BerkeleyBob

Wall Street Breakfast: Must-Know News

Thought it interesting that some pundits see oil between $50 and $80, link between oil & NG seems frayed. True, some nat gas producers are slowing down extraction, true PBR has a major oil field find which will ultimately increase supply, but I personally doubt the pundit's crystal balls. Decrease in US dependence on foreign oil, much of it coming from unfriendly nations, is going to be painful and not come overnight, but I strongly doubt we will see oil at $50 or even $80 and remain long PBR, WMB, EWZ and CHK with gradual add to these positions with what is left of my money.

Apple, Amazon Pleased with Music Royalties Ruling

Good, clear coverage of a complex issue. Historically, the recording industry (RIAA) gave up performance (as opposed to mechanical) royalties for radio broadcast (at the time, terrestial radio) because the exposure would indirectly benefit sales. (ie., hear the hit on the radio for free and buy the record or sheet music to generate revenue). The NAB lobbied very hard to make sure that internet and satellite radio were not given a similar break, thus the prolonged delay by the FCC in approving Sirius/XM radio merger. None of these machinations have done much to improve the lot of the performing musician, although most professionals now are aware of the value of publishing rights. (The labels often engaged in phony accounting or simply stole mechanical royalties, and some major pop acts were not above stealing material from the often obscure originators.) The internet and satellite radio services are crucial to exposure to niche performers and listeners and the problem of fairly compensating artists (also known as content providers) is very complicated indeed. After all, no one is making large dollars from posting on web sites such as this one, right?

Nose Cut Off, Face Spited, Now What?

There may well be theoretical reasons why FSB 157 is not a good fit for evaluation of real property securities, but it has the virtue of forcing some transparency and realistic evaluations (maybe overly pessimistic) on lenders who made bad loans. Problem points include the role of rating agencies and bad appraisal practices. Unintended consequence of creating a secondary market for CDO's etc. etc. is Gresham's law in action, "toxic" loan packages driving out the large number of non-defaulting borrowers and leaving a very bad taste in the mouths of foreign central banks and institutional investors (pension funds).

What a Surprise: Credit Rating Agencies Hurt America

The role of the credit rating agencies has not been much discussed. It is clear that the collateralized debt marketed to foreign central banks and institutional investors (pension funds) was not of the prime quality represented. One undiscussed consequence is the damage the packaged and toxic loan packages have done to US credibility in the world markets... Of course, the agencies involved may have simply exercised poor judgement and not abetted a fraud, but plenty of harm results either way.

Einhorn Comes Off No-Short List

I am long GE and painfully acquired lessons teach me that I don't know or understand a lot. However, I really did not understand your blog. How would a private hedge fund manager (Einhorn) get a short target off of the protected financial list? From at least skimming his book and the interviews I saw, my impression is that Einhorn is fairly ethical and honest, and is very unhappy with SEC lack of enforcement. Of course, Mozillo made a good impression before he sold off Countrywide and the extent of his "favors" for his "friends of Angelo" became public. At least we are both banging our heads over GE; I added to my position a while ago, but don't think we will see $40 a share for a long, long time.

The Insanity of Adjustable Rate Mortgages Endures

I have long thought that A. Greenspan sold the ARM as a benefit to the borrower, a boon to the consumer. It was in reality an enormous shifting of risk of future interest rate increases from lenders locked into rates below prime (remember there was some foolish federal fiscal policy to pay for a war and Regan's budget director believed lowering tax rates would increase revenues) to borrowers. We have had the benefit of relatively low interest rates and consequent stability in long term loans (average length of ownership remains about 7 years, not 30). I agree that ARM's are not a good deal; we changed to a 15 year fixed several years ago.

Greenspan On Current Meltdown: Interview with an Arsonist

Please recall that Mr. Greenspan endorsed the adjustable rate mortgage as being "pro-consumer". The S&L crash and repair was facilitated by laissez-faire regulation and inflated appraisals. ARM's were a massive shift of risk (of future interest rate increases) from lenders to borrowers, to the great benefit of the former. Mr. Greenspan's interest rate decreases were made in the context of manipulated basic data, GDP and CPI are both suspect. This is a bi-partisan issue; there is plenty of blame to attach.

Forget the Moral Outrage: Just Restore the Mortgage Markets

Thought the article showed more insight and clarity than many of the comments. The Chrysler bailout was a success, but there is little mention here of a very similar and less successful collapse of the S&L's--what was in common there and at present is under-regulation and lax loan underwriting standards abetted by inflated appraisals. Home ownership is a worthy societal goal, creation and subsidization of a secondary market in mortgages an appropriate technique and home owners benefit from a tax subsidy on interest and capital gains. The real "moral hazard" is to the reputation of the US government--the holders of many of the toxic loan packages dreamed up are foreign central banks and institutional investors, including retirement funds and pension plans. (Maybe the next crisis de jour?) Price deflation in housing will ultimately tempt buyers out of their bunkers, but real wages continue a secular decline and it will be a long painful slog to true recovery in a major segment of the economy.

Corning: Looking Very Cheap

I am inclined to add to my position in GLW at present price level even if initial buy was at $20 and added at $26.50. Annual report and conference call both touch on fiber optic cable and diesel emission control (fiberglass?), both large potential markets. GLW spends for research which over another year or so may well pay off. Inventory/demand for flat screen tv may be slowing but could be the market has over-reacted.

Credit Cards and Exchanges: The Only Safe Ways to Play the Financials

I took a small nibble on NYX because I felt there was value at $71.75 (mid-May) but sold about a month later at $59.20 because share volume seems to continue in a long term decline. A lot of large transactions seem to happen after market close or "off books" by institutional investors

Government Statistics: Perfecting the Art of Mass Deception

The bottom line is we can have no rational policy if we start with false data. Social Security is indexed to cpi; since demographics can't be fudged, the cpi must be manipulated to slow down the increase in benefits. Whichever candidate gets elected is going to be forced to deliver sweat, tears, and higher taxes along with some very unpopular spending cuts.

Giving Cramer the Benefit of Sirius Doubt

Love the product, but sold out my small position in Sirius long ago at a slight gain. Don't know why so many are so passionate, but I am very leery of any common stock in a company subject to heavy government "help" (FRE, FNM, anyone?). The FCC's capitulation to the NAB is similar to some of the stuff going on with RIAA and internet and satellite radio royalties--but Cramer, whom I take with large helpings of salt, is not to blame in this toxic mess. Mel Karmazin strikes me as smart and honest, but Mozillo sounded pretty good until the roof collapsed. There is a lot of information and opinion out there, but the mantra is Do your own homework
BerkeleyBob

Will a 7% Mortgage Threat Doom Fannie and Freddie?

I sold off positions in Citigroup and Freddie Mac long ago, didn't like what I was seeing. FRE and FNM are not worth buying at present levels. They are hybrids and subject to the whims of government. Recall the investment banks whined mightily about unfair competition when things were good. The basic notion of creation of a secondary market in mortgages is good policy if it frees up lenders to make more realistic loans but that wasn't happening, was it? I have no confidence in the present and past leadership of the Fed or this administration because of the disconnect between any sane fiscal policy and realistic monetary policy. Plenty of blame to spread around, but the bottom line is shareholders in either GSE are not going to see daylight and the public loses.

Credit Crisis Review: ARMed for Failure

As I recall, it was former Fed chairman Alan Greenspan who hailed the ARM as being pro-consumer. In fact, it was a massive shift of risk of future interest increases from lenders who were locked into fixed low interest rate loans. The basic policy aim was to encourage home ownership. The creation of a secondary market in mortgages was free up lenders to make more loans. The S&L bailout and the present housing problem have in common lax regulation, bad underwriting and appraisal practices and a "rescue" from a government which had played a large role in creating the issue to begin with, at the expense of the tax payer. Although individual borrowers may have made some bad and unrealistic commitments, the present "fix" in the housing bill is to allow the lenders to swap out of sub-prime loans into a fixed to the cost of $300 billion by taking only a slight "haircut" of 20% of the loan amount, with no real guarantee that the homeowner will be any more able to make a fixed mortgage payment as long as the economy as a whole is declining.

California, New York Facing Fiscal Crises, Cuts Inevitable

There is plenty of fault to find with both the legislature and the executive on the chronic structural deficit. California (and one other state) has a unique requirement of a 2/3 vote requirement for tax increases or to approve the budget. Voters have approved amendments to the constitution which sets spending preferences. A small minority in the legislature can block approval but offers no suggestions as to cuts which haven't already been taken. The finance of education at all levels is impacted by a property tax initiative, which primarily benefits large corporations (Granny can defer property taxes on her cottage until death). The governor's executive order is more of a gimmick than a realistic approach to the hard work of reducing tax preferences. It's a shame the Democratic candidate, Phil Angelides, got defeated--he is smart and tough enough to clear up the budget mess. What doesn't help is tired anti-govenment, lassez-faire rhetoric and a frank recognition that the fiscal relationship between the feds, the states and the localities has changed, and the misery of a lack of fiscal discipline by the feds has spread down the chain.