, with
> no secret ballet. When a UAW loses his/her job, all Americans suffer.
> Does anybody understand this? Europe, Japan, Canada and many other
> countries are supporting their auto companies, is it un-American
> to support ours?

Commercial Real Estate: What Hancock Building's 50% Sales Price Means

Oops. Actually, I was just trying to see how closely SA's readers looked at the pictures.

Home buyers who bought the "median priced single-family" home at the 1979 peak are now under water.

Here is a link to a better chart that is inflation adjusted, uses an index as opposed to median prices and goes back to 1900.www.butthenwhat.com/?m...

There is some truth in the chart presented here but by using median prices it overstates the decline in the last two years. The major problems with real estate have been in the lower priced segments of the market. This is where foreclosures are occuring and most of the sales are concentrated. With few sales at the medium and upper ends the median price right now is historically distorted downward.

What Else Are the Banks Hiding?

Matt,

I don't disagree with your points. In fact if you look at some of my other posts you will see that I subscribe to the position that the banks are generating exceptional amounts of net interest income (hard not to given the yield curve).

My concern is that the embedded losses in their balance sheets will overwhelm them before they can earn their way out. I think Wells is probably better than most of their peers but still questions linger. If more information was available -- reliable information not the banks' interpretation -- I could make a reasonable judgement.

As it is I remain hopeful and skeptical. Too many recent surprises that I just can't shake.


On Mar 26 10:44 PM MattZN wrote:

> The media tends to focus only on the negative aspects of the banks.
> They don't seem to be able to spend even 10 minutes reading a 10-K,
> so most people never hear about the positive aspects.
>
> Take Wells Fargo for example. Due to new government rules Wells was
> able to combine Wachovia's tax asset (tax carryover) with its own
> tax liability (taxes owed), turning something like a 4-5 billion
> tax bill into an 11 billion+ tax carry over that will zero out Wells
> Fargo's taxes for one to two years. It's right there in their 10-K.
>
>
> Another example is the net interest margin. Big money center banks
> like Wells are increasing their deposit base by leaps and bounds.
> Those deposits cost the bank 1-2% in interest paid to depositors.
> At the same time the bank is turning around and originating mortgages
> at 4-6% with that money. Wells has one of the highest net interest
> margins in the business right now.
>
> A third example would be mortgage refinances and originations. Refi
> activity is the highest ever recorded right now. Each refi brings
> in significant income in fees to the bank, removes the original loan
> from whatever securitzed vehicle it had been sitting in previously,
> and puts serious money in the pockets of large numbers of middle-class
> families which I guarantee you they will be spending at least some
> of. And we aren't talking about one-time here, we are talking about
> improved cash flow for millions of Americans.
>
> The question has never been whether there would be mortgage losses
> or not. Everyone knows there will. The question has always been whether
> the banks can cover those losses with earnings. In fact, I think
> Wells has a pretty good handle on that, making it rather silly to
> price its stock as if it were going out of business.
>
> Just looking at the negatives will not give you the whole picture.
> The media has been focused almost entirely on the negatives for the
> last 6+ months.
>
> -Matt

Regulating Compensation: Where Does It Stop?

There is a groundswell and that concerns me. Bad decisions are often made in the heat of the moment.

That having been said, I agree with the general tone of your comment. Size has become the enemy particularly in banking. I've written several articles advocating a return to Glass-Steagall or some variant of it. We have to make sure too big to fail does not occur again.


On Mar 23 10:46 PM William Cowie wrote:

> Tom, I hear what you're saying. However, there is a groundswell of
> resentment regarding executive compensation. It has become ridiculous.
> Nobody is "worth" $10 million. Obama, with his finger to the wind,
> is picking up on this.
>
> The economic history of the U.S. is replete with government regulation
> following egregious abuse of market freedoms by business. I'm a libertarian
> at heart, but even I have to admit, most of those regulations (antitrust,
> etc.) have worked. The message from history is simple: if CEO's abuse
> their freedoms, government regulation will ensue. Whether it is right
> or wrong becomes not the point, it just becomes inevitable. It happened
> with business spending on sports stadium suites, and that got addressed
> by making those expenses not deductible. It didn't put a total end
> to it, but it did create a brake.
>
> Personally, I believe the government would do much better by simply
> breaking up recent mergers. Why did Exxon and Mobil have to merge?
> Conoco and Phillips? Banks? Every time the government broke up big
> companies (standard Oil, AT&T) only good things happened. Why
> not do it again? It's harder to pay big bonuses from smaller companies.
> They employ more people, make more money, and when someone does something
> stupid, the damage is much easier to contain.
>