Blog Archives

Fidelity Investments reports huge loss

Tuesday, February 24th, 2009

Story here and Here

Like WTF?  

Fidelity – the mutual fund folks in Boston spent the 4th quarter of 2008 buying up CitiGroup stock!   Perhaps it was them trying to “double down” or just being insanely stupid or trying to help out a “friend”. 

A lot of people have money at Fidelity (I have a 401(k) there)…  time to read up on what happens if a mutual fund family fails….  In theory, each mutual fund is firewalled off from the main company – but then again, in theory Bernie Madoff was buying the stocks for his clients.

*** Update ***

Friday, panic selling of CitiGroup caused a record one day trading volume in a single stock – 1.87 billion shares.   The prior record holder was Worldcom on July 1st,  2002 – after it was charged with improper account by the SEC and three weeks before it filed for bankruptcy.

February 24 2009 – Big Speech Day

Tuesday, February 24th, 2009

Asia and Europe are mirroring the large loss in the US stock market today.  This could be the day CitiGroup gets “bailed” out again.

President Obama speaks to the nation tonight about the economy.  Fasten your seat belts.  The first plunge on the roller coaster is always the scariest.

Ethanol from grain – bad idea getting worse

Tuesday, February 24th, 2009

The nation is filling up with “ethanol from grain” refineries that are filing bankrupcty.

Renew Energy
Central Illinois Energy
Verasun
E3 Biofuels

Under the most optimistic assumptions, including using irrigation to grow grain, ethanonal returns only slightly more energy than the energy that was needed to make it (fertilizer, running tractors in the spring, harvesters in the fall, trucking the grain to the refinery.  Conventional gasoline/oil pipelines cannot transport ethanol, so it must either be trucked half way across the country, or shipped via rail (and few of the specialized rail cars exist).

Intensive production of corn is itself releasing more CO2 as more land is cleared to grow crops, farm runoff is expanding the “dead zone” in the Gulf of Mexico, non-renewable topsoil is being consumed and washed away, and the country’s nonrenewable underground aquifers are being depleted for irrigation.  Irrigating for 20-40 years always leads to salinity of the soil high enough that no crops will grow on the land.   This was a really bad idea, funded by ADM and with no science behind it. 

Ethanol from sugar cane or biomass may have some role in the future, as they offer substantially higher net returns on energy inputs .

If you’re still unconvinced with ethanol from grain is a bad idea, did you know that ethanol plants are large generators of Co2?

AIG “investment” going sour

Tuesday, February 24th, 2009

Story here

Remember when the US Government stepped in to “Save” AIG?  (even though AIG is an insurance company and not a bank).  At the time, various people in the government suggested that in the long run, the taxpayers would make a profit.

Now AIG says it is going to convert the Preferred shares we (the taxpayers) bought into common shares.  They can’t afford to pay the 10% interest that the preferred stock requires.  That was the whole point – that this would make the “investment” temporary and force AIG to quickly pay off the US Treasury by buying back the preferred stock.

That’s not what AIG is proposing.  Like CitiGroup, they want to take the US Treasury from the front of the line to get paid, and put them at the end of the line – so if/when AIG declares bankruptcy the US Treasury is holding only worthless common stock.

The bizarre part of this notion is that AIG thinks converting preferred stock to common stock is -their- decision.  That’s not how preferred stock works.  The owner of the stock decides when or if they wish to exercise their conversion option, usually based on the common stock getting above the conversion price by enough to justify letting go of the guaranteed interest income stream.

They’re talking like they have a friend inside the US Treasury (Geithner comes to mind) who is agreeable to this.  It’s time to say “NO” to AIG.

What is going on here is that most people do no realize their life insurance policies and annuities have no government “insurance” protection. 

Insurance company policies are typically guaranteed by a state run Guaranty Fund.  The fund has no assets of its own – the only tool it has to stand behind insurance policies is to impose an assessment on the other insurance companies that haven’t failed (making them more likely to fail, also).   Unfunded Insurance Guaranty funds are completely unprepared to deal with the largest insurance company in the world failing.  

When people realize their insurance policies and annuities are at risk, a “run” can begin on insurance companies as people withdraw the “cash value” of their whole life policies or demand an early termination of their annuity. 

This has happened before – in 1933, regulators declared an “insurance holiday” to stop runs on the insurance companies.  Here is the story in Time Magazine from April 1933.

We have a Car Czar now (or do we?)

Monday, February 23rd, 2009

Story here

Just when you think it can’t get stranger.  After Tim Geithner and President Obama declare they really don’t need a Car Czar after all (just the money), Steven Rattner appears to be assuming that role.

Steven Rattner is  the founder of Quadrangle – a private equity firm with a long history of deal making in the major leagues of finance.  That’s not totally surprising – the talk is that for a GM/Chrysler bankruptcy deal to happen, the government needs private equity money driving the process.  More importantly, they need a “kick ass and take names later” guy to make the painful decisions and tell people “the way it is going to be”.   Think of Danny DiVito’s character in “Other People’s Money”  and that pretty much sums it up.  I’m actually having a twinge of optimism now.

The “kicker” about Mr Rattner is he is the man who manages the finances of New York City Mayor Michael Bloomberg.

Health Insurance Stocks being hit hard

Monday, February 23rd, 2009

On second review, the reason for the drop today is a sector wide drop of 10%+ in the health care insurance stocks.

Humana, Healthspring, United Health, Coventry Health Plan, Wellcare Health plan, …

Ford announced a deal with the UAW over retired health care coverage.  There is also a blurb about TARP funds being pushed into Medicaid, or maybe something is happening behind the scenes regarding universal health care….

*** Update ***
And the answer is – the Obama adminstration has found a place to cut spending – Medicare!.   Expect the media to howl about President Obama wanting to kill all the old people…   what’s that silence?…  Hello?….  Anyone there?….

Bank Bailout – Geithner still doesn’t get it

Monday, February 23rd, 2009

Or maybe even worse – maybe Geithner does get it and his purpose is to destroy the US Economy.

The US Treasury (and related agencies) have released the official statement about the talks with CitiGroup on Sunday.  The plan is little more than a vague plan to “pump more money” into the banking system. 

The only substantive change is to convert the preferred stock ownership (which had a guaranteed interest rate) into common stock ownership.  This moves the US Treasury to the end of the line if the bank fails.  You may remember Senator Dodd had said that in the long run, the first batch of TARP money would end up making a profit for the US Government.  That is now even less likely.

The stock market immediately headed down.  How many times does this have to happen before the people around Geithner realize he is the problem, not the solution?

Total carnage for today – US Stocks lost almost 4% today.  Time grows short for the leadership of this country to get a clue.

Ritz Camera files for Chapter 11

Monday, February 23rd, 2009

Story here

Probably the best known retailer of Cameras and related goods files Chapter 11.  Part of the reason is digital photography has changed the market for high end cameras.   They also decided to get into the retail Boating supplies business, which was outside their “core competence” and that decision has not worked out well.

February 23 2009 – holding Europe together

Monday, February 23rd, 2009

European leaders are trying to figure out how to keep a unified strategy to fend off collapse, and not have each country pursuing their own interests. [good luck on that!]  Reading Material

The NY Times (and IHT which they own) and the Wall Street Journal say the US Treasury met on Sunday with CitiGroup to discuss converting the preferred stock the US Treasury holds into common stock.  This would take “debt” off the balance sheet, but squeeze out the existing common stock holders.  No cash is generated to CitiGroup by doing this.  It only changes the financial ratios to make them look less insolvent – and removes the obligation on the preferred stock to get paid “interest” first in line.   This is rearranging the deck chairs on the Titanic.  It doesn’t change the ultimate outcome.

The US Treasury is also talking to banks (CitiGroup?) about coming up with $40 billion in Debtor in Possession funding for a GM/Chrysler Bankruptcy.  According the accounts “Everything is on the table”.   I hope the UAW is ready to embrace “change”.

NY Times Forbes Reuters

Once the US Treasury can tell banks who to lend to and for what reason (or no reason), the lessons we didn’t learn from Fannie Mae and Freddie Mac will explode.   Expect CitiGroup to be forced to loan money now to a full range of businesses which have no chance of ever making a profit – to advance a political agenda and harvest a new crop of political party donations for the party in power or pay back favors to special interest groups (like the UAW).


Trading in Hong Kong [China] is up sharply (3%+).  Japan is down slightly, as one of the major Japanese lenders filed for bankruptcy protection, and signs that Japan may not be quite as strong as people had thought.

Markets in Europe are open, up about 1-2%

Pre-market trading in futures suggest the US Stock market will open about the same as Europe – up 1 to 2%

Bankruptcy Watch – GM/Chrysler

Monday, February 23rd, 2009

AFP (the French news service) is reporting that the US Treasury is talking to potential banks (CitiGroup?) that might provide what is called “Debtor in Posession” financing – it is the funds used to keep a company “alive” while it goes through the bankrupcty process.    The DIP stands first in line to gets its money back when/if the company comes out of Chapter 11.  Obama administration officials are quoted as saying “everything is on the table now”.