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HomeCIT-go into Bankruptcy?
Posted by Larry Doyle on July 21st, 2009 5:07 PM |
I thought CIT pulled the rabbit out of the hat in arranging $3 billion in financing yesterday. What happened? Let’s navigate this institution and shed some light where Wall Street may care to keep us in the dark.
The Wall Street Journal reports CIT Rescue Deal May Not be Enough to Ward Off Chapter 11:
CIT Inc.’s $3 billion rescue package from bondholders may not be enough to protect the lender from seeking bankruptcy protection, the company said in a filing Tuesday with the Securities and Exchange Commission.
So many additional questions remain, including:
> Why is the stock plummeting and why are analysts speculating it may very well file for bankruptcy?
CIT is seeking to reduce its debt burden in a tender offer for $1 billion of its bonds. CIT said in the filing if it doesn’t get enough of its outstanding floating-rate senior notes due Aug. 17 tendered, it may need to file for bankruptcy protection, absent additional financing.
CIT also said the government judged that the company needs about $4 billion in additional regulatory capital, including an extra $2.6 billion in tier-one capital, following a stress test.
Shares of CIT fell after the filing and were down 26% in recent trading at 93 cents a share.
> What did the $3 billion financing accomplish? (more…)
Bernanke Promises to Keep ‘Punch Bowl’ Filled
Posted by Larry Doyle on July 21st, 2009 1:59 PM |
Everybody back in the pool!!! Turn that music up and let’s rock!!
Why so ebullient and energized to ‘party?’ Well, our host, Ben Bernanke, has promised to keep the ‘punch bowl’ filled. As the Wall Street Journal highlights in writing Bernanke Sheds Light on Exit Strategy:
Mr. Bernanke reiterated that despite recent improvements in the economy and financial markets, the federal-funds rate will likely remain near zero for an extended period of time.
That statement by the ‘grand and wonderful wizard’ Ben Bernanke is the equivalent of turning up the volume to some music by the J. Geils Band. How are the partygoers reacting? Filling up their cups, that being, buying bonds like there is no tomorrow.
On the day, the Treasury market has rallied by 10 to 15 basis points (recall lower rates means higher bond prices) as all the partygoers (market participants) reenter into a variety of ‘positive carry’ trades. In layman’s terms, positive carry trades very simply are a vehicle to use cheap dollars (i.e Fed Funds borrowed between 0 and .25) to purchase higher yielding assets. Another commonly used term for this form of investing is utilizing increased ‘leverage.’ Yes, we have previously partied with increased leverage. That did not end well…
Why would traders or others utilize this approach in the midst of such economic uncertainty? Very simply, when the host tells you that the ‘punch bowl’ is going to remain filled for an extended period, he is compelling you to get involved. In fact, he is effectively forcing you into the pool. How so? The returns on the safest, shortest, and most liquid assets (T-bills, CDs, money markets) will also be kept low for an extended period.
As an investor, the Fed chair is literally forcing you to take greater risks in your investments. Those funds will be utilized by financial institutions to generate increased earnings and thus write off the loans on their books which are defaulting at an ever increasing rate.
What are the risks of keeping the ‘punch bowl’ filled too long?
> inflation, as too much “liquid”ity enters the system
> asset bubbles, as too many cheap dollars chase returns
> mispricing of risk, as market participants focus on the technical rally rather than fundamental analysis
The challenge for Bernanke is knowing when and how to pull that punch bowl away.
The last wizard, Alan Greenspan, badly miscalculated in his assessment which led to our current economic turmoil.
While it is nice to see positive returns in 401K statements and other monthly investment statements, be mindful of another tried and true piece of Wall Street wisdom . . . ‘the road to hell is paved with positive carry.’
In the meantime, as long as we understand the parameters of this situation, let’s enjoy Ain’t Nothing Like a House Party by the J. Geils Band!!
LD
Is Ben Bernanke a Grand and Wonderful Wizard?
Posted by Larry Doyle on July 21st, 2009 10:53 AM |
“There’s no place like home.”
Just as Dorothy in The Wizard of Oz merely wanted to return to the peace and comfort of her home in Kansas, aren’t we all hoping to ‘get home?’
What is home and how do we get there? Home is a sense of economic stability and future prosperity achieved by ‘following the yellow brick road.’ If it were only that easy.
Many believe The Wizard of Oz is not simply a whimsical child’s story. Having been written in the late 1800s, does the story represent a populist message? A progressive message? Is the yellow brick road a symbol of the ‘gold standard?’ I will defer to literary historians who are far more schooled than me on these topics.
What about ‘the grand and wonderful wizard’ Ben Bernanke? Are we merely supposed to disregard that ‘man behind the curtain?’ Well, folks, we’re not in Kansas anymore and if we are ever going to ‘get home’ then we had better start promoting an increased level of transparency and accountability along the way.
I am not here to impugn Mr. Bernanke. I do not question his character or his intentions. In fact, I think he is a far better Fed chair than his predecessor Alan Greenspan. However, is Ben Bernanke and the Federal Reserve all-knowing and all-powerful? I think not. Is the economic future of the United States of America so dependent on one man and one institution to determine an accurate and timely path for monetary easing and tightening? Whether we like it or not, our economic system is totally dependent on the Fed. Read what the ‘wonderful wizard’ thinks about The Fed’s Exit Strategy in today’s WSJ.
The risks involved in our dependence upon the Fed are far too great. What needs to be done?
The Federal Reserve must be audited. What is on the Fed’s books? What are all of the assets and the liabilities? What are the Fed’s short term and long term risks? The need for transparency in our economy has never been greater. The least transparent entity within our economic sphere is the Federal Reserve.
Two hundred and seventy five Congressmen have signed a bill, HR 1207 and S 604, sponsored by Congressman Ron Paul (R-TX) requiring an audit of the Federal Reserve. This bill is currently in the House Financial Services Committee, a very critical stage. I beseech anybody who loves our country to solicit your representatives to support this bill. Instructions for doing so are in the above link.
Do we have the brains, the heart, the courage?
LD
For a fuller understanding of the inner workings of the Federal Reserve, please review:
The All Powerful Federal Reserve
June 12, 2009
The All Powerful Federal Reserve: Part II
June 12, 2009
Don’t Call the Fed Independent
June 17, 2009
Fed Independence and the Constitution
June 24, 2009
Detroit Schools: “A National Disgrace”
Posted by Larry Doyle on July 21st, 2009 5:32 AM |
Our country is kidding itself if it thinks it can maintain a position of longstanding economic strength with an abhorrent urban education system.
I initially addressed this topic last October in writing, “Give a Man a Fish…”
I followed that writing in mid-May by specifically comparing and contrasting the dire state of the Detroit public schools with a fabulous academic/work/life program known as Domus in Stamford, CT.
I wrote Secretary of Education “Arne Duncan Visits Detroit; He Should Visit Domus.” Well, the Detroit school system is in the news again and it is not for good reason as the Wall Street Journal writes Detroit Schools on the Brink:
Detroit’s public-school system, beset by massive deficits and widespread corruption, is on the brink of following local icons GM and Chrysler into bankruptcy court.
A decision on whether to file for protection under federal bankruptcy laws will be made by the end of summer, according to Robert Bobb, Detroit Public Schools’ emergency financial manager. Such a filing would be unprecedented in the U.S. Although a few major urban school districts have come close, none has gone through with a bankruptcy, according to legal and education experts.
But in Detroit — where U.S. Education Secretary Arne Duncan dubbed the school system a “national disgrace” this spring — lawmakers and bankruptcy experts see few alternatives, given the deep financial challenges confronting the district and the state.
Those inside and outside of the Detroit system can easily find convenient excuses for the sorry state of the Detroit schools in particular and urban education in general. While macroeconmic developments are outside of our individual control, in my opinion, though, the fact that our urban education system has a graduation rate of 50% (Detroit’s graduation rate is 25%!!!) is an indictment of our entire society, including:
1. Men who father children without taking responsibility for their offspring.
2. Mothers who get pregnant without intention of starting a family.
3. The mass media which glorifies sexual promiscuity and degrades any semblance of moral values.
4. The media which does not highlight the pathetic statistics of urban education.
5. The teacher unions which put a stranglehold on politicians.
6. The politicians who cowardly will not more aggressively support school choice, via both charters and vouchers.
7. Those fortunate enough to help who turn a blind eye.
Is Detroit a unique situation? Anything but. The WSJ highlights:
Some experts say the Detroit case could be the first in a string of Chapter 9 bankruptcies among school districts and other public entities battered by the economic crisis, and it could help shape that area of the law. “Given the state of public finance,” says Samuel Gerdano, executive director of the American Bankruptcy Institute, “I think the wave is coming.”
Make no mistake, though, there is also significant fraud and criminal activity involved in this nationwide education debacle. The fraud must be rooted out and individuals held accountable. It would be excessively naive to think that the fraud does not cross into political offices. These individuals must be prosecuted.
Over and above these individuals, though, our nation as whole is collectively guilty for allowing the moral decay at the core of this situation to propagate.
Guilty as charged and we are all paying whether we know it or not!!
LD
Tim Geithner: Anything but Transparent
Posted by Larry Doyle on July 20th, 2009 3:14 PM |
Treasury Secretary Tim Geithner
Tim Geithner is anything but transparent. In fact, Geithner exemplifies what is wrong with government today.
Government officials who would not treat your money as they would their own are a VERY dangerous breed. These political animals come in both Democratic and Republican stripes. Despite what Geithner or other officials may say, there is mounting evidence of our government allocating funds, making fiscal decisions, and not promoting transparency in the process. It is no surprise that there is seemingly limited regard for our long-term fiscal deficit.
The public level of exasperation over this mounting deficit is growing and is reflected in regular polling data. Even today, I see more evidence of this fiscal imprudence which should be SHOCKING to the American public if it were properly highlighted and exposed.
The Wall Street Journal reports, Government Tab for Crisis Could Hit $23.7 Trillion, Official Says:
Government support aimed at cushioning the effects of the financial crisis in the U.S. could reach $23.7 trillion, a special inspector general overseeing U.S. bailout efforts planned to tell Congress on Tuesday.
In prepared testimony for a hearing of the House Committee on Oversight and Government Reform, Special Inspector General Neil Barofsky said the figure included spending and commitments for several agencies that have implemented programs aimed at supporting the economy and the U.S. financial system.
Last I had checked, the figure associated with Uncle Sam’s fiscal spending and commitments ranged in the $10-12 trillion range. Where and how might Treasury double that figure? Where is the transparency in the process? (more…)
Obama Playing ‘Four Corners’ Offense in Budgetball
Posted by Larry Doyle on July 20th, 2009 12:04 PM |
I thought Barack Obama liked basketball. Lovers of the game coerced the NCAA to utilize a 24-second clock in order to speed the game up, showcase players’ talents, and render the North Carolina ‘four corners’ offense ineffective. What was the basic premise of that offense? Stall tactics.
Well, welcome to the Brave New World of the Uncle Sam Economy where there is none other than President Obama working the budgetball around in true four corners fashion. The Associated Press reports White House Putting Off Budget Update:
The White House is being forced to acknowledge the wide gap between its once-upbeat predictions about the economy and today’s bleak landscape.
The administration’s annual midsummer budget update is sure to show higher deficits and unemployment and slower growth than projected in President Barack Obama’s budget in February and update in May, and that could complicate his efforts to get his signature health care and global-warming proposals through Congress.
The release of the update – usually scheduled for mid-July – has been put off until the middle of next month, giving rise to speculation the White House is delaying the bad news at least until Congress leaves town Aug. 7 on its summer recess.
Who is playing ball with Barack? Tim Geithner, Peter Orszag, Larry Summers, and Austan Goolsbee, along with every other member of his administration. No surprise. The question begs, though, who is playing defense to expose this purely partisan political stall tactic? (more…)
Wall Street’s Greatest Fraud
Posted by Larry Doyle on July 20th, 2009 9:07 AM |
Bernie Madoff’s Ponzi scheme has to be the greatest fraud of all time, right? Allen Stanford is likely a distant second, correct?
Well, actually, no. Madoff has certainly reserved a special place in financial ‘hell’ for his fraud, but make no mistake, the single greatest fraud ever perpetrated on investors is the collective Wall Street enterprise that marketed and distributed Auction-Rate Securities. The ARS market at its peak was a $330 BILLION market. Of that initial size, those on Wall Street tracking developments within the ARS market project that $165 BILLION held by thousands of retail and institutional investors remain frozen.
The Wall Street Journal highlights the next in what could be a long running series of ARS investigations in writing this morning, Cuomo Says Schwab Faces Fraud Suit:
In an official notice sent to Charles Schwab & Co. Friday, Attorney General Andrew Cuomo warned that his office plans to sue the largest online brokerage firm for civil fraud over its marketing and sales of auction-rate securities to clients. Emails and testimony cited in the letter show Schwab’s brokers had little idea of what they were selling and later failed to tell clients that the market was collapsing.
I am heartened to see AG Cuomo launch this action against Schwab but I wonder why he does not simultaneously take the same action against EVERY bank, broker, and investment management firm involved in the marketing and distribution of ARS.
Regular readers of Sense on Cents know that I believe the ARS trail leads back to the Wall Street self-regulatory organization, FINRA. For the benefit of our newer readers, allow me to reconnect the dots once again. (more…)
Surf’s Up at Sense on Cents
Posted by Larry Doyle on July 19th, 2009 2:35 PM |
(bumped up from Saturday afternoon)
For those cruisin’ this Saturday, the word is out that the Surf’s Up here at Sense on Cents. In lieu of our regular weekend respite with Recommended Reading, please allow me the opportunity to ride some waves with you.
The waves rollin’ across our shoreline include:
1. Career Planning : 25 years worth of resources, materials, and instincts to help those looking for a career in business.
2. Market Data: as close to a real-time link as you’ll find on the internet for market data across every sector of the market. Keep your brokers and financial planners honest!!
3. Newsworthy: There’s a little bit of everything here. Some stories have made headlines, others are off the beaten path. I regard them as newsworthy and hope they help you to stay ahead of the curve.
4. NoQuarter Radio: join me every Sunday evening for a live radio show providing truth and transparency as we navigate the economic landscape. All shows are taped and archived. You can listen to audio recordings of past shows right here on the Sense on Cents website, or download as a podcast from iTunes. From the iTunes application, just type in No Quarter Radio podcast in the search window of the iTunes store. All podcasts are a free subscription.
5. Reading Room: books providing market insights, perspectives on business and life, or some special inspiration. These books have made a profound impact on me during my time on and off Wall Street. All strongly recommended!
6. Financial Primers: in our right sidebar, these primers on Debt Management, Financial Aid, Insurance, Investing, and Mortgage Finance will hopefully help anybody and everybody get further up these respective learning curves. Additionally, I provide links to the debacles unfolding in Washington and state capitals via Subsidyscope and PensionWatch.
7. Economic All-Stars: in our left sidebar, access links to some of my favorite money mangers, economists, and regulators, including Tom Atteberry of First Pacific, Sheila Bair of the FDIC, Laszlo Birinyi, Bill Gross of PIMCO, Jeff Gundlach of TCW, Greg Mankiw of Harvard University, John Mauldin, Carmen Reinhart of the University of Maryland, Bob Rodriguez of First Pacific Advisors, Nouriel Roubini, and a whole host of Thought Leaders (leading economists) at Project Syndicate.
8. Archives: in our left sidebar, I have material from upwards of 600 uniquely written and thought provoking posts. The bulk of this material was written during the last 5 months. Whatever topic you’re looking for, just type it in the search window in the upper right hand corner of any page here at Sense on Cents, and you’ll most likely find it. Do not hesitate to ask for help or assistance, via a comment, if you need it.
In surfing the net over the last year, I have yet to find a financial ‘beachsite’ with this kind of talent and views. Please invite your friends!!
Rest assured, after the waves cresting over these links quiet at day’s end, there is still plenty of good banter and friendship provided by your host.
Enjoy and let’s have some fun while we collectively navigate the economic landscape!!
LD
NoQuarter Radio’s Sense on Cents with Larry Doyle
Sunday Evening at 8PM
Posted by Larry Doyle on July 18th, 2009 6:20 PM |
UPDATE: The show has concluded, but you can listen to a recording in its entirety by clicking the Play button on the audio player below. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
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Please join me at 8PM this Sunday evening, July 19, for another fabulous rendition of No Quarter Radio’s Sense on Cents with Larry Doyle. For our newer readers, this weekly show is an hour’s worth of unabashed truth and transparency on developments within the economy, markets, and global financial landscape.
We are living through historic times. Do not let those who would try to ‘sell’ you something define the debate. Sense on Cents is here to serve you. I encourage active engagement during the show and have always maintained, “there are no bad questions.” Call the show to share your thoughts or ask questions at (347) 677-0792.
What did we learn this week? What drove the equity markets higher? What is going on in the bond and currency markets? How are the ‘wizards’ in Washington impacting life on Wall Street and, more importantly, Main Street?
I am going ‘into the pits’ this Sunday evening as I have a spectacular guest, Aaron Kramer. What is life like in a trading pit? How does one manage the mayhem while maintaining the necessary poise and discipline? Aaron Kramer has the experience and perspective on those topics and much more.
Aaron started working at the Chicago Mercantile Exchange (CME) as a market reporter in the early ’90s. Shortly therafter, he began working for Timber Hill Trading Group, a leader in intermarket quantitative model-based trading at the Chicago Board of Trade (CBOT). After leaving Timber Hill, Aaron returned to the CME and worked in the Eurodollar Option Pit for the better part of the next decade. While there, he worked for Pebble Beach Options and Spyglass Options Brokerage Group. Aaron also worked at BNP Securities in the Eurodollar pit as an options specialist for large institutional investors. He left the Eurodollar pit shortly after the turn of the century and began trading for Stafford Trading in the Nasdaq 100 pit at the CME.
Aaron has been actively trading for his personal account for over 5 years. A regular reader of Sense on Cents, Aaron graduated Magna Cum Laude from De Paul University in Chicago with a BA in Business Administration.
Do not miss what will assuredly be a ‘no holds barred’ discussion and review of a wide array of cutting edge issues as we navigate the economic landscape.
LD
Chuck Schumer on CBO: Pot Calls Kettle Black
Posted by Larry Doyle on July 18th, 2009 9:05 AM |
Senator Charles Schumer (D-NY)
Who do you trust?
Is there any greater virtue than trust? In business, as in life, real differences of opinion are part and parcel of good, honest, and open debate. The premise for that debate is based upon trust. The challenge for the American public has long been deciphering the honest differences of opinion from questions of trust.
I see evidence of that once again in a Bloomberg interview with New York Senator Chuck Schumer (D-NY), Schumer Says CBO ‘Wacky’ on Health Costs, Sees Passage:
The Senate can pass legislation overhauling the U.S. health-care system by August with some Republican support even with the “wacky” cost estimates by the Congressional Budget Office, Senator Charles Schumer said.
Senate Finance Committee Chairman Max Baucus thinks his panel can draft a bill by July 21 or 22, Schumer, the No. 3 Democrat in the Senate, said in an interview with Bloomberg Television’s “Political Capital with Al Hunt,” airing today.
“Our preference far and away is for a bipartisan bill,” Schumer said. “If we can’t come to a bipartisan agreement, the Finance Committee will report out a Democratic bill.”
The New York senator said the CBO’s assessment that health-care costs would rise under legislation being considered by congressional Democrats doesn’t take into account savings from preventive care and efficiencies in the system.
“CBO’s scoring is a little bit wacky,” Schumer said of the nonpartisan agency’s estimates. “They are not quite fair because they don’t measure the cost savings down the road, just the immediate spending.”
What is the Congressional Budget Office? What is their mission? (more…)
