Archive for the 'News' Category

Freddie Mac CFO Found Dead

Posted on April 22, 2009, 3:20 pm. Closed

Via Bloomberg:

Freddie Mac Acting Chief Financial Officer David Kellermann, 41, was found dead early today in the basement of his home in a Washington suburb, police said.

There were no signs of foul play, and the death is under investigation, Fairfax County, Virginia, Police Officer Shelley Broderick said. She said early reports from others in the department indicated Kellermann’s wife reported a suicide. The medical examiner’s office said it’s conducting an autopsy, and the results may be released as soon as today.

…

The Securities and Exchange Commission and the Justice Department have been questioning executives about Freddie’s accounting practices, according to company filings. McLean, Virginia-based Freddie and Washington-based Fannie Mae, the mortgage-finance companies seized last year by U.S. regulators, reported in September that they were under investigation.

I don’t think its a good sign when the company CFO is found dead without any signs of foul play. Especially with a failed company like Freddie Mac, I bet there is some really scandalous stuff just waiting to be uncovered. Either that or the guy knew too much.

U.S. Gov’t and Citigroup Reach New Agreement

Posted on February 27, 2009, 12:03 am. Closed

Breaking news people! The WSJ reports that Citigroup and the U.S. have reached an agreement in which the government will substantially increase its stake in the bank in return for a boardroom shakeup:

Under a deal expected to be announced early Friday morning, the Treasury Department has agreed to convert some of its current holdings of preferred Citigroup shares into common stock. The government will convert its stake only to the extent that Citigroup can persuade private investors to do so alongside the government, the people said. The Treasury will match the private investors’ conversions dollar-for-dollar up to $25 billion.

The size of the government’s new stake will hinge on the amount of preferred shares that private investors, including sovereign wealth funds, agree to convert into common stock. The Treasury’s stake is expected to rise to 30% to 40% of Citigroup’s shares, the people said.

As a condition to the agreement, which is designed to ease investor jitters about the adequacy of Citigroup’s capital base, the government is demanding that the New York company overhaul its board of directors, the people said. Treasury will call for Citigroup’s board to be comprised of a majority of independent directors.

I wonder how the market will respond tomorrow morning?

Taxpayers Stuck With Bear Stearns Losses

Posted on February 6, 2009, 8:32 am. Closed

Remember way back when the government brokered a deal for JP Morgan to take $30 billion of Bear Stearns assets? JP Morgan was responsible for only the first $1.15 billion in losses while the government was responsible for everything beyond that.

Bloomberg reports that the central bank’s Board of Governors wrote in a Dec. 29 report to Congress that it didn’t expect “any net loss to the Federal Reserve or taxpayers” from the Bear Stearns holdings. Looking at the chart now, it seems like taxpayers will be on the hook for a lot of money. Currently, taxpayers are down $3.07 billion.

The SEC is Overmatched and Inexperienced

Posted on February 4, 2009, 11:52 am. Closed

I’m currently watching the Markopolos testimony. It’s extremely interesting. Here are some quick points by Markopolos with which I concur very much. Basically, Markopolos is saying the SEC has failed horribly due to a combination of incompetence and a fear of taking on the big wall street players. The SEC lacks highly paid, highly trained, and highly incentivized professionals. Without the true professionals that are only attracted by high salaries and incentives, the SEC is not capable of catching fraudsters.

Markopolos has three basic recommendations on how to reform the SEC. First, replace all the senior staff. Second, goto the bottom of the staff and and replace them with experienced, highly compensated professionals. Markopolos wants to see a lot of grey hair in the regulatory ranks. Third, create a centralized office for whistleblowers and compensate those whistleblowers who come forward. Markopolos feels compensation for whistleblowers to come forward is necessary because they are blacklisted in the financial industry after they become whistleblowers.

Markopolos’s recommendations are absolutely sensible to me, however I have trouble believing Congress will be able to pass meanginful legislation that would increase funding for financial regulatory agencies. To attract experienced professionals, it seems that it will take large six figure salaries, and I’m not sure that voters and politicians would allow this.

Finding Gold in Poo

Posted on February 2, 2009, 11:54 am. Closed

I never knew you can find gold in poo – literally:

TOKYO (Reuters) – Resource-poor Japan just discovered a new source of mineral wealth — sewage.

A sewage treatment facility in central Japan has recorded a higher gold yield from sludge than can be found at some of the world’s best mines. An official in Nagano prefecture, northwest of Tokyo, said the high percentage of gold found at the Suwa facility was probably due to the large number of precision equipment manufacturers in the vicinity that use the yellow metal. The facility recently recorded finding 1,890 grammes of gold per tonne of ash from incinerated sludge.

That is a far higher gold content than Japan’s Hishikari Mine, one of the world’s top gold mines, owned by Sumitomo Metal Mining Co Ltd, which contains 20-40 grammes of the precious metal per tonne of ore.

REIT Wrecks

Posted on February 2, 2009, 8:56 am. Closed

I’ve been reading for the past couple weeks about the real estate industry and the general sentiment I identified is that there is still more pain to come, especially with the commercial real estate sector. Retailers are not able to sell their products and are not able to keep up with rent.

Another consideration is that there is now a growing trend that REITs are paying their dividends in STOCK, not cash. I am very wary of any company that starts to pay dividends in stock rather than cash. It seems to me that when a compay starts doing that, they are in dire trouble.

So, after identifying what I think is the general sentiment (more of the pain train is still coming for commercial real estate) and the fact that REITs are paying dividends in stock, I initiated a position in SRS, an etf from Proshares that shorts the real estate sector. Then, Simon’s Property Group (SPG) last week reported that they would be paying their dividend in stock. SPG is the country’s largest mall and shopping center operator. I doubled my SRS position upon this news.

Cut Government Wages

Posted on January 20, 2009, 8:43 am. Closed

Mish congratulates Singapore for being the first nation to do something in this economic crisis that actually makes some sense, and that is cutting government salaries.

Singapore’s government said it will cut the salaries of its top public workers and ministers as a “sharp” recession threatens to increase job losses and hurt lending this year.

The top government salaries will fall 12 percent to 20 percent in 2009 and “may be subject to further adjustments given the volatility of the economy,” Teo Chee Hean, the defense minister who’s also in charge of the civil service, said in parliament today. The reductions are deeper than the pay cuts the government said it was planning in November.

Singapore is scheduled to unveil more measures this week to help companies cope with the deepening global slump, which caused exports to contract in 2008 by the most in seven years. The National Wages Council last week advised employers to freeze or cut pay rather than fire workers.

Little can be done to mitigate the current slowdown, which has spread to all parts of the economy, Trade Minister Lim Hng Kiang said in parliament today. The nation is facing unprecedented conditions in this “sharp” recession, he said.

I agree with Mish. Though a pay cut for top staff is largely symbolic, I think this type of symbolism is the right way to go. Private and public companies in the U.S. have are cutting the salaries of its top staff, so why not the government?

Another Record For U.S. CDS

Posted on January 19, 2009, 12:40 pm. Closed

Five-year credit default swaps on U.S. Treasuries widened to 69.5 basis points from 61.1 basis points last Friday. This means investors are paying $69,500 a year to insure against default on $10 million worth of bonds. Thanks to Alea for the link.

Schiff’s Insurance Observer Archive Now Online

Posted on September 8, 2008, 9:39 pm. Closed

I forget how I stumbled upon the placeholder for Schiff’s Insurance Observer‘s new website about 2 months ago, but I’m glad I did. Schiff’s has a great description:

Our Audience

Schiff’s is written for a select audience of tough guys, intellectuals, hepcats, existentialists, trumpet players, pastry chefs, and all others who have a keen interest in insurance.
History

David Schiff started Schiff’s in 1989. It was originally called Emerson, Reid’s Insurance Observer, after the wholesale insurance firm Schiff owned. Its goal was to promote Emerson, Reid’s business. That worked, and Emerson, Reid prospered.

In 1991, Schiff said to hell with promoting Emerson, Reid’s business and decided to write a great newsletter instead. (That turned out to be even better promotion for Emerson, Reid’s business.)

Schiff sold Emerson, Reid at the end of 1996 but kept the publication and changed its name to Schiff’s Insurance Observer. The famous bulldog logo was added at that time.

Publication Schedule

Schiff’s has always had a somewhat erratic schedule. In 2000, after switching from print to emailed .pdf files, Schiff’s gave up on any semblance of a schedule. Why publish just because it’s the first and fifteenth of the month? Instead, we published when we had something to say, which turned out to be about twenty times a year.

The Present

Schiff’s has been on hiatus since 2007. David Schiff hasn’t decided if he wants to continue writing the publication.

Though Schiff’s is pretty much defunct at the moment, the archive of articles is awesome. One can learn a lot about investing and financial history just by reading through the articles and essays.

I started off with Volume 14, Number 8, released on June 4, 2002. The issue starts off with an analysis of Buffett’s seemingly uncharacteristic all-stock deal with General Re. Next, Schiff’s questions why investors often fail to see deals that arise in the bond market. Last is an admonishment of insurance company directors who gave stock options to CEOs—as “incentives”—priced far below book value of their companies.

Great stuff.

Merrill’s Stock Dilution Plan

Posted on July 28, 2008, 9:50 pm. Closed

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.