Target Rich

By | 2014-09-04T18:27:49+00:00 April 30th, 2009|Global Market Update|

Would you want to run a big bank? It could be bad for your health. The recent downturn has been brutal on bank chiefs. Pay and promotions have been politicized, and the government has shown a need to "get tough.". Ken Lewis of Bank of America is an easy mark. He makes a $1.5 million in salary, and oversees billions in bonuses while taking $45 billion in government bailout money. But banking has never been popular. When you can't afford a Rolex watch, you [...]

Too Much Too Late

By | 2014-09-04T18:19:14+00:00 April 29th, 2009|Global Market Update|

The economy is looking up. So what's up with the big banks. With the economy gaining some traction one would think that the big banks would be out of the woods. But not yet, according to some. The Wall Street Journal noted that as a result of the Treasury's tests Citibank and Bank of America each need to raise billions in capital. The banks are disputing these findings, arguing that their capital base is strong. But the market doesn't seem to agree, with Citi's [...]

Bay of Pigs

By | 2014-09-04T18:18:03+00:00 April 28th, 2009|Global Market Update|

Just what the economy doesn't need: a major health threat. So far, the swine-flu outbreak has been fairly mild, with about 1600 cases reported in Mexico, but spring-break trips may have transported the virus to the US, Israel, and even New Zealand. Last year a World Bank report claimed that a pandemic could cost the global economy $3 trillion and could trim 5% from global growth. For what it's worth, the IMF predicts a 1% economic decline this year. A 6% global decline would [...]

Lake Wobegon Banking

By | 2014-09-04T18:16:05+00:00 April 27th, 2009|Global Market Update|

In Garrison Keillor's Lake Wobegon, all the women are strong, all the men are good looking, and all the children are above average. Well, now we have Lake Wobegon banking, where all the banks pass the government's stress test, no matter how poorly capitalized they are. Banking is a funny business: by gathering small deposits and making larger loans, the system places capital where it can be used productively. But when a herd-mentality takes over, the banker's emphasis on character, capital, and cashflow can [...]

The Gentleman

By | 2014-09-04T18:14:45+00:00 April 24th, 2009|Global Market Update|

Many people are trying to understand Secretary Geithner. The answer is in the text. He grew up overseas and went to high school in Bangkok. He focused on Asian Studies at Dartmouth and Johns Hopkins, and speaks Chinese and Japanese. He worked for the State Department in Tokyo, and was Bob Rubin's point man on the Asian Financial Crisis of the late `90s. In sum, Mr. Geithner has been a student of the East. And what do we learn from this? In the heart [...]

Alice Through the Accounting Glass

By | 2014-09-04T18:12:01+00:00 April 23rd, 2009|Global Market Update|

This market gets curiouser and cursiouser. In its last earnings report, Citigroup noted a $2.5 billion credit due to the fact that their debt is cheaper. In mark-to-market terms, they discounted their debt, and so recorded a profit. On the other hand, Morgan Stanley's credit quality improved, so they had to record a $200 million charge. So Citi is profitable because their credit is worse, and Morgan lost money because their credit is better. As Dave Barry would say, I am not making this [...]

The Next Shoe

By | 2014-09-04T18:04:44+00:00 April 22nd, 2009|Global Market Update|

So what's the next shoe to drop? In my opinion, it's commercial mortgages. Residential mortgages are loans you take to buy your home. Commercial mortgages are loans that a developer takes to buy a commercial building. Commercial real-estate is a lot different than residential property. For one thing, it's tied a lot closer to the economy. For another, high-end marquis properties like big-city skyscrapers usually hold their value. Until now. Recently Boston's John Hancock Center went through a bankruptcy auction and sold for $660 [...]

Newsprint Market

By | 2014-09-04T18:02:51+00:00 April 21st, 2009|Global Market Update|

Yesterday I noted how a government program is depressing the newsprint market. But wait, there's more. Abitibi-Bowater is the largest maker of newsprint in the world. They also happen to be in bankruptcy. In 2007 the two paper behemoths joined forces and dominated their industry. After a host of sales and spin-offs, slumping demand and weak prices left the company unable to service its debt. So it sought to negotiate swap with its lenders. Here's where it gets interesting. Negotiations are pretty standard when [...]

Unintended Consequences 201

By | 2014-09-04T18:02:07+00:00 April 20th, 2009|Global Market Update|

Grrr. Is there anything that the government can't mess up? In an effort to encourage the use of bio-fuels, the IRS is paying paper mills almost $10 billion to burn a wood by-product that they already were using to generate their own electricity. Now they run their mills flat-out to maximize the benefit, in spite of depressed pulp prices. With losses mounting and the industry in crisis, the bio-fuel subsidy has acquired a life of its own, supporting the paper industry and thousands of [...]

Confidence Game

By | 2017-07-17T12:35:23+00:00 April 17th, 2009|Global Market Update|

Can animal spirits revive the economy? That's what many claim. They note before that consumers start to spend again, they'll need to have confidence in their personal finances. By this reckoning, what's needed is a massive infusion of cash into consumer's pockets. Extra cash will encourage extra spending, which will get the economy back on track. But that's putting the cart before the horse. Confidence isn't bolstered by a handout or some temporary make-work job. It's encouraged by permanent, productive employment-where your skills are [...]