2008 Financial Thread

[Tyrone Bigguns]

He actually said "Don't take your money out of Bear". He says he was responding to a question of whether people should pull their money out of Bear accounts, not whether they should sell Bear stock.

Uh, maybe. He is backpedaling pretty fast right now.

He said the common stock was worthless at 36..yet a day before it was at 60.

Also, review how CNBC was talking about a "run" on the bank..it is context. Should cramer have been advocating that..perhaps.

Oh, and Cramer is NOW saying the FDIC is guaranteeing the money..just not the equity. Veering into Clinton speak...what is sex.

I don't buy his double speak at all.

[Kiwon]

Visa IPO Raises Nearly $18B

(AP) SAN FRANCISCO -- The credit crisis that has been haunting the stock market for months wasn't enough to scare investors away from the IPO of the world's largest credit card processor.

Overcoming the jitters that have battered many of the lenders that issue its cards, Visa Inc. sold 406 million shares at $44 apiece late Tuesday to raise nearly $18 billion and complete the most lucrative initial public offering in U.S. history.

The price topped the range of $37 to $42 per share that Visa set three weeks ago, reflecting high demand to own a piece of a company that's promising earnings growth of 20% despite a credit crunch that's choking the U.S. economy. "This shows that all the recent financial turmoil obviously hasn't bothered a lot of people," said Nicholas Einhorn, an IPO analyst for Renaissance Capital of Greenwich, Conn.

http://www.foxbusiness.com/markets/industries/finance/article/visa-ipo-raises-nearly-18b_526509_9.html

.................................................. .................................................

Credit crunch? No problem. Americans are hooked on credit.

Check out the chart for MA (MasterCard)

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=mA&sid=0&o_symb=mA&freq=1&time=9

From $40 to $227 in 18 months. I read the articles, but....... didn't pull the trigger. Shoulda, woulda, coulda.

[Freak Out]

Damn.....I was somewhat surprised when gold dropped $40 some dollars today...I had a few sells in I did not think they would kick so soon. Oh well...a profits a profit.

[Kiwon]

Damn.....I was somewhat surprised when gold dropped $40 some dollars today...I had a few sells in I did not think they would kick so soon. Oh well...a profits a profit.

I saw that it dropped $59.

"Gold for April delivery fell $59, or 5.9 percent, to $945.30 an ounce on the Comex division of the New York Mercantile Exchange, the biggest drop for a most-active contract since June 2006. Gold reached a record $1,033.90 on March 17."

Just a bump in the road. Gold will go higher in the months to come over as the market struggles with political uncertainly, inflation, credit, and tax worries.

I expect the economy will be on a roller coaster for at least another year. Stability won't return until after the new Democratic administration is in place, tax proposals are on the table and Wall Street can determine how anti-business the Dems will be.

I would be in no hurry to sell. Just appreciate the fact that you have a solid insurance policy as the economy goes through this painful purging process.

[Kiwon]

Finally....

Justice Department approves XM-Sirius radio deal

http://www.usatoday.com/money/media/2008-03-24-sirius-xm-satellite-approval_N.htm?loc=interstitialskip

It took 14 long months amidst John Conyers' (D-Mich) pleas to drag the process out even further but the Justice Department finally came through. The merger still has to clear the final hurdle of the FCC.

What's the future of Satellite Radio Broadcasting? Who knows, but at least it's more likely that their WILL BE satellite radio broadcasting with the combined strength of both companies.

Good news for XMSR or SIRI shareholders.

[MJZiggy]

Is gold still high? I realize I have a bit of it to offload...

[Kiwon]

Is gold still high? I realize I have a bit of it to offload...

$929-930, still very high, but has backed off a little due to the Fed trying to stabilize the market.

[Scott Campbell]

Is gold still high? I realize I have a bit of it to offload...

How much gold you got there Zig? I might be able to make room for number 8. Come make me an offer.

[MJZiggy]

Lol, it ain't THAT much, Scott...Who do you take it to to sell it?

[Scott Campbell]

Lol, it ain't THAT much, Scott...Who do you take it to to sell it?

I've never owned gold. Staying away worked out pretty well for a long time - until pretty recently.

[Freak Out]

Buddy, Can You Spare a Billion?

By Dana Milbank
Friday, April 4, 2008; A03

Meet Alan Schwartz, welfare recipient.

As the chief executive of Bear Stearns, he's getting rather more public assistance than your typical welfare mom -- specifically, $30 billion in federal loan guarantees to help J.P. Morgan Chase take over his firm. But then, Schwartz has had rather more than his share of suffering of late.

As his firm collapsed, he was forced to forgo his entire 2007 bonus, leaving his compensation for the past five years at a paltry $141 million, according to Business Week. Things have become so bad that, the Wall Street Journal discovered, Schwartz has had to rent out his 7,850-square-foot home on the ninth green of a suburban New York golf course -- leaving the poor fellow with only his 17-room, seven-acre home in Greenwich, his condo in Colorado and the athletic center he built for Duke University.

Schwartz's tale of woe tugs at the heartstrings all the more because he and his colleagues at Bear Stearns were, he believes, blameless for the bankruptcy of two hedge funds and the subsequent collapse of the 85-year-old investment bank. "I am saddened," Schwartz told the Senate banking committee yesterday. He was saddened that Bear Stearns was undone by "unfounded rumors and attendant speculation," despite its impeccable balance sheet.

"Due to the stressed condition of the credit market as a whole and the unprecedented speed at which rumors and speculation travel and echo through the modern financial media environment, the rumors and speculation became a self-fulfilling prophecy," Schwartz told the senators. "There was, simply put, a run on the bank."

Sen. Richard Shelby (R-Ala.) asked the corporate-welfare recipient whether he shares any blame for his indigent circumstances. "Do you believe that your management team has any responsibility for the company's collapse?"

Schwartz could think of no missteps -- not even his decision to remain at a conference at the Breakers in Palm Beach while his firm was imploding. "I just simply have not been able to come up with anything, even with the benefit of hindsight," said the blameless chief executive, escorted into the hearing room by superlawyer Robert Bennett.

Fortunately for Schwartz, he had a sympathetic audience in the banking committee, whose members have received more than $20 million in campaign contributions from the securities and investment industry, according to the Center for Responsive Politics. "I want the witnesses to know, and others, that as a bottom-line consideration, I happen to believe that this was the right decision," Chairman Chris Dodd (D-$5,796,000) said before hearing a single word of testimony.

"You made the right decision," Sen. Evan Bayh (D-$1,582,000) told the regulators who worked out the loan guarantee.

"The actions had to be done," agreed Sen. Chuck Schumer (D-$6,162,000).

Only a minority of senators, particularly those with smaller pieces of the campaign-cash pie, dissented. "That is socialism!" railed Sen. Jim Bunning (R-$452,000). "And it must not happen again."

To the extent the lawmakers objected to the Bear Stearns bailout, they worried that the Fed's actions would create a "moral hazard" -- an economic term of art -- that, as Shelby put it, "encourages firms to take excessive risk based on the expectations that they will reap all the profits while the federal government stands ready to cover any losses if they fail."

Shelby's notion was a curiosity for the senators, who don't often spend a lot of time worrying about moral hazards. No fewer than five other senators invoked the phrase. "I think the moral hazard was minimized," Federal Reserve Chairman Ben Bernanke, one of the witnesses, reassured the senators.

No moral hazard, however, would interfere with the lawmakers' compassion for the beleaguered Schwartz and his fellow witness, J.P. Morgan Chase's Jamie Dimon, who had given a combined $260,000 in political contributions in recent years -- a small part of the $1.7 million their co-workers contributed in this election cycle alone. That's a sizable handout -- but a good investment compared with the $30 billion federal hand-up.

"On behalf of all of us here on this dais, our sympathies go out to your employees," Dodd told Schwartz after his opening statement. "There's no adequate way we can express our sorrow to them for what happened. Obviously, shareholders, same sort of feelings, but obviously the employees particularly. It's a particularly hard blow."

Of course, some might consider $30 billion an adequate expression of sympathy, but Dodd was apologetic as he gently probed Schwartz. "You both will have forgotten more in the next 10 minutes than I'll ever probably understand about all of this," he told the witnesses, but didn't the irregular trading at Bear Stearns mean than "more than just rumors" were behind Bear Stearns's demise?

"You could never get facts out as fast as the rumors," Schwartz explained. "It looked like there were people that wanted to induce panic."

Sen. Bob Menendez (D-N.J.) reminded Schwartz that two of the firm's funds went bankrupt in 2007. "It caused concern, not only here but on Wall Street," the senator said. "Did that dramatically alter your behavior?"

Evidently not. "I'm not sure I understand the question," Schwartz answered

[LL2]

An excellent and educational article. As someone that is the middle man between importers and U.S. Customs I find articles like this interesting, and also why my business is also pretty much recession proof.

Some Chinese Guy Is Paying Your Mortgage

http://www.fool.com/investing/international/2008/04/03/some-chinese-guy-is-paying-your-mortgage.aspx

Bill Mann
April 3, 2008

I'm about to say something many readers will find quite controversial. It might even anger some of you.

Some Chinese guy is helping you pay your mortgage.

I know, you don't recall ever getting a check from a Mr. Li, and if you were to find this Mr. Li, he'd disavow sending funds to you, but the nature of the balance of trade between China and the United States guarantees that what I'm about to tell you is true (unless you don't own a home or it's paid off, but let's not get pedantic).

Here's why
Over the last decade, China's trade surplus with the U.S. has added up to $1.3 trillion. What this means (tautologically) is that these dollars accumulate in the Chinese financial system, most notably at People's Bank of China (PBOC) -- the Chinese equivalent to the Federal Reserve. What then happens is -- OK, this is boring. How about we track what happens using a Barbie doll?

And yes, that's what I'm saying: Our willingness to consume Barbie dolls is forcing some Chinese guy to pay your mortgage.

Globetrotter Barbie
So, we head off to Target (NYSE: TGT) to buy a Barbie Doll. They cost approximately $20 apiece. Of this amount, most goes to Target, manufacturer Mattel (NYSE: MAT), various tax authorities, etc. And a smaller amount -- let's call it a dollar -- goes back to China.

The Chinese factory where Barbies are made is, redundantly, Chinese. All of its costs are rendered in Chinese yuan, but all of its contracts are rendered in U.S. dollars. So its contract with Mattel to produce 100,000 Barbie Fairytopia Rainbow Adventure Elina dolls (yes, I have girls) is worthless to the company until it converts those sawbucks into yuan. They do so by taking their dollar receipts to a commercial bank, which converts them into local currency.

Stick with me now -- for without even paying attention, we've just met our Mr. Li. He makes a paltry 1,500 yuan per month ($200) assembling Barbie dolls at the factory. We'll get back to him in a second.

Keeping with our dollar
So this dollar meets up with thousands and millions of other U.S. dollars in this Chinese bank, residuals from our consumption of Nike (NYSE: NKE) basketball shoes, Apple (Nasdaq: AAPL) iPods, whoopee cushions, and so on. Banks all over the world use their foreign currency holdings to invest them for their highest marginal use -- but not in China, where all foreign currency gets surrendered to the PBOC.

Now our single dollar has joined a river of them flowing toward the PBOC. The PBOC, in turn, has to figure out how to invest this unending stream of cash. Mostly, it's purchased U.S. Treasuries, but it's started buying U.S. equities, such as when China invested $3 billion in Blackstone Group (NYSE: BX) last May.

As a result, the dollar which we sent to China when we purchased a Barbie doll boomerangs back to the United States as some type of investment.

Wait, what about Mr Li?
In effect, this relationship means that every American has borrowed several thousand bucks from someone in China. Because remember what Treasury notes are -- an obligation to pay someone who is lending money.

In this case, while the lender here may seem like it's the PBOC, China's policy to keep its exchange rate artificially low means that the country's workers are bearing the brunt of the cost. (An interesting dynamic for a "communist" country, don't you think?)

See, the low exchange rate benefits Chinese companies by keeping costs low, but by the same measure, prevents laborers from benefiting at all. Just imagine if the yuan was allowed to float freely. Suddenly millions of folks like Mr. Li would see their paychecks double in dollar terms, China would be wracked with inflation, and its export-based economy would be a lot less cost competitive.

This has real consequences for Mr. Li. Not only does he get paid an artificially low amount (in effect, lending the balance to you), but since China has to keep finding places to stick all of those dollars that keep inflation in check, the government won't make the kinds of expenditures that make sense in a rapidly developing economy: Schools, pollution controls, and so on. If you've been to China, then you know that there are a lot of good places where $1.3 trillion could be put to work.

This makes zero sense until you realize that the overarching goal of the Chinese government is to improve the standard of living for as many of its citizens as possible, while limiting the income gap between those whose lives have already improved and those whose have not. Still, the overall impact -- the fact that our comparatively exorbitant spending is subsidized by low-paid Chinese workers is shocking on many levels.

Scratch that: It's stunning.

You have two choices
One way to combat this reality is to consume fewer Chinese goods. While some are attempting to do just (call it a Lou Dobbs-ian form of protest), it's unlikely to move the needle. Besides, why get into a trade war when the burgeoning Chinese middle class will soon be an extraordinary growth market for our own product?

So rather than make a pyrrhic political statement, I suggest you act to benefit from this reality by investing overseas. This way you can profit from the natural downward pressure on the dollar created by our spending habits. And while you needn't pick Chinese companies, an outstanding company such as Motley Fool Global Gains recommendation New Oriental Education & Technology (NYSE: EDU) would fit the bill nicely. (Incidentally, this is also a business that benefits from the burgeoning and education-focused Chinese middle class.)

If the prospect of investing in China frightens you, you can also consider picking up American names that do substantial business in the country. Yum! Brands (NYSE: YUM), for example, has opened more than 3,000 KFC, Pizza Hut, and East Dawning restaurants in China.

Pick your passion
Given today's global economic realities, it makes great sense to invest overseas and ensure that your savings have exposure to other (stronger) currencies.

[LL2]

I thought I would post the quote below, which is good considering the state of our economy with high gas prices, food prices, stagnant wages, etc.

Robert Kennedy in a 1968 speech: "Our gross national product ... measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile."

[GoPackGo]

Is anybody here managing there own Roth IRA?

[Kiwon]

Microsoft pulls deal off the table. Let's see if the Yahoo! board or shareholders rebel against Jerry Yang and the boys.

Shareholders might could do better with a different suitor but they certainly could do far worse than MSFT.

Microsoft drops bid after Yahoo rejects higher offer

SEATTLE (AP) — Microsoft says it's dropping its 3-month-old bid to buy Yahoo because the two sides couldn't agree on a price.

In a letter sent to Yahoo Saturday, Microsoft Chief Executive Steve Ballmer said the software maker was willing to pay as much as $47.5 billion, or $33 billion, per share for Yahoo. That was up from Microsoft's original offer of $44.6 billion, or $31 per share.

But Yahoo insisted on Microsoft paying at least $53 billion, or $37 per share, according to Ballmer.

"Clearly a deal is not meant to be," Ballmer wrote in his letter to Yahoo Chief Executive Jerry Yang.

http://www.usatoday.com/tech/techinvestor/2008-05-03-microsoftyahoo_N.htm