Don Martin

At least some one had the good sense to bail out CIT Group (CIT): The administration "took a tremendous risk by allowing CIT to head toward the door. It is lucky that CIT had one last chance to stay alive. The economic recovery might not have survived its demise."

The news so far about this deal has been very light on detail, except that CIT is going to pay LIBOR +10 for some bridge financing and that there will be debt swapped for equity.

This might just be the bondholders giving it their best shot to help CIT sell the FDIC a wooden nickel.

I don't know if Sheila will go for that.

Ben Stein, Predatory Bait-and-Switch Merchant

Bueller... Bueller... Bueller...

Stein's "success" over the years can be attributed to his looking and sounding the part, and not much else. That half dignified/half disheveled appearance and monotone delivery is a caricature of what the American public envisions when they hear the word "economist".

CIT Group (CIT) up 115%, reportedly talking with J.P. Morgan Chase and Goldman Sachs about short-term financing of $2B-3B as it tries to stave off bankruptcy.

I can't help but wonder if it's a DIP package that's being negotiated.

Industry chatter is swirling that CIT Group (CIT) is in talks to sell its 'factoring unit,' which finances as much as 70% of the U.S. fashion business, to JPMorgan Chase (JPM). The unit finances more than $50B in wholesale inventory annualy. (NY Post)

It might improve their liquidity and buy them a little bit of time, but I think their condition is terminal. You can be sure that any distressed sale like this would be accompanied with a huge write-off.

I'll use it as an opportunity to write more calls.

"Washington is bluffing that it will not bail out California, and every other state suffering from collapsed revenues and massive job losses," Gregor.us writes. And if the feds think they can "take a pass and wait while the states rebuild their balance sheets and clean up their payrolls," they'll be waiting forever. "None of that is underway."

If you're going to set a precedent of bailing out states after their revenues collapse and they endure massive job losses, then what state would ever work on rebuilding their balance sheets and cleaning up their payrolls?

The rest of us need to tell California to eat it.

Let's see... CIT Group (CIT) took a big loss because it continued to extend loans to companies that could not pay them back. Sound familiar? Karl Denninger begs Congress to put a stop to this: "We cannot clear the economic mess we find ourselves in until we stop the madness of propping up both the imprudent borrower and the imprudent lender."

A CIT collapse needn't precipitate a crisis for small and midsize business lending. Like any other filing, CIT could line up DIP financing and continue to lend to credity-worthy businesses. An entity in bankruptcy has the right to terminate pre-petition contracts, but that's not to say they must terminate old agreements.

The real "problem" is that many businesses that aren't credity worthy are going to have their access to capital restricted or terminated. Is that really a "problem"?

In this morning's NY Times: "While others are shying away from risks, Goldman (GS) is courting them." They were right: There's a 5% probability Goldman's portfolio will fall by more than $245M in a one-day period - that's about a third more than the amount at risk in the last nearest comparable quarter.

After the events of the past year and a half, it's surprising that people still follow VaR that closely.

Can the Fed Regulate Systemic Risk?

The problem is not one of regulating risk.

The problem is ensuring that those parties who take risks, knowingly or unknowingly, are the only ones who pay the consequences for negative outcomes... not the U.S. taxpayer.

Selling Intel Puts on Its Emerging Market Potential

I like this call and took a similar position a couple of weeks ago:

xderivatives.blogspot....

My only concern about this exposure to Intel is timing the cap ex cycle. Intel will obviously benefit greatly once the corporate purse strings are loosened and capital goods orders pick up. I just don't know whether that surge will come later this year or some time in 2010.

Looking ahead at the coming week, there's little in the pipeline that's likely to slow the best three-month tear since 1982.

Of course you can fight the Fed. And sometimes it's very profitable. Remember back on March 18th when they said they were going to buy $300 billion worth of Treasury Bonds?

The September T-Bond futures were just under $130 after that announcement. Now they're under $114.

I wouldn't short that contract now, as I think the worst of the Bond Bust is behind us, but it does serve as a great example for how fighting the Fed can sometimes put green in your pocket.


On Jun 07 12:01 PM sickofthehype wrote:

> Daniel, while I agree with you I've watched multitudes of comments
> being made by people that share your sentiment over the past couple
> of months, yet, it just keeps going...
>
> Can't fight the market and certainly can't fight the Fed

Far from overstepping his boundaries, Wednesday's budget deficit warning by Ben Bernanke has for all intents solidified his re-election come January. Here's why: "If you buy the theory of bond vigilantism - that credit markets will force interest rates higher in reaction to unsustainable national budget deficits - then you also have believe the White House needs to raise taxes sharply to pay for all its spending programs or risk a bond revolt."

Man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells the shepherd, "I will bet you $100 against one of your sheep that I can tell you the exact number in this flock." The shepherd thinks it over; it's a big flock so he takes the bet. "973," says the man. The shepherd is astonished, because that is exactly right. Says "OK, I'm a man of my word, take a sheep." Man picks up an animal and begins to walk away.

"Wait," cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your exact occupation." Man says sure. "You are an economist for a government think tank," says the shepherd. "Amazing!" responds the man, "You are exactly right! But tell me, how did you deduce that?"

"Well," says the shepherd, "put down my dog and I will tell you."

The Greenspan Gamble: "In the wake of the burst tech stock bubble and the shock of the terrorist attacks, the Greenspan Gamble was to purposefully ignite a housing boom. Ex ante, it was a reasonable gamble and it almost worked."

It's just a little too easy to scapegoat the Fed. You might argue that they were a little too late to start hiking rates, but they did run Fed Funds from 1% in the first half of 2004 to 4.25% by the end of 2005. How much more of a statement did the Fed need to make that they were serious about fighting inflation?

I still think the blame rests squarely with the kind of loons who thought it was only natural, and maybe even an entitlement, to flip condo's for 10% gains every six months and those entities that enabled their irresponsible behavior.

40,000 Jobs Lost as GM Becomes Biggest Ever U.S. Company Failure

This comment has stuck with me all afternoon, in part because I'm embarrassed I didn't make the connection between the GM & Chrysler bankruptcies and their impact on commercial real estate. I think tomorrow I'll start shorting commercial REIT's. I'll be instablogging them as I add positions.


On May 31 12:37 PM Mad Hedge Fund Trader wrote:

> The derivative effects will be huge. The imminent demise of General
> Motors (seekingalpha.com/symbo...) will be a nail in the
> coffin for the commercial real estate market, which I believe will
> be the financial crisis of 2009. Some 2,000 dealers are being axed,
> dumping hundreds of millions of square feet on to a market that least
> wants it. These were the guys who sponsored the local baseball team
> and Girl Scout cookie sales, and their absence will rip the hearts
> out of hundreds of American communities. Much of this is prime space,
> near dense populations, with great frontage, adjacent retail space,
> completed site work, mitigated environmental work, and already zoned
> for commercial use. Some might get turned into mini malls, but I’m
> afraid more will end up as indoor climbing walls and paintball battlefields.
> Commercial real estate sales are off 73% this year, while vacancies
> have catapulted to 16.7%. Banks have seized 464 properties so far
> in 2009, including $7 billion worth in March alone, and thousands
> more are on the brink.

40,000 Jobs Lost as GM Becomes Biggest Ever U.S. Company Failure

There is still a remarkable amount of premium left in the September $1 calls (Symbol: GMIV). Even at 15 cents, it's a license to print money.

Getting Out of GM While the Getting Is Good

I wouldn't bet against USO just yet because of the improved fuel efficiency of new cars. Automobile turn-over in the U.S. runs around 11 to 12 percent a year. The new fuel efficiency standards won't make a significant impact in aggregate gasoline consumption for years.