Here's the Wall Street Journal's look at several different home value indices from November.
You could probably argue that last point, but still.
His associate also spoke about some of the unintended consequences we're seeing in the fixed income markets right now.
Granted, this is a back of the envelope calculation. There are certainly items that will qualify for the cashback that don't feature "live.com" in the description which would increase the amount paid. The average cashback and velocity of sales may also vary from what I've assumed. As if the legitimate users weren't charging enough cashback, I'm sure others have been gaming the system by buying items for resale (gold bullion, gift cards) or setting up fake auctions under multiple accounts.
How many companies have the resources to make almost $200MM in cash payments to entice customers to use something as ephemeral as a search engine? A bank may spend a couple hundred to acquire a new retail customer, but at least they're protected by some switching costs. Has "Helicopter Ben" taken over Microsoft's marketing department? They're is throwing money at this problem, demonstrating the seriousness of their predicament, but I don't see the long term payoff from it.
Well, it's probably still cheaper than buying Yahoo at $31/share ($44B market cap).
Their study of zip code level data finds that in spite of flat or declining incomes and stagnant house prices, lending increased substantially from 2002 and 2005. Over that period, credit provided to subprime zip codes doubled and since 2006, the foreclosure rate for those same areas is three times as high as neighboring metropolitan areas. They cite securitization as the main force behind the expansion of subprime credit, a supply-based explanation. There may also be some moral hazard at work here: increased securitization is much more prevalent among subprime zip codes and default rates increase much more rapidly for loans originated in areas of high securitization.
The next question is: why did securitization increase so much? They leave that for another paper, but it might be related to technological innovations in risk management, demand from GSEs like Fannie and Freddie, or the flood of capital into the US during this time period.
Eisman stuck to his sell rating on Lomas Financial, even after the company announced that investors needn’t worry about its financial condition, as it had hedged its market risk. “The single greatest line I ever wrote as an analyst,” says Eisman, “was after Lomas said they were hedged.” He recited the line from memory: “‘The Lomas Financial Corp. is a perfectly hedged financial institution: It loses money in every conceivable interest-rate environment.’ I enjoyed writing that sentence more than any sentence I ever wrote.” A few months after he’d delivered that line in his report, Lomas Financial returned to bankruptcy.
On the other hand, leveraged buyout shops are looking for:
Why would the owner of a wind farm sell electricity to the grid at negative prices? This has been occurring with some frequency on the Texas electrical system in 2008. Partly this has to do with the isolated nature of the Texas grid and ERCOT, but the explanation also involves:
I wouldn't mind a few free kwh on my next electric bill, but a policy that essentially pays people to consume electricity seems a bit counterintuitive. While we can argue about the necessity of providing subsidies for renewable energy sources, this particular example highlights the unintended consequences that can result from even a well-intentioned policy.
It is somewhat reminiscent of the reaction to the Fed's commercial paper facility. Initially only the top rated A-1 paper could be purchased under the program. Of course, this resulted in A-2 issuers being at a disadvantage in the marketplace because no one wanted to buy their paper anymore, when they could get a government guarantee for a small premium. The CP facility basically crowded out other creditworthy borrowers who couldn't afford the 500bp spread.
My theory is that CPG made bad investments with the manufacturer's funds that they were supposed to be holding in escrow for those 8-12 weeks; bascially, trying to take advantage of the float. If they started chasing yield by putting those funds in supposedly safe assets that turned out to be risky (auction rate securities, Lehman commercial paper, the Reserve money market fund, etc.) then they could've easily run into a liquidity crunch. It's entirely possible that they were just poorly managed, but I doubt they would've been putting those funds into short-term treasuries when they could get a few more basis points by taking on just a little risk. Either way, they were brought down by bad working capital management.
It's unclear if this is a positive or negative sign for the remaining rebate fulfillment companies, such as Dallas based Parago. With the holiday shopping season starting to ramp up and many retailers projecting dismal sales, rebates will probably be part of the marketing promotion to get customers to shop. But retailers and manufacturers who relied on CPG may not have enough time to establish a new program before it's too late. If holiday sales are down as much as forecast, there could be further shakeouts in the fullfillment industry, since they are generally paid based on volume of rebates processed.
At roughly $12.1MM in commission, that seems a little steep to me. Maybe you can work a better deal at a competitor - what kind of final value fees would eBay charge?
Ignoring the listing fees and some other small charges, eBay only wants $2MM - quite a bargain. Of course, you'll have to have positive feedback, and there is some question whether the hordes on eBay will appreciate your collection enough to pay top dollar.
Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.
The graph below shows the spot price of natural gas. In Texas, because our power grid is relatively isolated from other states, and because +60% of our power generation is driven by natural gas, our electricity rates are highly correlated with the price of NG. Those of us on a month-to-month electric plan saw huge increases in the spot rate for electricity, going from $0.10/kwh to $0.205/kwh in August. The seemingly endless increases led me to sign a one year contract for wind energy at $0.145/kwh on the day indicated on the graph. Of course, no sooner than I had locked in my rate (with a cancellation fee if I leave) than the price of NG entered a freefall. I don't mind paying a little extra for "green" electricity but this just illustrates one of the risks inherent in hedging. Homeowners in the northeast are reporting similiar frustrations after they locked in heating oil prices over the summer and now the spot rate has fallen precipitously.
On the other hand, a friend of mine sold the mineral rights to the natural gas under his house for a tidy sum right around the same point in time. He had resisted the company's initial offers until they increased their bid. Now that NG prices have collapsed, the company has stopped buying homeowners' mineral rights. Some of his neighbors held out too long, and now there is no deal for them at any price.
In a broader sense, when we enter into a financial transaction, it's worth taking a moment to think about who is sitting on the other side of the table. What do they know that I don't? For share of stock that has been sold during the recent market turmoil, an equal number of shares were purchased at the same price.
Adam Smith used to be the dominant economist, promulgating his notion of the invisible free hand of the markets that set supply and demand at equilibrium. Then along came Keynes who said that the government should engage in extra spending during recessions because markets take too long to correct on their own.
Today, we are faced with the possibility of a global recession and countries are trying to navigate their way through it. Unlike past crises, the US dollar is no longer the absolute reserve currency of the world. Other countries have built up substantial foreign reserves over the past two decades, as demonstrated in this graph (2008 data point is as of March):
The graph begins in 1979 since that is when Deng Xiaoping began his program of the four modernizations. As of September 2008, China's foreign reserves were reported at $1.9T, with an estimated 70% of that being held in US dollar denominated assets such as treasuries. This balance has accumulated over the years as China has bought dollars and sold yuan to keep their currency undervalued which makes their exports more competitive. However, now that economic growth is slowing, it is possible that China will take a page from the Keynesian playbook and use sell their reserves to generate yuan, which would then be spent in their local economy. This plan could have an enormous effect on the dollar - can you imagine what the exchange rate would be if $1.3T of treasuries were sold? Even if the liquidation was conducted in an orderly fashion, it could easily lead to a crash in the value of the dollar.
The Wall Street Journal reported the following on 10/21/08 regarding Exelon's unsolicited bid for NRG:
NRG should push for better terms. Yet persuading Exelon to play ball could be tough. Based on enterprise value, Exelon is offering roughly 6.5 times 2008 Ebitda. Having also taken a battering, Exelon's own multiple is only about seven times, so there is little room to sweeten the deal before it starts looking dilutive on that measure.
What does it mean to be dilutive? In an all-stock deal, if a company acquires a target with a lower P/E ratio, it must be accretive to earnings. Basicially, the target firms earnings a "cheap" enough that the buyer can add them to its own and still come out ahead. In the case above, if Exelon increased the price paid for NRG, that would imply a higher multiple, and if they acquired a firm at a higher multiple than their own (with an all-stock deal) that would be dilutive to earnings, which is viewed negatively by investors. For lack of a better measure, the change in earnings is used as a proxy for value creation (accretion) or destruction (dilution) as a result of the merger. There is a good illustration of this concept at this link.
It appears that no commodity was immune from the rapid increase in prices this year - not even seaweed, which went through its own bubble in Indonesia. After more than tripling, the price has come back down to earth, leading to calls for government intervention and fingers pointed toward speculators. Sound familiar?
You can read the whole story at this Wall Street Journal Link. The seaweed is used to make carrageenan, a common food additive that acts as a thickening agent or provides texture. You'd be surprised how many products at the supermarket contain this ingredient.
Through 1999, firms engaged in M&A activity could choose between the purchase method and the pooling of interests method. When a buyer acquires a target, it usually pays more than the book value of the equity it acquires. Under the pooling of interests method, the financial statements of the two firms are combined at existing book value. Therefore the buyer does not have to reflect the difference between the purchase price and target book value. Under the purchase method, the target firm's assets and liabilities are adjusted to fair market value. If there is still a gap between the purchase price and the FMV of these items, goodwill is created for the balance. The goodwill is either amortized or tested annually for impairment. Either way, goodwill can reduce accounting income, which is not a problem under the pooling of interests method. Prior to the change in the accounting standard, managers seemed to prefer pooling of interests for this reason.
Interestingly, firms that used pooling of interests were not required to retroactively restate their financials after the rule changed, so they continue to benefit from it today.
As near as I can tell, this is the public's perception of different explanations for the credit crunch.
What are the primary adjustments that most analysts make to reported financial statements?
When someone mentions earnings management, I tend to think of accounting adjustments at the end of the quarter. Over-accruing an expense in a good period or recognizing sales earlier in a bad period. To the extent GAAP permits legitimate discretion in these areas, there is substantial evidence that managers take advantage of these items to manage earnings.
However, there is another way to manage earnings that involves real value rather than just accounting optics. A CFO may decide to delay funding a value creating project (positive NPV) if he feels that he is at risk for missing his earnings estimate. While manipulating accounting results does not affect the true economic value of the firm, delaying a good project or investment can have a negative effect on firm value.
Publicly traded firms are not the only ones who are subject to this short-term thinking, as private firms may also prioritize quarterly earnings in order to prepare for an IPO or to secure favorable terms for debt financing.
Take two struggling companies and somehow merge them together to magically solve all their problems and make them stronger than either would be on their own. Do this while incurring the expenses of a costly integration and all the confusion that comes with it. Right. I suspect the real motivation for the merger is an attempt to become "too big to fail." Either company could be a viable competitor on its own if it were willing to accept the harsh reality and make some changes. Here is my armchair quarterback advice for fixing the American automakers:
1) Cut redundant brands and focus marketing support behind a few winners rather than diluting it across 20 brands.
2) Get out of ridiculous union contracts that pay workers to clock in and perform no labor (the "job bank" program). If they need to declare BK to renegotiate these contracts, so be it. You have to reduce supply so you can stop relying on huge discounts and fleet sales (which kill resale, further reducing retail demand).
3) Same recommendation for their contracts with captive parts suppliers like Delphi. Everything needs to be opened up to the market and rebid. Even in a brand new Chevy Cobalt, the radio looks like something out of the early 90s - quality may have improved but you'd never know it by looking at a dated instrument panel.
4) The dealer network needs to be reduced. This is tough but necessary, their sales volume just can't support the number of dealers out there.
5) Move their corporate headquarters out of Detroit. They've developed myopia from living there for too long, believing that Americans will always support their products. If they ever visited the west or east costs (even in Texas the Toyota Tundra is giving the F150 a run for its money) they'd realize that their brands are just one of many in the marketplace.
If Toyota, BMW, and Honda can profitably make cars in the US, there no reason the American brands can't.
By the way, we (the American taxpayers) agreed to lend them another $25 billion in a bill that was passed shortly before the bailout package went through. It didn't get much press coverage after the fact, but we are now subsidizing their broken business model.
Far and away one of the best movies I've ever seen. The story is so incredible that it could only be a documentary.
