STOCK MARKET WATCH, Friday May 15

Source: du

STOCK MARKET WATCH, Friday May 15, 2009

Bush Administration Officials Under Indictment = 2
Financial Sector Officials Under Indictment = 0
Financial Sector Officials In Prison = 2

AT THE CLOSING BELL ON May 14, 2009

Dow... 8,331.32 +46.43 (+0.56%)
Nasdaq... 1,689.21 +25.02 (+1.50%)
S&P 500... 893.07 +9.15 (+1.04%)
Gold future... 928.40 +2.50 (+0.27%)
30-Year Bond 4.06 -0.04 (-1.00%)
10-Yr Bond... 3.09 -0.03 (-0.80%)

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U.S. FUTURES & MARKETS INDICATORS
NASDAQ FUTURES..............................................S&P FUTURES

Market Conditions During Trading Hours

GOLD, EURO, YEN, Loonie and Silver

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Read more: du

Dr. Phool, did you celebrate your 57th35th birthday a little too much? :hangover:

No bruises or open wounds this morning, so my wife still has a sense of humor.

The Fudd looks a little rough around the edges this morning, so he must have been helping me.

It's baaaaad over there today.


Happy 57



from 60


Tansy Gold

The only good thing about a hangover is that it doesn't last forever.

:party:

At first, I thought you were trying to find something to dull the pain from the economy. For that, you'll probably need something much stronger than aspirin.

:hangover:

;)

Lately, I've been keeping a dish of aspirin and antacids on my desk in a candy dish... You're welcome to them.

I hope that when the fog clears, yesterday will look like a good one!

Just got back from the gym. Worked it out of my system.

Besides, SMW is fattening, and it gets me away from this computer for a while.

:party:

but considering the amount of sedentary time that it takes to read it, I think I get your point!

Glad it was happy!

So, 22 is it? ;)

Wholesale Prices Post Largest 12-Month Decline Since 1950
BY MIKE SHEDLOCK

Inquiring minds are investigating the Producer Price Indexes For April 2009.

The Producer Price Index for Finished Goods increased 0.3 percent in April, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This rise followed a 1.2-percent decline in March and a 0.1-percent increase in February. At the earlier stages of processing, prices received by producers of intermediate goods moved down 0.5 percent following a 1.5-percent decrease a month earlier, and the crude goods index advanced 3.0 percent after declining 0.3 percent in March...

... The index for finished goods less foods and energy edged up 0.1 percent in April following no change in the previous month. In April, higher prices for light motor trucks, pharmaceutical preparations, and consumer plastic products slightly outweighed lower prices for civilian aircraft, tobacco products, electronic computers, primary batteries, and non-wood commercial furniture.

.....

Tight Storage May Lead To Huge Oil Price Drop

Technically, crude prices are a bit extended, no doubt in conjunction with the belief the economy is recovering. A likely place for the rally to fail would be near the 200 Exponential Moving Average (EMA) in red. Moreover, there are a number of fundamental reasons for the rally in crude oil prices to falter soon.

Please consider Tight storage may lead to huge oil price drop.

...

"Nordic American estimates that up to 80 VLCC's (Very Large Crude Carrier) are currently used as 'floating storage.' I have heard from a shipping company in Hong Kong that they think it is even more, as China has apparently hired many of the old single hull ships to use as floating storage until it can build enough storage facilities on land. There's a lot of oil 'floating about', literally."

http://www.financialsense.com/Market/wrapup.htm

http://www.voxeu.org/index.php?q=node/3527

Joseph Francois Julia Woerz

Is the current collapse in trade unprecedented, inconsistent with the general level of economic downturn, and indicative of a trade-related set of problems calling for trade-specific solutions? This column, by carefully comparing real and nominal trade trends, finds that trade seems to be a victim of non-trade weaknesses in credit and demand. While we should maintain a rearguard action on the protectionism front, the cure for the symptoms lies in curing the underlying illness.

Recent trends in trade have invited a mix of consternation and hyperbole in the business and economics press and blogosphere alike. Discussion has ranged from worries about export credit shortfalls to resurgent protectionism. The focus has been on finding the cause, and some have assumed that the collapse in trade is unprecedented, inconsistent with the general level of economic downturn, and indicative of a trade-related set of problems calling for trade-specific solutions. There are indeed important public policy questions here. Is this recession being confounded by a set of trade-specific problems and issues? If so, how big is the effect and should we be worried?

In confronting these questions, we need to be careful when comparing real and nominal changes in trade. The last 12 months have seen a dramatic drop in commodity prices, so that real and nominal trade data can tell a very different story. In addition, because the importance of various sectors in trade varies from their importance in GDP and also varies considerably across countries, we also need to pay close attention to how we deflate trade flows to control for falling prices across a range of commodities. We also need to examine what is happening to domestic production before deciding we have a mismatch between trade and GDP trends.
Dropping global trade

Global trade plummeted in the last months of 2008. Indeed, world trade volumes fell 14% from December 2008 to February 2009. (This is somewhat better than the November-January drop of 18%, in part reflecting a 0.8% rise in February.) In the three months ending in February, Japanese exports were down 29%. EU15 exports were up 0.3% in February over January levels, after falling 2.3% in December and 5.3% in January (CPB World Trade Monitor, 21 April 2009). The projections for the full year 2009 offer little comfort. The WTO has forecast a 9% decline in global export volumes for 2009.

When digesting this information, the arcane question of appropriate price deflators is important. Real trade figures can vary substantially according to the underlying price indices used to deflate the data. The recent, highly cited WTO figures rely on world GDP prices, but there are problems with this approach.

GDP includes a high share of non-traded components. Trade prices have fallen considerably, not least due to the large decline in oil prices. According to the CPB, energy prices were down 51% in the fourth quarter. Consequently a smaller real drop is to be expected when deflating the value of trade flows with trade prices. The CPB figures quoted above are based on world trade price developments. A modelling exercise by the French Centre d’Études Prospectives et d’Informations Internationales (Bénassy-Quéré et al. 2009) illustrated these differences very clearly. Under two scenarios with the same world GDP growth, trade declined by 9% when deflated by the GDP deflator and only by 1.7% when using constant trade prices. Thus, a large part of the story hinges on global price developments. Nominal EU-27 exports grew 3% in 2008, while in real terms they fell 1% due to the oil-price hike and subsequent general weakness. Interestingly, this comes from falling real intra-EU exports (-2.3%), while exports to non-EU nations still grew 3.6% in real terms in 2008. In the US, nominal exports grew by as much as 12% in 2008, but only about half as much (6.4%) in real terms.

What is striking is the rapid drop in trade in the second half of 2008,shown in the figure below. Through August 2008, US exports were still 20% above corresponding August 2007 levels in nominal terms. However, the trade tides turned quickly, and by January 2009 exports at current prices were 21% below January 2008 levels, a change very much noted by the general public. Similar trends can be seen in European data. But even in real terms, the drop was huge. Real year-on-year growth rates in US trade exceeded 10% up until August 2008, followed by a stagnation of real exports and real declines beginning in November that amounted to as much as 20% in February 2009.

Figure 1. Growth rates for US trade, January 2008 – February 2009
http://www.voxeu.org/files/image/Francois%20fig%202(1).jpg

Is the problem trade in particular?

The trade data are certainly disturbing. The fact that GDP contractions have been relatively minor compared to trade (5 or 6% in some countries in the last quarter of 2008, but nowhere near 20% as witnessed in early 2009 for trade) is the reason alarm bells have roused trade policy makers. Before we roll out the trade policy guns, however, we need to identify the underlying forces at work. If we break down recent trends in US trade, and control for the broad mix of price and sector changes driving the overall result, the trade changes look relatively consistent with the general pattern of this recession. The problem is not trade finance, but rather finance, full stop. This recession has been characterised by a massive collapse of credit mechanisms that has hit the capital goods and vehicle sectors particularly hard. It turns out that motor vehicles are also the driver of much of the recent trend in OECD trade data. We focus here on the US, but a similar story can be told with German data as well.

The figure below presents a breakdown in the change in US trade flows for the 12 months ending February 2009. We present both nominal and real flows. For real changes, we use BEA price deflators for traded goods by broad Census categories, as reported by the BEA. We have used these to express all real flows in 2007 dollars.

Figure 2. Change in US exports, February 2008 – February 2009



From the figure above, it is clear that roughly half of the drop in nominal imports over the 12 months ending in February 2009 was due to a drop in raw materials like oil (“industrial supplies” in the figure). However, much of this was due to the collapse in commodity prices. Once we control for this, 56% of the real drop in exports is in motor vehicles and capital goods. Raw materials represent another 24% of the drop. Motor vehicles and capital goods represent 62% of the real drop in exports. The drop in motor vehicle trade actually lags the corresponding drop in US production. According to the BEA, domestic production of cars was down 60% from February 2008 to February 2009. Over the same period, real exports fell “only” 45%, which is slightly better than the 47% drop from January 2008 to January 2009.

The table below presents the trade situation for a broader set of countries. For some countries the volume declines were magnified by price changes, for other countries real changes were dampened by prices changes.

Table 1. Year-on-year growth rates of monthly exports, January 2008 – February 2009



Source: Eurostat COMEXT, and BEA

We have clearly been witnessing a dramatic drop in world trade. For policy purposes, though, an important question is whether the decline is out of line with the global shock to GDP and the underlying credit crisis. At the moment, trade seems to be a victim, but one reflecting non-trade weaknesses in credit and demand. The countries with the greatest trade shocks are also more exposed to sectors hit hard by the recession. They are also victims, so far, of the general pattern of recession rather than of systemic protection. This does not mean we should let down our guard against protection. Rather, while maintaining a rearguard action against protectionism, the cure for the symptoms lies in curing the underlying illness – recession linked to a deep credit crisis.
References

Bénassy-Quéré, A., Y. Decreux , L. Fontagné, D. Khoudour-Castéras (2009), “Explaining the steep drop in international trade with mirage”, presentation at the informal workshop on ‘The Impact of the Economic Crisis on Trade’, April 9 2009, hosted by the OECD, Paris.

Bureau of Economic Analysis, US trade data downloaded on 20 April 2009

CPB Netherlands Bureau for Economic Policy Analysis (2009), “CPB Memo: World Trade Monitor”, downloaded on 21 April 2009

Eurostat, Common External Trade Database, downloaded on 20 April 2009

This article may be reproduced with appropriate attribution. See Copyright (below).

SEE LINK FOR BETTER GRAPHS--IT DOESN'T COPY RIGHT

08:30 Core CPI Apr
Briefing.com 0.1%
Consensus 0.1%
Prior 0.2%

08:30 CPI Apr
Briefing.com 0.0%
Consensus 0.0%
Prior -0.1%

08:30 Empire Manufacturing May
Briefing.com -14.0
Consensus -12.0
Prior -14.65

09:00 Net Long-Term TIC Flows
Briefing.com NA
Consensus $35.0B
Prior $22.0B

09:15 Capacity Utilization Apr
Briefing.com 69.1%
Consensus 68.8%
Prior 69.3%

09:15 Industrial Production Apr
Briefing.com -0.4%
Consensus -0.6%
Prior -1.5%

09:55 Mich Sentiment-Prel May
Briefing.com 65.2
Consensus 67.0
Prior 65.1

http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

SINGAPORE – Oil prices hovered below $59 a barrel Friday in Asia as signs of a weak U.S. economy led investors to mull whether this month's crude rally was justified.

Benchmark crude for June delivery was up 2 cents to $58.64 a barrel by late afternoon in Singapore in electronic trading on the New York Mercantile Exchange. On Thursday, the contract climbed 60 cents to settle at $58.62.

....

Investors got more evidence Thursday that global crude demand may be too weak to justify the recent run-up in prices. The Paris-based International Energy Agency cut its global oil consumption forecast for a ninth consecutive month and now expects demand to fall 3 percent in 2009, or about 2.6 million fewer barrels a day than last year.

....

In other Nymex trading, gasoline for June delivery fell 0.67 cent to $1.72 a gallon and heating oil dropped 0.47 cent to $1.49 a gallon. Natural gas for June delivery slid 2.9 cents to $4.26 per 1,000 cubic feet.

http://news.yahoo.com/s/ap/oil_prices

Detroit's auto crisis sent a massive shock wave across America on Thursday, as dealership cutbacks hit hundreds of main streets.

After years of struggling to reduce the number of its stores to match shrinking demand for its cars and trucks, Chrysler LLC said it would slash nearly 800 dealerships, or 25% of its dealer network, by June 9. General Motors Corp. will deliver similar news to 1,100 of its dealerships today.

While some dealers will try to stay in business, selling used cars and offering auto services, the move is likely to eliminate tens of thousands of jobs nationwide. About 40 Michigan dealerships are slated for closure.

http://www.freep.com/article/20090515/BUSINESS01/905150493/1002/BUSINESS/Some+Chrysler+dealers+to+try+other+ways+to+stay+in+business

From freep.com (the Detroit Free Press website) nhttp://www.freep.com/article/20090514/BUSINESS01/90514039/1014/BUSINESS01/789+Chrysler+dealers+across+U.S.++some+decades+old++are+axed++14+in+Detroit+area

After years of struggling to reduce the number of its stores to match shrinking demand for its cars and trucks, Chrysler LLC said today it would slash nearly 800 dealerships, or 25% of its dealer network, by June 9. While some dealers will try to stay in business, selling used cars and offering auto services, the move is likely to eliminate tens of thousands of jobs nationwide at a time when unemployment is already at a 25-year high. About 40 of the dealerships slated for closure are in Michigan, and 14 are in metro Detroit. Some of the 789 dealerships slated to close have been survived world wars, recessions and Chrysler’s 1981 federal loan guarantee. Many are family owned.

. . .

Now that it has notified 789 dealerships they would be terminated, Chrysler must sell the 44,000 vehicles sitting on their lots in the next few weeks without driving prices to fire-sale levels for remaining dealers. “It’s going to be a challenge even with the factories closed, to redistribute that number of vehicles and sell them in a short period of time,” said Mike Jackson, CEO of AutoNation, the nation’s largest auto retailer. Even a giant like AutoNation will lose seven Chrysler, Jeep and Dodge dealerships that employ 400 people.
_________________________________________________

The article includes a link to a PDF file that lists all the dealers. By my count Texas loses 50 dealers, Florida 35, California 32, Tennessee 14, Alabama 12, Kentucky 9. Now some people outside of Michigan will start to howl. Some of these dealers are family businesses. Some of those have been in business 3 generations.

When GM goes through this, it will be almost twice as bad. They say maybe 1,200 GM dealers must go.

General Motors Corp., under the direction of the U.S. Treasury, is near a deal that would cut its hourly labor costs by more than $1 billion a year and reduce its $20 billion pledge to the United Auto Workers to cover health-care obligations, said people familiar with the matter.

The plan is still in flux, but GM and the union could finalize terms as early as next week.

The Detroit auto maker expects to halve its remaining cash outlays for retiree health costs to about $10 billion, and supplement that contribution with a 39% equity stake in the reorganized GM, the people familiar with the matter said.

....

The proposed deal, which could still fall apart, would have to be approved by the UAW's 60,000 members at GM, who are expected to face steep cuts in pay and benefits, as well as 20,000 additional layoffs.

....

Treasury hopes to short-circuit protests from creditors by lining up deals before GM enters bankruptcy proceedings. In coming days GM is expected to approach secured lenders, including major banks, to renegotiate about $6 billion in debts, according to people familiar with the matter.

http://online.wsj.com/article/SB124234322059721429.html

Automaker agrees to about $2 billion in early payments to suppliers, ahead of deadline for possible bankruptcy.

NEW YORK (CNNMoney.com) -- In another sign the company is preparing for a possible bankruptcy filing within the next two weeks, General Motors has agreed to speed up payments to 1,500 suppliers who provide it with the parts it needs to make cars in North America.

The company typically pays its suppliers during the first week of every month. The next payment was originally scheduled for June 2. But GM spokesman Dan Flores said the June payment has been moved up to May 28 to help its suppliers in the face of current "market uncertainty."

That uncertainty is due to the fact that under bankruptcy law, once a company has filed for bankruptcy court protection, it is not allowed to make payments to people or entities it owes money while a judge sorts out how much to pay each creditor.

Thus the five-day difference in payment could make a great deal of difference to the suppliers, since GM (GM, Fortune 500) faces a June 1 deadline from the Treasury Department to win concessions from its bondholders and unions, and to make other structural changes.

http://money.cnn.com/2009/05/14/news/companies/gm_payments/?postversion=2009051414

More massive layoffs, more unemployment, more reductions in American manufacturing infrastructure and just more misery for all workers all around. I hope Corker/Porker is happy because most of America isn't.

In bankruptcy, a company can also be
ordered to take back any recent payments.

I know this because it happened to me.

LONDON (MarketWatch) -- U.S. stock futures leaned higher Friday to wrap up a week of consolidation ahead of the release of an avalanche of economic data.

S&P 500 futures rose 1.8 points to 891.30 and Nasdaq 100 futures edged up 2 points to 1,355.70. Dow industrial futures rose 18 points.

U.S. stocks on Thursday recaptured a portion of the prior session's losses, helped by solid results from retailers offering relatively low-priced goods like Wal-Mart Stores and Kohl's. The Dow Jones Industrial Average rose 46 points, the Nasdaq Composite added 25 points and the S&P 500 gained 9 points.

-very short-

http://www.marketwatch.com/m/Story/a4d2659c-311c-45cc-a8de-f94c78d7824f

HONG KONG (Reuters) - Asian stocks rose on Friday as investors bought shares that stood to benefit the most from an expected global recovery, but still looked set to post their biggest weekly decline since March on worries equity markets have risen too far, too fast.

Investors are still looking to buy riskier assets after a leading indicator of Japan's economy, one of the hardest hit in Asia, was not as bad as expected.

The data supported a theme in regional data that companies are replenishing deleted inventories as orders trickle in and the sharp decline in Asian exports is slowing. But consumer demand in the United States and Europe remains weak, and a sustainable global recovery is unlikely until confidence in those major markets returns.

...

Japan's Nikkei share average (Osaka:^N225 - News) rose 1.7 percent, with a 6 percent gain in Sony Corp stock (Tokyo:6758.T - News) among the biggest boosts to the index after the company forecast a smaller-than-expected annual loss.

"Despite a series of dismal earnings this time around, a sense of relief has spread in the market that nothing worse will likely come out at least until April-June earnings announcements," said Fumiyuki Nakanishi, a manager at SMBC Friend Securities in Tokyo.

The MSCI index of Asia Pacific stocks outside Japan (^MIAPJ0000PUS - News) was up 2 percent on the day. The materials and technology sectors were the largest gainers, while utilities rose just 0.4 percent.

The index was down around 2.7 percent for the week and set to post its biggest weekly decline since early March, as economic data reminded investors that the road to recovery is likely to be a long and painful one. However, it is still up 41 percent since March 9, when the global equity rally began.

...

In the last week, emerging market equities and bonds have been the biggest beneficiaries, with institutional investors apparently unperturbed by a rapid rise in valuations.

"Institutional investors are not about to change course or U-turn, they are still backing the rally," said analysts with State Street Global Markets in a note that track 15 percent of the world's tradeable assets.

"Flows do not suggest that investors are nervous that prices have gotten ahead of themselves. If anything, the opposite is true," they said.

The growing willingness of investors to take bigger risks for the prospect of higher returns is dependent to some degree on a steady diet of positive economic surprises. Negative ones, like lower than expected U.S. retail sales this week, dent confidence.

/... http://finance.yahoo.com/news/Recovery-hopes-still-alive-rb-15253917.html?.v=2

TOKYO, May 15 (Reuters) - Japanese machinery orders fell in March in a sign that companies are still reluctant to spend despite signs that a recession may have hit bottom.

Rebounds in exports and production suggest the export-driven economy likely reached a trough in the January-March period and economists forecast a return to growth in the following quarter.

That may prompt the Bank of Japan to be less pessimistic in its assessment of the economy, the Nikkei business daily reported, although global weakness means it is unclear how sustainable any return to growth would be.

"We can see inventory adjustments helping manufacturers and some improvement in sentiment," Finance Minister Kaoru Yosano told reporters. "However, it is too early to say Japan is on a recovery path."

Companies themselves forecast machinery orders to fall in the second quarter, in another sign that Japan's big manufacturers of cars, technology and other exports are not confident enough to restore capital expenditure they slashed in the wake of the financial crisis.

"Although there have been some signs of improvements in output and sentiment, machinery orders data showed capital spending is likely to remain weak." said Junko Nishioka, chief economist at RBS Securities.

Friday's data showed Japan's core private-sector machinery orders fell 1.3 percent in March, wiping out a 0.6 percent rise in February but it was a much smaller decline than the median market forecast for a 4.5 percent slide.

The smaller-than-expected fall helped boost stocks, with the benchmark Nikkei share average .N225 up 1.7 percent, with investors shrugging off the biggest annual slide in wholesale prices in two decades.

/... http://www.reuters.com/article/marketsNews/idINT1492220090515?rpc=44

FRANKFURT, May 15 (Reuters) - European shares extended morning gains on Friday, shrugging off bleak economic data, tracking instead a rise in U.S. stock index futures.

At 1000 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.7 percent at 841.85 points, having touched 844.31 points.

...

Banks also added most points to the index on Friday, with Barclays (BARC.L) up 9.1 percent on news it is discussing a sale of its Barclays Global Investors (BGI) asset management arm for about $10 billion.

Stock markets paid scant attention to data showing the euro zone economy shrank more than expected -- 2.5 percent quarter-on-quarter and 4.6 percent year-on-year -- in the first three months of 2009.

/... http://www.reuters.com/article/marketsNews/idCALF94240920090515?rpc=44

* guardian.co.uk, Friday 15 May 2009 11.52 BST

The eurozone has plunged deeper into recession, with German exports and investment collapsing, and France suffering its longest downturn in 60 years.

The 16-nation single currency zone shrank by 2.5% in the first three months of the year compared with the previous quarter. It is the worst performance since records began in 1995, and a more severe decline than economists had expected.

Compared with a year ago, the eurozone's gross domestic product (GDP) fell by a record 4.6%, according to the European Union's statistics office, Eurostat.

Taken as a whole, the 27-nation European Union shrank by 2.5% in the first quarter. Analysts believe the recession reached its deepest point during the quarter, although economic recovery is not expected until next year.

Germany's export-driven economy, which has been battered by the collapse in world trade, is at the centre of the eurozone slump. It suffered its biggest quarterly decline on record, the worst in at least four decades.

Europe's biggest economy shrank by 3.8% on the quarter and by 6.9% on a year ago. Germany's federal statistical office said it was the biggest drop since it began compiling quarterly figures in 1970.

"This is a worse start to the year than we could have imagined," said Jürgen Michels, an economist at Citigroup. "It can't get much worse, but much better either. It is questionable whether the economy will grow again this year."

The decline, driven by falls in exports and investment, marks the fourth quarter of contraction, Germany's longest slump on record. The economy shrank by 2.2% in the fourth quarter of last year and by 0.5% in each of the two previous quarters.

...

France, the eurozone's second-biggest economy, contracted by 1.2% in the first quarter and Italy, the next biggest economy, shrank by 2.4%.

Before yesterday, France was the only major European economy not to have officially fallen into recession. But its statistics office has now revised down French GDP figures for last year, admitting that the economy has actually been shrinking since the second quarter of 2008. France last suffered four quarters of contraction in a row in 1949.

Christine Lagarde, the French finance minister, said the economy is now set to shrink by 3% this year. This is double the 1.5% decline estimated earlier by the government.

In Germany, Angela Merkel's government expects the slump in the export sector will lead to a record contraction of 6% in GDP this year and only meagre growth of 0.5% in 2010.

The European commission has already warned that the eurozone is in its deepest and widest recession since the second world war. This month, the commission said it expected the recession across Europe to be twice as bad as previously predicted and more than 11% of the workforce to join the ranks of the unemployed.

/more... http://www.guardian.co.uk/business/2009/may/15/eurozone-economy-plunges-deep-recession

-excerpt-
In 2008, as the recession deepened, shares of high-end grocer Whole Foods plunged 77%, while discount retail giant Wal-Mart saw its stock jump 17%.

On May 14 the market responded to new quarterly earnings reports from the companies—reports that revealed a surprising similarity: Both companies are finding some success adjusting to tough times.

....

Wealthier Wal-Mart Shoppers

As a deep discounter, Wal-Mart has a natural advantage. "They're attracting new customers, and those customers are spending money," says John R. Lawrence, managing director of equity research at Morgan Keegan. A sign of the frugal times: Lawrence says the new customers tend to be wealthier than the typical Wal-Mart shopper.

....

Whole Foods reported earnings of 19¢ per share, vs. 29¢ a year ago, and sales of $1.9 billion were flat compared to a year ago. But the results beat Wall Street expectations. "Whole Foods provided further evidence that it plans to aggressively manage through the current U.S. recession and stabilize earnings," wrote Credit Suisse (CS) analyst Edward J. Kelly. (Credit Suisse provides investment banking services to Whole Foods.)

The grocer widened profit margins by cutting its costs. Also, by slicing new-store growth in half, Whole Foods managed to free up $98 million in cash flow—an important effort to reduce the company's debt load as it continues to digest its 2007 acquisition of Wild Oats Markets, a rival chain.

http://www.businessweek.com/investor/content/may2009/pi20090514_830200.htm

---

I stopped shopping at Whole Foods when money became an issue after a job loss three years ago. Since then, I've found that I do not miss it since Whole Foods has prompted other grocers to broaden the variety and improve the quality of their offerings at a lower prices than those at Whole Foods.

Mind you, I would rather shovel dung rather than buy my groceries at Wal-Mart. But I see a trend, mentioned above, among grocers in which they have noticed that shoppers want food choice items more interesting than the grocery chain food offerings us old-timers remember before Whole Foods existed.

http://www.huffingtonpost.com/2009/05/02/liddy-letter-aig-plans-to_n_195225.html

Even if the U.S. government were to entirely take over American International Group, company executives would still be able to collect bonuses at taxpayer expense, according to a letter from AIG CEO Ed Liddy to employees disclosed in the company's recent SEC report.

"As this special award is being made to a very select group of executives, I ask that you treat it as confidential," wrote Liddy. The letter is dated less than a week after the government first bailed the company out.

The letter assured the select group that "in the event the AIG entity that is your employer (the Company') experiences a Change in Control (e.g., consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company), AIG guarantees the payment of the 2008 Special Cash Retention award on the dates and under the conditions specified above."

The United States is roughly a 79 percent owner of AIG, having pumped in some 170 billion in taxpayer dollars.

Elsewhere, the SEC filing reports that "AIG is working with the Department of the Treasury and NY Fed to establish a framework for further extending the period for earning retention awards and making them performance-based." (Now there's a crazy idea.)

Some of those in line to get bonuses have family in the right places, according to the filing. The daughter of top executive Edmund Tse, Ada K.H. Tse, is president and CEO of AIG Global Investment Corp. (Asia) Ltd. In 2008, she pocketed $400,000 in "retention awards" and $250,000 in a year-end bonus. She will be "eligible to receive an additional amount that has not yet been approved. Ms. Tse also will be eligible for retention payments in 2009 in the amount of approximately $600,000," reads the report.

Daniel Neuger is the son of another top executive, Win Neuger, and serves as "managing director of AIG Global Investment Corp. and AIG Global Asset Management Holdings Corp." He took in $75,000 in "retention awards" in 2008 and is on track for roughly $110,000 in 2009.

Liddy promised there was more to come. "I fully recognize the devastating loss of personal wealth you've suffered, and pledge to you my personal commitment to provide an opportunity for substantial wealth creation through a combination of cash and equity awards in the coming months and years," he wrote in the letter to employees outlining the bonus policy.

LIDDY'S MEMO AT LINK

Unbelievable how there is a complete disconnect between the fortunes of the company and those of the top executives.

Fucker. Decent people should shun this robber baron. Here's another candidate I would like to introduce to my club.

May 15 (Bloomberg) -- New York Attorney General Andrew Cuomo raised the stakes in his attack on “pay-to-play” in the public pension-fund market as Carlyle Group agreed to a $20 million settlement that limits campaign contributions to officials who oversee state money.

Carlyle, the world’s second-largest private-equity firm, also agreed yesterday not to use placement agents to solicit investment business from public retirement plans nationwide. It is the first money manager to adopt Cuomo’s new “code of reform” for the municipal-pension market, though it probably won’t be the last, said Elizabeth Nowicki, a professor at Tulane University Law School in New Orleans.

While New York state has already banned the use of placement agents, Cuomo has gone a step further. The code he seeks to have adopted industrywide prohibits money managers from doing business anywhere in the country with a public pension plan for two years after making political donations to officials who can influence the fund’s investment decisions. The U.S. Securities and Exchange Commission proposed similar restrictions in 1999, though it backed off amid opposition from the investment industry and politicians.

....

Carlyle executives will not be subject to any criminal liability under the settlement, Cuomo said yesterday at a press conference. Founded by David Rubenstein with William Conway and Daniel D’Aniello in 1987, the firm manages about $85.5 billion in assets, second in the private-equity industry to Blackstone Group LP of New York.

http://www.bloomberg.com/apps/news?pid=20601109&sid=axV4X7FSmJsk&refer=home

---

How sweet it is to see these pension pirates put out of bidness somewhere.

It's true.

The only way they could be affected is if they were indicted under the RICO act, but recent cases by our buddy John Roberts almost requires that the guilty CEO's hand over a notarized affidavit admitting they they are Criminals.

That's the whole problem in a nutshell. As long as these criminals can pay fines with other peoples money, and never have to worry about jail, what is the incentive to operate legally?

China has the right idea. Line 'em up.

http://www.businessinsider.com/henry-blodget-geithners-new-bank-capital-plan-is-bogus-too-2009-5


Tim Geithner has a clever new way to "recapitalize" banks that fail the stress test: Convert the taxpayer's preferred stock to common stock.

From Geithner's perspective, this technique has several advantages:

* The banks will suddenly seem healthy, because their assets-to-common equity ratios will rise.
* Geithner doesn't have to ask Congress for more baillout money yet.
* Taxpayers won't understand that they're giving up a nice dividend and a safer security just to make the banks look better.
* If Geithner is right that what's wrong with the banks is just a temporary liquidity problem, the taxpayer should do well when the stocks rise. (We don't think he's right.)

Unfortunately, the plan also has two major flaws: First, it's smoke and mirrors. Second, the taxpayers will be even more exposed to losses than they are now.

Why?

Because the banks will still have the same amount of crap assets on their balance sheets, and they'll have no more capital available to absorb these losses when they hit. The only thing that will change is that the taxpayer will now get hit first as these losses flow through, instead of getting hit second, as is the case now. The banks' bondholders, meanwhile, will still be protected to the tune of 100 cents on the dollar (by administration policy). If the common equity is wiped out by the losses, therefore, the government will have to dig into the taxpayer's pockets to cover any shortfall. (See Paul Kasriel's detailed explanation below).

In other words, Geithner has hatched yet another plan to avoid dealing with the bank problem once and for all.

How would he do that?

As we've argued, we think the best way would have been to seize the banks and restructure them. Since Geithner has opted against the route, however, the next best way would be to convert unsecured bank debt to equity, not just the taxpayers' preferred stock (the taxpayers' preferred stock should have been senior to all the bondholders, but that's spilt milk at this point).

Converting actual debt to equity would give the banks a much bigger cushion with which to absorb losses. It would split the bank ownership up among current common shareholders, taxpayers, and current debtholders, which would help Geithner avoid having to take full control. It would also, finally, stop exposing the taxpayer to further losses.

The idea that bondholders should share the bank pain is finally gaining some momentum. Let's hope that continues in the coming weeks.

EXAMPLE CALCULATIONS AT LINK

Not even 'hello'.

Preferred shares have similar value and similar obligations as bonds. Preferred shares look like debt on a bank's balance sheet. Converting those preferred shares to common stock lightens the amount of debt a bank must service. The plan does three obvious things (probably others): The downside for the taxpayer is that all the bailout money could be lost as value on each share falls as reality continue to assert itself. A preferred shareholder is in line for some sort of payout should the company go bust. Common equity does not carry this benefit.

The second obvious result from this: The banks buy more time (or rather the Treasury buys it for them) to start looking profitable since those AIG derivative contracts cannot be relied upon anymore to show a mysterious realization of profits such as those earlier this year.

And third: Bondholders are isolated. Should push come to shove and none of Geithner's purchased time for banks to recover from their self-inflicted wounds then the banks' bondholders would certainly feel the heat the same way Chrysler's did.

In the end, this is all in service to the banks. This is all Geithner really cares about.

http://www.texasobserver.org/article.php?aid=3031

James K. Galbraith | May 01, 2009 | Commentary

Editor’s note: These remarks were delivered to a meeting of the Texas Lyceum in Austin on April 3, at a debate between University of Texas professor James Galbraith, an Observer contributing writer, and former Majority Leader Richard Armey, chief instigator of the recent Astroturf “tea party" protests. Armey had begun his remarks by noting that his rule in life was “never trust anyone from Austin or Boston,” and proceeded to declare his allegiance to the “Austrian School” of economics, a libertarian view that regards public intervention in private markets as socialism.

It is of course a pleasure to be with you today. I was born in Boston, and I am proud of it. And I have lived 24 years in Austin—and I’m proud of that.

Leader Armey spoke to you of his admiration for Austrian economics. I can’t resist telling you that when the Vienna Economics Institute celebrated its centennial, many years ago, they invited, as their keynote speaker, my father . The leading economists of the Austrian school—including von Hayek and von Haberler—returned for the occasion. And so my father took a moment to reflect on the economic triumphs of the Austrian Republic since the war, which, he said, “would not have been possible without the contribution of these men.” They nodded—briefly—until it dawned on them what he meant. They’d all left the country in the 1930s.

My own economics is American: genus Institutionalist; species: Galbraithian.

This is a panel on the crisis. Mr. Moderator, you ask what is the root cause? My reply is in three parts.

First, an idea. The idea that capitalism, for all its considerable virtues, is inherently self-stabilizing, that government and private business are adversaries rather than partners; the idea that freedom without responsibility is a viable business principle; the idea that regulation, in financial matters especially, can be dispensed with. We tried it, and we see the result.

Second, a person. It would not be right to blame any single person for these events, but if I had to choose one to name it would be a Texan, our own distinguished former Senator Phil Gramm. I’d cite specifically the repeal of the Glass-Steagall Act—the Gramm-Leach-Bliley Act—in 1999, after which it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933. I’d also cite the Commodity Futures Modernization Act, slipped into an 11,000-page appropriations bill in December 2000 as Congress was adjourning following Bush v. Gore. This measure deregulated energy futures trading, enabling Enron and legitimating credit-default swaps, and creating a massive vector for the transmission of financial risk throughout the global system. When the Washington Post caught up with me at an airport in Parkersburg, West Virginia, a year ago to ask for a comment on Gramm’s role, I said very quickly that he was “the sorcerer’s apprentice of financial instability and disaster.” They put that on the front page. I do have to give Gramm some credit: When the Post called him up and read that to him, he said, “I deny it.”

Third, a policy. This was the abandonment of state responsibility for financial regulation: the regulation of mortgage originations, of underwriting, and of securitization. This abandonment was not subtle: The first head of the Office of Thrift Supervision in the George W. Bush administration came to a press conference on one occasion with a stack of copies of the Federal Register and a chainsaw. A chainsaw. The message was clear. And it led to the explosion of liars’ loans, neutron loans (which destroy people but leave buildings intact), and toxic waste. That these were terms of art in finance tells you what you need to know.

Subprime securities are inherently unsafe and should never have been permitted. They are based on loans to borrowers who cannot document their income and who may have bad credit histories, and they are collateralized by houses with fraudulently inflated appraisals, rated by agencies that did not examine the loan files. Writing in The Washington Post, Richard Cohen described one case, of Marvene Halterman of Avondale, Arizona:

At age 61, after 13 years of uninterrupted unemployment and at least as many of living on welfare, she got a mortgage. She got it even though at one time she had 23 people living in the house (576 square feet, one bath) and some ramshackle outbuildings. She got it for $103,000, an amount that far exceeded the value of the house. The place has since been condemned. ... Halterman’s house was never exactly a showcase—the city had once cited her for all the junk (clothes, tires, etc.) on her lawn. Nevertheless, a local financial institution with the cover-your-wallet name of Integrity Funding LLC gave her a mortgage, valuing the house at about twice what a nearby and comparable property sold for. ... Integrity Funding then sold the loan to Wells Fargo & Co., which sold it to HSBC Holdings PLC, which then packaged it with thousands of other risky mortgages and offered the indigestible porridge to investors. Standard & Poor’s and Moody’s Investors Service took a look at it all, as they are supposed to do, and pronounced it ‘triple-A.’”

The consequence of tolerating this and like behavior is a collapse of trust, a collapse of asset values, and a collapse of the financial system. That is what has happened, and what we have to deal with now.

Can “stimulus” get us out?

As a matter of economics, public spending substitutes for private spending. It provides jobs, motivates useful activity, staves off despair. But it is not self-sustaining in the absence of a viable private credit system. The idea that we will be on the road to full recovery and returning to high employment in a year or so therefore seems to me to be an illusion. And for this reason, the emphasis on short-term, “shovel-ready” projects in the expansion package, while understandable, was a mistake. As in the New Deal, we need both the Works Progress Administration, headed by Harry Hopkins, to provide employment, and the Public Works Administration, headed by Harold Ickes, to rebuild the country.

The desire for a return to normal is very powerful. It motivates both the ritual confidence of public officials and the dry numerical optimism of business economists, who always see prosperity just around the corner. The forecasts of these people, like those of official agencies such as the Congressional Budget Office, always see a turnaround within a year and a return to high employment within four or five years. In a strict sense, the belief is without foundation. Liquidation of excessive debt is now, and will remain for a time, the highest priority of American households. That is in part because for the moment they want to hold on to cash, and therefore they do not wish to borrow, and in part because with the collapse of house values, they no longer have collateral to borrow against. And so long as that is the case, there can be no strong recovery of private spending or business investment.

The risk we run, in public policy, is not inflation. It is lack of persistence, a premature reversal of direction, and of course the fear of large numbers. If deficits in the trillions and public debt in the tens of trillions scare you, this is not a line of work you should be in.

The ultimate goals of policy are not measured by deficits or debt. They are measured by the performance of the economy itself. Here Leader Armey and I agree. He spoke with approval, in his remarks, of the goals of 3 percent unemployment and 4 percent inflation embodied in the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978. Which, as a 24-year-old member of the staff of the House Banking Committee in 1976, I drafted.

http://blogs.reuters.com/felix-salmon/2009/05/03/when-executive-compensation-isnt-negative/


Jason Zweig has some very nice things to say about the executive-compensation scheme at Alleghany Corp in his column this week. He talked to the CEO, who didn’t do very well at all last year:

Alleghany pays its long-term incentive awards as “performance shares” that go up or down with the market. Last year, when the stock fell 28%, “the value of my total compensation was negative,” Mr. Hicks says, “as it should have been, since the shareholders didn’t make anything.”

Wow, negative compensation? That’s some clawback! Instead of the company paying Mr Hicks, it seems, Mr Hicks had to end up writing a check to the company. How much did he have to pay? I thought I’d check out Alleghany’s proxy statement to find out.

What did I find? A salary of $1 million in 2008, a bonus of $1.275 million, a stock award of $4.158 million, and various other bits and pieces which add up to total 2008 compensation of $8,223,698. Yes, that’s positive compensation: money paid by the company to its CEO.

So no, Mr Hicks, the value of your total compensation last year was not negative, it was positive. Compensation is how much the company pays you, and if you’re going to talk about negative compensation, then you had better be paying the company. Maybe what you’re talking about is the change in value of your “performance shares” — I daresay they were worth less at the end of 2008 than they were at its beginning. But you still received a very hefty paycheck for doing your job: something over $150,000 per week.

I’m quite stunned that Zweig not only failed to challenge Hicks’s statement, but even put it in his column with no indication that it might be false. I would love to see a company which really did require its CEO to pay back money received in prior years if suddenly everything fell apart. But Alleghany is not that company, no matter what its CEO says.

http://www.theyrule.net/


Overview
They Rule aims to provide a glimpse of some of the relationships of the US ruling class. It takes as its focus the boards of some of the most powerful U.S. companies, which share many of the same directors. Some individuals sit on 5, 6 or 7 of the top 500 companies. It allows users to browse through these interlocking directories and run searches on the boards and companies. A user can save a map of connections complete with their annotations and email links to these maps to others. They Rule is a starting point for research about these powerful individuals and corporations.

Context
A few companies control much of the economy and oligopolies exert control in nearly every sector of the economy. The people who head up these companies swap on and off the boards from one company to another, and in and out of government committees and positions. These people run the most powerful institutions on the planet, and we have almost no say in who they are. This is not a conspiracy. They are proud to rule. And yet these connections of power are not always visible to the public eye.

Karl Marx once called this ruling class a 'band of hostile brothers.' They stand against each other in the competitve struggle for the continued accumulation of their capital, but they stand together as a family supporting their interests in perpetuating the profit system as whole. Protecting this system can require the cover of a 'legitimate' force - and this is the role that is played by the state. An understanding of this system can not be gleaned from looking at the inter-personal relations of this class alone, but rather how they stand in relation to other classes in society. Hopefully They Rule will raise larger questions about the structure of our society and in whose benefit it is run.

I have written more about They Rule here.

Disclaimer
They Rule is NOT a Live database of board members and companies. That information changes constantly. I hope to update the database annually, and try to ensure that the links are accurate at the time of launch. Please inform me if you find a connection that was never true. Otherwise, please just see They Rule as a launch pad for investigations and not the definitive representation of reality. I take no responsibility for the writing of others on this site, nevertheless, if something is really offensive, scandalously untrue, or might get me killed then I may delete it. Please inform me of anything that might meet these criteria.

Mailing List
You can chat with others about the site on the they rule mailing list on yahoo groups, click here to go to the subscription page.

Credits
This site was made by Josh On. Thanks to Amy Balkin of thisisthepublicdomain.org for her help. Thanks to Amy Franceschini and Futurefarmers for their support. Thanks to the Mission branch for putting up with my complete spaciness as I was consumed in the production. Thanks to Media Temple for their great and generous hosting. And special thanks to Riksutstillinger/Detox, Norway, for supporting the new version encouraging me to get it done!

http://interfluidity.powerblogs.com/posts/1241225458.shtml

I'd like to propose a financial innovation that I think would actually be good (besides the ATM). It would be a new security that firms could market to investors, just like CDOs and all of that good stuff. But rather than being a means of expanding the supply of credit (the questionable purpose of most "financial innovation"), this investment product would change the character of credit provided by investors to firms. It would provide an alternative to the customary form of corporate debt.

True believers might argue that if what I suggest were a good idea, a free capital market already would have discovered it. I'm not a true believer, but I'll make common cause in part, and point out that securities like those I propose are presently tax disadvantaged, so capital markets have not been free to discover them. In particular, if dividends on preferred equity were tax-deductible to firms like interest, perhaps these securities would already be commonplace. But I'll reveal my cruel, statist heart by hinting that since firm managers may be myopic in their preference for cheap financing, and since distress costs are in part external to firms, an active policy tilt in favor of more robust capital structures might be worth considering. <1>

I'm suggesting a new financial instrument. Here's its catchy name: "In-arrears convertible cumulative preferred equity", or "IACCPE". ("Yak-pee" for short?) Let's chop that aromatic mouthful into tasty, digestible chunks:

Preferred equity is a form of investment that is like debt, in that the issuing firm promises to pay an agreed dividend level (like an interest rate), rather than a share of a firm's variable profits. However, preferred equity is unlike debt, and like stock, because if a firm for whatever reason does not pay the promised dividend, aggrieved investors cannot sue for bankruptcy. Preferred shareholders' only means of enforcing payment is priority: common equityholders cannot receive dividends if preferred shareholders' dividends have not been paid.

Cumulative means that if the issuing firm has skipped some dividend payments, the firm is said to be "in arrears", and must pay preferred investors all past skipped dividends before it can make any payout to common shareholders. "Cumulativity" ensures that, unless a firm goes bust before ever paying another dividend, preferred investors will eventually get all the payments they were promised, although they may suffer from delay. Cumulative preferred equity is more "debt-like" than noncumulative preferred equity, in that noncumulative investors permanently lose claim to some dividends if a company falls on hard times and suspends payments, while debtors always have claim to interest owed.

In-arrears convertible means that while payments on the preferred shares are "in arrears", when the firm had failed to pay some of the dividends that it had promised and not yet cured the failure, investors would have the option of converting the shares to common stock on favorable terms.

It's the in-arrears contingency that makes this security novel and interesting (I hope). But the feature requires some explanation. Usually, a convertible security has a par value and a conversion price that fix the number of shares of common stock an investor would get for converting a share of the security. This means that investors normally convert only when a firm is doing well. Suppose you have a share of preferred stock that (without the conversion feature) would be worth $100, but that can be converted to 10 shares of common stock. You would never exercise that right when the common stock price is less than $10, since the preferred share is more valuable than the stock you'd get. You would only convert when the common stock is doing well enough so that the value of the stock you would get on conversion exceeds the value of your preferred share. <2>

An "in-arrears convertible" would be pretty useless unless the conversion price were very low, since firms stop paying their preferred stock dividends in difficult times, when their stock price is depressed. So rather than fixing the conversion price in advance, these securities would be convertible at a discount to the market price of the stock at the time the preferred dividend was not paid. <3> That is, by going into arrears on the preferred shares, firms would open themselves up to dilutative preferred-to-common-equity conversions, at the option of the preferred shareholders. If a firm does have long-term, going-concern value, but is simply unable to meet the cash flow requirements of its capital structure, preferred shareholders could convert at a bargain rate during the limited in-arrears period. If a firm is not likely to be viable as a going concern, preferred shareholders could choose to hold tight. They'd be paid out in preference to common stock holders at the eventual liqudation.

Firms could issue multiple classes of "IACCPE", like they now offer multiple debt issues, each with a distinct priority in the capital structure of the firm. Ordinarily, these securities would be indistinguishable from debt, both to the firm and to investors. Investors would fork over a set amount of cash, and then expect to be repaid with interest (formally dividends) on a predetermined schedule. But in bad times, firms that fail to meet their obligations would be forced to offer equity, including control rights, to creditors on very favorable terms. (Non-payment of a dividend could also provoke a special shareholders meeting, and holders of the unpaid preferred could be given the right to propose replacement directors, thereby maximizing the value of converters' control rights.)

Substituting this kind of security for debt in firms' capital structure would enable a kind of bankruptcy in increments, an automatic and self-enforcing reorganization. I think this would improve value for all stakeholders compared to our present system. Chapter 11 bankruptcy was itself a great innovation, but it exposes even viable firms to large, indirect distress costs when capital structure and cash flows become misaligned. To the degree that a firm has widespread or important stakeholders outside its capital structure (customers, employees, financial counterparties, local governments, etc), Chapter 11 even at its best produces costly externalities, as stakeholders must provision for abrupt and unpredictable changes even when a firm is likely to survive and even thrive once arguments over who gets what are resolved. Because Chapter 11 bankruptcies (and receiverships for financial firms) are disruptive, governments sometimes intervene to prevent them or to the process with subsidies. The expectation of intervention causes investors in "systemically important" firms to over-lend and under-monitor. For large firms, the threat that contractually prescribed, preferred-to-common conversions might be triggered would be more credible than the threat of an uncontrolled bankruptcy without government subsidy. Investors would be forced to actually price the "lower tail", rather than hoping it will be truncated by the state. Common stockholders would face a steep penalty for missing "debt" payments, but the extent of their dilution would be predictably related to the scale of the obligations they fail to meet.

IACCPEs wouldn't replace or eliminate traditional bankruptcy, of course. Regardless of capital structure, firms that are not viable businesses will need to be liquidated. Sometimes firms have contractual arrangements other than straight debt that need to be modified if a firm is to become viable. Moreover, even if all "financial" debt were eliminated from firm capital structures (I think that would be a good thing), firms would still have transactional business creditors, for whom traditional "hard" debt makes sense. <4> This proposal does not directly address off-balance-sheet contingent liabilities or pension and health obligations, which are increasingly sources of firm distress. I think pension and health issues will have to be addressed on a national basis, that our employer-centric system of managing health and retirement issues will ultimately have to be, um, retired. But some contingent liabilities (uncollateralized derivative exposures) could and probably should be replaced by contracts that can be paid off in some form of equity (at punitive valuations) when they cannot be paid in cash.

Highly leveraged capital structures make individual firms, and networks of interdependent firms and communities, brittle. Replacing debt in firm capital structures with some form of preferred equity would serve as a shock absorber, allowing viable firms to survive transient cash flow shocks without affecting outside parties. It might be enough to simply level the playing field between debt and preferred equity by making preferred stock dividends tax-deductible for firms. But debt investors take some comfort in the fact that they have power, via the bankruptcy process, to enforce payment. That threat may reduce the cost to firms of debt finance. The sense of the present proposal is to define an instrument that gives fixed-income investors as much of the power they would have in a bankruptcy as is possible while reducing the likelihood of a "singularity" that creates far-reaching costs and uncertainties.

<1> The proposed "IACCPEs" would not necessarily be a more expensive form of financing than traditional debt: On the one hand, they take a weapon away from creditors, so creditors would want to be compensated for the additional vulnerability. On the other hand, by reducing the likelihood that a transient shock provokes an unnecessary bankruptcy, replacing debt with IACCPEs might reduce expected distress costs, and thereby increase overall firm value relative to a firm financed with traditional debt, which would be reflected in a lower cost of financing across the capital structure. Which of the two offsetting factors dominates would have to be an empirical question.

<2> Usually you would wait quite a bit longer than that, because the option of converting at any time makes the convertible security as valuable as the shares, but the agreed-in-advance payments of the unconverted security provides protection should the stock price tank. Exactly when it's worthwhile to exercise the conversion option on convertible shares is complicated, and in real life depends on the level of dividends paid by common shares and the relative liquidity of the market for common and preferred shares. In frictionless markets for a firm that issues no common dividend, it would only be worthwhile to convert an instant prior to maturity of the convertible security (if it is not perpetual). For our purposes, however, all that matters is that investors usually convert preferred stock only when the common shares are doing well.

<3> Getting the conversion option trigger right would be an important technical issue in defining these securities. Managers might try to manipulate their stock price around the time of the triggering nonpayment, in order to minimize the cost of dilution to existing shareholders (and themselves). The conversion price might be based on an average stock price over 30 days prior. Managers would not have very much scope to time the nonpayments, because they would be required to skip dividends on the most junior class of preferred shares, whose dividend schedule would have been set in advance.

<4> Broadly, "financial" investors should be expected to research and take some responsibility for the firms in which they invest, while customers and suppliers should be able to do business with a firm without worrying very much about its balance sheet. There is no bright line between transactional credit and financial debt, but it is nevertheless a distinction worth making, and even policing, in firms' capital structure. The "cash efficiency" movement, which encourages firms to maximize their use of transactional credit as a source of cheap financing, is in my view pernicious. But that's a rant for another day.

That's (hopefully) my new netbook you're swinging around there!

(Small moves.)

= Held by the Public + Intragovernmental(FICA)
= 6,954,980,864,876.37 + 4,300,978,699,542.06
DOWN 207,515,478.68 + DOWN 4,287,572,234.15

Source: Debt to the penny:
http://www.treasurydirect.gov/NP/BPDLogin?application=np

THINKING IN BILLIONS: Think 3 or 4 dollars per billion in a 306-Million person America.
If every American, man, woman and child puts in $3.26 each THAT'S 1B$.
A family of three: Mom, Dad, Child: $9.79, ABOUT TEN BUCKS for a 1B$ federal program.
I hope that is clear. However, I'd suggest using $3 per 1B$ to underestimate it.
Use $4 per 1B$ to overestimate the cost when thinking: Is the federal program worth it?
Aid to Dependant Children: 2B$/yr =$8/yr(a movie a year) Family of 3: $24/yr(an hour of bowling)

PERSONALIZED DEBT:
Every 14 seconds we net gain a another American, so at the end of the workday of this report, there should be 306,344,315 people in America.
http://www.census.gov/population/www/popclockus.html
Currently, each of these American's owe $36,742.84.
A family of three owes $110,228.51. (And that is IN ADDITION to their mortgage.)

ANALYSIS:
There were 21 reports in the last 30 days.
The average for the last 21 reports is 4,094,333,776.33.
The average for the last 30 days would be 2,866,033,643.43.

There were 252 reports in 365 days of FY2007 averaging 1.99B$ per report, 1.37B$/day.
There were 253 reports in 366 days of FY2008 averaging 4.02B$ per report, 2.78B$/day.
There were 75 reports in 112 days of GWB's part of FY2009 averaging 8.03B$ per report, 5.38B$/day.
There were 78 reports in 113 days of Obama's part of FY2009 averaging 0.02B$ per report, 0.09B$/day so far.
There were 153 reports in 225 days of FY2009 averaging 8.05B$ per report, 5.47B$/day.

PROJECTION:
There are 1,348 days remaining in this Obama 1st term.
By that time the debt could be between 13.1 and 18.6T$.
It could be higher. It could be lower.

HISTORICAL:
President's term begins and ends on Jan 20.
(Guess who might want to hide the Reagan Bush years. Jan 20 data is missing before 1993.)
01/20/1993 _4,188,092,107,183.60 WJC Inaugural
01/22/2001 _5,728,195,796,181.57 WJC (UP 1,540,103,688,997.97)
01/20/2009 10,626,877,048,913.08 GWB (UP 4,898,681,252,731.43)
05/13/2009 11,255,959,564,418.43 BHO (UP 629,082,515,505.35 so far since Obama took office.)

Fiscal Year ends: Sep 30
Borrowed in FY1993: (Maybe later.)
Borrowed in FY1994: 281,261,026,873.94
Borrowed in FY1995: 281,232,990,696.07
Borrowed in FY1996: 250,828,038,426.34
Borrowed in FY1997: 188,335,072,261.61
Borrowed in FY1998: 113,046,997,500.28
Borrowed in FY1999: 130,077,892,735.81
Borrowed in FY2000: _17,907,308,253.43 Bill alone
Borrowed in FY2001: 133,285,202,313.20 Bill and George
Borrowed in FY2002: 420,772,553,397.10 All George
Borrowed in FY2003: 554,995,097,146.46
Borrowed in FY2004: 595,821,633,586.70
Borrowed in FY2005: 553,656,965,393.18
Borrowed in FY2006: 574,264,237,491.73
Borrowed in FY2007: 500,679,473,047.25
Borrowed in FY2008: 1,017,071,524,650.01
Borrowed in FY2009: 1,231,234,667,506.00 so far this fiscal year.

LAST FIFTEEN REPORTS OF ADDITIONS TO PUBLIC DEBT(NOT FICA):
04/22/2009 +000,051,738,680.14 ------------*******
04/23/2009 -012,857,484,009.95 -
04/24/2009 -000,133,239,400.23 ---
04/27/2009 +000,285,896,492.06 ------------******** Mon
04/28/2009 +000,154,949,620.57 ------------********
04/29/2009 -034,727,762,120.64 -
04/30/2009 +079,347,503,951.43 ------------**********
05/01/2009 -003,202,605,992.57 --
05/04/2009 +000,068,750,275.89 ------------******* Mon
05/05/2009 +000,122,936,524.80 ------------********
05/06/2009 -000,058,764,073.21 ----
05/07/2009 +027,679,213,817.18 ------------**********
05/08/2009 -000,216,334,016.92 ---
05/11/2009 -000,029,759,155.68 ---- Mon
05/13/2009 -000,207,515,478.68 ---

56,277,525,114.19 Total of 15 above reports.

Heavy borrowing seems to start after 09/18/2008.
US borrowed $1,591,327,761,159.36 in last 237 days.
That's 1,591B$ in 237 days.
More than any year ever, including last year, and it's 156% of that highest year ever only in 237 days.
And it is over 100% of ANY dismal Bush, for any dismal Bush-year, ONLY IN 237 DAYS NOT 365.

For a prettier and more explanatory view of our nation's debt:
http://www.brillig.com/debt_clock

(Debt to the penny keeps changing. Stuff is missing. Best to keep our own history.) LAST REPORT:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3876544&mesg_id=3876573

(A reasonable increase after nearly a week of small moves.)

= Held by the Public + Intragovernmental(FICA)
= 6,968,907,881,296.13 + 4,301,639,516,268.51
UP 13,927,016,419.76 + UP 660,816,726.45

Source: Debt to the penny:
http://www.treasurydirect.gov/NP/BPDLogin?application=np

THINKING IN BILLIONS: Think 3 or 4 dollars per billion in a 306-Million person America.
If every American, man, woman and child puts in $3.26 each THAT'S 1B$.
A family of three: Mom, Dad, Child: $9.79, ABOUT TEN BUCKS for a 1B$ federal program.
I hope that is clear. However, I'd suggest using $3 per 1B$ to underestimate it.
Use $4 per 1B$ to overestimate the cost when thinking: Is the federal program worth it?
Aid to Dependant Children: 2B$/yr =$8/yr(a movie a year) Family of 3: $24/yr(an hour of bowling)

PERSONALIZED DEBT:
Every 14 seconds we net gain a another American, so at the end of the workday of this report, there should be 306,350,486 people in America.
http://www.census.gov/population/www/popclockus.html
Currently, each of these American's owe $36,789.72.
A family of three owes $110,369.15. (And that is IN ADDITION to their mortgage.)

ANALYSIS:
There were 21 reports in the last 30 days.
The average for the last 21 reports is 4,678,507,596.82.
The average for the last 30 days would be 3,274,955,317.77.

There were 252 reports in 365 days of FY2007 averaging 1.99B$ per report, 1.37B$/day.
There were 253 reports in 366 days of FY2008 averaging 4.02B$ per report, 2.78B$/day.
There were 75 reports in 112 days of GWB's part of FY2009 averaging 8.03B$ per report, 5.38B$/day.
There were 79 reports in 114 days of Obama's part of FY2009 averaging 0.06B$ per report, 0.13B$/day so far.
There were 154 reports in 226 days of FY2009 averaging 8.09B$ per report, 5.51B$/day.

PROJECTION:
There are 1,347 days remaining in this Obama 1st term.
By that time the debt could be between 13.1 and 18.7T$.
It could be higher. It could be lower.

HISTORICAL:
President's term begins and ends on Jan 20.
(Guess who might want to hide the Reagan Bush years. Jan 20 data is missing before 1993.)
01/20/1993 _4,188,092,107,183.60 WJC Inaugural
01/22/2001 _5,728,195,796,181.57 WJC (UP 1,540,103,688,997.97)
01/20/2009 10,626,877,048,913.08 GWB (UP 4,898,681,252,731.43)
05/14/2009 11,270,547,397,564.64 BHO (UP 643,670,348,651.56 so far since Obama took office.)

Fiscal Year ends: Sep 30
Borrowed in FY1993: (Maybe later.)
Borrowed in FY1994: 281,261,026,873.94
Borrowed in FY1995: 281,232,990,696.07
Borrowed in FY1996: 250,828,038,426.34
Borrowed in FY1997: 188,335,072,261.61
Borrowed in FY1998: 113,046,997,500.28
Borrowed in FY1999: 130,077,892,735.81
Borrowed in FY2000: _17,907,308,253.43 Bill alone
Borrowed in FY2001: 133,285,202,313.20 Bill and George
Borrowed in FY2002: 420,772,553,397.10 All George
Borrowed in FY2003: 554,995,097,146.46
Borrowed in FY2004: 595,821,633,586.70
Borrowed in FY2005: 553,656,965,393.18
Borrowed in FY2006: 574,264,237,491.73
Borrowed in FY2007: 500,679,473,047.25
Borrowed in FY2008: 1,017,071,524,650.01
Borrowed in FY2009: 1,245,822,500,652.20 so far this fiscal year.

LAST FIFTEEN REPORTS OF ADDITIONS TO PUBLIC DEBT(NOT FICA):
04/23/2009 -012,857,484,009.95 -
04/24/2009 -000,133,239,400.23 ---
04/27/2009 +000,285,896,492.06 ------------******** Mon
04/28/2009 +000,154,949,620.57 ------------********
04/29/2009 -034,727,762,120.64 -
04/30/2009 +079,347,503,951.43 ------------**********
05/01/2009 -003,202,605,992.57 --
05/04/2009 +000,068,750,275.89 ------------******* Mon
05/05/2009 +000,122,936,524.80 ------------********
05/06/2009 -000,058,764,073.21 ----
05/07/2009 +027,679,213,817.18 ------------**********
05/08/2009 -000,216,334,016.92 ---
05/11/2009 -000,029,759,155.68 ---- Mon
05/13/2009 -000,207,515,478.68 ---
05/14/2009 +013,927,016,419.76 ------------**********

70,152,802,853.81 Total of 15 above reports.

Heavy borrowing seems to start after 09/18/2008.
US borrowed $1,605,915,594,305.57 in last 238 days.
That's 1,606B$ in 238 days.
More than any year ever, including last year, and it's 158% of that highest year ever only in 238 days.
And it is over 100% of ANY dismal Bush, for any dismal Bush-year, ONLY IN 238 DAYS NOT 365.

For a prettier and more explanatory view of our nation's debt:
http://www.brillig.com/debt_clock

(Debt to the penny keeps changing. Stuff is missing. Best to keep our own history.) LAST REPORT:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3878363&mesg_id=3878549

Nikkei down 2.9 pct as exporters fall, Panasonic tumbles
Sun May 17, 2009 10:50pm EDT
(snip)
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUST33637520090518

In a mortgage market gone crazy with generous loans, no one was more generous than World Savings.

Lots of banks offered mortgages that allowed borrowers to pay less than the amount of interest being charged, but World was virtually alone in making loans that let the borrower continue to make small payments for a decade, rather than two or three years.

Most banks forced the borrower to start making much larger monthly payments if the amount owed — an amount that could rise each month if the borrower made the minimum payment — rose to 110 percent of the appraised value of the home when the loan was made. World saw that as stingy. It did not force the payments up until the amount owed was 25 percent greater than the original value.

http://www.nytimes.com/2009/05/15/business/economy/15norris.html?pagewanted=1&_r=1">NYTimes: A Bank Is Survived by Its Loans


Wells is in deep trouble; how long can Timmy keep the sham going?

We acquired the Pick-a-Pay loan portfolio from Wachovia. This is a liquidating portfolio as we stopped originating new Pick-a-Pay loans in 2008. At March 31, 2009, this portfolio, which excludes equity lines of credit, had an unpaid principal balance of $115.0 billion and a carrying value of $93.2 billion.

...

At March 31, 2009, and December 31, 2008, customers representing 51% of the loan balances with the payment options feature elected the minimum payment option.

http://www.sec.gov/Archives/edgar/data/72971/000095013409010238/f52324e10vq.htm">Wells Fargo 10-Q - Look for the heading: Pick-A-Pay Portfolio

and the FDIC has rented lots of office space on both east and west coasts, so they must be planning on something major to keep them busy.

They haven't even changed the name on Wachovia yet. I hope like hell it doesn't become a Chase overnight.

Weird. Usually signs are the first thing that is seen that indicates a merger has been done. Hm, maybe, these big banks, are going to be merged again?


edit: or there is no money for new signs? or the banks are going to be dissolved anyway?

The only hint of the Wells-Wachovia merger is on their website. When I log on to my online banking, it still says Wachovia, and under that it says, "A Wells Fargo Company".

In the small news here in Belgium: KBC, a bank that was bailed out in january, had said it had set all of it's toxic portfolio at 0. Share price quadrupled since then. Eh, on second thought, we still have 14 billion of CDOs... okay no 22 billion...help us pretty please.

Thieving liars.

Nine more global corporate issuers defaulted this week, bringing the year-to-date total to 117, more than four times the amount at this time last year, according to Standard & Poor's.

Defaults have been surging for more than a year as the economy turned south and the credit crunch made refinancing debt much more difficult.

Distressed-debt exchanges led this week's defaults with four issuers - Sonic Automotive Inc. (SAH), Standard Motor Products Inc. (SMP), NES Rentals Holdings Inc. (NLEQ) and Pakistan Mobile Communications Ltd, according to S&P. Distressed exchanges have been on the rise this year. Other reasons for defaults included missed payments and bankruptcy filings.

Five of the nine issuers that defaulted this week were based in the U.S. and the other four were from emerging markets, bringing year-to-date totals to 81 and 21, respectively. There have been seven defaults this year in Europe and eight in the other developed region, which includes Australia, Canada, Japan and New Zealand, according to S&P.

S&P said separately Friday that eight issuers were downgraded to speculative grade last month, bringing the year's total to 41. There are 75 issuers that currently have the potential to be fallen angels - companies poised to fall from investment-grade territory. Potential fallen angels are entities rated BBB- with either a negative outlook or are on watch for downgrade.

Belgium-based Fortis NV (FORSY) continues to top S&P's list as the largest company that has been cut to junk so far this year, with $23.23 billion in rated debt, according to S&P. A sovereign, the Republic of Hungary, is the largest potential fallen angel, with $53.86 billion in rated debt, S&P said.

http://online.wsj.com/article/BT-CO-20090515-711106.html

Since the US and third world countries make up almost all the defaults, doesn't that imply the US is a third world country?

Corrupt, crony, predatory, disaster capitalism failed, it's being propped up by the U.S. government and propaganda. Putting on a suit and lying for a living is not the way business will work in the future of this fascist and torturing country that is sick of being ripped off as well. Every election is full of promises/lies, every contract we ever sign is full of lies, the media is full of lies, our so-called justice system is full of lies, lies lies lies, I'M SICK OF IT ALL!

I lie all the time. I'm lying to you right now.

"The Recovery" we are currently supposedly enjoying consists of only two things:

1. A Manipulated, Artificially Engineered Stock Bubble, that is having ZERO impact and effect on the Real Economy, and relentless Propaganda INSISTING that the Economy is recovering, The Recession will be over by June, and although there will be no jobs, Prosperity is just around the corner and we can all get back to normal very soon.

2. A childlike, dumbed down, zombie like population that is so invested in feeling good and having a quick fix for everything, that they continue to buy every nugget of said Propaganda as INDISPUTABLE FACT.
And, like a heroin addict in terminal stage, they are completely numb to ANY facts or reality around them that suggest that it's all a complete sham, because they are so invested in their false paradigm. They just continue to fall down and worship at the feet of the current dictatorship, seemingly for no other reason than "But they are just so much more cool and honest than the last one. There's NO WAY they would ever mislead us or lie to us. We Believe, We Support, We're Confident, Just Give It Time, etc, etc, fucking etc.

Those of us who can see keep getting browbeaten by the True Believers that "Rome Wasn't Built In A Day."

The problem is, they are too deluded to see that WE ARE ROME.

And We Are Burning.....

"Rome wasn't burnt in a day."

And that's what I think we have to look forward to.

Death By A Thousand Cuts. :(

I'll have to look that up sometime.

It depends of course on which burning down of Rome you're talking about.

The Propaganda has become so childlike one cannot even read it.

This is just flat-out insulting......

Stocks slide in cautious trading after rally

Stocks slide as economic data top forecasts but leave traders unimpressed after 2-month rally

NEW YORK (AP) -- Investors moved more money out of stocks Friday, further chilling the market's spring rally.

Stocks fluctuated in the early going on more signs that the economy's slide is slowing. But most advances eroded by the afternoon as traders accustomed to economic news being "less bad" found little incentive to buy.

Translation: The Propaganda is losing it's effects. Which is understandable. After all, when all you feed the public is heroin-like Propaganda that has no basis in reality, in order to keep numbing them to said reality, eventually you have to take things to another level. it looks like the current dosage does not impress the addicts any longer.

The Labor Department said consumer prices in April were flat, as economists predicted. And New York-area manufacturing activity and industrial production contracted less than economists expected. They also shrank significantly less than they did earlier in the year, fitting a trend seen in most data since early March: that the economy continues to slide, but at a slower pace.

This is definitely positive news. Like if you have a gunshot wound, The Good News is that the bleeding has slowed. The Bad News is if you don't treat the gunshot wound and remove the bullet, you'll still bleed to death and die. Such is the American Economy. And we don't have any surgeons in our leadership. Only the Criminals who shot us in the first place.

A Reuters/University of Michigan index of consumer sentiment rose to an eight-month high in May. The improvement is a good sign as sentiment rebounds from a low in November. Increased confidence could translate to improved consumer spending.

The Consumer cannot increase spending unless he has a JOB to provide INCOME to FACILITATE said spending. Just because the Consumer is feeling good about the Propaganda you are feeding him doesn't mean that he can actually do anything about it.

Traders remained cautious ahead of several reports expected next week on housing, one of the economy's weak spots. And on Friday European countries reported on a massive 2.5 percent contraction in the first quarter.

Translation: By the way, reality is still Reality, no matter what bullshit we are feeding you.

http://finance.yahoo.com/news/Stocks-slide-in-cautious-apf-15262743.html?sec=topStories&pos=main&asset=&ccode=

Read the rest of the article if you can stomach it. It reads like it was written for Pre-School Toddlers.

But you DO get the answer for yesterday's Mystery Miracle Rally.

22 Billion More In bailout Funds for the Insurers.

They continue to Steal, Rob, and Loot, and The Country in general can't seem to get enough of it. :banghead:

tell me how many May options on the insurance companies were bought yesterday? Might have been some serious money to be made with to the announcement of the TARP funding.

Just wondering.

It's down about 7¢ per share. Doesn't sound like much. Unfortunately, it translates into about 8%. So after one week, I'm still not rich. Dammit.

GM is down 50¢ per share since last week. That's 31%. Ford went down about 12%. So it could have been worse.

It's very tough to invest or trade in an environment like this.

You should come up to Seattle and try your luck at Tulalip.

At least there the House Comps you while they are stealing your money. :)

They believe they are allies of the American public so are changing their name from GMAC Bank to our new friend and ally, Ally Bank.

http://online.wsj.com/article/SB124234797467422011.html

The company's executives hope that the rebranding of GMAC Bank will spur retail deposit growth, a key funding source for GMAC.

I wonder how many millions they spent on market research to come up with that easily ridiculed name?

Accenture is still in business. Who remembers they were once the Andersen Consulting wing of Arthur Andersen, the accounting company that did such a good job auditing Enron?

First Credit Suisse issued predatory loan to Yellowstone which pushed Yellowstone into bankruptcy.

The Judge rules Credit Suisse is a predator

Credit Suisse then bids on Yellowstone and says it will cancel the predatory loan thus making it the high bidder

This is so wrong. I have no love for Yellowstone, but still this is so wrong.



http://www.bloomberg.com/apps/news?pid=20601087&sid=adnmMNZHfP7E&refer=home

May 15 (Bloomberg) -- Credit Suisse Group AG asked a judge to rule that it has won an auction for the Yellowstone Club, the bankrupt ski and golf resort near Yellowstone National Park.

U.S. Bankruptcy Judge Ralph Kirscher in Butte, Montana, began a court hearing today to decide whether Credit Suisse or Boston private equity fund CrossHarbor Capital Partners LLC made the “highest and best” bid for the club, said a person involved in the case. The person declined to be named because he has not been authorized to speak about the case by his employer.

Kirscher made it more difficult for Credit Suisse to win the bidding when he ruled May 13 that the bank had arranged a “predatory” loan to Yellowstone of $375 million that would be unlikely to be repaid. He then lowered Credit Suisse’s payback priority below other creditors, including CrossHarbor, and ordered the bank to include at least $43 million in cash in any bid for Yellowstone.

The founders of the club, Tim and Edra Blixseth, took $209 million of the Credit Suisse loan for personal use, according to court records. Edra Blixseth won control of the club when the couple divorced, court records show.

Credit Suisse is offering to pay creditors at least $43 million in cash and to retire the debt it is owed, while CrossHarbor Capital has offered creditors $30 million in cash plus a $70 million note, and has agreed to spend as much as $75 million on Yellowstone itself.

The Vulture eats between his meals,
And that's the reason why
He very, very, rarely feels
As well as you and I.

His eye is dull, his head is bald,
His neck is growing thinner.
Oh! what a lesson for us all
To only eat at dinner!


by (Joseph) Hilaire Belloc (1870-1953) , "The vulture", from More Beasts for Worse Children, published 1897

I once sang a setting of this and 2 other poems he wrote for the nursery bunch.


But Tonight on Weekend Economists, we will go to more adult fare, since it is the Lusty Month of May, and we were in hopes of Arthur returning to Camelot....

In the Editorials Forum Friday -Sunday!