Buying Only, That’s the Ticket! "The emergency order temporarily banning short-selling of financial stocks will restore equilibrium to markets." The move, he said, would not be necessary in a well-functioning market and is only a temporary step that is part of the actions being taken by the Federal Reserve, the Treasury and Congress. Christopher Cox, Chairman Securities and Exchange Commission

We can apparently conclude that a ‘well functioning market’, by government standards, is one that always goes up. From the standpoint of politicians that think ‘the well to do can afford to pay more taxes,’ this is a logical stance. After all, if the Wall Street Money Machine freezes up, the well to do might stop being just that. If the rich were to become middle class, who indeed would pull the wagon that Barack and John want to ride in? One can put higher taxes on those that can pay as long as in fact their wealth increases, Should the overall increase fall after taxes and capital losses, someone might start noticing just how greedy the government really is. Wall Street might deliver less but the government never cuts back its demands on taxpayers.

Perhaps the next time oil is ‘too high,’ Congress will ban buying oil and only allow selling on the New York Mercantile Exchange, sure that will fix the problem! Short selling is the polar opposite of buy low, sell high. A short seller sells high, and then buys back at a lower price. Some retirement funds have now refused to lend shares of Morgan or Goldman to short sellers. This would be a perfect stop gap measure, in 1930. However I did not read this morning 9Friday Sept 19) that the SEC had also banned trading in indices, options, and futures. Those are far more leveraged than mere stocks and certainly contribute to the overall decline in the markets. I doubt the SEC can rein in those trades given the size of those markets. But Goldman actually made money last quarter, which is more than Lehman and Merrill could say for themselves. The irony is that the same brain trust, Barney Frank, Chris Dodd, Alan Greenspan, Hank Paulson, Phil Gramm, et al, that failed us all are now claiming to ride to the rescue. And for the moment that is probably all that can happen.

But the US Dollar has been falling since 2002. Yes it rallied the last few weeks. But as the FED cranks up the dollar printing presses to bail out Fannie but not Lehman, AIG but not Merrill, it is no wonder gold rose $90 one day this week. Gold is the ultimate money that cannot be printed from trees, and this election year, Washington is promising to print quite a bit of it. Fannie Mae was the perfect storm trying to happen. Bureaucrats were moved to inflate earnings which inflated the FNM stock price which lined their pockets with bonuses. After all, the government guarantees the mortgages will pay, everyone will win as the FNM stock price rises! Now the FED and SEC are trying to guarantee against loss, period. Neither borrower nor lender will lose on a mortgage, no 401K will lose in the markets, selling is outlawed, only buying please. Such outright bans on rational activity can only be a stop gap measure.

The better idea would be to demand prudent behavior which only markets can enforce. For example, John Thain, Merrill CEO, is the former NY Stock Exchange CEO. Aware of regulations, once he saw the government would not bail out Lehman last Sunday, he penned a deal with Bank of America that day to save Merrill. See, Barney and Nancy, markets work better than any regulation.! We warned of an extended oil price all summer. Now lower prices are here. Oil has fallen $50. It is showing signs of life again. The reason is not just the cost of exploration. The world economies were weakening to the point that $145 oil was unaffordable. If the price is bottoming now, it is more a sign of strengthening economies that might once again afford this luxury. Our best guess is that the dollar rallies for a few more weeks or perhaps into next year. Oil should rise one last time over the next couple of years. But as we have warned, operating debt free in the oil field (read volatile markets) with low fixed costs is the only successful strategy. Don’t take my word for it, just ask AIG or Lehman.

Tonight the government announced that they (this means you by the way) would provide an $85 LOAN to AIG.  For this they get a 79% stake in the company. Is this a good deal?

I checked. The entire market capitalization is $10 B. So the government could have bought every single share of the entire company, well in theory, no doubt some shareholders would want more for only $10 B

The net book value is $67 B. So you and I paid over book for a company on the ropes.

Would buying the stock of AIG help AIG?  No that money woudl go to the existing shareholders. THe Company needs the money. Hence a capital infusiotn was needed.

Wait, I thought Tsy Secy Paulson said no more bailouts?  What is Lehman thinking now?  Better yet, what is Jeff Skilling, sitting in jail thinking? Gee, if they had loaned Enron the money, Enron would not have upset the markets!

I must admit I am baffled at how the govwernement would not help Lehman on Sunday and is bialing AIG out two nights later. Just last year the government was chasing Hank Greenburg, former CEO of AIG. Strange bedfellows indeed.

Your thoughts?

Newsflash, today FED Chairman Ben Bernake announced a FED intervention for the students at Tx A & M San Antonio. Noting that both political  candidates have said the economy is (insert derogatory adjectives here) and so fearing a default at Sonics and Whataburgers and apartment complexes across San Antonio, not to mention a potential donwgrade of Sallie Mae debt, the FED took a 79% positikon and defacto now owns the student body at the school.

Ben finished his remarks noting that students should read their chapter assignments and arrive rested and ready for class. Your FED is depending on you, litgerally,  he said…

Brokers on the floor or at a trading desk are usually held to the fiduciary responsibility of best price. Tais rule is suspended in what is termed fast market conditions.  When markets are moving so fast taht such prices cannot be easily determined, the broker is not held to the requirement.

Events are happening so fast this weekend at the Lehman buy out talks, ther is not point in linking articles. Now at 5:00 PM CST, BAnk of America is talking merger takover with Berrill Lynch and Barclays has dropped out as a bidder. Go to finance.yahoo.com to keep current.

The big poker game this weekend is not in Las Vegas, it is at the Federal Reserve Building in NYC.
Lehman must be sold to allay fears that the markets will melt down this week.  Lehman as I described in class this week does not have enough capital to get through its Sept 30 examination. Now the FED has called in Morgan, MER, et al and asked them to buy it. As one player put it, and what about the next one.  for that the FEDS have no answer. This needs to get done before teh Asian markets open on Monday, which is to say Sunday night here.

If there are no buyers for mortgages Lehman holds, the thinking is that buyers will balk at buying anything.  That would not be good. Even the foreign central banks are urging something must be done.

I would say, take the $40 B in troubled LEH mortgages, fold them into Fannie, then sell the brokerage offices to the other brokers.  But then I not get hired as a consultant.

Stay tuned.

Kudos to those of you tha talerted me that Homework Manager reported that Your Instructor had locked you out. That problem has been fixed and you should be avle to access assignments now.

Having said that, please understand that like yourself I am a mere passenger on this internet bus of life just as you are. Just because the site sadi that your Instructor locke d you out,  does not mean I personally took it upon myself for unknown reasons to inflict misery on you. Indeed, i had done nothing, whatever happened that was an auto response on the part of the homework Manasger program.

Now really, did you think it would default to a message like this – ?

Your prof is really a great guy and trying hard to juggle WEB CT, Homework Manager, three classes, avoid showing power points, maintain a library to loan books, maintain a blog to keep the discussion in class something other than the textbook,  and kep thnngs interesting. If you suffer an interruption if will be our fault and unlike other companies we admit it!

Trust me, you will no tsee that message…..much easier to default to Your Instructor, that bum….

Vallejo CA has filed for bankruptcy protection.  Dr. Green and Prof Vasil teach govt accounting. One of the dirty little secrets of accounting is that influence has kept hte GASB FASB from demanding that entities rully reveal all future liabilities for pensions and health care.  Click to read George Will's descriptioin of how ordinary people, nurses, firemen, police are making six figures salaries.

THe prices fo municipal bonds have tumbled as reflected in the prices of publicly traded muni bond funds. Look at FRHIX for example.  The reason is that there is more and more reason to suspect that cities cannot make good on future pormises, especially given saggin home prices.

No doubt you will little of this as both candidates promise change and rescue to already strapped places like Ohio and Michigan. But this is another reason financial markets themselves are sagging.

Are you a weather junkie?  Click here for a link to how the US Navy has spent tax dollars to track hurricanes, finally something useful from the federal government!

ONe needs to realize that the mantra of buy and hold needs a lot of shoring up from time to time.

Charles Dow constructed the original Dow INsudtrials in 1896. today only GE is still on that list, all the other stocks have changed. Indeed, if the folks tha construct such indices did not constatnly change them the big 'gains' racked up over the years would not exist.  Read how FNM and FRE are being droped from the S & P 500.  Neither has the $5 billion in market capitalization that is required to stay in that index.  Replacing older poor performing stocks with newer companies showing big gains keeps these markets going up. Ironically MSFT was added to the DOW even though it does not even trade on the New York Stock Exchange. By the time it was added, its glory days of annual increases were behind it.

Lehman Brothers dropped 44% today closing around $8.  Apparently the deal with the South Korean bank fell through. LEH has moved their release of quarterly financial information up by a week. Tomorrow morning at 7:30 EDT we will learn their plan. 

I have posted a lot of articles about the decline of the American auto industry, it is the perfect example of how to lose market share. Here Jerry Flint describes just how few cars Detroit is selling. Such losses at Buick and Mercury are likely permanent. But killing Buick and Mercury brands will only increase fixed cost per unit, as sales of otehr lines are not likely to increase as a result.

Once a group of buyers is lost, it is near impossible to get them back. Cultural trends and shifts are like that.  In the 1950s, American youth finally stopped listening to their parents music. IN one week Giselle McKenzie lsos out to Elvis, and music was never the same again. ditto for youths listening to the  Beatles in the 1960s, the British invasion hd begun. The pendulum swung back as punk rock and tattoo covered rockers like Tommy Lee were too much and bingo, George Strait found a gigantic audience in the early 1990s.   Now a whole generation looks to Toyota Honda Nissan for inspiration, not to Ford or GM.  Dodge is all but toast.

None of hte candidates are encouraging Congress to favor something for innovative GM or Ford designs, see Econetic. What do you see happening?  Is there a long term danger in our losing an American owned auto producer?  It has happened in England.   There is not a single British owned car company.