I think its funny how Calculated Risk eschews the euphemisms of “stock offering” or “raising capital” in favor of the more blunt “stock dilution plan” in relation to Merrill Lynch.
Archive for the 'Money' Category
Always speaking in the third person, Macro Man puts forth a modest proposal - perhaps even more modest than a Jonathan Swift-like proposal - to fix the economic and financial malaise that’s hit the United States over the past few years:
What he’s come up with is a modest proposal that should restore the fiscal health of the United States, reduce a large portion of future liabilities, and set the country on the road to economic health and prosperity. The assumptions that Macro Man used in his calculations are pretty modest, and while the identities of some of his suggested participants are a tad ambitious, he’s confident that his sums could work out in real life.
The first port of call is to take profit on a number of 18th century transactions conducted by the US Government. Top of the list is the Louisiana Purchase, which was consummated in 1803 for the princely sum of $23,213,568. To derive a current marketable value, Macro Man calculates an annual cash flow by multiplying state GDPs by 18% (the proportion of US nominal GDP that the Federal government receives in tax revenue) and assigns a modest P/E multiple of 8 to the result. Perhaps some banks or Donald Trump would assign a higher multiple to these one-of-a-kind assets, but Macro Man prefers to dwell in the realm of reality.
In any event, selling the Louisiana Purchase back to the European Union would get rid of Arkansas, Colorado, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, North Dakota, Nebraska, Oklahoma, South Dakota, and Wyoming. Using the methodology described above, Macro Man reckons the US Government could raise $2.34 trillion. Good thing the euro’s so strong! You’ll agree that the price seems eminently reasonable…after all, it’s less than 50 times as much as InBev paid for Anheuser-Busch.
Macro Man continues on. The cash that could be raised in this method would be quite substantial.
Calculated Risk writes there will be many more bank failures, but probably not as many as there were in the 80s and early 90s. From 1982 to 1992, there was a minimum of 100 banks failing per year, with over 500 failing in 1989.
Furthermore, “Unlike IndyMac that failed mostly because of bad Alt-A mortgage loans, most of the coming bank failures will probably be small regional banks with too much exposure to Construction & Development (C&D) and Commercial Real Estate (CRE) loans.”
I believe this forecast to be in line with reality, as there are many states with banks that have contruction and development loans making up very high percentages of their core capital. More banks will fail, but they will be mostly smaller, regional banks. Those that don’t “fail” will be absorbed by better banks. I am starting to believe that a good indicator of an end to this mess will be after a fair amount of consolidation occurs in the regional banking sector.
It’s interesting to me to see that most of Wall Street’s execs prefer the Dems to the Republican. Click on the graphic below to see what I mean.
Back in March, the LA Times also reported that the Dems are the “darlings of Wall St.” For a more recent update on Wall Street donations, check out Alphaville. Despite the Dems’ push to change rules concerning carried interest and regulate hedge funds, the activists are overwhelmingly for the Dems because of their seemingly stronger support for shareholder interests.
Ben Bittrolff of The Financial Ninja provides more excellent analysis and commentary on the current crises in the financial sectors.
First, Bittrolff argues that the Fed has done nearly all that it can do to prevent a total collapse of confidence in the financial systems and markets when he writes, “The Fed has almost run out of ammo. Much like George Soros on Black Wednesday, when he ‘broke the Bank of England,’ global capitalists are damn near close to breaking the Fed. 60% [of the $700 billion in Treasury securities on his balance sheet] has been committed and it doesn’t seem to be working. Another push and things could unravel quickly…”
Second, it seems inevitable that Citigroup will be breaking itself up over the coming years. Bittrolf sees Citirgoup’s separation of its credit card business from its banking business is the first step of the pending dismantling of Citigroup.
But, what struck me the most is this simple statement: “It is truly humorous that the Socialists across the pond are the one’s considering taking the ‘laissez faire’ approach while the CHAMPIONS of Capitalism over here are pounding the table for mass intervention.” I don’t think there could be a more telling signal of the immense troubles of the financial sector.
Apparently, the Wii shortage is the result of a weak dollar. And before I had just thought Nintendo had just underestimated consumer demand. Shows how much I know.
When I read the news that J.P. Morgan had upped its bid for Bear Stearns from $2 a share to $10 a share I felt like I would be one of the few who would consider such news BAD, as opposed to GOOD. If JPM had to be bribed to take on Bear Stearns assets, why would paying more be a good thing? And by the way, JPM is now on the hook for just the first billion in losses that might occur from Bear Stearns assets. Formerly, I think JPM was on the hook for zero losses.
Anyways, I just want to show you this chart of JPM with its insane megaphone. I was short JPM as of yesterday.
I took a snapshot of my holdings this morning. Notice how they are all puts.
I closed half of my positions today and also made a tiny bit by scalping the IWM in the last 30 minutes of trading. This week still has time to be a doozy.
JPMorgan Chase Buys Bear Stearns for $240 Million:
March 16 (Bloomberg) — JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for about $240 million, less than a 10th of its value last week, after a run on the company ended 85 years of independence for Wall Street’s fifth-largest securities firm.
Shareholders of New York-based Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the two companies said in a statement today. The U.S. Federal Reserve will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns’s “less-liquid assets.”
I’m not really sure whether this is a good or bad thing. Bear Stearns stock was trading in the low 30s last Friday. Does this severe depreciation of value mean than things are worse than we could have even imagined? Well, judging by the index futures as of this posting, things are looking bad, but who knows what things will be like next by the end of next week.
Here’s a list of some other recent articles on this mess I’ve been reading.
- Fed acts Sunday to prevent global bank run Monday
- Fears That Bear Stearns’s Downfall May Spread
- The Cost of Bear’s Crisis to Its Employees
- Paulson Defends Fed Bailout of Bear Stearns
- Video of great conversation between Don Luskin and Larry Kudlow on Bear Sterns and the current liquidity situation
- The New Committee to Save the World
Overlooked Factors That Have Contributed to the Dollar Demise
Thebulltrader.com has created a list of five overlooked factors that have contributed to the demise of the U.S. currency. They are petrodollars, weather, Wal-mart, the U.S. Treasury Secretary, and public perception. I’m not sure about the weather or Wal-mart, but maybe they are very small factors.