just.a.guy

Zubin Jelveh says Paul Wilmott's logic on high-frequency trading is off - not every trading strategy is as disastrous as portfolio insurance. "The algo is acting like the middle-men we're all quite familiar with. It seems to me that it's now up to institutional investors to be as inventive as the sell-side algos and figure out a way not to get gamed."

"It seems to me that it's now up to institutional investors to be as inventive as the sell-side algos and figure out a way not to get gamed."

This is akin to saying it is now up to cheated marks in a rigged poker game to be as inventive as the crooked host who marked the playing cards and figure out a way not to get gamed (while continuing to play with the same marked deck).

Is the Fed Losing the Mortgage Rate Battle?

Andrew -- Mortgage markets are ruthlessly competitive, so the higher rates now are probably less coordinated profit gorging and more survival tactics undertaken by banks with heavily damaged balance sheets. It's worth noting that if all the largest lenders are having to charge higher rates, that it probably provides a nice price umbrella for smaller regional banks whose balance sheets are not a trainwreck, and are currently underwriting and actually holding onto mortgages?

Goldman Sachs (GS +0.4%) has paid $1.1B to redeem the government's TARP warrants, saying the Treasury's valuation was "full and fair," given the government's support of the financial system.

It is a small price to pay to in rent for an oligopoly franchise in exchange for ever-increasing market power. All the better to enable more "full and fair" bonus payments to their employees.

The Time Has Come to Regulate Search Engine Marketing and SEO

If a company's business is entirely dependent upon being found via online (Google) searches, perhaps that company should invest in alternate means of generating awareness. There are many media choices out there.

If, however, such a business cannot cost effectively and profitably generate awareness and sales through other means, then its owner/operator will learn a valuable and possibly expensive lesson about building a business that depends upon the kindness of strangers.

Balancing California's Budget: The Home Game

If I tried to send in an "IOU" to pay my obligations to the holder of my home's mortgage, I would be in default. Why do the headlines read "California Issues IOUs..." instead of "California Defaults on Its Debt"?

How to Sell TARP Warrants

On Jun 29 09:50 PM Illusional Delusion wrote:

> My thoughts exactly. If we are to maintain investor confidence by
> backing them up with taxpayer money, then it would be ridiculous
> not to act like normal investors when it comes to unwinding the rescue
> funds.

You seem to be operating under the misguided perception that the actual intent of the government is to act like an investor. Actions certainly speak louder than words in this case. Sweetheart deals for the warrants are just [yet another] way to inject more capital from the public purse into private banks, turning private debts public.

Just add the mis-priced warrants to the growing laundry list, which includes TARP, TALF, the PPIP (does that exist any more?), the AIG bailout... all are designed to appropriate massive amounts of money to swap private debt for public debt with minimal involvement by the citizenry, even by their corrupt elected representatives.

Argentina did a big private / public debt swap not so long ago... it didn't work out too well for them.

Strange Inconsistencies in the $134.5 Billion Bearer Bond Mystery

It's probably as simple as a fraud / con involving counterfeit bearer bonds. The amounts of the bogus bonds matching the TARP kitty would then be no strange coincidence. It's easy to imagine: "Greetings, sir. I am most indebted to you for your assistance in this matter involving a certain sum of bearer bonds representing the remaining amount of the ...blah blah"

Though it is disturbing that the US currency and government programs could become the subject of common scams that used to always be associated with Nigeria.

As Google (GOOG) pushes its Android mobile phone operating system onto computers, Microsoft (MSFT) is trying to extend its operating system to the rapidly growing set of consumer gadgets that includes media players, navigation systems, digital picture frames and digital TVs.

Microsoft are a strategically savvy enough organization to know that you don't fight "death from below" attacking your up-market presence with a death from above expansion strategy into the down-market.

Yet they can't avoid the same temptation to ignore reality that all successful companies fall prey to when they face situations straight out of Christensen's _The Innovator's Dilemma_.

I believe Gates understood this conundrum and got out while the getting was good. It is clear that Ballmer remains delusional.

Fed buys $7.5B out of the $21.1B of Treasurys dealers offered for repurchase.

Looking at the last 10 actions, all within about the past month, this represents the highest % of the purchasing done by the Fed in that window (at 36%), and it is the second-highest in absolute terms.

Date Total Fed Fed %
5/6/2009 37,983 6,948 18%
5/11/2009 10,426 3,510 34%
5/12/2009 22,857 6,007 26%
5/14/2009 27,086 2,975 11%
5/18/2009 15,217 3,180 21%
5/20/2009 37,181 7,699 21%
5/21/2009 45,694 7,398 16%
5/26/2009 8,523 1,550 18%
5/27/2009 18,819 6,000 32%
6/3/2009 21,114 7,500 36%

It's a fairly short series, but the short-term trend is there and not encouraging.

The Stress Test Cliff Notes

The so-called "stress tests" are really a PR exercise to cause enough of a rally in bank shares for them to sell more stock, and give up more ownership without control -- to keep the inmates in charge of the asylum while having the numbers balance (for now).

I'm not sure where they'll find the next set of suckers though, as they've already burned pension funds, hedge funds, sovereign wealth funds from Dubai to Singapore... when will these guys realize their game is over and there aren't any suckers left?

What Hancock Tower Sale Means for Commercial Real Estate - Morgan Stanley

fine66ny, I am not sure exactly what assumptions are going into this in terms of typical CRE loan duration and compounding periods, but the concept is...

What loan amount at today's interest rates would have the same cash flows as the existing loan that was assumed with its terms?

Meaning, if existing loan is $640.5 @ 5.6%, then to make the same payment if you had to borrow new money in today's market, Morgan Stanley's assumptions lead to the conclusion that for the same monthly mortgage payment/cash flow, you'd actually borrow about $190 million less!

Imagine buying a car and taking over payments from someone on an existing 0% financing deal. that existing financing has some value (and will be reflected in what a seller can get for Car A, versus Car B which you have to borrow money at say 6% to finance). The difference between the two is the value baked into the financing structure. In the case of this building, MS calculates it at $190 Million.

What's interesting is that I think the buyers originally started purchasing deeply discounted mezzanine debt on the original deal, which may have given them some rights and preferences not available to others in the auction process? Does anyone out there know if this is true? If so, then they will have paid less than the "market" price because the market would have been artificially restricted in size by their control/position in the existing mezzanine debt, which if true means the building's purchasers may have just pulled off a great distressed debt deal.

Interesting Times for Cisco; Shares Cheap Below $20

If Cisco and Huawei are not direct competitors, then where did all of Cisco's market share in China evaporate to as Huawei and ZTE have taken off there in the past several years?

How Will the Geithner Plan for Banks Ever Get Approved?

"Hi fellow Bank CEO! I heard you also have exposure to Toxic Security ABC. What do you say we sell each other $100 million worth of it?

We'll trade $3 million, the taxpayers will front us each $97 million, and voila! we each get $97 million of new capital from the taxpayers for nothing!

Yes, yes I know that all sounds too obvious and would provoke public outrage. This is why we'll establish subsidiaries with obscure names to do the trading! That is if our inscrutable internal hedge funds or off-balance sheet entities aren't already holding them.

What do you say?"

People, you KNOW this is coming...

On Mar 22 07:48 AM User 143167 wrote:

> If I am an CEO of a bank riddled with toxic assets, I will participate
> this problem so that I can use 3% of the money to buy off 100% of
> these assets at its face value. I don't even care if I lose all the
> 3% in the investment. At least, I will get 97% value back and dump
> all these assets to taxpayers. Great scheme!

Next Up: Lehman Brothers?

This is probably a pretty accurate way to measure risk for financial firms in particular. After all, the biggest piles of money moving against Lehman on the short side, buying puts, and so on, are going to be those of their Wall Street bretheren -- those most in the know about what's really going on at Lehman... who's trading with them and who's not, etc.

In fact, using public equity share price as a risk indicator is pretty much an admission that investment bank stocks move due to asymmetries of material non-public information -- that is to say, insider trading.

Will BofA Really Buy Countrywide?

kurt, I think that's what could be happening here. BAC has right-of-first-refusal on the assets as part of its $2BB convertible death-spiral financing last year.

I see the current deal on the table as just a call option for BAC, since it will have/has had a serious chilling effect on any other potential bidders.

Why would the deal just be a call option and not binding? Here, I assume that Countrywide's financial position will only continue to deteriorate, that the quality of its portfolio held-for-sale will only decline, and thus a Material Adverse Change to CFC is pretty much inevitable.

BAC will have front row seats, have done their diligence, and be in the driver's seat when this turns into a pre-packaged bankruptcy with BAC walking away with the servicing business.

Just a theory. Not one I believe in strong enough to hold onto my CFC puts, though. I sold those last month.