Reclined

When Private Equity Funds Try to Get Around Bank-Ownership Rules

An alternative would be to care more about what the bank does instead of who owns it.

Peak Oil as a Function of Earth's Volume

This sounds like some high school kid put together a medley of facts copied from various websites. Good luck in trying to find oil in the earth's hot core. Geothermal might work better. I am looking forward to reading about your super deep drilling project soon.

Also, in the beginning it should probably read cubic kilometers as a measure of volume.

The AIG/Bank Counterparty Scandal Escalates

The wording is interesting

"I understand the importance of honoring foreign obligations BECAUSE OF THE NEED FOR US TO CONTINUE TO RECEIVE A FLOW OF FOREIGN INVESTMENT."

So is he telling us that it's not important to honor contracts for their own sake? It is the basis of functioning capitalism. It would be much better to let the courts deal with it in an orderly and impartial manner.

The Latest Bad Idea: Government Sponsored Vouchers for Car Purchases

Thadeus,

you wrote "Germany has been doing the voucher deal on cars since last Fall. From what I read, it only applies to German made cars."

The second part is not true. The deal applied to all cars (starting this year). It actually made foreign car sales increase from around 30% share to 50% (not exact numbers, I would have to look them up).

I believe protectionism would be the last drop to move us into a severe depression. I hope governments will be so wise as to minimise moves towards protectionism despite widespread public requests to do so.

Why Jeremy Siegel's S&P Earnings Analysis Is Wrong

I simply can't believe that Siegel's erroneous points are still being discussed. It seems so easy:

1) The S&P represents the AGGREGATED market capitalization of the included companies
2) Therefore one needs to divide by the AGGREGATED earnings to arrive at a P/E for the S&P as a whole

This is exactly the same way one would calculate a P/E for a large company using the value and the earnings of its divisions.

Of course, one can debate whether one would rather have the non-weighted average P/E (taking a P/E per company and averaging over the number of companies). It would lead to all kinds of strange behaviour in case of mergers, divestments etc. but why not.

Siegel's suggestion, however, to weigh earnings by market cap and still use the aggregated market cap on top of the division does not make any sense at all (from a mathematical point of view).

Credit Market Overview: Lessons Learned from Germany and China

The subsidy in Germany is mostly helping foreign manufacturers (increased the share of foreign cars from 35% to 55%) as buyers favour smaller, inexpensive cars. Of course, car dealers were happy nonetheless.

Predicting 60% Decline for Manhattan Property; TARP for Trump?

johnhaskell,

what German cities with house prices declining by 60% from 91 to now are you talking about? I can't comment on the other markets you're citing but at least for the cities I am familiar with (Berlin, Hamburg, Munich, Cologne, Stuttgart, Düsseldorf) your statement does not hold true. While there hasn't been a large increase there weren't any large decreases either.

And, maybe interestingly, in Germany the relation between income and house price has been and still is around 4-5. (To us, houses in the US outside the biggest cities seem inexpensive). Most people expect to be mortgage free just before entering retirement.

Regards

Counterparty Risk Could Spread Beyond Credit Markets

This article is a disappointing advertisement.

Rating Agencies Target Guarantors to Deflect Subprime Blame

Tom,
You have a point regarding the short-sightedness of the agencies' evaluation game. Unfortunately being right here does not help MBIA/ABK since they have too much leverage to gain back credibility in these confusing times. As always in the short term it does not matter whether you will be able to pay and survive but only whether people believe you'll be able to. Might be a big difference!

I wish I had the ability to correctly analyse today's exposure of financial players. I believe I would become exceedingly rich :-)

Why Wall St. Needed Credit Default Swaps

Thank you for this excellent analysis of the drivers behind CDS usage.

JP Morgan: $6 Billion Capital Raising Is "Routine"

Maybe, just maybe they are eying more acquisition opportunities. Or they are very afraid ...

Mannkind Slammed: No Guarantees in Drug Safety

Well said, North Observer,

our society is obsessed with risk. With the regulatory process one can be pretty sure of not missing any MAJOR risk. Of course, there might be minor ones that will be discovered later (and pharma is much better organised to discover these than, say, toy manufacturers) and then one can still pull a drug off the market or amend its label. Since the risks are minor, little harm is usually done. But don't try to explain that to a politician who faces TV pictures of sobbing victims and the resulting public outrage.

Mark to No Market

Everyone is now bashing mark to market. I question whether it would be better if we had 'mark to performance'. It makes the valuation even more opaque for the investor in financial institutions. A loan will be at risk a long time before the first default and mark to market uses the best instrument known to mankind in measuring the value of something: the market. And for evaluating a banks options of raising cash mark to market obviously is quite well suited.

Since loan performance figures are routinely provided as well everyone can make up their own mind of what these assets' values are when held to maturity.

Would you buy a bundle of subprime mortgages today that have not defaulted so far (= perfect performance)?

TheStreet.com on Primus Guaranty: Wacky and Uninformed

Wow, someone's certainly furious here ...

I like Tom and his ideas but would love for him to more directly address the central concern. While the TheStreet.com article appears somewhat unstructured it is not entirely oblivious of most of the points Tom is making in his article (no serious risk of BK or losing the AAA rating, currently only m2m losses etc).

Key sentence in the TheStreet.com article is "Given Primus' high cost structure and its book of credit protection that could be easily replicated today at much better prices, the stock will remain in trouble."

TheStreet implies that Primus has most of its available capital employed and might not have a lot of dry powder left to take advantage of the current spreads. Recapitalisation probably is difficult/too dilutive with the stock price so low. Therefore competitors who are starting in the current environment might have a much better priced portfolio in a short time. Tom's data shows that Primus is currently writing more business than it has done before which is a good thing. The remaining question then is how much dry powder there is left in case the current "mispricing" will stay with us for say the remainder of 2008.

And, of course the argument with a cost structure, that according to TheStreet is 60-100% higher than industry average, also needs to be addressed (though this might be more open to management's intervention).

I would love to hear Tom's view on these two points specifically.