Mind on Money

At least the Crash of ‘29 led to the Pecora Hearings and the bankers that gambled with depositors’ money were ruined themselves.  Today the people that engineered the recent disaster are looking forward to their best payday ever.

The “punishment” Wall Street got out of the 2008 meltdown was one year of lowered bonuses.  Pay was rolled back to levels of four or five years earlier, but still far more than way back in 1999. The people on Main Street should be so lucky.

Happy days are here again, at least for the investment bankers.

Continue reading Same as Ever…

The week had a negative cast to it, ending on a sour note with the ECRI WLI and WLI growth index both down. Things headed down by Tuesday with the PPI taking a large fall. The PPI being down was not so much about inflation as aggregate demand. An economy is not growing at this point in a recession if producer prices drop .6% across both intermediate and finished goods.

Housing starts was another big disappointment down almost 11%. What effect if any on this poor performance resulted from uncertainty about the new home buyers credit program remains to be seen. Jobless claims was the big news of the week for bulls with a second straight week of new claims at the 500,000 level confirming the prior weeks decline. While the Philly Fed was a positive all it did was pair off with and eliminate the earlier negative report from the Empire State Index. I think it’s fair to say that as the week ended forces in the economy are now pretty well balanced between recovery and decline.

Continue reading The Economy – a New Direction?…

As a dedicated reader of the Weekly World News, I always enjoy the hard-hitting hilarity of the column by Ed Anger.  (I actually had the pleasure of handing writer/director John Waters his very first copy of the paper at a sleazy South Philly theater in 1981 as he and the cast premiered Polyester.)

Serial analyst The Mogambo Guru does for investing what Ed Anger does for American politics what Serial Mom did for fashion faux pas.  Now my friend George has the news that we may not see the Guru’s missives on investments, especially if he gets much much better at golf.  Continue reading Filling the Void…

A staple of the Saturday matinee TV movie in my youth was a particularly dreadful vehicle for perennial college kid Mickey Rooney.  I have no idea how old he was when he finally stopped play post-pubescent leads, but I think he must have been well into his 30’s….

[Bonus points for any reader that can tell us how old Mickey was when he last played a cute college kid.]

Anyway, all of these low-budget grinders were fashioned on the formula that had Mickey exclaim early in the show

“I’ve got a swell idea!  Let’s put on a play!”

Continue reading Channeling Mickey Rooney…

A reader writes (via the Blowback page):

I have read many very good explanations of how the carry trade works.

My number one question is still unanswered.

Who can borrow dollars at what ever the low rate is? Is it banks, or brokerages or individuals? Is the actual borrowing a series of trades and transactions done by individuals or institutions?

Continue reading Carry Trade Exposed…

Fortunately my credit card banks are constantly sending me “important information” in envelopes that don’t have printing all over them.  Thus I have a steady supply when I want to do “back of the envelope” figuring.

But Hank Paulson needed a much larger envelope than a simple #10 when he was figuring what a collapse at AIG would do to the net worth of his former firm.   Not that he had to worry, because he got a “get out of jail free” card, and a special tax exemption, that let him sell his Goldman stock without paying $200 million in capital gains taxes back in 2006 when he took the job in the Bush Administration.

Continue reading Paulson’s Envelope…

In a recent phone interview, Jody Shenn, reporter on the securitized products beat at Bloomberg, asked me why Goldman would have created a deal that let the manager choose to pay off subordinated bonds while simultaneously leaving senior bonds very likely to default.

He had me stumped.  The obvious reason – that there was a benefit to Goldman, just didn’t suffice.

First of all, the deals dated to 2006, and the very idea of arbitrarily choosing to pay off junior bonds ahead of senior bonds three years later seemed to stand the entire concept of senior/junior on its head.

Continue reading CDO Kama Sutra…

I got an e-mail from a former colleague reflecting on the state of commercial real estate today.  We worked together on some large deals in the past, including one that showed the power of easy financing.  The deal we worked on was a classic FHA project loan deal — you know, those apartment buildings with subsidized housing.

Shortly after we bought a package of loans for our deal, a developer came along and paid off a New York City FHA loan nearly 20 years early.  Not too long afterwards, we saw the ads for luxury apartments at that same address, with sale prices running as high as $500,000 per apartment.

Turns out, the developer was willing to pay each of the low-income tenants $30K to $50K to move out.   Apartments that were producing $400 to $600 a month were renovated and sold at levels that imply rents ten times that high.

Continue reading Big Dog Redux…

Commercial real estate is the big dog in our economy, and he is growling.  Not biting yet, but give him time.  Unless we back away slowly and don’t let him see our fear, chances are good that he will take a chunk out of our collective hide.

As a good friend first pointed out on the Kondratyev discussion group at Colorado State University (Longwaves group) ten years ago, every modern economic collapse seems to culminate in a commercial real estate debacle.

He lives in the heartland, and knows whereof he speaks, with a client base in the commercial real estate market.  Back in the 1990’s, he shared with us his calendar of crises, first derived in the 1970’s when he had way too much time on his hands and easy access to an excellent library of economic history.

Why do I bring this up now?  So you know that not everyone predicting a commercial real estate collapse is just now waking up to it.  I also wanted to walk you through how it will happen, with an example.

Continue reading Big Dog Growling…

Conclusions first:

When you invest in an actively managed bond portfolio, you are investing in the manager.  That goes double when they use leverage and hedging.

Corollary, and a question:

Understanding the basic portfolio strategy is important, but it’s unreasonable to  expect a specialist to explain what they spent a career learning in five minutes or less.

So why do investors believe they can or should understand all the details of financial companies before investing, while not holding themselves to the same standard for manufacturing, software, retail, or any other investment?

Now that we have that out of the way, we can begin to understand these “simple” financial companies.

Continue reading amREIT Examples…