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FirstAlert: 12-3 P.M. Investrend / Bestcalls
(InvesTrend Via Acquire Media NewsEdge)
September 25, 2008 (Financial Wire) Conference calls scheduled at 12 to
3 p.m. on Investrend Broadcast via partner BestCalls include Fairchild
Semiconductor Intern (NYSE: FCS), Greatbatch Inc. (NYSE: GB), SciClone
Pharmaceuticals Inc. (NASDAQ: SCLN), ConAgra Foods Inc. (NYSE: CAG),
Alliance Distributors Holding, (OTC: ADTR),
Conference calls are often impacted by market trends, geopolitical
conditions, news coming from conferences and economic releases.
(By Philip Holmes) It hasn't even been a week since Hank and Ben did
their Chicken Little dance before leading congresspersons and demanded
$700 billion RIGHT NOW. Since then we've heard a multitude of opinions
on The Plan. David Leonhardt, writing for the NY Times, asks that we
keep our eye on the ball: what will the ultimate cost to taxpayers be?
See, the idea in play is that Comrade Hank would buy distressed
securities on behalf of the American Taxpayer. These mortgage-related
securities, many say, are being unfairly treated by the market due to
panic over the housing crisis. Buy and hold them, and one day they can
be sold for a profit. The taxpayers, in other words, would not lose the
full $700 billion, only a fraction of it. As Leonhardt points out, the
devil is in the big detail: how much should Comrade Hank pay? According
to Leonhardt's sources, many of the securities are worth about 75% of
their original value. Fear fo the market has meant that not many of the
securities are trading, and those that do are only getting a quarter of
their value. Well, 22 cents on the dollar actually, if my short-term
memory hasn't been too clouded by events. That's what Merrill recently
sold a bunch of this crap in July, before recently deciding it liked
the weather in Charlotte. Leonhardt points out that Treasury probably
wouldn't be able to buy at 75% off face value. "The most obvious
solution, he said, is to pay more than 25 cents on the dollar and
then demand something in return for the premium--namely, a stake in any
firm that participates in the bailout." I like that Leonhardt is
focusing on the meat of the deal and not the sideshows being staged by
born-again populists in Congress. Sure, it's an obscenity that Wall
Street executives should get golden parachutes after a massive bailout
of their reckless greed and cynicism. But the cost of those parachutes
is a drop in the bucket when compared to $700 billion. More
importantly, making golden parachutes a central point of the
negotiations with Paulson is like bargaining for free floormats on your
new Hummer while the salesman is selling you the car over book value
and fleecing you on the financing. This also reflects the kind of
tactic that veteran salesmen like Paulson are expert at: let the mark
be distracted by some trivial BS and feel like he's won a victory. Let
him feel cocky as you skin him alive. But back to the Paulson bailout
and the dealmaking we can expect. Here are the sticking points, as I
see them: According to leaked details of Hank and Ben's Chicken Little
Congressional Conference Call, Paulson has already said he would
overpay for these securities. As Krugman points out, also in the NY
Times, this is the only way to "bail out" these sinking firms using
Hank's strategy. So, what is a good price for these mortgage-related
securities? Well, you re insane if you think they re worth 75 cents on
the dollar. Just look at how far, and how fast, real estate prices have
already fallen in the bubble markets. Compare the house price to income
ratios from the bubble peak (10X or more in many markets) to what is
historically considered to be sustainable (3-4 times incomes, no more).
When you talk about "mortgage related securities" it's easy to get all
caught up in an alphabet soup of CLOs, CDOs, SIVs, bundled this and
tranches of that and endless derivatives thereof. But at the beginning
and end of it all there is a house. What was that house was worth in
2005, and what will it be worth in 2012? And what history is asking
that we "know" is that said house will maybe be worth 30 cents on the
dollar versus what it was worth at the peak of the madness. That's how
bad things will be in the worst bubble markets. And bubble values are
not coming back. Factor in the costs of foreclosure, rehab and resale
and you will be lucky to recover 22 cents on the dollar on bubble
market REOs. Of course, not all markets went as crazy as, say, Southern
California, during the madness. And it's also true that not every part
of these securities represent currently distressed real estate. But
remember, Wall Street isn't begging Hank to buy the good stuff. We are
being asked to buy the garbage. Consider as well that this fiasco isn't
over. The contagion of default is hitting Alt-A mortgages. Expect those
defaults to come in waves, a massive set of them that won't be done
until 2014 or so. What we're being asked to bail out this week only
represents the beginning of the problem, the subprime loans. These were
quick to detonate due to their structuring and the sheer recklessness
with which the underwriting was carried out. Picture of a 30K a year
landscaper buying a $500K house, using a loan with a 6-month teaser
rate. Boom. The worst is yet to come, and it won't be pretty. Even if
the Paulson Bailout works to calm markets, the calm will not last long.
There will be more toxic securities to buy, then more, and then more.
Add up the estimated $6 to $8 trillion of real estate equity
already lost in bubble markets. Then keep adding. How is the initial
$700 billion spent in the manner described by Paulson going to fix
this? It won't, and that is why lawmakers need to be skeptical.
Leonhardt is right that we should stay focused on the big issues of the
deal. But doing so only points out what an utter scam the Paulson plan
is, and why it should be resisted. There is no equity stake in these
companies that is worth what is being asked of taxpayers. Not when you
look into the near future and see no end to the bailouts. Not when the
basic scheme fails to fix the problem. Oh, and did we mention that Hank
is also talking about buying up distressed credit card paper, auto loan
paper, and anything else he feels like buying? Walk away, brothers and
sisters, just walk away. There is a fix to this mess, somewhere, but
Comrade Hank sure doesn't have it. The Investrend Earnings Calendar
features Accenture (NYSE: ACN), expected at $0.67; Analogic (NASDAQ:
ALOG), expected at $0.58; Diamond Foods (NASDAQ: DMND), expected at
$0.13; Research In Motion (NASDAQ: RIMM), expected at $0.87.
The Investrend Economics Calendar lists Weekly Initial Jobless Claims
(8:30 a.m.), Durable Goods Orders for August (8:30 a.m.), New Home
Sales for August (10 a.m.), Treasury auctions 5-year notes (1 p.m.),
Weekly Money Supply (4:30 p.m.).
The Investrend Events Calendar showcases BVEX, INFI, IPXL, ATRC, OFIX,
SENO at UBS Global Life Sciences Conf; CABL, ALOY, GNET, DGIT, MDP,
MNDL at Roth Capital Partners Media / Tech Bus Tour & Conference; EVVV,
ISPH at UBS Global Life Sciences Conf.
The Investrend Money Index is an indicator of the depth of market
direction or indirection. While not always including the same stocks,
the NYSE/NASDAQ 50 Most Actives indicate the direction in which the
mass of money is flowing. Last session's trading showed 31 advancers
versus 19 decliners. Advancers were led by Freddie Mac (NYSE: FRE) up
43.18%, Fannie Mae (NYSE: FNM) up 32.82%, Micron Technology (NYSE: MU)
up 6.60%, Goldman Sachs Grp (NYSE: GS) up 6.36%. Decliners followed
Amer Intl Group Inc (NYSE: AIG) down 33.80%, Washington Mutual (NYSE:
WM) down 29.38%, Ual Corp New (NASDAQ: UAUA) down 12.29%, Morgan
Stanley (NYSE: MS) down 11.46%, Wachovia Cp (NYSE: WB) down 6.44%.
Vote in the Investrend Poll Question of the Day at Investrend
Information (http://www.investrendinformation.com).
Investrend Website of the Day: http://www.britainexpress.com/index.htm
Quote of the Day: "For marriage to be a success, every woman and every
man should have her and his own bathroom. The end." Catherine Zeta-Jones
Today is: Comic Book Day, National Crabmeat Newberg Day.
Happy Birthday: Fletcher Christian, William Faulkner, Mark Rothko, Shel
Silverstein, Juliet Prowse, Barbara Walters, Michael Douglas, Cheryl
Tiegs, Christopher Reeve, Heather Locklear, Scottie Pippen, Will Smith,
Catherine Zeta-Jones.
Today in History: On a voyage preaching the gospel in 303, Saint Fermin
of Pamplona was beheaded in Amiens, France. The Battle of Stamford
Bridge in 1066 marked the end of the Viking era. Spanish explorer Vasco
N ez de Balboa reached the Pacific Ocean in 1513. The Teton Sioux (a
subdivison of the Lakota) demanded one of the boats from the Lewis and
Clark Expedition as a toll for moving further upriver in 1804. Ground
was broken in 1911 for Fenway Park in Boston, Massachusetts. Jimmy
Doolittle performed in 1929 the first blind flight from Mitchel Field
proving that full instrument flying from take off to landing was
possible. The Partridge Family debuted on ABC-TV in 1970 and would run
for four years. The Rock band U2 formed in 1976 at a meeting at drummer
Larry Mullen's home.
[FirstAlert was created by Gayle Essary, founder of Investrend
Communications, Inc., parent of Investrend Information
(http://www.investrendinformation.com). The opinions expressed in
FirstAlert do not necessarily reflect the opinions of Investrend.]
FinancialWire is a fully independent, proprietary news wire service of
Investrend Information (a division of Investrend Communications, Inc.).
FinancialWire news is written by professional journalists, dedicated
to pure journalistic standards. FinancialWire does not receive or
accept any compensation from any individual or subject company (or
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news is available at http://www.financialwire.net . Please address any
inquiries to feedback@financialwire.net .
Free annual reports for companies mentioned in the news are available
at http://investrend.ar.wilink.com/?level=279 .
(Distributed for Investrend Communications, Inc. via M2 Communications
Ltd (www.m2.com))
Copyright ? 2008 M2 Communications Ltd.
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