Tuesday, March 25, 2008

Lehman's Outcome

Lehman Brothers(LEH) is similar to Bear Stearns(BSC),but has a more diversified business.Erin Callan,Chief Financial Officer,said the dealer's outcome for the first quarter was pretty good.Lehman's earnings were better than expected.The Fed's discount window is a great opportunity for them.The equities markets remain weak.We have a lot of confidence to build back into the system.She wouldn't expect it to feel stable until 2009.There's been a sea change.The question of Lehman's liquidity is now off the table.The much bigger question is what's the best way to run this business model.She was shocked by the Bear Stearns takeout.It was a very bold move by the Federal Reserve,and exactly what was needed to stabilize the environment.It has been very difficult to access unsecured funding for the past three months.For the rest of the year,there will be very little access to it ,if any.Liquidity is only one part of the story.The balance sheet is also important.Ms.Callan expects volatility through the second quarter.Lehman Brothers has been upgraded to a buy rating by Goldman Sachs(GS).

Lehman Goes To Window

Lehman Brothers(LEH),one of the 20 Primary Dealers,has gone to the Federal Reserve's discount window for these firms,or Primary Dealer Credit Facility.At this window,the Fed is taking a broad range of collateral in exchange for cash.Assets accepted include mortgage-backed securities,municipal and corporate bonds,as well as collateralized debt obligations.The assets must be rated investment grade by at least two credit rating agencies and have market prices.The dealers get 95.00 U.S. for every 100.00 of collateral they submit.The transaction goes through a clearing bank such as Bank of New York Mellon(BK),where the collateral is deposited and the cash handed over.The Federal Reserve opened the window to dealers in order to prevent further cash flow problems.On 16 March,Bear Stearns(BSC) was on the brink of bankruptcy when it lost the confidence of partners and clients.Now the dealers can shore up their finances as needed,so long as they have the collateral to put up for the loans.


Tuesday, March 18, 2008

Good Yields

The Claymore Zacks Yield fund(CLM) yields 5.98%,while the First Trust Morningstar Dividend fund(FDL) yields 5.84%.

Closer To The Bottom

Mark Konyn of RCM Asia Pacific characterized the situation as the ravages of a bear market.Basically the Bear Stearns sale was a bust.A lot of confidence has been lost.It feels like we're closer to the bottom of the crisis.It's the final phase of disclosure,an unwinding of the leverage.There is a move from illiquidity to insolvency problems,which parallels the situation in Japan in the 1990s.

Big Decision Today

Today at 2:15 PM Eastern,the Federal Reserve will issue its short term interest rate decision,which affects credit card rates and savings accounts.The Fed is expected to cut rates again,and the stock market wants a full percentage point cut,down to 2%.If it doesn't get a full point,it may behave badly.Ahead of the decision,it was euphoric this morning,gaining more than 200 points on the Dow Jones Industrial Average.

Historic Night

Sunday night was a long,historic one.WSW heard of an emergency Federal Reserve action at about 7PM,and worked until 11:30 PM to ascertain the facts.The central bank had cut the discount rate-the rate at which the Fed loans to troubled banks-by .25% to 3.25%.It also opened the discount window to investment banks-an extraordinary move-and extended the loan period to 90 days.David Roche of Independent Strategy said the Fed was making policy on the hoof.It was a panic move,but it would probably work,Mr.Roche said as the Asian markets opened in crisis.The Federal Reserve was bracing the markets for the news that old line firm Bear Stearns(BSC)was near collapse and had been bought for 2.00 U.S. a share by JP Morgan Chase(JPM).Bear's partners had lost confidence in it and refused to loan it any more money,since Bear was deeply involved in the subprime mortgage debacle.The Fed agreed to back JP Morgan's bid with 30 billion dollars in securities guarantees.It could not let Bear,the fifth largest U.S. broker-dealer,fail,as that would devastate the already weak credit markets.

Tuesday, March 11, 2008

Trucks To Get New Package

This summer,the Work Solutions package will be available on Ford's commercial vans and F-150 trucks.It is a mobile office concept that features an in-dash computer with high-speed Internet,a radio-controlled tool-finder,a printer for invoices and other documents,and fleet-management software.A Master Lock cargo-locking cable will also be included.It is a retractable steel cable that locks around items in the truck's cargo bed.Work Solutions was developed with the input of commercial truck buyers.

Lincoln Gets Attention

Under the guidance of Jim Farley,Ford's chief of global marketing,communications and U.S. sales,the Lincoln brand is getting a lot of attention.Mr.Farley,who came to Ford after 17 years at Toyota Motors(TM),hopes to make Lincoln a global luxury brand along the lines of Lexus,which he developed at Toyota.The Lincoln Town Car is to be replaced this year with the MKS sedan,which features a new bow-wave grille,a large 18.4 cubic foot trunk,the Sync voice activation system developed with Microsoft(MSFT),a capless fuel filler,adaptive cruise control and a heat-sensing entry keypad.Future Lincoln vehicles will utilize EcoBoost engine technology,which uses turbocharging and gasoline-injection to improve performance and fuel economy.

Ford Sales Down,But Quality Up

The economic downturn is harming Ford Motor Company(F) as both consumers and businesses cut back on vehicle purchases.Year over year,total vehicle sales were down 6.9%.In response,Ford cut second quarter production plans to 730,000 vehicles,or 10%.As a result,5% of the workforce,or 2500 workers,will be laid off.Nonetheless,Ford is making progress in quality and product development.Consumer Reports has given Ford several top recommendation awards for reliability,safety and stability.Ford was praised by the magazine for improving quality and making significant progress.Ford will be introducing the Lincoln MKS sedan this year,as well as the Work Solutions mobile office concept on commercial vehicles.Ford will be well-positioned to take advantage of economic recovery.

Technical Problems

I am having technical problems today.

Tuesday, March 4, 2008

Responding To Rough Markets

In recent congressional testimony,Ben Bernanke,chairman of the Federal Reserve,said financial markets are stressed,but central bank efforts have helped.The Federal Reserve will act in a timely manner to support growth.Commodity prices and the housing market will weigh on the economy in coming quarters.It is important to recognize that downside risks to growth remain.Inflation could go higher because of energy,food and the weak dollar.Commodity price gains and price rises suggest the upside risk of inflation.The economic situation has become distinctly less favorable.The economy took a significant turn for the worse in early January.Credit conditions may tighten considerably further.The federal deficit is bigger and more threatening than it was in 2001.We're in a worse position to respond to a crisis.The unemployment rate is likely to go higher.The decline in home prices is creating a broad set of issues.Nonetheless,the former professor doesn't think foreign investors have lost confidence in the U.S..U.S. banks should take steps to raise more capital.Some bank failures could take place.The capital ratios of the largest banks remain good.Sheila Bair,chairman of the Federal Deposit Insurance Corporation,agrees.She says 99% of banks are well-capitalized.About 76 banks are on the troubled list,representing around 22 billion dollars U.S. in assets.We're in a challenging environmment,but we have a 52 billion insurance fund.There will be a bit of an uptick in bank failures this year.To handle this,the FDIC wants to bring back 25 retired bank examiners.There are 1200 FDIC employees working in bank receivership.Senator Evan Bayh(D-Indiana) has just returned from a trip to the Middle East.There he met with heads of sovereign wealth funds who are helping U.S. firms such as Citigroup(C) by infusing capital.Senator Bayh said he was reassured by the officials in Abu Dhabi,Qatar and Saudi Arabia.They want to do the right thing.They are eager to meet any U.S. standards.Saudi Arabia's fund is 300 billion,Qatar's is 50 billion,and Abu Dhabi's is the largest in the world at 550-900 billion dollars.To increase their wealth,many retail investors are looking to exchange-traded funds such as the PowerShares Builders Europe 100(ADRU),which is yielding 7.33%,or the SPDR KBW Regional Banking ETF,which yields 6.13%.