Tuesday, September 30, 2008
Warren Buffett,the Omaha billionaire,has added Goldman Sachs(GS) to his Berkshire Hathaway(BRKa)holdings.Calling Goldman an exceptional institution,Mr.Buffett will acquire five billion of perpetual preferred shares,yielding 10%,plus warrants for another five billion of common shares of Goldman,which recently became a commercial bank.Goldman CEO Lloyd Blankfein says they have a great relationship with Mr.Buffett.His investment is a strong validation of Goldman's future prospects,Mr.Blankfein asserted.Goldman went to the Federal Reserve with its request to become a commercial bank the weekend of September 19-21.On September 21,the central bank approved the request,waiving the normal 30-day waiting period.Now Goldman can access the Federal Reserve's Discount Window for loans,but will also be tightly regulated.Mr.Buffett revealed that if he hadn't thought the government would act on a rescue plan,he wouldn't have made the investment.He is thankful to Treasury Secretary Hank Paulson for having the imagination to step up with a plan.The government stands to make a profit from buying distresed assets,in Mr.Buffett's opinion.We were facing an economic Pearl Harbor,the revered investor reflected,referring to the Japanese attack on Hawaii in 1941 that drew the U.S. into World War II.
Ed Yingling,President and CEO of the American Banking Association,a trade group,has denied that the financial crisis is a banking malaise.This is not a crisis in the FDIC-insured banking field;it is a Wall Street crisis,he insisted.These banks by and large are in good shape,Mr.Yingling said.We have an industry with almost 1.5 trillion in assets.A lot of this crisis is just speculation on Wall Street,Mr.Yingling remarked bitterly.
When depositors made a run on Washington Mutual,withdrawing some 16 billion dollars U.S.in a hurry,the Federal Deposit Insurance Corporation took control of the institution,selling it to J.P.Morgan Chase for 1.9 billion dollars U.S..WAMU executives were surprised by the move.JPM assumed all assets,posting a welcome message on WAMU's website.All holders of WAMU debt and equity were essentially wiped out.The acquisition gave JPM more than 5400 branches and the largest U.S. depository base.It will result in 1.5 billion in pretax savings by 2010.There is a 10% overlap of JPM and WAMU operations.JPM will also raise eight billion of capital by a share offering,and it will write down 31 billion in bad WAMU holdings.Once again,JPM was a godsend,helping the government manage the financial crisis,having earlier purchased failed investment bank Bear Stearns.It is doubtful,however,that JPM could handle anything else in the near future,making a rescue plan all the more necessary.Jamie Dimon is CEO of J.P.Morgan Chase.The FDIC acted again Sunday night,taking control of Wachovia Bank(WB),and selling its banking operations to Citigroup(C).Wachovia will retain its brokerage and wealth management units.Citi is paying 1.00 of Citi stock per Wachovia share.Sheila Bair is Chairman of the FDIC.
Friday, September 26, 2008
A special greeting to South Korea.Dear allies,it's good to have you here today.We will always be especially close,bound together by the Korean War history.That was 1950-1953,for the younger readers.This weekend the attention will be on Capitol Hill,where America's leaders are stuggling to contain the financial crisis.Democracy is contentious in the best of times,and this certainly isn't one of those.Congress hopes to have legislation for the crisis ready by 6PM Eastern on Sunday,when the Asian markets begin to trade.Tonight,though,most Americans will watch the presidential debate,which will cover the financial crisis,but probably other issues as well.There will be plenty to fill all the reporters' notebooks this weekend.
Tuesday, September 23, 2008
Australia has joined the U.S.,U.K. and Germany in banning the practice of short-selling,which is a kind of betting that a stock will fall.On Monday,Australian authorities expanded the ban to include not only naked short-selling,which is the most aggressive form,but covered short-selling as well.The ban won't apply to some hedging positions.Investment bank Babcock and Brown had complained about the short-selling of its shares.It rallied 70% at the news of the expanded ban on the practice.Meanwhile,Morgan Stanley(MS) and Goldman Sachs(GS) are to become commercial banks.The last two large,independent investment banks in the U.S. will acquire a depository base and be subject to Federal Reserve supervision,in a bid to secure their futures.Goldman Sachs will be known as Goldman Sachs Bank U.S.A..
Merideth Whitney,an analyst with Oppenheimer,thinks that Citigroup(C) will make it through the financial crisis.Ms.Whitney,who accurately predicted a Citi dividend cut earlier in the year,says the firm is selling assets to make sure it can stay in business.It is not in a precarious position,Ms.Whitney feels.Citi has 200 million customers in more than 100 countries.Almost 50% of its business is outside the U.S..Of its non-U.S. business,almost 35% is in emerging markets,which the company sees as its growth engine.Besides retail banking,Citi offers credit cards,brokerages,investment banking and hedge funds.
Last week was an emotional one in the financial world,and that emotion spilled over into the general public.Federal Reserve Chairman Ben Bernanke's face was ashen and etched with cares.He had never looked so concerned.The U.S. central banker looked as though he bore the world on his shoulders.Indeed,he and his colleagues at the Treasury department and Securities and Exchange Commission did.The President of the Federal Reserve Bank of New York,Timothy Geithner,has worked very hard behind the scenes.President Bush has stayed informed and made statements,but delegated details to experts such as Mr.Geithner.More than a few eyes misted over last week,touched by the huge events they were witnessing.Art Cashin of UBS,who works at the New York Stock Exchange,said there was a sense of general fear in the air.We've never seen a series of institutions disappear rapidly;there were isolated instances in the past.This has been a great place,and I feel badly for those laid off and their families-and I miss many of them.We may be morphing into a whole new financial world.The world I knew is changing,and I doubt if it will ever come exactly back,the distinguished Wall Street veteran lamented.
Friday, September 19, 2008
A special greeting to Illinois,where I advertised this week.It's good to reach the heartland today.It looks like another busy weekend for business writers and editors.The U.S. government is in high gear on the financial crisis,as are other governments around the world.We came so close to global collapse,we don't want to think about it.Only this concerted effort can pull us out of these historic problems.It's definitely the right road.
Tuesday, September 16, 2008
Shane Oliver of ANP Capital Investors in Sydney,Australia thinks we are 85% through the bear market.We are probably near the bottom of share prices.Stocks are very cheap now.Mr.Oliver likes the telecom and consumer staples sectors.Peter Redward of Barclays Capital(BCS) says the Federal Reserve is doing all it can to make sure that Lehman Brothers unwinds its positions systematically.Ultimately,the market has to work as well.Earnings multiples have to come down because of widening credit spreads.At this point,financial markets are leading the economy.Before,it was the other way around.In consequence,the economic dynamics we've had are unlikely to continue.Countries such as South Korea and India are vulnerable because of their current accounts deficits,Mr.Redward feels.Today the Federal Reserve releases its interest rate decision.This could be a market-mover.In any event,shares of McDonalds(MCD) and Johnson and Johnson(JNJ) were up this morning.
Money Center banks have pooled their resources to ease the financial crisis.An international consortium of 10 of the big banks,including Citigroup(C),Barclays(BCS),Credit Suisse(CS) and Deutsche Bank(DB), have each put seven billion dollars U.S. into the fund.Any of them are allowed to borrow up to a third of the 70 billion to shore up their balance sheets and avoid ratings downgrades.
The U.S. economy is repricing credit right now,Mohamed El-Erian continued.There is no perfect response to the credit crisis.The credit meltdown will hurt U.S. employment.The unthinkable is now thinkable in this market.This is a world of very high risk,but also opportunity.This is not a time to seek lots of risk.Herd behavior is typical of markets.Expect to see more banks access the Federal Reserve's discount window.At this time,three balance sheets are all deleveraging:1.the housing market;2.the financial system;3.US. households.Probably there will be a resolution of the crisis in 2009,Mr.El-Erian conjectured.
Mohamed El-Erian,co-CEO and c0-Chief Investment Officer of Pimco,has been scoping out the current financial crisis.The U.S. financial system doesn't have enough capital for the crisis,he said.You either sell assets or businesses.We're in the midst of a big deleveraging process.Fast changes caught the system unawares.When there is uncertainty about the system,liquidity dries up.The process will continue,resulting in a slimmer,less leveraged financial system,with a lot of banking system consolidation.Banks will go bust or merge to survive.The financial system will get slimmer over time.Europe is having issues as well.It's a global phenomenon.
Friday, September 12, 2008
Today I extend a special greeting to Washington,D.C..I advertised there this week.I've been advertising in many foreign countries,so I want to turn to American cities as well.I can't take them for granted just because they're my own.Reporters will be working through the weekend as another investment bank crisis reaches a climax.Lehman Brothers(LEH) is expected to be purchased over the weekend.The story would be in the shape of the deal.Asian markets would register the first reaction to it on Sunday evening.
Tuesday, September 9, 2008
The enemy is trying to increase the perception of insecurity among the Afghan people,General Schloesser believes.We are working against it,increasing the freedom of the roads,he said.I have very low numbers of troops in certain areas of RC East.I can't hold it.We're going to need more help in surveillance.None of this is a surprise to Washington.I am optimistic that,over a period of months,we will get what we need.I am humbled to work with your sons and daughters,as well as the Afghans,General Schloesser stated.They know why they're here.They remember 9-11,the soldier concluded.
In recent days there has been a lessening of violence in upper Northeast Afghanistan,because of the success of the Pakistan military in Peshawar,Pakistan,which is next door.There has been a 20-30% uptick in enemy activity so far this year,however,compared with 2007.General Schloesser encourages the Pakistan military to expand its operations.I do believe they're doing their best to get after it,the general said.It's a slow win.It's not the way the Afghan and American people would like to see us win the war.I'd like to do it in a more robust way,General Schloesser admitted.
Thursday is the seventh anniversary of the 9-11 attacks on the United States.Those attacks set off the recession of 2001.National security has a definite economic impact,so I am observing this anniversary with a military update on the Global War on Terror.Major General Jeffrey Schloesser,U.S. Army,is Commander,Combined Joint Task Force 101 in Afghanistan.In a teleconference with reporters at the Pentagon,General Schloesser,wearing his camouflage uniform,noted that there are several Islamic militant groups fighting in Afghanistan.Even the LET,a Kashmiri terrorist group from India,is among them.Al Qaida is serving as ideological ringleader and helping with funding the groups.These militants join together in their quest for a radical Islamic regime in Afghanistan,from where the 9-11 attacks were planned,prepared and directed.There are 7,000-11,000 of them in Eastern Afghanistan.Some of them are expected to remain in the country over the winter,so that they can resume their attacks more quickly when spring arrives.We are not losing the war,General Schloesser feels,though we need to proceed in a more timely manner.The enemy cannot win-even with what we have now.
According to Steve Weisbart of the Insurance Institute,insurance companies have plenty of capital.Premiums have gone up because re-insurance went up dramatically in the wake of hurricanes.Re-insurance is the insurance that insurers buy to cover big payouts.It's hard to know how subprime has affected insurers,Mr.Weisbart thinks.The subprime problem has probably affected them very little.They tend to be very conservative investors,the insurance expert revealed.
Friday, September 5, 2008
I advertised in Singapore this week.A special greeting to you in one of the great financial centers of the world.Sunday is Google's tenth anniversary.Happy anniversary to one of the Web's most essential firms.It has given me a lot of assistance,and I appreciate that.
Tuesday, September 2, 2008
Stacy Smith is Intel's Chief Financial Officer.He describes himself as an enthusiastic generalist,not an engineer.Mr.Smith has seen Intel's operating profit rise more than 60%.Intel is working on efficiency and reducing costs.The weak dollar has helped its sales around the world,Mr.Smith revealed.Despite the economic uncertainty,we've seen relatively strong business,he added.Companies are investing for productivity even in economic uncertainty.The shift toward mobile pcs benefits us.We did five billion dollars U.S. of buybacks in the first half of the year.We get a lot of free cash flow in our business.We've seen a pretty normal climate across our business through the second quarter.Every year,we're putting in more capacity at that leading edge,so we can continue to innovate,the CFO noted.The company employs 81,800 people worldwide.It is the world's largest semiconductor manufacturer.Besides The Widget Channel,it has begun research on electricity generation and transmission.As well,Intel has partnered with Dreamworks on a 3D animation project.
The long-sought integration of the Web with TV may soon become reality.Yahoo(YHOO) and Intel(INTC) have partnered to promote an offering called The Widget Channel.It consists of icons of widgets that scroll across the bottom of a TV screen.If you click on an icon,you will see Web content such as eBay auctions or weather reports on the left side of the screen.This service is enabled by a new Intel chip and Yahoo software.It is expected to be avilable by early next year.Even if your TV provider hasn't endorsed the service,you will be able to purchase a device that connects to a cable box and use it anyway,Intel says.
The Canadian province of Newfoundland and Labrador has finalized arrangements for development of its Hebron oil field,which is about 217 miles-or 350 kilometers-off its southeast coast.Hebron follows the province's three other oil fields of Hibernia,White Rose and Terra Nova.Project leader is Chevron(CVX),with a 26.63% stake.Also involved is Exxon Mobil(XOM),with the majority 36.04% stake.The province itself owns a 4.9% stake.The field is expected to yield 700 million barrels over 20-25 years,generating revenues of 20 billion dollars Canadian at 87 dollars U.S. a barrel.Hebron may be operational by 2016.