Why American banks will not wind up looking like Japanese banks – Part 1


This post is by from Bronte Capital


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I have to welcome a few readers from Talking Points Memo.  They are reproducing my posts at least to the extent that they go to explaining banks and the financial crisis to a policy/politics driven audience.  Given the purpose of the Bronte Capital blog is primarily to explore investment ideas the policy/politics wonks at TPM might find my posts a little odd.  [My purpose is largely to make lots of money.]  
Nonetheless I do have things to say which I think are important from both an investment and a policy/politics perspective.
To this end I want to explain why I do not think the American banking system will wind up looking like the Japanese banking system at the end of this crisis – and what the implications of that are both in a policy and an investment sense.  
To start with thoguh most American readers have no idea what Japanese banks look like.  So I will repeat the second substantive post on this blog – a post which looked at 77 Bank – a regional bank in Japan.  
Next week I will do a post which explains why American regional banks will not look like 77 Bank at any time in the next twenty five years.  So enjoy a post that is almost a year old.  I have annotated it where appropriate.
77 Bank is a regional bank in Sendai (the capital of Miyagi prefecture). The Japanese guys I know think of Sendai as a backwater – a place where the “cool guys” hang out on motorcycles wearing purple clothes. Economically it is just another rapidly aging backwater where the young (other than those that hang out on motor cycles wearing purple clothes) are moving to Tokyo.

The name 77 Bank harks to tradition. During the Meiji restoration the Emperor gave out numbered bank charters. Traditional regional banks still label themselves by the number. www.77.co.jp and many other numbered sites belong to banks.

77 Bank has a very large market share (near 50%) in Sendai. The market is more concentrated that the great oligopoly banking markets of Canada, Australia, Sweden etc. It should be profitable – but isn’t.

Here is its balance sheet:


(click for a more detailed view).

Note that it has USD42.6 billion in deposits. This compares to $35.8 billion for Zions Bancorp – as close to an American equivalent as I can find.  [Disclosure – I had been short Zions Bank at various times – but not for the great collapse in its local commercial property market.  I lost money.  I thought Zions modestly risky – but it wound up very risky.]

77 only has USD26.4 billion in loans though. If you take out the low margin quasi-government loans it probably has only USD20 billion in loans.

This bank seems to be very good at taking deposits – but can’t seem to lend money.

This is typical in regional Japan. It is also a problem – because when interest rates are (effectively) zero the value of a deposit franchise is also effectively zero.

So – guess what. It sits there – just sits – with huge yen securities (yields of about 50bps) doing nothing much.

It’s a big bank. It has next to no loan losses because it has no lending.

Here is an income statement:


(click for a more detailed view)

Profits were USD87 million on shareholder equity of 3251 million. You don’t need a calculator – that is a lousy return on equity for a bank without credit losses.

You might think that given that they have no profitability and no lending potential they might be returning cash to shareholders. Obviously you are new to Japan. Profits are 27 yen per share and the dividend is 7 (which they thoughtfully increased from 6).

In a world where banks everywhere are short of capital 77 bank is swimming in it. Here is the graph of capital ratios over time:

This bank has an embarrassment of riches – and nothing to do with them.

Welcome to regional Japan.

An American Mirror

The title of this post was “An American Mirror”. And so far I have not mentioned America.

America is a land with little in deposits and considerable lending. There are similar lands – such as Spain, the UK, Australia, New Zealand and Iceland.

There are also mirror image lands – 77 is our mirror image.

Macroeconomic investing calls

We live in a world with considerable excess (mostly Asian) savings. Banks with access to borrowers made good margins because the borrowers were in short supply. Savers (or banks with access to savers) were willing to fund aggressive Western lenders on low spreads.

77 Bank has been the recipient of those low spreads. It has not been a fun place for shareholders as the sub 3% return on equity attests.

The economics of 77 Bank (and many like it) will change if the world becomes short on savings. There is NO evidence that that is happening now – and so 77 Bank will probably remain a lousy place for shareholders.  

The market produces what the market wants

This is an aside really. We live in a world with an excess of savings. This is equivalent to saying that we live in a world with a shortage of (credit) worthy borrowers. So we started lending to unworthy borrowers – what Charlie Munger described as the “unworthy poor [whoever they might be] and the overstretched rich”. We know how that ended.

Unfortunately the financial system cannot make worthy borrowers. It can only lend to them when it can identify them.

This Subprime meltdown heralds the death (for now) of lending to the unworthy. The shortage of the worthy however is as acute as ever – and money for the worthy is still very cheap.  [Money for the worthy is now difficult to obtain (at least outside Fannie/Freddie space), but still relatively cheap once obtained.]

The subprime meltdown does not solve 77’s problems.

John

One year later postscript:

The basic call that the global savings glut was not going away was right.  The global glut of savings – which found its way into endless dodgy subprime mortgages and other problem loans – still exists.  Chinese people still save to excess.  Americans are saving more.  The fundamental imbalance that drove the world financial crisis is still there.  It is not obvious how that is fixed.  

Japanese banks however have found that low margins are particularly dangerous – as there is little profitability to offset losses (even small losses).  And Japanese banks are now having losses.

Bailouts, Inventories and Jobs


This post is by from Sudden Debt


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The “green shoots” that everyone is talking about, and which are greatly responsible for causing the current (dead cat ?) bounce in stocks, are best explained thus:

1. The massive bailout of the financial system (approx. $14 trillion in equity injections, loans and guarantees) prevented its meltdown. However, financial stocks had priced in such a risk by moving much lower (the KBW US bank share index was down 85% at its low) and are now simply correcting this negative excess.
  • But, this is NOT the same as a rally based on better business prospects for the future. Thus, it has “short-term and limited” written all over it.
2. The sharpness of the consumer pull-back caused businesses to likewise sharply curtail new orders to work down inventory. Since the economy now operates on VERY tight inventory-to-sales ratios (JIT: Just In Time deliveries) this caused a whole series of dominoes to drop all the way back to BRIC+ manufacturers, commodity producers and transportation companies. As inventories dropped, however, some new orders are now – necessarily – reappearing, exactly because of JIT.

  • But, these are NOT orders based on projected robust growth; they are simply replacement orders, and they reflect reduced consumption going forward. Thus, the “real” economy has “anaemic” written all over it, at best.

3. Because of the above sharp pullback, employment got hit very badly, very fast. Continued claims for unemployment insurance shot up in a straight line and are at the highest level ever. Because of the inventory adjustment orders, however, going forward the rate of job losses will subside somewhat and this is causing unwarranted cheer.

  • But, fewer job losses should not be interpreted as a sign the economy has turned the corner, as it has in the past; the slower pace is expected, after such a huge decline.

Bottom line: do not be fooled by the “green shoots”. They are merely happy talk from officials anxious to turn lemons (a slower pace of decline) into lemonade. Let me put it in mathematical terms: just because the second derivative is getting less negative doesn’t mean the first derivative has stopped going down..
______________________________
Jobs Report Addendum

The BLS reported that 539,000 jobs were lost in April, “better than expected” because the consensus amongst analysts was for a figure around -600,000. Markets cheered.
Some observations, however:

  1. The previous months were adjusted down to show an additional loss of 66,000 jobs.
  2. The government added a near record 72,000 jobs because it is hiring upcoming census takers.
  3. The BLS Birth/Death model was at it again, adding 226,000 jobs (not seasonally adjusted). For what it’s worth, this statistical model has added jobs to the reported figures in 12 out of the last 13 months; in a recession, no less…

How might the BofA stress test work


This post is by from Bronte Capital


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THERE ARE ALL SORTS OF THINGS WRONG WITH THIS POST.  BEST IGNORED.  LEFT FOR POSTERITY…

There is a joint press release from the Tim Geithner, Ben Bernanke, Sheila Bair (who I think really deserves to be in this company) and John Dugan (who is always wondering what he is doing in this company).  It outlines the stress test.  You can read it (word for word like me) if you are into self flagellation.

But here is the guts of it:

The bank must be able to have 4% tangible common equity and a 6% tier one ratio by year end 2010 in the adverse macro (that is stress) circumstance.  At bank of America there is plenty of preferred shares (both government and privately issued).  So the only constraint that matters is the 4% tangible common equity ratio.

The 19 Bank Holding Companies (including BofA) don’t need to meet the 4% test now – they only need to have enough capital now that they will in an adverse circumstance meet the 4 percent test later.  In other words when counting the losses that they might have in an adverse circumstance they are also allowed to count the earnings they will receive in the adverse circumstance.

That is good for a few banks.  Bank of America doesn’t meet a 4% tangible capital ratio now.  Not even close.  But its revenue is rising fast and it will be allowed to count three more quarters of revenue in its calculation. 

Unfortunately they are not allowed to count anticipated near term increases in revenue (they are having them and in adverse circumstances bank revenue typically goes up).  Presumably they are allowed to count revenue (net of “abnormal” trading gains and losses) at the run rate that they generated it in the first quarter – which is – as noted elsewhere on this blog – is a record.. 

There does not seem to be a provision against counting near term changes in pre-tax pre-provision earnings derived from cost changes.  That means that Bank of America should be able to count the cost synergies but not the revenue synergies from the Merrill Lynch merger.  That is about 6 billion per year – but probably only next year.
If a bank does not pass a stress test there are a few capital management options that are not open.  The most important is to shrink the lending book.  The stress test must be able to met whilst maintaining lending at prudent levels to keep the economy ticking along.  I guess the government doesn’t want to discourage a crash by forcing lending down.  They can however meet the tests by selling assets or raising third party capital or even (as is the shareholder’s greatest fear) by turning the preference shares that the government owns into new mandatory convertible preference shares as per the last Citigroup bailout.

Well everyone “knows” that the BofA shortfall is 33.9 billion.   That number has been leaked widely – and is so precise that it would be embarrassing for the journalist to get it wrong.

Anyway I want to have a little think about what that number means…

Here is the balance sheet of BofA

 

The company has a total balance sheet of 2,322.0 billion – but only 977.0 billion of loans (less after provisions).  By the time you add in an investment bank you get an awfully big number of assets (trading and other).  But 86.9 billion in goodwill and 13.7 billion is other intangibles.  The tangible assets are thus 2221.4 billion.  4% of this is 88.9 billion. 

The shareholder equity is 239.5 billion but you need to subtract off the same intangibles.  You then wind up with 138.9 billion in tangible equity.  There is a whack of preferreds (including TARP) and you have 65.6 billion of tangible common equity.  Prima facie the company has 65.6 billion in tangible common equity.  The bank is prima facie short 23.3 billion of capital.  I have put this in the following spreadsheet. 

 Summary

Balance sheet data in billions Total assets 2322.0 Goodwill 86.9 Other intangibles 13.7 Tangible total assets 2221.4 4% of this is  88.9 BofA shareholder equity 239.5 Goodwill 86.9 Other intangibles 13.7 Tangible equity 138.9 Preferred stock (including TARP) 73.3 Tangible common equity 65.6 Current tangible common equity ratio 3.0% Prima facie current shortfall 23.3

This number differs a little from the numbers in the last quarterly report.  Here they are.

This suggests that we have a 3.13 percent tangible common ratio – and the difference is tax assets and liabilities associated with the intangibles – see the footnote.  I am just going to accept the number.  Addition – main difference is the risk weighting of some of the off balancec sheet stuff…

Using that number we have 3.13 percent tangible capital, somewhat better than the 3.0 percent calculated above – and the shortfall is “only” 19.3 billion rather than 23.3 billion.  The widely mooted current shortfall is about 20 billion.

But it is not the current shortfall that matters.  It is the projected adverse circumstances shortfall at the end of next year that matters.

Now suppose that BofA has zero growth between now and the end of next year.  Then the required capital will not have changed – and the bank will have had some pre-tax, pre-provision earnings. 

It will in fact have had a lot of them.  Pre-tax, pre-provision earnings are running about 13 billion per quarter at the moment ($39 billion for the rest of this year plus another 52 billion next year for a total of 91 billion).  It will also have a further 6 billion in “earnings” from the Merrill Lynch synergies.* So they will have 97 billion in earnings before losses.

But lots of losses – an amount that none of us really know.  If they have 77 billion in losses they will still recover the 20 billion current shortfall and they will thus pass the stress test. 

Now is 77 billion possible?  Yes – but it is pretty bad if you think it has to come from the loan book.  The loan book is 977 billion and already has 29 billion of provisions against them.  The loan book might be that bad in an adverse circumstance – but frankly I doubt it.  The actual losses last quarter were way less than that rate – though the company provisioned considerably more than they charged off and they projected the losses would get worse.   Expost addition – the loss here is more or less what they think will happen in the stress test.  I happen to think the stress test loss estimate is just too high – but that is one of those things that people will differ about.

The non-loan book (and the off-balance sheet credit card book) could cause distress in the stress scenario.  The particular issue is the credit card book – and I would expect profits to go away – but this is MBNA not Metris – and my guess is that the book will hurt but not kill.  A credit card stress test here is solvable with 5mg of valium (a very small dose – read a mg for a billion dollars and you get it about right).

Far more problematic is the possibly they could blow up the (Merrill Lynch) trading book again.  Merrills – rather than anything else is the black box at BofA.  I suspect/hope that Bank of America has been steadfastly trying to de-risk the Merrill Lynch book.  Sure they shouldn’t have purchased it – but they have taken a whack of charges against it and the trading book is likely – at least in the next thirty days – to show some reverses.  After all –what were those year end charges about.  And they can sell good slabs of this book reducing total assets and hence required tangible common equity.  Still it is the trading book that is the black-box here and I have no idea how much valium is required to remove stress. 

The best thing though about the non-loan book is that it is easy to liquidate.  They can shrink it.

Indeed the easiest thing to shrink is the cash balance.  I have pointed out that the cash balance of BofA is enormous – and in the stupid rule of the week the 4% TCE ratio includes 4% of cash.  The rule is pretty clear – 4 percent on total assets including the huge excess cash balances BofA is holding.  Just by increasing risk (through shrinking cash balances) BofA can solve $6 billion of its shortfall.

But in the end it comes down to the trading book which should, after some run-off, be shrinkable.  The only question being how much do they lose by shrinking it?  And that depends where it is marked.  And to that – well I think you need to be an insider to know.

 

 

Disclosure: still long BAC.

 

 

John

 

*I think those earnings are as dodgy as they sound – but I think they can count them in working out stress test capital. 

 

 

It’s A Copycat – Deadcat Bounce


This post is by from Sudden Debt


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Spring has sprung violently in all risk markets, from junk bonds to sovereign credits, from financial to alternative energy stocks, from copper and crude oil to ship charter rates. In a word, from risk revulsion and panic selling to risk appetite and panic buying, all in the space of a few months. My, my.. what on Earth is going on?

VIX is back to July 2008 levels!

As best as I can gauge it, the “logic” of traders in dealing rooms across the globe is as follows:

  1. “They” are not going to let the system collapse.
  2. “They” want asset prices to move higher.
  3. “They” will do whatever it takes to make it so.

“They” being loosely identified with those mysterious, behind the scenes powers also known as TPTB believed (extremely erroneously, it must be stressed) to be all powerful, all the time.

The Greenspan put is now the Bernanke put and is deemed to have been exercised with a vengeance to the tune of several trillion dollars. Furthermore, such “put” operations have been expanded to include the enthusiastic support, or at least the tacit acquiescence, of every major politician and policy maker in the world.

Within two months the traders’ motto has changed from: Sell everything before it’s too late to: Buy everything before it’s too late. In my 25 years of active involvement in markets I have never seen such a perfect and absolute reversal of psychology in such a short time. Economists can argue about the shape of the economic recovery until the cows come home, but for traders it’s V all the way, baby..

There is no fundamental rhyme or reason necessary; after decades of deeply imbibing from the free-market neo-liberal chalice, adherents religiously believe the market creates its own reality. If stocks are up, then the economy must be getting better and thus.. buy before it’s too late. Traders are looking over their shoulder to their mates next screen over and mumble determinedly: “I’ll be damned if I’m left behind.”

And that, ladies and gentlemen, is a copycat speculator, trader, ivestor, whatever..

Trouble is.. this is not the 1990s or even the early 2000s. The game has changed and there is nothing left to goose; technology, real estate, commodities – they have all been played out. All we have left now is a huge pile of debt rapidly going to stink. That’s NOT an asset, folks..

Here’s what I think: this copycat bounce is going to quickly turn into a deadcat bounce.

All lies and jest


This post is by from Bronte Capital


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Please note – I am aware this note provides a selective interpretation of a New York Times article – and being selective is likely to be wrong.  
In The Boxer (from Bridge over Troubled Waters) Art Garfunkel sings that a man hears what he wants to hear and disregards the rest.  Like many a good song lyric it holds an underlying truth.
And I risk hearing what I want to hear about Bank of America.  I could be wrong.  I am long the stock for a few dollars so far – and being long probably have selective hearing.  But there are plenty of people intellectually (and financially) committed to the idea that BofA is insolvent – and they are also hearing what they want to hear.  
There is a lot of talk about Bank of America failing the stress test.  The number that they need to raise varies from more than $10 billion to $45 billion with $34 billion being the consensus number of today.  [I round $33.9 to $34 billion – what is a hundred million dollars between friends?]
The New York Times seems to quote original sources … and manages to pin down a senior BofA executive (Alphin) by name.  That is better than most papers have done.  The usual source is “people familiar with the matter”.
Now here is a quote:
Mr. Alphin said since the government figure [$34 billion] is less than the $45 billion provided to Bank of America, the bank will now start looking at ways of repaying the $11 billion difference over time to the government.
So lets get this straight…
A while back Ken Lewis was talking about repaying the entire $45 billion in TARP money.
He backed off.  He said at the annual meeting that the required capital was not in BofA’s hands.
Now they are talking about repaying $11 billion.  That leaves $34 billion – capital which the government says that they need.
This hardly sounds like they need fresh tangible common equity.  Just that the TARP money is a decent buffer and will convert if the tangible common ratio falls below some threshold.  
This interpretation is consistent with the denials the other day by BofA that they were looking to raise $10 billion.
Incidentally this is way better than I originally thought.  The tangible common to tangible assets (not including excess cash balances) is well below 4% now.  Even as a long I think some dilution is warranted.
That said – the quality of leaks on the stress test to date has been awful. 
And maybe Mr Alphin’s comment is also misquoted.  And maybe I am way off base.  In my interpretation.  
Maybe Simon and Garfunkel were right – it is “all lies and jest”.  That is about par for bank accounting and behaviour.

The real economy sucks


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But banks don’t.
The Pragmatic Capitalist has up his results from his study of insider buying versus selling.  Insiders are selling at a rate not seen since the top in 2007.  
Some of this selling reflects the usual diversification of some super-rich executives.  Bill Gates is the biggest seller on the list.
Some of this selling reflects the insiders looking at the abyss.  Many a CEO this cycle has been levered to their stock and many have moved rapidly from the genuinely wealthy to the ordinary no-substantial-assets masses.  
Only some of this selling reflects the economic prospects of the businesses in question.  However I think we can conclude by just how skewed the ratio is that even that sucks.
What was not noted though is that there is not a single bank executive on the list of sellers.  Not one.  
Now partly that is that the forced selling of bank stocks happened early.  But partly it has to be that the prospects for banks have improved – at least off the catastrophic situation of a few months ago.
My slogan for analysing banks is to watch what they do not what they say.  I think that is about right.

Debt, doubt and disease


This post is by from The price of everything


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“I respect faith, but doubt is what gets you an education.”

 

      
Wilson Mizner.

 

 

You come to realise just how
vulnerable the modern world is to sudden distress when you play Dark Realms
Studios’ Pandemic 2.
The game has you in the role of a contagious disease and you gain points by
spreading infection (which, of course, meets the accusation of appearing
tasteless, but the game predates the current outbreak of Swine Flu by at least
a year). Throughout the game, aircraft gently scud across the globe and ships
slowly track across the oceans; their freight may or may not be deadly. Our
convenience of modern transport comes at a price.

 

And
infectious outbreak is the perfect metaphor for the storm that has raged across
markets over the past two years. For disease, read credit. For plague carriers,
read banks. And, in their turn, homeowners, and investors. Very few of us were
immune..

To read more:

Download Debt, doubt and disease

Hasn’t Drive a Ford Lately; Not Likely to Any Time Soon


This post is by from Jeff Matthews Is Not Making This Up


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We here at Not Making This Up are big fans of Alan Mulally.

Mulally is the ex-Boeing genius hired to turn around Ford Motor Company three short years ago, and he is the individual responsible for the fact that Ford has not filed Chapter 11, has not taken government funds, and has not and likely will not require a rescue at the hands of American taxpayers.

Mulally is responsible for Ford’s rescue because he’s the guy who decided Ford would borrow every dollar it could get its hands on while credit was easy and nobody else in Detroit could see the same writing on the wall.

But if Mulally is going to turn Ford into a good business, rather than just a survivor, he’s going to have to sell cars. And if my mother’s experience is anything to judge by, Mulally has his hands full.

My mother has been a Lexus driver ever since American car quality started going into slogans instead of the cars themselves. But she recently decided—like many Americans, I’d bet—that since Ford seemed to be doing a good job against all the odds, she’d help the team and buy a Ford.

Now, you would think the local Ford dealer would be thrilled. After all, most businesses in Florida haven’t exactly been shooting the lights out lately, let alone car dealers.

Let alone American car dealers.

But this particular Ford dealer could not be bothered—or at least this particular salesman couldn’t.

Instead of asking a thing about her driving habits, what she planned to do with the car, how she planned to used it, he launched straight into the Guy Question, “What are you looking for?”

As if a grandmother is going to say “Well I want a turbo-charged six-cylinder twenty-five-hundred-CC engine with a Grampton Cycle Frapper and eight-way, hand-tied seats.”

Then, without so much as getting her name and address as she backed slowly away from him, the salesman at the Ford dealership let her go…on down the road back to the Lexus guy.

Jeff Matthews
I Am Not Making This Up

© 2009 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

How Steep Is My Valley


This post is by from Sudden Debt


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The steepness of the US Treasury bond yield curve is once again reaching 30+ year record levels; the difference between 10- and 2-year yields is currently at 222 basis points, having previously nearly matched the record 270 bp of 2003 and 1992 (see chart below, click to enlarge).
Data: FRB St. Louis

Many analysts interpret this as a clear sign of imminent economic recovery, and so do stock market bulls. I was just speaking to an investment bank trader and he confirmed that they are using the 10y-2y spread as a market signal, both in the US and in Europe. So far, so good, it seems.

But… today’s proper interpretation of yield curve spreads should be differentiated from previous years. With short-term interest rates hugging the absolute zero mark (3m T-bills are at 0.14% and 2-year notes at 0.94%), long-short spreads of 2-3% are nearly meaningless because they are mostly predicated by a basic concept of monetary theory, i.e. the term structure of interest rates.

What I mean is that in interpreting the yield curve’s current shape and steepness we should also take into account the absolute level of interest rates. We are simply too close to the limit, the boundary condition imposed by the impossibility of negative nominal interest rates (we did very briefly experience negative rates for 1m T-bills at the height of the crisis). In other words, it’s one thing to have a 10y-2y spread of 300 bp as a result of 7% minus 4%, but a wholly different matter when it comes from 4% minus 1%.

Furthermore, we should consider another factor: increased credit quality concerns for US Treasury bonds. A year ago the credit quality of the US was unquestioned. Today, credit default swaps (CDS) for 10-year treasuries are around 40 bp (went as high as 100 bp), meaning there is measurable and meaningful default risk. This results in yield premiums versus previous years, specifically for longer-term bonds.

CDS for 10-year US Treasury Bonds

A very obvious observation is that as credit quality deteriorates lenders may still be willing to lend short-term, but become more cautious on longer term loans. This causes the yield curve to steepen (higher 10y-2y spreads) perhaps for the exact opposite reason than bulls may suppose, i.e. a weaker economy and massive bailouts make longer-term treasuries less secure and thus long rates go up. This is not something that the US market has had to deal with in the past because its credit quality was always presumed to be AAA+.

Thus, the 10y-2y spread being at near record highs should be more closely examined, and perhaps differently interpreted, than before.

Ecosystem Management – Is Control Good or Bad


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Two posts in the same day illustrate the problems at either extreme of ecosystem management on the web.

Apple exerts too much control

Firefox too little

Is there an obvious middle ground that doesn’t create a big management burden? Is there a technical, or architectural solution that would lead to good behavior with out requiring a human referee?

I can’t say what the solution might be. I suspect it will combine clever architecture, good incentive structure, and some crowd sourced human oversight. But I sure hope there is a solution otherwise we are staring at a fundamental limitation of the web.

Ecosystem Management – Is Control Good or Bad


This post is by unfinished work from unfinished work


Click here to view on the original site: Original Post




Two posts in the same day illustrate the problems at either extreme of ecosystem management on the web.

Apple exerts too much control

Firefox too little

Is there an obvious middle ground that doesn’t create a big management burden? Is there a technical, or architectural solution that would lead to good behavior with out requiring a human referee?

I can’t say what the solution might be. I suspect it will combine clever architecture, good incentive structure, and some crowd sourced human oversight. But I sure hope there is a solution otherwise we are staring at a fundamental limitation of the web.

The NVCA’s Two Big Blind Spots


This post is by from PE Hub Blog: PE-Backed IPOs


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America’s ability to efficiently deliver capital to innovative companies has been the heart of our economic leadership. As such, we desperately need to repair our growth IPO market

I applaud the NCVA’s efforts to advance this dialog. Its presentation does a great job of framing the issue and pointing at elements of a solution. However, it also misses two critical issues that need to be addressed if the IPO market is too come back to life: Reliable liquidity and trust.

Issue 1 is paying for liquidity. You can’t rebuild the IPO market without reliable liquidity, which was provided in the 80’s and 90’s by growth-focused I-banking boutiques that were compensated through trading revenues based on spreads. Unfortunately, no one understands how to put a price on liquidity in growth-focused equity markets – not the NVCA, not the SEC, not Fidelity, not the collective finance faculty of Wharton, Chicago and Harvard.

During the Internet bubble, the supply of public liquidity appeared infinite and the price inevitably moved to zero as spreads collapsed. Moreover, it became criminal for the Putnams of the world to pay $0.25 per share to trade with a full-service rain-or-shine I-bank, when they could pay $0.05 per share to a no-service fair-weather ECN. Without significant trading revenue, the 4 Horseman packed up their research analysts and market makers and rode off into the sunset. I believe the sentiment at the time was “good riddance.”

For a while, it seemed that there was enough liquidity to get by from day traders, ECNs and dark pools. But when the economic environment turned choppy, we saw the impact of losing substantial institutions whose business model was dedicated to smooth functioning markets. Institutions that had been trusted to the bridge the gaps in liquidity that can cause a run a stock (bank).

For a functioning IPO market that supports growth companies with all their natural volatility, we need trusted institutions that provide liquidity both directly (market making) and indirectly (trusted research). No one can arithmetically answer the question, “What is the right NASDAQ spread to compensate a full service I-bank for nurturing young volatile public companies?”

But the dialog around a healthy IPO market has to start with recognition of the need for liquidity providers and a willingness to foot the bill. Who needs to be in the room to address this fundamental issue – the SEC, NASD, NASDAQ, NYSE, Bill Donaldson, Sandy Robertson, Ken Pasternak and Tom Weisel would be a good start.

Issue 2 is rebuilding the trust that attracts investors. – You can’t rebuild the IPO market for young, rapidly-changing growth companies without more trust in the system and the IPO product. Sustainability requires trust and trust requires quality standards.

We “blew it” in the Internet bubble – just as a new universe of individual investors was entering and expanding the IPO market, diligence and research standards fell apart. This is an old story, but an important one to embrace.

Rebuilding the IPO market to help VC’s exit an oversupply of weak companies is a recipe for failure – again.

As a former Robertson Stephens partner, it is ironically pleasant to hear VCs extol the virtues of I-banking boutiques and healthy collaboration between research and banking. The fact that the growth-focused banks got fat and sloppy during the Internet bubble is well documented – the 4 Horseman went from being the best source for new investment ideas to the target of litigation.

Of course, VCs enjoyed the same tailwind and used it to grow their capital under management over 1000 percent. But, VCs have one characteristic that dramatically separates them from I-bankers – they have “10 year” funds that guarantee their revenues. The 4 Horsemen got fat and sloppy in the bubble – and were history by 2002. In contrast, the VC industry has been able to invest like it was 1999 for 10 years – which brings us to 2009. Pushing open the IPO market is not the solution for a surplus of mediocre VC-backed tech and biotech companies.

We should applaud the NVCA for taking initiative and all Americans should fully support policies that rebuild the IPO machine. But, any policy discussion must embrace the need for high-quality standards, and recognize the potential negative implications of the current overhang.

Chris is the founder of Bulger Capital, before which he spent three years at Needham & Co. as a senior partner and head of technology banking. He also is a Robbie Stephens vet, having run its Boston office and its global technology banking group.

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Pilgrimage Over, Stay Tuned


This post is by from Jeff Matthews Is Not Making This Up


Click here to view on the original site: Original Post





Well, it’s over, more or less.

I say “more or less” because, given the fact that I am not flying NetJets this year, we need to wait for certain missing airline attendants to make their way to Eppley Field so that United Airlines can begin boarding First Class, Business Class, Premier Executive, Star Gold (not Gold Star), Star Silver (not Silver Star), Civil War Buff Class, Model Train Enthusiast Class, Crosby Stills Nash & Young Class, New Riders of the Purple Sage Class, and the rest of us lowly travelers, before starting for home and writing up what happened.

Please stay tuned.


Jeff Matthews
I Am Not Making Most of This Up

© 2009 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

One Chart, Plus One Word


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Nominal GDP growth (i.e. not adjusted for inflation) has turned negative y-o-y for the first time in 50 years . That’s no good at all.
  • One chart:

DATA: FRB St. Louis

…and

Saturday marked the annual meeting of Berkshire Hathaway, which has lately become a sort of tent-revival affair, an apotheosis of investment guru-dom. This one went way over the top as 35,000 people crammed into an arena, its overflow rooms and a ballroom at a nearby hotel to hear the presumed wisdom of Messrs. Buffett and Munger.

  • One word: hubris.

You Realithe, Of Courth, Thith Meanth War


This post is by from The Epicurean Dealmaker


Click here to view on the original site: Original Post




“Consequences, Schmonsequences, as long as I’m rich.”

“I may be a craven little coward, but I’m a greedy craven little coward.”

— Daffy Duck (attributed)

Apparently unlike many of my fellow citizens, I freely confess that I harbor no morbid fascination for car crashes. Many people seem unable to draw their eyes away from the spectacle of thousands of pounds of hurtling vehicle rearranging itself into a smoking pile of mangled metal and broken bodies. For my part, I prefer to look away, both before and after the fact. I feel no great compulsion to remind myself that when metal and flesh collide at speed, flesh is always and everywhere the loser. I claim no moral superiority for my behavior, simply a finely tuned squeamishness and a certain intellectual distaste for repeated demonstration of the obvious.

Hence, you should not be surprised when I admit I have not devoted more than cursory attention to Chrysler Corporation’s developing bankruptcy. The multifarious sources of the crash have long been evident to any sentient being with a pulse. In addition, the looming bankruptcy itself has been unfolding for so many months it resembles the slow motion pile-up in Talladega Nights, which takes so long the TV announcers break to a commercial in the middle of it. A bloggist less honest than myself might claim he saw the wheels coming off the LeBaron almost two years ago. Fortunately, your Dedicated Correspondent is above such petty credit-jumping.

But now that the patient has been wheeled into the operating theater, where a bankruptcy judge will soon commence the drawn-out and delicate procedure of reconstituting Chrysler into a viable new company which will magically produce vehicles irresistible to all those consumers previously inured to their temptations, I have begun to take notice of a certain strain of commentary which I feel compelled to address.

This commentary seems to issue primarily from Chrysler’s secured creditors and their supporters, apologists, and fellow travelers. I believe one can fairly characterize the essence of this commentary as

“Waaah! The Government is Picking on Me!”

To be perfectly honest, I find this intensely amusing.

* * *

The first indications I received that all might not be well in the temples of untrammeled commerce came from a self-described group of Chrysler’s smaller secured creditors, who objected in print and in public last week to what they perceived as President Obama’s rather shabby treatment of them in the whole mess. In their communiqué, they whined about being shut out of direct negotiations with the government, groused about dramatically lower recoveries on their debt than secured lenders at General Motors, and wrapped themselves in the saintly robes of Sanctity of Contracts and Fiduciary Duty. And, knowing full well that the government would do it for them, they pompously proclaimed that they would never push Chrysler into bankruptcy.

The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.

Heavens to Betsy! Save the Bankrupcty Code!

The next little goodie to cross my consciousness was the allegation by White & Case lawyer Tom Lauria, subsequently denied by the White House and Mr. Lauria’s client Perella Weinberg, that the White House has been playing very hard ball indeed in the Chrysler negotiations:

“One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight…That was Perella Weinberg.”

Finally, to cap it all off, we received this little bulletin from the front lines of capitalist hysteria1 late Saturday night:

This (as yet unproven) yarn goes exactly like this:

Confronting the head of a non-TARP fund holding Chrysler debt and unwilling to release it for any sum less than that to which it was legally entitled without compelling cause, this country’s “Car Czar” [Steven Rattner] berated the manager of said fund with an outburst of prose substantially resembling this:

[“]Who the fuck do you think you’re dealing with? We’ll have the IRS audit your fund. Every one of your employees. Your investors. Then we will have the Securities and Exchange Commission rip through your books looking for anything and everything and nothing we find to destroy you with.[“]

Faced with these sorts of threats, in this environment, with valued employees in the crosshairs and AIG a fresh, open wound upon the market, the fund folded.

Fuck the Bankruptcy Code, and Betsy, too! Save us instead!

* * *

Now, I would like to make a few remarks in reaction to this.

First, while I have no particular knowledge of the facts and circumstances surrounding the negotiations over Chrysler’s restructuring prior to its bankruptcy filing—and no eager little beavers are sending me real or imagined transcripts of inflammatory conversations which may or may not have taken place—I have no reason to doubt that these conversations or ones similar to them did in fact take place. In fact, I would be surprised if they had not.

Think about it. The political stakes for the Obama Administration in the Chrysler fiasco are monumental. Barring the ongoing clusterfuck in the finance industry—which is arguably a legacy problem inherited from the previous bumblefuck administration—Chrysler is Obama’s first big test to fix an incredibly hairy political, social, and economic dilemma. I would be shocked—shocked!—if every member of the Administration charged with its resolution was not under tremendous personal and professional pressure . In such circumstances, I think it is the height of folly not to expect a great deal of vituperative language, threats, and other nastiness to come spilling out of the mouths of such individuals. Is such behavior right, proper, or even polite? Of course not. Should allowances be made for it? Yes indeed.

Saying awful, hurtful, or even threatening things under conditions of high stress is normal human behavior. Anyone who has not been on the giving or receiving end of such treatment from another human being at least once in his or her life is either a) lying, b) staggeringly obtuse, c) certifiably autistic (see (b)), or d) incredibly immature.2 The proper response to such an attack can be any number of things: defuse it, ignore it, deflect it, or retaliate. How one responds depends on the situation at hand.

This leads to my second point. The negotiations over carving up claims to Chrysler Corporation prior to bankruptcy were just that: negotiations. Notwithstanding whatever principles of Truth, Justice, and the American Way the Chrysler non-Tarp lenders would have us believe undergird their positions, they were simply one party among many to a very complicated negotiation over the proper distribution of value of a very large and troubled company. Yes, there are general principles and precedents concerning the division of spoils in a corporate bankruptcy which normally guide such processes. Yes, many of these have been laid down over decades of contested and uncontested bankruptcies prosecuted through our court system.

That being said, none of these precedents are Holy Writ.

The parties to the Chrysler negotiation tried to agree to a prepackaged division of spoils which they could present to a bankruptcy judge and thereby speed the company’s restructuring. They failed. Did someone—the government, the UAW, the non-Tarp secured lenders—overreach? Maybe. Does it matter who? Not in the least. A pre-agreed deal was not struck, so the distribution of claims to Chrysler will be determined in court, by a judge, who will listen to advocates for each group argue their case. The process will take longer, and perhaps introduce additional stresses and strains that Chrysler can ill afford, but everyone will have their day in court. Even those poor, put-upon non-Tarp lenders. In fact, even though they would likely be loathe to admit it publicly, everyone may be happier that the company has fallen into Chapter 11. That way, each can say to their own constituents that they tried as hard as they could, but were unable in the end to get everything they wanted. (Chief among these, by the way, I would place the Administration.)

The corollary point of negotiations is this: they are hard, and often unpleasant. Parties to a bankruptcy say hard, unpleasant things, they threaten and cajole, and they use all their powers of persuasion, soft and hard, to convince the other parties to the deal to give them what they want. In this context, why should anyone be surprised that agents of the government threatened recalcitrant lenders with IRS audits, excoriated their behavior in populist press conferences, or promised to destroy their institutional reputations in the public eye? The government was simply using the real and imagined powers at its command to browbeat its counterparties into agreement. This is standard operating procedure in high-pressure negotiations.

Had I advised the government on Chrysler, I would have encouraged them to use the very same tactics.

Of course, anyone on the other side of the table during such outbursts who had half a brain or any sort of experience in such matters would have recognized them for what they were: bluffs. And they would have countered with their own hard and soft power, and their own real and imagined levers of persuasion—”fiduciary duty,” for example, and David and Goliath press releases would have worked (and did work) nicely—to push back in turn. Furthermore, if threats and bullying appeared to cross the line, the affected party was always free to politely remind the offending official that there are such things as limits to power in this country, and very nasty things tend to happen to public figures who abuse them. Every corporate and individual citizen in the United States is legally subject to an IRS audit at any time. But precedent, tradition, and most Americans’ innate fear and hatred of the IRS reassure me that any official who was discovered to have triggered one on a purely political basis would face blowback of career-ending proportions.

* * *

Now I assume the non-Tarp Chrysler lenders actually brought someone to the restructuring negotiations who knew what the fuck he was doing. (If they didn’t, too bad for them.) They clearly have learned they need to work the press as hard as the Administration, if only so they do not appear to concede the government’s talking points by their own silence. Sad to say, this will be a Sisyphean task, since hedge funds and finance companies of every stripe have a reputation with the general public only slightly less awful than that of drug-dealing child molesters. I personally understand and am sympathetic toward their argument of fiduciary duty, but vulture funds wrapping themselves in the banner of widows and orphans won’t do them much good. In all but the most hardened capitalist cadres’ hearts, working mens’ paychecks and the Public Weal still trump the profit motive, even if it is Aunt Millie’s profit.3 They also play better on national TV.

Lastly, I fear I will disappoint my card-carrying capitalist comrades by remaining defiantly unconcerned that the Obama Administration is playing hardball in the current economic crisis. After all, the President and yea, even the US Congress, have their own fiduciary duties to prosecute and uphold. Many of the people to whom they owe their duty have few or no other advocates in economic affairs. Call it my stubborn American sense of fair play, but I cannot see why everyone with a stake in the outcome shouldn’t have a competent and committed representative on the field of battle.

Perhaps some financiers feel a little miffed now that they have to fight for what they think is their due, after having had the field to themselves for so long.

Here’s a clue for the novices in the room: It’s called politics, you fucking morons. Stop being such a bunch of whiny pansies.

1 Editorial note to Equity Private: Stressed out, hyperaggressive former investment banker and private equity professional reaming hedge fund guy a new asshole during bankruptcy negotiation : Deliberate government swerve toward “Fascism” :: Bouncing a check to your local laundromat : Lehman Brothers’ bankruptcy. I don’t care how many academic or pseudoacademic definitions of fascism you provide, you have well and truly jumped the shark with this post.
2 And any professional dealmaker who does not recognize this is either a) brand new to the business or b) headed toward the unemployment line.
3 Especially if, as I suspect, a majority of these “widow and orphan” funds picked up their Chrysler secured debt at pennies on the dollar, with the express intent to profit from its pull toward par in a bankruptcy proceeding. A little harder to spin that story in Middle America, ain’t it?

© 2009 The Epicurean Dealmaker. All rights reserved.

Kickstarting an industry


This post is by Mark Skapinker from Let the Sparks Fly!


Click here to view on the original site: Original Post




Last month, I was lucky enough to join about 250 other attendees at Kinnernet 2009, a “Foo-type” Internet geek camp/ un-conference held on the shores of the Sea of Galilee in Israel. Kinnernet is a by-invitation networking event hosted by Yossi Vardi. If you have never heard of Yossi, he was the founding investor of ICQ (when I met him in 1997). Yossi has invested in well over 80 tech companies – mainly young Internet companies, and has often been called the Godfather of the Israeli web industry.

Yossi has an approach to the market that I think the Canadian startup industry can learn a lot from:
    – Startups need cash, and the biggest help you can give them is cash. It is said that Vardi invests a few hundred thousand dollars in his startups, that he takes common stock with simple terms and no negotiations.
    – If someone has failed before he’s even more likely to invest – “It makes them want to win even more,” he is quoted as saying.
    – He generally invests in young entrepreneurs.
    – Yossi usually hardly looks at business plans at all, and mainly invests in the individual. My favourite Yossi quote is: “Business plans are like sausages, if you knew what went into them you wouldn't eat them.” Another unauthenticated quote: “Judge the individual over the business plan”.

From what I saw at Kinnernet, Vardi has played a major part in stimulating Israeli startups. At every turn, I met another young entrepreneur eager to tell me about their startup. Full of positive energy and drive, it was extremely energizing to meet these entrepreneurs.

In addition to financing, Vardi orchestrates events like Kinnernet where all his startups can interact with each other along with many experienced and connected people from all over the world. And he relentlessly works on business development and finding opportunities for his startups.

It would be amazing if we had a similar process in Canada. If we could find a way of kickstarting 50 (or more!) tech startups with a few hundred thousand dollars each; if we could find a way to orchestrate ways for them to work with each other; if we could help them meet people ready to advise them on lessons learned. 

We have all the ingredients – great universities, superb talent, high enthusiastic young people with ideas. Now we need a way to get the right money to the right people and we may be able to create an industry…..

Breaking a Rule for Peter Buffett, and We Hope Neil Young Doesn’t Mind


This post is by from Jeff Matthews Is Not Making This Up


Click here to view on the original site: Original Post





We have a few rules here at NMTU.

One is “No Yahoo Message-Board Language.”

By that we mean that the commentaries offered by readers should have no “LOL”-type nonsense and no all-lower-case run-on sentences, no cursing and no mindless personal retribution.

Some readers don’t get it–a lot, actually–and their comments are left in our inbox, never to see the light of day. 383 of them, at last count, over our 4 year history.

A second is “No Advertising.”

Since Day One we have not used Google Adwords or any other form of advertising on this site, nor do we intend to. We’d like to think it’s an ethical stance, the way Neil Young refused to let corporate sponsors run his tours. But mainly we’re just control freaks who worry about the dilutive effect of other people’s messages interfering with our own.

Hey, maybe Neil’s a control freak, too. In any case, there’d be worse examples to follow.

A third rule is we don’t shill for anybody.

The average blog-reader might not realize it, but most bloggers receive emails from PR people on a daily basis. Dozens each week.

The PR flaks are looking to promote a website or a book, or frequently an author who knows all about some topical subject…and if you want to talk to the author, call this number.

(Overstock.com CEO Patrick Byrne’s flak did this during the financial crisis last fall, as if a CEO of a public company had nothing better to do than yap about his conspiracy theories regarding the economy. As we recall, Byrne was taking credit for predicting the financial crisis, even though his company, which should have benefitted mightily from the trade-down effect as did Wal-Mart, Family Dollar and a host of others, wasn’t exactly knocking the cover off the ball like those well-managed retailers.)

All this is by way of saying we’re going to post something here for somebody else, for the first time ever.

And we’re doing it just because this individual’s PR person asked nicely, several times.

Also, in doing our research for “Pilgrimage to Warren Buffett’s Omaha,” we liked what we learned about the individual this PR person represents.

Finally, the event being promoted might just be the only not-for-profit gathering during the Berkshire annual shareholders meeting.

So here goes: our first, and probably last, act of publicizing something entirely for the sake of publicizing something.

Warren Buffett’s son, Peter, will be returning to his hometown for an evening of ‘Concert and Conversation’ at The Rose theater. All proceeds from ticket sales are going toward the Omaha-based foundation, Kent Bellows Studio and Center for the Visual Arts.

Peter’s ‘Concert and Conversation’ serves as an entertaining and informative look into the life of a man with a truly unique upbringing. His open discussion about the lessons he’s learned as the son of one of the most noteworthy investors of our time and its effect on creating the man he’s become, acts as a true testament that life is never a straight road.

The evening will include live performances of selections from Peter’s album releases including his latest, Imaginary Kingdom, punctuated with videos from his film/television work and philanthropic activities.

EVENT DETAILS:An Evening of Concert and Conversation with Peter Buffett
WHEN: Saturday, May 2nd at 7:30 pm
WHERE: The Rose, 2001 Farnam Street, Omaha, NE
TICKETS: $42, with $25 of the cost being tax deductible

http://rosetheater.org/season-events.asp

I hope Neil Young understands…

Jeff Matthews
I Am Not Making This Up

NotMakingThisUp LLC
Copyright 2009

Aldus Founder’s Alma Mater Doesn’t Have a Spotless Record


This post is by from PE Hub Blog: PE-Backed Mergers and Acquisitions


Click here to view on the original site: Original Post




Aldus Equity partner Saul Meyer was arrested this morning for his alleged role in the New York kickback scandal, but Aldus isn’t the only firm on Meyer’s resume with troubled ties to state pension funds.

Meyer got his start at Holbein Associates, a general investment consulting firm based in Dallas. At Holbein, Meyer arranged commitments in multiple fund sectors, including leveraged buyouts, mezzanine and real estate. He and a colleague left in 2003 to form Aldus Equity, but one year later Holbein was implicated in ethics violations that occurred between 1999 and 2001.

At issue was Holbein’s advisory relationship with the Teachers Retirement System of Louisiana, which had plunked down a whopping 38% of its investment portfolio into alternatives (for context, typical state systems have 15% exposure). According to the Louisiana State Ethics Board, Holbein accepted illegal gifts and entertainment from firms seeking to receive fund commitments from TRSL. Among those firms was Hicks Muse Tate & Furst — which received the system’s largest-ever commitment.

After Holbein was found in violation, it was forced to reimburse Hicks Muse.

It’s also worth noting that Holbein namesake Richard Holbein also reportedly introduced the Arkansas teachers pension fund to Enron CFO Andrew Fastow, leading the fund to commit $30 million to one of the fraudulent company’s off-balance-sheet funds.

None of this information implies anything about Aldus and Meyers’ guilt or innocence in the New York State Common pay-for-play scandal. Nor has Holbein ever been accused of fraud, and he no longer handles Louisiana teachers’ private equity investments. Just consider it some context.

Get more details on Aldus and the New York Kickback Scandal here.


“If your hat leaves behind indentions in your hair, Chrystal…


This post is by punctuative! from punctuative!


Click here to view on the original site: Original Post




“If your hat leaves behind indentions in your hair, Chrystal says to work them out by lightly wetting the fingertips and running them through the hair. Next flip your head over and back then tousle. ‘The baby powder trick always works well too’, notes Chrystal. ‘You can find the small bottles at the drug store. Keep them with you and then sprinkle a little bit on your scalp and rub it in with fingertips. It absorbs any oil and gives you a freshly washed look.’” [sic on the wonky grammar]

-Ashley Dawson in Valeo: The lifestyle magazine for physicians and healthcare executives (“Derby Hats By Day & Party Hair By Night”)

It’s going to be quite a weekend.

The Least Helpful Calls Today


This post is by from Jeff Matthews Is Not Making This Up


Click here to view on the original site: Original Post





The least helpful call you will get today—well, there are so many, and all of them in one stock, that we have a hard time winnowing it down to a single unhelpful call.

The stock, for the record, is Sequenom, a genetic testing company with a much-ballyhooed, non-invasive Down syndrome test that yielded what appeared to be highly accurate test results in recent months, and was expected to be launched this summer.

The results looked so good the company was able to sell 5.5 million shares last summer, with barely a blip in a rising stock chart, to help fund the test.

Then last night the company announced a delay in the test launch, caused by “employee mishandling of R&D test data and results.”

A stormy conference call a half hour after the press release did nothing to appease the barking seals that had been recommending the stock on dreams of billion-dollar type sales potential: “The clinical performance that was portrayed for these tests appears to be questionable,” is how the CEO put it, after much browbeating.

So, this morning, Leerink Swann, Rodman & Renshaw, JMP Securities and Oppenheimer, among others, have all removed various labels on the shares of Sequenom ranging from “Buy” to “Market Outperform” to “Perform” (yes, there are brokers who call stocks “Perform,” whatever that means) and replaced them with labels ranging from “Market Perform” to “Underperform,” with a couple of brave firms daring to use the less ambiguous “Sell.”

Now, these moves don’t particularly help anyone looking to follow the advice of their brokers, which is why they are Least Helpful Calls.

After all, last night’s close in the shares of Sequenom was $14.91. This morning, pre-market, the price is somewhere in the $3 area.

Certainly the champ of today’s Least Helpful Calls has to be a firm named Auriga U.S.A. which initiated the stock with a Buy and a target price of $20 a share just yesterday, and this morning is downgrading it to a Sell.

New target price, $1.

Still, we nominate all the brokers who are downgrading Sequenom this morning for the Least Helpful Call You Will Get Today.

And now we head to Omaha, for a meeting that should be far more helpful than what we’re hearing on Sequenom this morning.

Jeff Matthews
I Am Not Making This Up

© 2009 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.