Citi's fate

As I first mentioned when Citi lost out on the Wachovia acquisition and accompanying sweetheart deal from the government, Citi is TOAST!


This time last year, Citigroup (C: 3.77 -0.95 -20.13%) was valued at about $180 billion. As of market close today, its market capitalization stood at $16 billion. Its once-proud share price has shriveled to $3.77 (a 16-year low) after dropping more than 60% this week, and analysts are starting to wonder just what the future holds. There are several options facing Citigroup as it tries to stem the decline. It could sell some of its business units or even sell itself whole - both are under consideration, according to a WSJ report - or it could try to buy itself time and gain market confidence by firing Pandit. In a worst-case scenario, a government bailout along the lines of that handed to AIG could be used to rescue Citigroup. In a call with senior managers Pandit reportedly said he intends to keep the bank whole and independent, but events appear quickly to be overtaking the former Morgan Stanley executive and hedge-fund manager who took over as CEO last year. Citigroup's board was meeting to discuss its options and may decide to overrule Pandit and sanction sell-offs.

Citi's fate?

As Citigroup's share price sinks, investors are wondering if the US government will have to help the bank. Some ideas thrown out in a recent Fox Business article.

• More preferred shares - rinse and repeat until the federal government owns all of Citi
  
• A loan with ownership stake as was done with AIG - Would wipe out most of the earlier $25 billion investment in preferred shares, plus it would hurt investors in Citigroup's bonds as well as bank bonds in general which would make it harder for some banks to fund themselves
  
• Guarantee all of Citigroup's debt and derivative obligations
  
• Buy Citigroup's worst assets perhaps at a discount and allow an asset manager such as BlackRock to manage them for taxpayers - isn't that what TARP was supposed to do in the first place?
  
• Instituting a new short-selling ban, loosening mark-to-market accounting rules for bank assets, or halting trading in credit default swaps - too brilliant for words
  
• FDIC liquidation - This is a little like saving the patient from cancer by shooting him in the head with a bazooka, but may be the best option at this point. Too big too fail, my butt.

Can someone please educate the financial media

...to quit saying "inflation is down 1%." That would mean that inflation went from 4% to 3%. What actually happened is that we had deflation, PRICES are down 1%.

Yahoo CEO Yang is out!

Good riddance. Moron. Refusing a $45 billion offer because it was "too little." Company is worth less than 1/3 of that now.

Government Puts $13.8 billion into Freddie

Freddie Mac's $25.3 billion third-quarter loss prompted Treasury to inject $13.8 billion into the mortgage company to keep it solvent. The capital injection may be only the first of many. When the latest quarterly loss is added to those reported since the mortgage crisis surfaced, they eliminate almost all of Freddie's earnings during the past decade.

Citigroup Laying Off 50,000+ Employees

Over 1/7th of their remaining workforce, above and beyond all previously announced layoffs. So many different thoughts:

1) Last week some Citi bigwigs made a big deal about buying large chunks of Citi stock for their personal accounts, presumably to shore up confidence in the stock. They must have known this layoff was in the works. How is this not insider trading?

2) These 50,000 (52? 53? I keep seeing different numbers in the press) people were doing some sort of work yesterday. Apparently that work does not need to be done tomorrow? Why not? It's not like Citi's revenues have gone down by 1/7th. Did it not need to be done yesterday? Then why were these folks warming a desk? It doesn't make any sense.

3) The bottom line, as I've said before, is that it appears fairly certain that Citi is not going to make it. I guess that will prompt the MOAB (mother of all bailouts).

From the Department of Not-Thinking-Things-Through

JPMorgan Chase, Bank of America and other financial institutions complained that the FDIC's $1.4 trillion debt-insurance program would spark an exodus from overnight interbank loans. The complaints prompted the FDIC to reconsider the plan.

Market News

Teasury may have to pump more than the planned $200 billion into Fannie Mae and Freddie Mac to keep the mortgage giants afloat. Deterioration of the housing market and the broader economy have put the corporations into deeper trouble than they were in when Treasury announced their takeovers. (Source: The Washington Post)
Follow-up: Freddie Mac has a net worth of NEGATIVE $13.7 billion; FNMA still has a positive net worth but said it may be negative by year-end.

Delinquency on subprime mortgages set an all-time record in October as unemployment soared and interest rates reset, driving monthly payments higher. The increase is spreading to the entire mortgage market, as well as auto loans and credit cards. (Source: CNBC)

A further $103 billion of synthetic CDOs are vulnerable to catastrophic losses based on defaults involving underlying derivatives. Defaults by Lehman Brothers and other institutions have already touched off $24 billion in synthetic CDO losses. There is about $750 billion of synthetic CDOs outstanding that are tied solely to corporate-debt derivatives. (Source: Financial Times)

Amex becomes bank

American Express is the latest US firm granted approval to become a bank holding company, which allows it access to the Federal Reserve’s discount window as well as the opportunity to apply for Treasury assistance if needed. Citing the “unusual and exigent circumstances” weighing on the financial markets, the Federal Reserve Board waived the standard 30-day waiting period.

Circuit City Files for Bankruptcy

Not much to add to that, other than it's about time.

LTCM II in BIG trouble

No, not Meriwether's hedge fund, although it's still in trouble too. I'm talking about Scholes' hedge fund. When will these guys learn that having a Nobel Prize does NOT exempt you from the basic economic fact that greater returns are ONLY possible with greater risk. Highly leveraged bets are great when the market is up, but they will trash you on the way down.

Platinum Grove Asset Management, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29% in the first half of October. The decline left Platinum Grove Contingent Master fund with a 38% loss this year through October 15. Funds employing a similar approach of exploiting differences in the value of related securities fell 14% last month and 30% this year, according to data compiled by Chicago-based Hedge Fund Research. Scholes, winner of the 1997 Nobel Prize in economics, was a founding partner in Long-Term Capital Management. He started Platinum Grove in 1999 with Chi-fu Huang, Ayman Hindy, Tong-sheng Sun, and Lawrence Ng, who had all worked at LTCM.

The Heritage Foundation's Take on Argentina

On October 21, Argentina’s government, led by Peronista President Cristina Fernández de Kirchner and her predecessor, Néstor Kirchner, announced their intention to expropriate $30 billion held by Argentine citizens in private pension funds. The Kirchners need the money to refinance old bad debts so that they can borrow yet more money to keep the country afloat. The announcement rocked investor confidence in Argentina and sent the Buenos Aires stock market plunging. Argentina’s 2001 sovereign debt default and 2005 debt restructuring set off a chain of events leading to this attempted seizure. The Kirchners’ pursuit of economically disastrous policies and the negative effects of the default are still being felt today, as shown by Argentina's steadily declining scores in the annual Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal.

Jobs Data

The US labor market has shed 651,000 jobs and driven the unemployment rate to 6.5%, its highest point in more than 14 years. Nonfarm payrolls fell by 240,000 in October, worse than expected. Payrolls losses in September were revised down sharply to 284,000, the largest job loss in seven years. Unemployment surged by 603,000 in October to 10.1 million, the highest level in 25 years. In the past six months, unemployment has leaped by 2.45 million, the largest increase since 1975. So far in 2008, a total of 1.18 million jobs have been lost, according to the survey of work sites. Payrolls have fallen for 10 straight months.

More Bad News at Blackstone

Shares of Blackstone Group fell sharply (-9.88% as of the time of this post) after the large private equity fund reported heavy third-quarter losses as the value of its holdings were battered by the ongoing financial crisis. The company said its quarterly loss jumped to $340.3 million from $113.2 million during the same three-month period in 2007. Blackstone is now trading at $7.75.

Source: FoxBusiness

Credit Card Backed ABSs are next

Faced with rising consumer credit-card delinquencies, buyers are not interested in bonds backed by credit-card payments. Top-rated card-backed securities maturing in three years traded at a spread of 475 basis points more than Libor during the week ending October 30, compared with 50 basis points higher in January. Sales of credit-card bonds hit zero in October, the first time since 1993.

Source: Bloomberg

HA HA

Blackstone is trading at $8.55, down an amazing 72% from its IPO price. It's underperformed the DJIA, the S&P500, the Wilshire5000 and pretty much every other stock out there.

Another one for the DUH files!

A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant AIG may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

"From each according to his abilities..."

The Treasury and the FDIC are considering a program that may offer about $500 billion in guarantees for troubled mortgages to stem record foreclosures, people familiar with the matter said. The plan, which might put as many as 3 million homeowners into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay.

So these folks get to own a house WORTH MUCH MORE THAN MINE (I know this because if there mortgage were the size of mine, they could pay it with an unemployment insurance check) and PAY LESS for it. George Bush - member of the US Communist Party? Who knew?

GDP Contracts

GDP fell 0.3% in the third quarter.

Delta acquires Northwest

It's called a merger, but really it's an acquisition. Delta closed the deal today and became the world's largest airline.

Big Surprise

Fed lowers fed funds rate 50 bp to 1%. Who didn't see that coming?

Another form letter from my senator

Thank you for contacting me regarding H.R.1424, the Emergency Economic Stabilization Act. I appreciate your thoughts and the opportunity to respond.

The House and Senate approved this bipartisan financial package designed to stabilize credit and restore confidence in U.S. financial markets. This legislation is critical to allowing us to unclog the financial markets, free up credit to the average American and over time restore the American economy to what it has been and always will be - the best entrepreneurial capitalistic system in the world.

This is like the converse of a statement that Fidel Castro made a few years ago: "We are going to use capitalism to destroy capitalism." Now our idiot senators and representatives are telling us that they are going to destroy capitalism in order to save capitalism. Government owning 20% of the largest banks in the country is not "entrepreneurial" or "capitalistic."

While this legislation will not be a quick fix, it does address the core problem of mortgage-backed securities. As it is implemented, it will begin to stabilize the market and free up capital for the credit markets. The legislation authorizes the Treasury Secretary to immediately use up to $250 billion to purchase distressed assets from institutional investors.

Except we've already spent hundreds of billions, and not ONE MBS has been purchased yet.

If needed, the Secretary may then access an additional $100 billion to purchase these distressed assets but only with presidential approval. An additional $350 billion may be accessed if the president first wins approval from Congress.

The legislation includes a number of provisions to ensure oversight by Congress and accountability to the taxpayers, including prohibitions on executive compensation to ensure bad actors are not rewarded. Specifically, companies that receive more than $300 million from this plan will have limits placed on their top five executives. These limits include a ban from receiving a "golden parachute" as well as limits in the tax deductions executives may take on compensation over $500,000.

Who cares about the top five executives when everybody downstream of them is getting billions. At Goldman Sachs the average bonus is $216K, at Morgan Stanley it's $138K. You are taking MY money (I don't make $138K in total compensation, let alone bonus) and giving it to GS and MS employees. How dare you, you socialist? If I wanted a socialist to represent me, I would have voted for a socialist.

The legislation also continues the suspension of "mark-to-market" accounting rules that is already in place today. The bill does not allow bankruptcy judges to restructure the terms of existing mortgage loans. Additionally, it does not provide funds for affordable housing community organizers such as ACORN.

This bill does precisely the one thing that we can do to help unlock the credit markets and help the average working Georgian, the average Georgia retiree, and the average Georgia child who is looking to the future to benefit from what right now is a very difficult situation. This financial crisis has cost people their jobs and put small businesses at risk. It has ransacked individual retirement accounts and frozen the credit available for businesses, home purchases and car purchases. The people affected by the legislation sent us to Washington to make these kinds of tough decisions. I am glad the majority of the members of Congress did not simply turn a blind eye and hope for the best.

Sincerely, Johnny Isakson

Truly The End of Days

Barclays is seeking investments from two state-backed Russian banks in an effort to boost its capital. The British bank has spoken to OAO VTB and OAO Sberbank about potential capital injections, but it wasn't clear Monday if Barclays' efforts had been successful. Barclays said it would raise £6.5 billion ($10 billion) from private sources to meet government capital benchmarks.

Didn't know state-backed Russian banks were considered private sources these days.

Dow up 889 points

Dow up 889 points, its sixth (NOT its second like the press are reporting, points don't matter, only percents matter) largest increase in history...

March 15, 1933: 8.26 points, or 15.34%, to 62.10
Oct. 6, 1931: 12.86, or 14.87%, to 99.34
Oct. 30, 1928: 28.40, or 12.34%, to 258.47
Sept. 21, 1932: 7.67, or 11.36%, to 75.16
Oct. 13, 2008: 936.42, or 11.08%, to 8,387.61
Oct. 28, 2008: 889.35 or 10.88%, to 9,065.12
Oct. 21, 1987: 186.84, or 10.15%, to 2,027.85
Aug. 3, 1932: 5.06, or 9.52%, to 57.22
Feb. 11, 1932: 6.80, or 9.47%, to 78.60
Nov. 14, 1929: 18.59, or 9.36%, to 217.28

Today's News

Foreign ministers, finance ministers, and central bank presidents from Argentina, Chile and Venezuela and others attended the meeting to discuss a crisis which is threatening to severely hurt regional and global economic growth. Foreign Minister Celso Amorim of Brazil said at a press conference that there was a general consensus for the need for reform in "the architecture and the procedures of the international financial system." He did not elaborate on what kind of changes the officials were in favor of or exactly what they had discussed. But he stressed the importance of the region's states pulling together to better weather global financial storms that may lie ahead.

The IMF may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money. IMF's work in countries such as Turkey is only just beginning. The Fund is already close to committing a quarter of its $200bn reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia.

Five straight quarters of losses and a 70% slide in its stock this year haven't stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses. Goldman Sachs and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down only 28% from a year ago. Even some employees at Lehman Brothers, which declared the biggest bankruptcy in US history last month, will get the same bonus they received a year ago. The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won't deter Wall Street from offering year-end rewards. Goldman, the biggest and most profitable Wall Street firm, has set aside about $6.85 billion for bonuses, or an average of $210,000 for each employee, down 32% from $339,000 a year ago. Morgan Stanley, the second-biggest securities firm, has $6.44 billion for bonuses, or $139,000 per person, down 20% from last year. The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.

Iceland's central bank on Tuesday unexpectedly hiked its key lending rate by six percentage points to 18% in a massive reversal of policy. 15%? Down to 12%? Up to 18%? We don't have a freaking clue what we're doing.

Boeing-IAM Deal

Boeing, on the heels of a tentative agreement to settle a strike with its machinists, immediately faces contract negotiations with its engineer and technical workers union, an effort promising to be just as heated and contentious as the one that prompted the machinists to walk out for seven weeks. Boeing and the IAM tentatively agreed to settle the strike by 27,000 employees in Washington, Oregon and Kansas.

The union said it endorsed the deal that includes no additional cost-shifting to workers for healthcare benefits[*], preserves the company's pension plan, and guarantees a 15% pay increase for each member over the life of the four-year agreement. They will also receive yearly lump-sum payments that could total up to $8,000. Further, the union was able to extract an agreement from Boeing to protect nearly 2,200 facility jobs and an additional 2,920 jobs related to materials delivery and inventory process, as well as expand the scope of its subcontracting review.

For Boeing's part, the manufacturer said it was able to retain flexibility to manage its business, a hint to its increased reliance on outsourcing. It was also able to secure a longer-term contract than in prior years, crucial for a company with a poor record of suffering production halts during labor-contract negotiations.

[*] Sweet deal. I just did open enrollment and my HMO premium went up 16%!

Laffer

No one likes to see people lose their homes when housing prices fall and they can't afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction. If the house's value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers. Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.

[...]

Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932.

http://online.wsj.com/article/SB122506830024970697.html

Wow, good insights. I wish somebody had said that before now.

The parade continues...

On Friday unveiled a $7.7 billion investment in PNC. Over the weekend, Capital One and Regions unveiled investments of $3.55 billion each. The new members inducted into the club Monday include the #10 bank in the country SunTrust who will get $3.5 billion, as well as KeyCorp ($2.5 billion), Comerica ($2.25 billion), Northern Trust ($1.5 billion), and Huntington Bancshares ($1.4 billion).

European countries with two quarters of negative growth

Denmark showed a contraction of 0.6% following a 0.2% contraction. Estonia showed a contraction of 0.9% following a 0.5% contraction. Latvia showed a contraction of 0.2% following a 0.3% contraction.

Who knew GWB was a communist?

The Treasury Department is considering buying equity stakes in insurance companies, a sign of how the government's $700 billion rescue program could turn into a piggy bank for a range of beleaguered industries. The availability of US government cash in the middle of a global credit squeeze is drawing requests from insurance firms, auto makers, state governments and transit agencies. While Treasury intended for the program to apply broadly, the growing requests could put a strain on the $700 billion, a sum that only last month stunned lawmakers. MetLife, Prudential and New York Life are interested in exploring a sale of equity stakes to the government, according to people familiar with the matter.

Aside from the socialist aspects, it's clear that Paulson has no clue what he's doing. First the money is to buy mortgage backed securities, then it's to capitalize banks, now it's to capitalize insurers. Does he have the first idea what to do? Why did Bush give him a blank check?

Here's Michelle Malkin's take on this: http://michellemalkin.com/2008/10/25/bailout-creep-what-the-hell-is-hank-paulson-up-to-now/

Argentina trying to seize pension assets

Argentina wants to seize private pension assets to prop up their disastrous government finances, which have been devastated by socialist policies. Just what you need to solve the problems of a socialist economy - more socialism.

http://online.wsj.com/article/SB122567336191591913.html

Mrs. Kirchner defended her decision to seize the pension assets by asserting that the market is too risky for retirement savings, and that the returns earned by private-sector fund managers are not adequate. That's quite a claim considering that the average annual return of Argentina's private-sector pension managers over the past 14 years is 13.9%. But it is even more absurd if one compares the private-sector returns to those of the government's pay-as-you-go social security system over four decades.

If we're not careful, that could happen here.

Are they kidding?

A wide range of sweeping changes to the 401(k) system were proposed Tuesday at a hearing on how the market crisis has devastated retirement savings plans.

Chief among them was eliminating $80 billion in tax savings for higher-income people enrolled in 401(k) retirement savings plans. This was suggested by the chairman of the House Committee on Education and Labor. “With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said. “We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings. With savings rates going down, “what do we have to start to think about in Congress of whether or not we want to continue and invest that $80 billion for a policy that is not generating what we … say it should?” Mr. Miller said.

Congress should let workers trade their 401(k) assets for guaranteed retirement accounts made up of government bonds, suggested Teresa Ghilarducci, an economics professor at The New School for Social Research in New York.

When workers collected Social Security, the guaranteed retirement account would pay an inflation-adjusted annuity under her plan. “The way the government now encourages 401(k) plans is to spend $80 billion in tax breaks,” which goes to the highest-income earners, Ms. Ghilarducci said. That simply results in transferring money from taxed savings accounts to untaxed accounts, she said. “If we implement automatic [individual retirement accounts] or if we expand the 401(k) system, all we’re doing is adding to this inefficiency,” Ms. Ghilarducci said.

Today's News

PNC is buying National City. At least another FDIC intervention was averted.

UK's economy posted a third quarter 0.5% GDP decrease. US releases its figures next Thursday October 30. Economist consensus is -0.3%, but I think it will be much worse, between -0.5% and -1%.



Europe still hasn't figured out what it's doing about this mess. The central bank of Sweden cut its interest rate to 3.75%, a drop of a half percentage point. The Riksbank demonstrated that it is focusing on boosting the economy rather than inflationary problems. The cut was the second policy easing of the month, and the bank expects to decrease the rate by another half point during the next six months. Meanwhile, Denmark's central bank raised its benchmark lending rate from 5% to 5.5% to boost the krone. It seems like they are damned if they do (raise rates and the risk of recession skyrockets) and damned if they don't (and their currencies get clobberred). No wonder the US$ and the yen are looking like safe havens.


The yen rose to 94.77 per US dollar, the highest in 13 years. Of course, that means their trade surplus is getting hammered. I mean, really REALLY hammered. It was down 94% for September. That is not good for their export-driven economy. It seems they are also in a damned if you do, damned if you don't scenario.

As of last night's close Japan's Nikkei 225 index stands at 7649, a level not seen since 1981. So the conventional wisdom expedient of claiming that "stocks always outperform bonds over X years" is false, at least for X < 28.

Today's News

Credit rating agencies put the global financial system at risk because they had to be lapdogs, not watchdogs, to survive, Moody's CEO Raymond McDaniel testified on Capitol Hill yesterday. The three major agencies were caught in a race to bottom, forced to lower their standards in an attempt to maintain their market share. That race to the bottom was very lucrative in the short-run for the companies, but disastrous for the global economy in the long haul.

So exactly why isn't Mr. McDaniel in jail for fraud? Or at the very least forced out of his company in disgrace? Why is he still the CEO of anything? Disgraceful! Disgusting!

Desperate to preserve its currency peg to the euro, Hungary raised its interest rate by 3 percentage points to 11.5%, raising the possibility that other Eastern European states will have to follow to head off collapse of their currencies.

Of course, they may save their currencies at the cost of very deep recessions. Now is not the time to be raising rates.

Greenspan testified today before Congress. I see a lot of finger-pointing in an attempt to preserve his legacy. Well, sorry, Mr. Greenspan, but the jury is in. You are an idiot. To think that once upon a time I admired the job he was doing. I -- unlike him -- am not afraid to admit that I made a mistake. Have a Coke and a smile and STFU and let the rest of us figure out how to clean up the mess you left us.

Wachovia had a $23.9 billion third-quarter loss, essentially eviscerating four years of earnings. They took took an $18.8 billion goodwill impairment. Together with last quarter's goodwill impairment, they have essentially written down their 2005 Golden West acquisition to zero. What a bonehead move! The bank also added $6.6 billion in provisions for credit losses. This combined with last quarters credit loss provision increase is approximately equal to the "profits" for all of 2006 and 2007 proving that those year's profits were almost completely illusory accounting artifacts.

Merrill Lynch CEO John Thain said he expects "thousands'' of job losses from the bank's takeover by Bank of America. Most of the cuts will fall in information technology, operations , and finance, Thain said in a Bloomberg Television interview. "We haven't mapped it out in terms of actual number of people, but we are committed to saving $7 billion across the combined platforms, and that will be a challenge,'' Thain said. "Between our two companies it will be clearly thousands of jobs.''

Goldman Sachs is preparing to cut about 10% of its 32,500 employees.

Commercial Real Estate is Next

Think about it...

Hotels? Who is going to be travelling in this recession?

Office space? Companies are going to be cutting back personnel and needing less space?

Malls? Fuggedaboutit!

Wacky Sarkozy idea

French President Nicolas Sarkozy called on European nations to create sovereign wealth funds as part of a "United European response" to the broadening economic crisis. In a speech to the European Parliament, Sarkozy said member states should use the funds to snap up stakes in cheap domestic industries to ensure "European companies are not bought up by non-European capital while their stock exchange values are low."

Um ... excuse me, but don't you need actual wealth to create a sovereign wealth fund? How is Sarkozy proposing to create this fund ... by increasing his already large deficit or by taxing folks who could otherwise make these investments themselves? Stupid idea of the month, in a month that has seen more than its share of stupid ideas.

Some Beat Down Stocks

Percentages reflect drops from their respective 52 week highs.

GM -88%
Sun (JAVA) -79%
CBS -66%
News Corp (NWS) -62%
Yahoo (YHOO) -62%
Starbucks (SBUX) -59%
GE -54%

Linens N Things

In chapter 7 liquidation.

Goodbye Letter

No, not mine.

Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866% betting against the subprime collapse. Last month, he shut things down, claiming dealing with his bank counterparties had become too risky. Today, Lahde passed along his "goodbye" letter.

One paragraph in particular resonated with me and will resonate with anybody who over the last couple of years has - like me - asked WHO ARE THESE MORONS running Wall Street?

The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades.

The hits just keep on coming

U.S. banks expected to use rescue money for all but loans
U.S. banks will probably use their money from the government to buy weaker competitors, avoid painful cost-cutting measures or simply as a cushion to help them through the downturn, experts said. Some of the money may eventually get into the economy through lending, but that is not likely before the end of the next quarter. Even with capital from the government, analysts said, the American banking industry still needs to raise about $275 billion to cope with anticipated losses.
[International Herald Tribune by way of the CFA Newsletter]

Fiscal Conservatism

http://firesaxby.com/

7th worst market drop ever

Dow down 733 points (7.87%), its 7th worst day in history. I wish the stupid press would stop reporting the meaningless "fact" that it's the 2nd worst point drop in history.

Oct. 19, 1987	-22.60
Oct. 28, 1929	-12.80
Oct. 29, 1929	-11.70
Nov. 6. 1929	-9.90
Aug. 12, 1932	-8.40
Oct. 26, 1987	-8.00
Oct. 15, 2008	-7.87
July 21, 1933	-7.84
Oct. 18, 1937	-7.75
Oct. 9, 2008	-7.33

The Dow is now at 8578, exactly where it was last Thursday. My TV had told me that the bulls were in charge. Stupid TV.

Markets Down

Of course, yesterday's rally in the US turned out to be short lived. This has been followed up by drops in Asia.

The Nikkei 225 Average fell 0.8% to 9372
The broader Topix index fell 1.5% to 942

Australia's S&P/ASX 200 fell 0.8% to 4300
New Zealand's NZX 50 index fell 1.2% to 2914
South Korea's Kospi fell 1.5% to 1347

How is this any different from what Chavez is doing?

According to the WSJ, some of the big banks were unhappy about the government taking equity stakes but acquiesced under pressure from Paulson in a meeting yesterday.