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Archive for December, 2008

“Where’s The Money??….!!”

Posted by Larry Doyle on December 29th, 2008 6:38 PM |

I thought about providing an outlook for 2009. I considered offering further opinions on Obama’s economic plans. Perhaps a review of the Bush economic program would be well received. Then yesterday, the lead editorial in my local newspaper asked “Where did the bailout money go?” I had my answer. In previous pieces I have touched upon why I thought there was a very good chance why this money would not flow through the system. I hesitate to continue to refer back to my piece published on November 12th (The Wall St. Model is Broken…and Won’t Soon be Fixed), but for new readers I do firmly believe it is as good as anything I have read or seen in any publication in explaining how we find ourselves in our current position.

Please allow me to digress for a second. I will admit that I am not a movie buff, but I do enjoy films that focus on the success of underdogs, have a measure of financial intrigue, or perhaps a combination of the two. Not surprisingly, a few of my favorite movies are, Rocky, Jerry Maguire, and The Sting.


Christmas 1919

Posted by Larry Doyle on December 24th, 2008 6:30 PM |

I will not ruin this piece by adding any unnecessary commentary.

Merry Christmas, Happy Hanukkah, Happy Kwanza, or however you celebrate, Happy Holidays!!

A Christmas Tale — 1919, Wall Street Journal, December 2008


Below, a short excerpt from the beginning: (more…)

Everything’s Negotiable

Posted by Larry Doyle on December 23rd, 2008 7:15 AM |

At “Central Station” the other day, a loyal reader thought it may be useful to write about the implications of defaulting on a mortgage. Certainly nobody wants to default on a mortgage, but given the dynamics of our current housing market and economy, delinquencies and defaults are simple realities.

In thinking through this topic, it struck me that it may be just as beneficial to address what to do before defaulting as it is to know what happens after defaulting.

First and foremost, given the economic environment there should be no sense of shame or embarrassment in a deteriorating financial condition. That said, as one of my earliest mentors taught me “people in finance typically do not have problems with losses but they have big problems with surprises.” How does that piece of wisdom apply to today’s deteriorating housing market and rising foreclosures?


The Greatest Risk

Posted by Larry Doyle on December 21st, 2008 4:56 PM |

There remain no shortage of developments in the economy, the markets, and on “the street.” While I could continue to write at length on a number of those topics, I think it is healthy to take a weekend break from the regular hustle and bustle. With a break in the show, perhaps we can take a walk backstage and I can share with you some insights into Wall St. that occurred back in the ’90s but didn’t fully play out until 2008.

Please allow me to set the stage. I joined First Boston (now Credit Suisse) in 1983. I was very fortunate to gain employment at First Boston (FOB) as it was one of, if not, the hottest shops on the Street at the time. FOB was very much a traditional “white shoe” sort of firm. Propriety was important in executing business, although I am sure there were some sort of improprieties that occurred behind the scenes. I was too young to get dragged into anything that pushed the envelope. Although the head of HR threatened to fire me 6 weeks into my tenure (I think she was just trying to scare me), for the most part my 7 year career there was wonderful. I learned the business and developed many great relationships.

I was recruited to join Bear Stearns by an individual for whom I worked with for almost 15 years. I was very hesitant to go to Bear Stearns because it always had a reputation for being an extremely aggressive firm in every regard. That said, the person recruiting me was the most principled individual with whom I ever worked on Wall St. and he and I continue to have a very close relationship. I felt that I was working as much for him, if not even more, than I was working for Bear. I admired and respected his values and integrity. (more…)

Economic/Market Highlights . . . 12/17: “The Golden Rule”

Posted by Larry Doyle on December 18th, 2008 7:00 AM |

For time immemorial, nations and economies have operated by the Golden Rule. Well, in this economy and this market, that Rule is strong and seemingly getting stronger. While the U.S. dollar sank to a 13yr low vs the Japanese Yen and declined another 2+% vs the Euro, gold moved higher by another 2+% and is now at a 9 week high and up 9% for the year.

In speaking with an investment advisor today, he told me that he has moved almost 20% of his fund into gold in anticipation of continued declines in the value of the dollar.

While gold is increasing in value, we are not seeing other commodities follow its lead. In fact, oil (down 7% on the day) intraday went below $40 per barrel, while copper dropped to a near 4yr low. Through the grapevine, a close friend shared with me today that Goldman is long oil in SIZE from a very large transaction with Mexico. Both commodity moves indicate to me that the market believes the economy will bump along the bottom for the foreseeable future.

What is going to get us to turn the corner on the economy? The Fed has done all it can monetarily, and will clearly utilize “quantitative easing” in buying longer maturity mortgage, consumer, and corporate assets. There is another $350 billion in TARP funds, some of which will likely be directed towards helping homeowners on the brink of foreclosure.

Beyond that, all eyes in Washington and across the country are looking toward a MASSIVE economic stimulus. Obama has already indicated the outlines of his plans with the largest component being infrastructure.

Will this be the “magic bullet” that we all hope? It would be foolhardy to think that $300 billion, if not $500 billion, and perhaps $1 trillion, would not give a serious jolt to our economy. That said, will a package of the size and type being discussed by Obama revolutionize the art of stimulus packages and lead us to a viable and sustainable economic recovery? I think not. Why? (more…)

How Bernie “Madoff” With $50 Billion!!!

Posted by Larry Doyle on December 14th, 2008 4:20 PM |

The neighborhood of Far Rockaway in Queens, NY epitomizes the essence of middle income urban life. To say that the kids from this neighborhood develop “street smarts” at a very early age is a huge understatement.

Hustlers of every strain, predominantly positive in nature, grow up early in Rockaway. The movie, “Flamingo Kid,” starring Matt Dillon is set in Rockaway Beach. From the beaches in Rockaway one could see the Twin Towers off in the distance. Dreams of fortunes and fame earned on Wall St. drove many with real ambition. Bernie Madoff was one of those boys filled with ambition. However, while ambition can be an amazingly powerful force, if left unchecked it can be fatal.

When the tide is high and the surf is pounding in Rockaway, the kids frolic and never want to come out of the water. However, when the tide goes out, the ocean can leave a few gems. Often times, though, the waves leave a mix of driftwood and waste and a very unpleasant, if not putrid, odor.

Bernie Madoff

Bernie Madoff

In similar fashion, in 2008 the tide on Wall St. has gone out. While there will be some gems amidst the rubble, it is also mostly a mix of driftwood and waste left upon the shore. Just as at times large fish are trapped and die as the tide recedes, this past Thursday,the unchecked ambition from one of Rockaway’s boys finally caught up with him and in so doing left the biggest “carcass” in the person of Bernard Madoff on the shore for all to observe.

How is it that this “fish” which appeared to be the marvel that created wonderment in the form of outsized financial returns for so many for so long was actually a shark that enveloped and ultimately devoured his followers? Let’s enter the world of this “shark.”


“Mr. Raines Returns to Washington….”

Posted by Larry Doyle on December 12th, 2008 1:35 PM |

In the midst of the economic turmoil, the Obama transition, the “rescue” of the domestic auto industry, and the Blagojevich fiasco, the biggest story of all in terms of “$$$” is getting limited coverage in the media, but not here at NQ!!

The core of the global economic meltdown is centered on our domestic housing market and the core of that market is centered on Freddie Mac and Fannie Mae.

It is a shame that the Congressional hearing of the four senior executives (Richard Syron and Leland Brendsel of Freddie Mac and Daniel Mudd and Franklin Raines of Fannie Mae) is not front and center on every media outlet in our country.

It is also a shame that the respective heads of the Congressional Banking Committees are not heavily involved in these hearings. Those individuals, Barney Frank and Chris Dodd, along with their colleague, Chuck Schumer should not only be compelled to question these executives, but they themselves should be compelled to be questioned by their colleagues.

Read here as to how “Fannie, Freddie Executives Knew of Risks….” The fact that the executives “generally dodged demands by committee members that they accept blame for those problems” is the height of shamelessness and hypocrisy.

How I wish that we had real statesmen in Washington who had the courage to question these individuals on the following points, which were highlighted here on October 16 in a piece entitled “A Wall St. Insider’s View of Freddie/Fannie.” (more…)

Who and What is Cerberus….??

Posted by Larry Doyle on December 11th, 2008 9:05 PM |

While the debate in Washington over a potential rescue package of the domestic auto industry seems to be ending and a short term “bridge loan” is being arranged, I empathize with the innocent laborers and families within these companies and across the industry who have truly suffered from the imprudent management of this business model. One outfit that is heavily involved in this industry, though, deserves no sympathy. Everybody knows General Motors, Ford, and Chrysler, but not many people know of Cerberus Capital Management.

GM and Ford are publicly traded entities. Chrysler, however, is 80% owned by one of the largest private equity funds in the business. If any company understands risk, the cost of capital, business models, restructurings, leveraged buyouts, asset liquidations, return on equity, etc it is Cerberus Capital Management.

While the CEOs of GM and Ford most assuredly have extremely limited to zero means of raising capital at this juncture, to think that Cerberus does not have access to capital is ridiculous. The simple fact is Cerberus “chooses” not to put more money into Chrysler to defend their previous investment. (more…)

IT’S EASY TO FIND FAULT…especially if you’re clueless!!

Posted by Larry Doyle on December 11th, 2008 10:10 AM |

Given the pressure applied by the general public on elected officials who passed the $700bln dollar TARP (Treasury Asset Repurchase Program) it is not surprising that those very elected officials are now openly critical of Treasury. Nothing like casting a few aspersions to keep the crowd back home somewhat at bay. This statement is not to say that Treasury has not fumbled in certain aspects of this program. That said, as I  have tried to highlight, there are so many holes to fill that one single, albeit massive, “tourniquet” is not going to cover an entire body riddled with life threatening wounds.

Read how  “Watchdogs Chide Treasury on Bailout“…

For Congress to think that the economy would see near “immediate” positive reaction to the injection of capital into the system is both naive and ignorant. I am going to guess that most Congressmen failed Economics 101.

IMO Treasury should not have played “whack a mole” but should have proactively highlighted the areas of need throughout the system. In properly managing expectations it is always better to be as comprehensive as possible and simultaneously “under-promise and over-deliver”. Paulson and Bernanke along with Paulson’s boy wonder, Neel Kashkari, have played way too much defense and not enough offense. The risk they ran in this regard, though, is that they may have “spooked” the markets and “scared” the public. (more…)

What Has Meredith Whitney Got to Say?

Posted by Larry Doyle on December 11th, 2008 6:20 AM |

You have heard me sing the praises of those whom I consider to be some of the wisest minds in the financial markets. Included in this group are Nouriel Roubini, Laszlo Birinyi, Sheila Bair, and Meredith Whitney. It is not often that we have the opportunity to hear timely, insightful, and extensive analysis from these individuals. This morning we have one of those opportunities as Meredith Whitney, the TOP bank and financial services analyst on Wall St., is interviewed.

This attached video clip of her interview runs 12 minutes but it is extremely insightful on the current state and future outlook for the following:

1. Consumer Credit….it is going to get MUCH tighter, which is the very reason why we are STRONGLY encouraging people to pay down debt.

2. Outlook for large money center banks….”on life support for the next 18-36 months”

3. AIG….needs more money as they have incurred ANOTHER 10bln loss. (more…)

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