I know this is off topic, but Paulson really needs to be put on trial for treason in the coming Obama administration. His "lifeline" will do nothing but keep some poor suckers from getting out from their McAlbatrosses for a few more months.
This is guy belongs with Skillings and Ebbers in the clink ... he is encouraging Americans to stay debt slaves to prop up the banks and brokerage houses.
C-S, there is no point in pointing to only Paulson. The US would have to allocate an entire prison to hold all those complicit in the misdeeds of this administration.
Can someone explain how an auction can fail? Is there a min. reserve price set in advance? If so, then the auction isn't really failed, it simply is yielding an interest rate that the issuers don't want to pay.
It seems to me that absent further details it's hard to say whether the failed auction is a result of credit crunch, buyers strike or really bad paper.
My guess: Buyers strike resulting from a decreased risk tolerance and increased awareness of inflation.
If this trend continues, does it mean that municipalities will have to eventually raise tax rates so they can pay the higher yields of their muni's? Just checking.
I thought the Delphi story would get a headline - CR doesn't disappoint.
I was waiting for that - I mean who wants stock or bonds tied to an almost exclusively autoparts mfg going into a recession. I seriously doubt anyone could have priced that in and still come up with a positive number.
BTW some friends of mine are touring Delphi plants down in Mexico now... trying to peddle parts to the new 'emergent' Delphi. Oh I'd love to be at the Tequila bar at the hotel with them tonight - the conversation must be lively.
If this trend continues, does it mean that municipalities will have to eventually raise tax rates so they can pay the higher yields of their muni's?
i only know what i've read on this, owl, but the problem with muni ARS apparently has to do with dual credit support instruments where a monoline is a contingent insurer of the liquidity support provision. if a monoline in downgraded, it nullifies the liquidity support, meaning there suddenly is no market maker to guard against failed auctions.
anticipation of downgrades has sent existing holders to the block to sell, but they've pushed pricing way down. the auctions today apparently didn't fail -- they just drew very high rates at auction.
anyway, what a failed auction means is that the instruments are rolled at a penalty rate to the next auction period, but they are callable securities that the issuing municipality can refinance. other parts of the longer-dated muni market are operating more or less normally, so this should not be a problem in almost all cases. this will be true in the case of a monoline downgrade or even default.
will it involve some expense for the issuers? yes. does it mean huge property tax hikes? no.
"I think this is a wave of panic, but it could signify a real change in the banks' tolerance for taking debt onto their balance sheets," said Matt Fabian, managing director of Municipal Market Advisors, an independent research company.
Market participants and the list circulated by Citi said hundreds of auctions failed.
The auctions are conducted on behalf of a wide variety of issuers, everyone from New York's Carnegie Hall to Deerfied Academy in Massachussetts to Nuveen Investments. They take long-term assets they hold, including student loans or municipal bonds, and raise money by selling securities. The banks continue to hold auctions on these securities regularly, allowing investors to roll them over with new interest rates or sell them. When auctions fail, which is unusual, the banks are stuck with them.
Investors in these types of securities considered them short-term and easily sold at auction. If auctions are suddenly failing to draw buyers even at higher interest rates, investors find themselves suddenly saddled with long-term securities.
Dozens of the auctions that failed were for debt issued by closed-end mutual funds, mostly investing in municipal or other tax-exempt debt. Closed-end funds, which are widely owned by individuals, issue this debt as a way to add leverage to their portfolios and make their yields more attractive.
The failures of the these auctions, by companies such as Nuveen, MFS Investments, BlackRock Inc. and Allianz SE's Pacific Investment Management (or Pimco) raise the question of a potential impact on the closed-end funds. But a spokeswoman for BlackRock said the new interest rates resulting from the failed auctions were not high enough to have an impact on the company's funds. MFS confirmed that its MFS Municipal Income Trust tapped the auction-rate market for leverage but a spokesman didn't have information about what impact the auction failure might have. Representatives from the other firms couldn't be reached for comment or were unable to.
Well, they could also do the fiscally conservative thing and cut spending. Ha!
sdtfs | 02.12.08 - 9:34 pm | #
My understanding is that in a muni or school district default the court appoints an overseer who if taxes aren't raised has power to make cuts & even sell assets to try to make the bondholder whole. All court sanctioned of course.
So if the district doesn't mind giving up football and having class size double... or if the city doesn't mind a lot less garbage removal, fewer cops and firemen... etc.,... either that kind of thing or the voters have to raise taxes.
BTW - I remember a school district in Minnesota getting in trouble and they were threatened with LOSING HOCKEY as a budget cut if they didn't raise taxes. Taxes got raised... pronto.
I'm not 100% sure this is how it REALLY works but my understanding is that is how it is SUPPOSED to work.
The problems don't mean taxes will increase. That would be GO debt.
The problems are confined mostly to failed real estate projects. What I hope you're getting is the fact that hospitals, schools, shopping centers, parking lots, industrial parks, etc. are real estate.
In most cases, no state, city or town says "we will make sure those projects don't fail." They don't care. If nobody uses them, the counties and towns want them to fail, so they can use the land for something else and get property taxes. There's just a lot of little, sad, dead real estate projects out there that managed to get tax-exempt financing, and nobody cares if they fail. It's no skin off anybody's back except MBIA and Ambac.
The problems are confined mostly to failed real estate projects.
actually, rich, i don't think there's any grounds for saying that, based on what i've seen. (correct me, of course.) none of these ARS are actually defaulting or even in danger of default. this -- unlike RMBS- or (soon) CMBS-based securities, which are experiencing actual solvency problems -- is essentially a pure liquidity problem.
Cobradriver noted the other day that all the parts he used on a recent tuneup were made in USA. Should we be surprised?
Journeyman | 02.12.08 - 9:39 pm | #
A little maybe that all were domestic but I wouldn't be totally shocked - I'm in some of those plants.
The domestic survivors are pretty efficient in some cases and not all factory workers make UAW wages & benies. I'd guess most factory wages are approximately equal to full time service industry jobs... so a typical factory worker makes what an adult ass't manager makes in fast food ~$15/hr. And since labor is only about 10% of the total cost to mfg... you don't save as much going offshore hype would suggest.
The big money in mfg is in materials & energy inputs, overhead (capital & white collar salaries) and currency arbitrage plays. Workers on both sides of the pond are pawns caught up in that game.
The problems are confined mostly to failed real estate projects. What I hope you're getting is the fact that hospitals, schools, shopping centers, parking lots, industrial parks, etc. are real estate.
Rich - are you talking the 'tax increment financed' stuff? If so then - ya, a lot of that is gonna fail and they won't close the pool or cancel the hockey season if it does.
Do the bond holders have any operational recourse other than 'insurance'?
I have followed some of the CA closed end funds for several years, Nuveen, Muni Yield, and Colonial. All use leverage of roughly 50%. They borrow short term (idealy at say 3%) and buy long term munis yielding about 5%. Enough extra spread is earned (positive carry) to pay their fees and raise the yield about 1%. When, and if, the short term rate exceeds 5% they no longer earn extra return and can in fact experience negative carry on the borrowed funds. Not good for the overall return. I sold off my position in these securities about 2 years ago when fed funds began rising, however, so far they have held up better than I expected.
Gary - I live a half mile off a major N-S rail line (two major tracks on my side of the river and two major tracks on the other side)... those suckers are always running, night and day. Grain & coal mostly... some container & piggy back also. EXTREMELY busy.
I was recently in a train engine plan - they were working lights out to keep up with global demand too - they had another plant in China working lights out too - trying to satiate demand in Asia.
I wonder if those banks that were pushed aside in the boom might be the ones to pick up the pieces? Some day maybe, but it might be quite early to start expanding RE lending.
Ok, what am I missing here. One little bit of Buffet news & the stock market goes UP in light off all the bad news. GM losing 30bil, Delphi, home prices possibly needing to fall another 40% which in turn means the banks having to "write down" ect. Are they reading some other tea leaves? any idea?
Trying to read anything into day-to-day stock market moves is madness.
That said, Buffett's kind offer reduces the odds of a systemic financial meltdown. The true value of anything depends not on its earnings last quarter or next quarter or next year, but on its earnings for the indefinite future. I do not know what the true value of the S&P 500 is, but it is certainly higher the lower the chance of systemic collapse.
Arts District Project on Hold
...because of the current housing market slowdown, groundbreaking will be delayed at least until the fall...
Meanwhile, just across town...
New heights of luxury in Century City
Plans for a [$400-million] 45-story, wisp-thin tower of ultra-luxury condominiums between Beverly Hills High School and the Los Angeles Country Club are set to be unveiled today. Developers say it would be one of the most expensive residential buildings in the West.
I'm talking about special purpose revenue bonds, especially industrial development bonds. They are governed by obscure authority boards that don't usually have any taxing power.
They are often set up by partnerships of private enterprise and states, counties and cities to create development and commerce in expansion zones. They can be mixed purpose (residential, commercial, parks/green space, and industrial). They finance the infrastructure that enables commercial/industrial development. They are allocated specific user fees, tolls and revenues from special tax assessments or revenue-sharing arrangements.
But everything hinges on development and growth. If the zone can attract 10,000 new residents and 100 new businesses, it will pay off. But if the housing projects, office parks and retail zones fail, so will the bonds.
An earlier thread was attempting to id a potential bank take over that was in the $9b size. The tree of liberty blog says that it is Fremont General in San Francisco.
Union Pacific uses the Speedway [between Meridian, MS and Shreveport, LA] for a leg of a longer run that begins near the ports of Los Angeles and Long Beach, Calif. Improvements on the line have enabled Union Pacific to launch a new train packed with Asian goods that can cross the Southern U.S. in 72 hours, down from the 120-hour service it offered in past years.
Yesterday's L.A.Times had an article on a related subject. The Gubernator wants to go 50/50 with BNSF & UNP on inmproving main lines coming out of L.A./Long Beach ports while the highway lobby would rather that 12 lane wide freeways become 14 lanes (or something like that):
Notice that no one is asking the Federal Government for a dollar in order to cut further the time it takes to get from a Western port to the Southeastern U.S.
Didn't Buffett make a big investment in Burlington Northern or some other RR player a few years back?
I count the cars on trains when I'm with the kids at the RR crossing and there's been a rise in number of cars over the past few years. Fewer engines or more business... who knows?
Didn't Buffett make a big investment in Burlington Northern or some other RR player a few years back?
I count the cars on trains when I'm with the kids at the RR crossing and there's been a rise in number of cars over the past few years. Fewer engines or more business... who knows?
The banks are still have $2.5 trillion in outstanding loan commitments. Where are they going to get the kind of capital necessary to meet those commitments? It won't be from the sovereign wealth funds, no sir.
On top of that, you have all of the off-the-books crap coming on to the books.
The banking system is going melt down, and that must be the reason the FDIC is expecting some 200 (not sure as to the exact number, but FFDIC should know) bank failures over the next year or so.
The market still hasn't priced-in any of this. As Conjure Bag says, "They still don't get it, but they will."
CR, this thing is going to be death by a thousand cuts. The corporations draw down their lines, credit card borrowing goes ballistic as home equity lines dry up, CRE dies, the junk paper keeps coming back to the books. Finally, one by one, the banks start to throw in the towel as they run out of capital.
Buffett has been building a significant position in BNI for around a year and a half. Every time it gets near $80, he buys more. He now owns slightly more than 15% of the company.
For what it's worth, his interest appears to be specific to Burlington Northern. He actually sold his stakes in other railroads (e.g. Union Pacific) this year, even as he increased his BNI position. Good luck figuring out why.
Panera Bread Company today reported net income of $18 million, or $0.56 per diluted share, for the fourth quarter ended December 25, 2007, compared to net income of $19 million, or $0.59 per diluted share, for the fourth quarter ended December 26, 2006. Included in the fourth quarter 2007 results were an aggregate of $0.03 per diluted share of one-time charges, which include a write-down of our investment in the Columbia Strategic Cash Portfolio and a charge related to the discontinuation of the Company's Crispani product line. Excluding these one-time items, fourth quarter 2007 non-GAAP earnings would have been $0.59 per diluted share.
[snip]
Rapidly escalating wheat costs will have a significant impact on the Company in 2008. The Company is essentially fully booked on its wheat commitment for 2008 at all-in costs (wheat futures plus basis) of $14.00 per bushel, on average. This compares to the average cost of $5.80 per bushel of wheat in fiscal 2007, which results in an additional wheat related cost of $26.5 million in 2008. The Company assumes it will increase its dough prices from its fresh dough facilities (the primary user of wheat) to its company and franchise stores as rapidly as it can throughout the year consistent with its contractual agreements and the attendant structural limitations. The Company expects that dough prices will increase by 11% on average in 2008, which compares unfavorably to a 16% increase needed to cover the impact of the inflation in wheat. However, in the second half of the year, the Company expects to have taken enough price to cover all wheat cost inflation in that half of the year.
In terms of transactions, the Company has a number of significant initiatives in place to hold or drive transactions positive. However, given the difficult consumer environment and the potential impact of Panera's pricing initiatives, the Company is conservatively assuming 2.5% to 3.5% in Company-owned bakery-cafe sales growth.
In terms of return on invested capital, the Company now believes it makes sense to raise its sales hurdles to improve its return on investment for new cafes. This comes as a result of the margin contraction the Company has experienced in the last 24 months.
For the first quarter of 2008, the Company anticipates earnings per diluted share of $0.36 to $0.42 per diluted share versus $0.47 per diluted share in the comparable period of fiscal 2007. The first quarter 2008 target assumes that the removal of Crispani generates a 50 basis point improvement in labor. It also assumes all-in wheat costs of $13.00 per bushel versus $5.80 per bushel in the prior year. In the first quarter, dough price increases in place will be 5%, which is short of the 14% increase needed to cover the cost of wheat. The target also assumes retail price increases of 3% and comparable Company-owned bakery-cafe sales growth of 2.5% to 3.0%. Please note that through the first six weeks of the first quarter of fiscal 2008, comparable bakery-cafe sales for Company-owned bakery-cafes have grown 2.8% and comparable bakery-cafe sales for franchise-operated bakery-cafes have grown 1.2%.
For the second quarter of 2008, the Company anticipates earnings per diluted share to range from $0.37 to $0.43 versus $0.39 per diluted share in the comparable period of fiscal 2007. The second quarter 2008 target assumes that the removal of Crispani generates a 100 basis point lift to labor margin. The target also assumes that wheat costs are $17.25 per bushel versus $5.80 per bushel in the prior year. This will require a 22% increase in dough prices to break even, but only a 13% dough price increase will be in place. The target also assumes retail price increases of 5.5% and comparable Company-owned bakery-cafe sales growth of 2.5% to 4.5%.
For the third and fourth quarters of fiscal 2008, the Company anticipates earnings per diluted share of $1.22 to $1.32 per diluted share versus $0.93 per diluted share in the comparable period of fiscal 2007. The second half of fiscal 2008 target has the following assumptions: a benefit of 100 basis points to labor margin from the removal of Crispani; wheat costs of $13.00 per bushel versus $5.80 per bushel in the prior year and dough pricing in place to match the inflation in the cost of wheat ; retail price increase of 5.5%; and comparable bakery-cafe sales growth of 2.5% to 4.5%.
Finally, one by one, the banks start to throw in the towel as they run out of capital.
OK, banks throwing the towel means what... OTS involvement ?
I'm still curious about what happens to corporations when OTS takes down a bank, that happened to have corporate operating fund accounts/deposits. Are the corps operating under the same $100K FDIC limit that individuals are ? That could really hurt.
tj & the bear writes:
Railroads are a huge "peak oil" play, and definitely fit Buffet's approach of long term value investing.
100% concurr. Note: railroads are also a growth play.
I would like to know how often auctions this large fail. I'm aware that smaller auctions often fail, but rarely sums above $50 million. At least in the muni market...
If the collapse of the shadow banking system stops with the ARS market I think we can say that the run has been "contained".
These funds are being marketed to high net worth individuals as "municipal money market funds" with a "28 day lockup". Even today, front page of Yahoo Finance was touting these securities with no mention of the liquidity risks:
Yes, I read the Caroline Baum article to which Mish refers. It was disappointing, to say the least. Thank you for the link, as I was curious to know if anyone had taken her to task on it.
Mish is much closer to the mark, particularly in the context of some things I learned today. I am still going over notes, but the manner in which this thing will play out is becoming much clearer.
Over a third of the nations community banks have commercial real estate concentrations exceeding 300 percent of their capital, and almost 30 percent have construction and development loans exceeding 100 percent of capital.
Yes, I finally came to the conclusion today that the banking system is in very deep trouble and, as we know, the principal IBs will be toasted before this is over. Unfortunately, I don't see a mild recession coming out of this.
Best of luck to you, if you believe in that sort of thing. I'd like to continue this, but it's going to be a very long day tomorrow.
We inflationista's seem to be an endangered species. I just looked at the link on Borrowed Reserves. Even if TAF is not being used as an inflationary tool now, it could be in the future. Just over-value collateral and make long-term loans at low rates.
How long did it take for the S&L crisis to go from realization of the crisis to bank failures? I'm trying to get a feel for how long it takes for things to run their course and have real trouble.
** We see a three to five year horizon for litigation and investigations stemming from the subprime market
LECG Corp. Q4 2007 Earnings Call Transcript
Page 5 out of 10|
posted on: February 12, 2008
And experts have been recently retained on several significant subprime matters. We are already seeing investigations from the SEC, FBI, Justice Department and State Attorneys General, as well as new numerous law suits involving these parties. Further, while we cannot divulge too much, we can report that we currently engaged on two of the most high profile subprime matters in a variety of capacities in addition to several other matters.
To-date over 15 senior-level experts and 50 staff have been put in on a number of sub prime related projects. We see a three to five year horizon for litigation and investigations stemming from the subprime market to be fully resolved. We expect to be heavily involved in subprime work through out this period.
We see a three to five year horizon for litigation and investigations stemming from the subprime market
blowncue, in the good old days that 10K would have become the basis for a Wall Street Journal Page-one "leder" that illustrates the macroeconomy through the trials of an appealing subject (in this case, a company that makes the reader hungry).
What I find interesting about these muni auction failures is that a firm like Goldman Sachs would allow a
Aa credit and longterm relationship
with the Port Authority of N.Y. & N.J.
short term auction to fail!Our they that capital constrained?
This issue may not help the progress of our economy and in fact it can be a bad topic this could not help us because the persons that are been talking are the only one who could gain this about loans.
What businesses need more than ever before is innovation and lateral thinking, and the ability not to ask what can I sell, but instead how can I serve my clients best, what do they need right now, how can I help them and in turn help myself and my business.
The secret of the successful companies in any economic climate is the ability to understand what potentials customers want now and deliver it in an easy access, easy to understand format at the right price. It really is that easy.
Right now we need to ask ourselves how I can serve my customers. There are so many options available; its about working smarter not necessarily harder.
Its the green grocer who holds a survey or competition so that it can get the e-mail addresses and mobile numbers of its clients and then contacts them weekly with offers.
Its the shoe store who clubs together with a foot specialist, a pedicurist and clothes store so you can each offer discounts if the customers shop with you.
It the business to business organization who is selling the same as other people and only relying on good quality customer to get them through until now, who set up a client loyalty scheme (NOW as their clients are beginning to loose their loyalty due to cost), and organizing group discounts with tire companies, lease car hire, office supplies and even electric and gas companies by offering them 2,3 or 4,000 potential clients in return for a group discount so these clients save so much money on every day needed equipment that they dont mind changing and want to stay with you so they can save where they can on other products.
Its the companies who learn to "share" leads, the vertical market companies who become your refers and get a cut of your sales, why have 10 sales people when you could have 300 all recommending your products or services. Dont work harder, get smarter and work in co-operation. For further details on business solutions view my website: Results for "www.lateral.webnode.com" - Webnode Learn to thrive while others loose their bottle, gain new business while those around you are loosing theirs! Sarah Sillitoe Results for "www.lateral.webnode.com" - Webnode
I bid 50 cents.
I know this is off topic, but Paulson really needs to be put on trial for treason in the coming Obama administration. His "lifeline" will do nothing but keep some poor suckers from getting out from their McAlbatrosses for a few more months.
This is guy belongs with Skillings and Ebbers in the clink ... he is encouraging Americans to stay debt slaves to prop up the banks and brokerage houses.
the credit crunch is not a "material adverse change"?
CR,
mi tipoes far exceedee yours' but
Failed Bond Autions Total $6B Tuesday
Funny that halo is working but blogger isn't.
Just write in word and then copy and paste.
Cheers,
C-S, there is no point in pointing to only Paulson. The US would have to allocate an entire prison to hold all those complicit in the misdeeds of this administration.
But, not gonna happen.
What, no hat tip? Damn!
Can someone explain how an auction can fail? Is there a min. reserve price set in advance? If so, then the auction isn't really failed, it simply is yielding an interest rate that the issuers don't want to pay.
It seems to me that absent further details it's hard to say whether the failed auction is a result of credit crunch, buyers strike or really bad paper.
My guess: Buyers strike resulting from a decreased risk tolerance and increased awareness of inflation.
the trouble in the ARS market is best described here, imo.
Hazard, may I suggest Abu Ghraib as the prison.
Auctions fail all the time. Anything of significant value to the seller has a minimum bid. Whether that bid is sane or not is another story.
Cheers,
Both the high-yield (junk bond) and the investment grade bond indices on markit.com hit all time lows today.
Link:
Products and Services Overview
These are not RE related, those are the ABX and CMBX indices also maintained by markit.
Municipal bonds not selling. Must be because rich has alerted the investment public about the impending municipality bond blow-up.
If this trend continues, does it mean that municipalities will have to eventually raise tax rates so they can pay the higher yields of their muni's? Just checking.
does it mean that municipalities will have to eventually raise tax rates so they can pay the higher yields of their muni's
Well, they could also do the fiscally conservative thing and cut spending. Ha!
I thought the Delphi story would get a headline - CR doesn't disappoint.
I was waiting for that - I mean who wants stock or bonds tied to an almost exclusively autoparts mfg going into a recession. I seriously doubt anyone could have priced that in and still come up with a positive number.
BTW some friends of mine are touring Delphi plants down in Mexico now... trying to peddle parts to the new 'emergent' Delphi. Oh I'd love to be at the Tequila bar at the hotel with them tonight - the conversation must be lively.
dryfly,
Cobradriver noted the other day that all the parts he used on a recent tuneup were made in USA. Should we be surprised?
If this trend continues, does it mean that municipalities will have to eventually raise tax rates so they can pay the higher yields of their muni's?
i only know what i've read on this, owl, but the problem with muni ARS apparently has to do with dual credit support instruments where a monoline is a contingent insurer of the liquidity support provision. if a monoline in downgraded, it nullifies the liquidity support, meaning there suddenly is no market maker to guard against failed auctions.
anticipation of downgrades has sent existing holders to the block to sell, but they've pushed pricing way down. the auctions today apparently didn't fail -- they just drew very high rates at auction.
anyway, what a failed auction means is that the instruments are rolled at a penalty rate to the next auction period, but they are callable securities that the issuing municipality can refinance. other parts of the longer-dated muni market are operating more or less normally, so this should not be a problem in almost all cases. this will be true in the case of a monoline downgrade or even default.
will it involve some expense for the issuers? yes. does it mean huge property tax hikes? no.
this will be true in the case of a monoline downgrade or even default.
lol -- theoretically, of course. one can never quite tell anymore, can one?
I blame it all on Warren and his Sees candy!
"I think this is a wave of panic, but it could signify a real change in the banks' tolerance for taking debt onto their balance sheets," said Matt Fabian, managing director of Municipal Market Advisors, an independent research company.
Market participants and the list circulated by Citi said hundreds of auctions failed.
The auctions are conducted on behalf of a wide variety of issuers, everyone from New York's Carnegie Hall to Deerfied Academy in Massachussetts to Nuveen Investments. They take long-term assets they hold, including student loans or municipal bonds, and raise money by selling securities. The banks continue to hold auctions on these securities regularly, allowing investors to roll them over with new interest rates or sell them. When auctions fail, which is unusual, the banks are stuck with them.
Investors in these types of securities considered them short-term and easily sold at auction. If auctions are suddenly failing to draw buyers even at higher interest rates, investors find themselves suddenly saddled with long-term securities.
Dozens of the auctions that failed were for debt issued by closed-end mutual funds, mostly investing in municipal or other tax-exempt debt. Closed-end funds, which are widely owned by individuals, issue this debt as a way to add leverage to their portfolios and make their yields more attractive.
The failures of the these auctions, by companies such as Nuveen, MFS Investments, BlackRock Inc. and Allianz SE's Pacific Investment Management (or Pimco) raise the question of a potential impact on the closed-end funds. But a spokeswoman for BlackRock said the new interest rates resulting from the failed auctions were not high enough to have an impact on the company's funds. MFS confirmed that its MFS Municipal Income Trust tapped the auction-rate market for leverage but a spokesman didn't have information about what impact the auction failure might have. Representatives from the other firms couldn't be reached for comment or were unable to.
Well, they could also do the fiscally conservative thing and cut spending. Ha!
sdtfs | 02.12.08 - 9:34 pm | #
My understanding is that in a muni or school district default the court appoints an overseer who if taxes aren't raised has power to make cuts & even sell assets to try to make the bondholder whole. All court sanctioned of course.
So if the district doesn't mind giving up football and having class size double... or if the city doesn't mind a lot less garbage removal, fewer cops and firemen... etc.,... either that kind of thing or the voters have to raise taxes.
BTW - I remember a school district in Minnesota getting in trouble and they were threatened with LOSING HOCKEY as a budget cut if they didn't raise taxes. Taxes got raised... pronto.
I'm not 100% sure this is how it REALLY works but my understanding is that is how it is SUPPOSED to work.
The problems don't mean taxes will increase. That would be GO debt.
The problems are confined mostly to failed real estate projects. What I hope you're getting is the fact that hospitals, schools, shopping centers, parking lots, industrial parks, etc. are real estate.
In most cases, no state, city or town says "we will make sure those projects don't fail." They don't care. If nobody uses them, the counties and towns want them to fail, so they can use the land for something else and get property taxes. There's just a lot of little, sad, dead real estate projects out there that managed to get tax-exempt financing, and nobody cares if they fail. It's no skin off anybody's back except MBIA and Ambac.
he is encouraging Americans to stay debt slaves to prop up the banks and brokerage houses.
To be fair, couldn't this part of your comment also be seen as "he is encouraging Americans to continue to honor the contracts that they signed"?
The problems are confined mostly to failed real estate projects.
actually, rich, i don't think there's any grounds for saying that, based on what i've seen. (correct me, of course.) none of these ARS are actually defaulting or even in danger of default. this -- unlike RMBS- or (soon) CMBS-based securities, which are experiencing actual solvency problems -- is essentially a pure liquidity problem.
Cobradriver noted the other day that all the parts he used on a recent tuneup were made in USA. Should we be surprised?
Journeyman | 02.12.08 - 9:39 pm | #
A little maybe that all were domestic but I wouldn't be totally shocked - I'm in some of those plants.
The domestic survivors are pretty efficient in some cases and not all factory workers make UAW wages & benies. I'd guess most factory wages are approximately equal to full time service industry jobs... so a typical factory worker makes what an adult ass't manager makes in fast food ~$15/hr. And since labor is only about 10% of the total cost to mfg... you don't save as much going offshore hype would suggest.
The big money in mfg is in materials & energy inputs, overhead (capital & white collar salaries) and currency arbitrage plays. Workers on both sides of the pond are pawns caught up in that game.
The problems are confined mostly to failed real estate projects. What I hope you're getting is the fact that hospitals, schools, shopping centers, parking lots, industrial parks, etc. are real estate.
Rich - are you talking the 'tax increment financed' stuff? If so then - ya, a lot of that is gonna fail and they won't close the pool or cancel the hockey season if it does.
Do the bond holders have any operational recourse other than 'insurance'?
OT, but a good read.
Japan is the next sub-prime flashpoint
Japan is the next sub-prime flashpoint - Telegraph
FT - IndyMac loses $509m and suspends dividend
FT.com / Financials - IndyMac loses $509m and suspends dividend
OT but great article on resurgence of rail building.
The tide is turning.
New Era Dawns for Rail Building - WSJ.com
Doc Pissed Off,
I have followed some of the CA closed end funds for several years, Nuveen, Muni Yield, and Colonial. All use leverage of roughly 50%. They borrow short term (idealy at say 3%) and buy long term munis yielding about 5%. Enough extra spread is earned (positive carry) to pay their fees and raise the yield about 1%. When, and if, the short term rate exceeds 5% they no longer earn extra return and can in fact experience negative carry on the borrowed funds. Not good for the overall return. I sold off my position in these securities about 2 years ago when fed funds began rising, however, so far they have held up better than I expected.
Gary - I live a half mile off a major N-S rail line (two major tracks on my side of the river and two major tracks on the other side)... those suckers are always running, night and day. Grain & coal mostly... some container & piggy back also. EXTREMELY busy.
I was recently in a train engine plan - they were working lights out to keep up with global demand too - they had another plant in China working lights out too - trying to satiate demand in Asia.
The story is not bunk.
There's still some money out there.
Despite national credit crunch, loans are still flowing to many in Massachusetts - The Boston Globe
I wonder if those banks that were pushed aside in the boom might be the ones to pick up the pieces? Some day maybe, but it might be quite early to start expanding RE lending.
Ok, what am I missing here. One little bit of Buffet news & the stock market goes UP in light off all the bad news. GM losing 30bil, Delphi, home prices possibly needing to fall another 40% which in turn means the banks having to "write down" ect. Are they reading some other tea leaves? any idea?
Brandon --
Trying to read anything into day-to-day stock market moves is madness.
That said, Buffett's kind offer reduces the odds of a systemic financial meltdown. The true value of anything depends not on its earnings last quarter or next quarter or next year, but on its earnings for the indefinite future. I do not know what the true value of the S&P 500 is, but it is certainly higher the lower the chance of systemic collapse.
Arts District Project on Hold
...because of the current housing market slowdown, groundbreaking will be delayed at least until the fall...
Meanwhile, just across town...
New heights of luxury in Century City
Plans for a [$400-million] 45-story, wisp-thin tower of ultra-luxury condominiums between Beverly Hills High School and the Los Angeles Country Club are set to be unveiled today. Developers say it would be one of the most expensive residential buildings in the West.
Sorry for being in the 'wrong thread' but this took longer than expected to throw together:
Operation Hope Not Our Easy Solution
enjoy.
I'm talking about special purpose revenue bonds, especially industrial development bonds. They are governed by obscure authority boards that don't usually have any taxing power.
They are often set up by partnerships of private enterprise and states, counties and cities to create development and commerce in expansion zones. They can be mixed purpose (residential, commercial, parks/green space, and industrial). They finance the infrastructure that enables commercial/industrial development. They are allocated specific user fees, tolls and revenues from special tax assessments or revenue-sharing arrangements.
But everything hinges on development and growth. If the zone can attract 10,000 new residents and 100 new businesses, it will pay off. But if the housing projects, office parks and retail zones fail, so will the bonds.
An earlier thread was attempting to id a potential bank take over that was in the $9b size. The tree of liberty blog says that it is Fremont General in San Francisco.
http://www.thetreeofliberty.com/forum/viewtopic.php?t=5228&sid=cb7e7b3f683ad6470697b2449aa5aad4
Gary, from your WSJ rail link:
Union Pacific uses the Speedway [between Meridian, MS and Shreveport, LA] for a leg of a longer run that begins near the ports of Los Angeles and Long Beach, Calif. Improvements on the line have enabled Union Pacific to launch a new train packed with Asian goods that can cross the Southern U.S. in 72 hours, down from the 120-hour service it offered in past years.
Yesterday's L.A.Times had an article on a related subject. The Gubernator wants to go 50/50 with BNSF & UNP on inmproving main lines coming out of L.A./Long Beach ports while the highway lobby would rather that 12 lane wide freeways become 14 lanes (or something like that):
Battle of the rails and roads - Los Angeles Times
Notice that no one is asking the Federal Government for a dollar in order to cut further the time it takes to get from a Western port to the Southeastern U.S.
That Anonymous on the L.A. Times was me.
Gary @ 10:15 -
Didn't Buffett make a big investment in Burlington Northern or some other RR player a few years back?
I count the cars on trains when I'm with the kids at the RR crossing and there's been a rise in number of cars over the past few years. Fewer engines or more business... who knows?
Gary @ 10:15 -
Didn't Buffett make a big investment in Burlington Northern or some other RR player a few years back?
I count the cars on trains when I'm with the kids at the RR crossing and there's been a rise in number of cars over the past few years. Fewer engines or more business... who knows?
homedad,
More business, as it should be.
Let's all count fewer trucks driving coast to coast.
The banks are still have $2.5 trillion in outstanding loan commitments. Where are they going to get the kind of capital necessary to meet those commitments? It won't be from the sovereign wealth funds, no sir.
On top of that, you have all of the off-the-books crap coming on to the books.
The banking system is going melt down, and that must be the reason the FDIC is expecting some 200 (not sure as to the exact number, but FFDIC should know) bank failures over the next year or so.
The market still hasn't priced-in any of this. As Conjure Bag says, "They still don't get it, but they will."
YouTube - George Thorogood I Drink Alone
Schnapster- this song came up as related.
Much better.
Hank P must be having a big scotch tonight.
I would after that disaster today.
Someday this war's gonna end...
Misean writes:
Auctions fail all the time..
Interesting a pass on stuff w/ an effective yield of 14.7%...No takers.
Is there an antifreeze for credit?
Railroads are a huge "peak oil" play, and definitely fit Buffet's approach of long term value investing.
la-la-la-la-gg-ggGg-la-Lagavulin!
D-d-d-d-Double!!!1!1!
CR, this thing is going to be death by a thousand cuts. The corporations draw down their lines, credit card borrowing goes ballistic as home equity lines dry up, CRE dies, the junk paper keeps coming back to the books. Finally, one by one, the banks start to throw in the towel as they run out of capital.
homedad43 --
Buffett has been building a significant position in BNI for around a year and a half. Every time it gets near $80, he buys more. He now owns slightly more than 15% of the company.
For what it's worth, his interest appears to be specific to Burlington Northern. He actually sold his stakes in other railroads (e.g. Union Pacific) this year, even as he increased his BNI position. Good luck figuring out why.
Panera Bread Company today reported net income of $18 million, or $0.56 per diluted share, for the fourth quarter ended December 25, 2007, compared to net income of $19 million, or $0.59 per diluted share, for the fourth quarter ended December 26, 2006. Included in the fourth quarter 2007 results were an aggregate of $0.03 per diluted share of one-time charges, which include a write-down of our investment in the Columbia Strategic Cash Portfolio and a charge related to the discontinuation of the Company's Crispani product line. Excluding these one-time items, fourth quarter 2007 non-GAAP earnings would have been $0.59 per diluted share.
[snip]
Rapidly escalating wheat costs will have a significant impact on the Company in 2008. The Company is essentially fully booked on its wheat commitment for 2008 at all-in costs (wheat futures plus basis) of $14.00 per bushel, on average. This compares to the average cost of $5.80 per bushel of wheat in fiscal 2007, which results in an additional wheat related cost of $26.5 million in 2008. The Company assumes it will increase its dough prices from its fresh dough facilities (the primary user of wheat) to its company and franchise stores as rapidly as it can throughout the year consistent with its contractual agreements and the attendant structural limitations. The Company expects that dough prices will increase by 11% on average in 2008, which compares unfavorably to a 16% increase needed to cover the impact of the inflation in wheat. However, in the second half of the year, the Company expects to have taken enough price to cover all wheat cost inflation in that half of the year.
In terms of transactions, the Company has a number of significant initiatives in place to hold or drive transactions positive. However, given the difficult consumer environment and the potential impact of Panera's pricing initiatives, the Company is conservatively assuming 2.5% to 3.5% in Company-owned bakery-cafe sales growth.
In terms of return on invested capital, the Company now believes it makes sense to raise its sales hurdles to improve its return on investment for new cafes. This comes as a result of the margin contraction the Company has experienced in the last 24 months.
For the first quarter of 2008, the Company anticipates earnings per diluted share of $0.36 to $0.42 per diluted share versus $0.47 per diluted share in the comparable period of fiscal 2007. The first quarter 2008 target assumes that the removal of Crispani generates a 50 basis point improvement in labor. It also assumes all-in wheat costs of $13.00 per bushel versus $5.80 per bushel in the prior year. In the first quarter, dough price increases in place will be 5%, which is short of the 14% increase needed to cover the cost of wheat. The target also assumes retail price increases of 3% and comparable Company-owned bakery-cafe sales growth of 2.5% to 3.0%. Please note that through the first six weeks of the first quarter of fiscal 2008, comparable bakery-cafe sales for Company-owned bakery-cafes have grown 2.8% and comparable bakery-cafe sales for franchise-operated bakery-cafes have grown 1.2%.
For the second quarter of 2008, the Company anticipates earnings per diluted share to range from $0.37 to $0.43 versus $0.39 per diluted share in the comparable period of fiscal 2007. The second quarter 2008 target assumes that the removal of Crispani generates a 100 basis point lift to labor margin. The target also assumes that wheat costs are $17.25 per bushel versus $5.80 per bushel in the prior year. This will require a 22% increase in dough prices to break even, but only a 13% dough price increase will be in place. The target also assumes retail price increases of 5.5% and comparable Company-owned bakery-cafe sales growth of 2.5% to 4.5%.
For the third and fourth quarters of fiscal 2008, the Company anticipates earnings per diluted share of $1.22 to $1.32 per diluted share versus $0.93 per diluted share in the comparable period of fiscal 2007. The second half of fiscal 2008 target has the following assumptions: a benefit of 100 basis points to labor margin from the removal of Crispani; wheat costs of $13.00 per bushel versus $5.80 per bushel in the prior year and dough pricing in place to match the inflation in the cost of wheat ; retail price increase of 5.5%; and comparable bakery-cafe sales growth of 2.5% to 4.5%.
[end snip]
Auctions fail all the time. Anything of significant value to the seller has a minimum bid. Whether that bid is sane or not is another story.
We're talking about selling debt here, not assets. An IOU has value to the lender, not the borrower.
Nemo,
No, that fits him, too. He doesn't just invest, he wants a big enough piece to exert significant influence -- seats on the board, etc.
That's one of the things people don't understand why they can never really "invest like Buffet". He doesn't just find value, he builds it.
Finally, one by one, the banks start to throw in the towel as they run out of capital.
OK, banks throwing the towel means what... OTS involvement ?
I'm still curious about what happens to corporations when OTS takes down a bank, that happened to have corporate operating fund accounts/deposits. Are the corps operating under the same $100K FDIC limit that individuals are ? That could really hurt.
So, 3-5% price increases at the retail level, but increase in sales. Hmmm...
[cue music]
Hire those girls from Hooters! Offer them double!
[gong]
Giant Soup Bowl with four spoons! Share the Fun! Share your Germs!
[gong]
3pm Lunch Buffet--because we're in the moving business, NOT the storage business!
[gong]
MATZOH, BABY!
[gong]
[klezmer]
Ray- "OK, banks throwing the towel means what... OTS involvement ?"
As discussed before, unhealthy banks will be merged with healthy banks, assuming a suitable candidates are available. If not, the bank will be closed.
Conjure and I, who have numbers to crank, expect the S&L crisis will be a dwarf in comparison to this one.
tj & the bear writes:
Railroads are a huge "peak oil" play, and definitely fit Buffet's approach of long term value investing.
100% concurr. Note: railroads are also a growth play.
I would like to know how often auctions this large fail. I'm aware that smaller auctions often fail, but rarely sums above $50 million. At least in the muni market...
Got popcorn?
Neil
mp,
Do you read Mish?
tj- Do you read Mish?
Not often.
If the collapse of the shadow banking system stops with the ARS market I think we can say that the run has been "contained".
These funds are being marketed to high net worth individuals as "municipal money market funds" with a "28 day lockup". Even today, front page of Yahoo Finance was touting these securities with no mention of the liquidity risks:
Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More
More than a few are going to be surprised if their "short term money" ends up being a "long term bond".
If the ARS market collapses, it may be enough to start a run on money market funds in general.
I though Buffet was going to make everything alright with the munis!
mp,
Check out this one:
Borrowed Reserves and Tin Foil Hats
Yes, I read the Caroline Baum article to which Mish refers. It was disappointing, to say the least. Thank you for the link, as I was curious to know if anyone had taken her to task on it.
Mish is much closer to the mark, particularly in the context of some things I learned today. I am still going over notes, but the manner in which this thing will play out is becoming much clearer.
Gotta love this part:
Read this again and again until it sinks in:
Over a third of the nations community banks have commercial real estate concentrations exceeding 300 percent of their capital, and almost 30 percent have construction and development loans exceeding 100 percent of capital.
Yes, I finally came to the conclusion today that the banking system is in very deep trouble and, as we know, the principal IBs will be toasted before this is over. Unfortunately, I don't see a mild recession coming out of this.
Best of luck to you, if you believe in that sort of thing. I'd like to continue this, but it's going to be a very long day tomorrow.
We inflationista's seem to be an endangered species. I just looked at the link on Borrowed Reserves. Even if TAF is not being used as an inflationary tool now, it could be in the future. Just over-value collateral and make long-term loans at low rates.
Buffet?
How long did it take for the S&L crisis to go from realization of the crisis to bank failures? I'm trying to get a feel for how long it takes for things to run their course and have real trouble.
central scrutinizer-
Paulson actually admitted/allowed in an interview today that it may be in the best interest of many owners to just walk.
I was pretty surprised.
** We see a three to five year horizon for litigation and investigations stemming from the subprime market
LECG Corp. Q4 2007 Earnings Call Transcript
Page 5 out of 10|
posted on: February 12, 2008
And experts have been recently retained on several significant subprime matters. We are already seeing investigations from the SEC, FBI, Justice Department and State Attorneys General, as well as new numerous law suits involving these parties. Further, while we cannot divulge too much, we can report that we currently engaged on two of the most high profile subprime matters in a variety of capacities in addition to several other matters.
To-date over 15 senior-level experts and 50 staff have been put in on a number of sub prime related projects. We see a three to five year horizon for litigation and investigations stemming from the subprime market to be fully resolved. We expect to be heavily involved in subprime work through out this period.
We see a three to five year horizon for litigation and investigations stemming from the subprime market
Hazard - I believe there may be some space opening up in Gitmo after the election.
Paulson, Greenspan, Lereah ... waterboard 'em all, I say.
Eric - re S&L crisis - read Stephen Pizzo's Inside Job for a good overview.
blowncue, in the good old days that 10K would have become the basis for a Wall Street Journal Page-one "leder" that illustrates the macroeconomy through the trials of an appealing subject (in this case, a company that makes the reader hungry).
GREAT CATCH!
What I find interesting about these muni auction failures is that a firm like Goldman Sachs would allow a
Aa credit and longterm relationship
with the Port Authority of N.Y. & N.J.
short term auction to fail!Our they that capital constrained?
This issue may not help the progress of our economy and in fact it can be a bad topic this could not help us because the persons that are been talking are the only one who could gain this about loans.
What businesses need more than ever before is innovation and lateral thinking, and the ability not to ask what can I sell, but instead how can I serve my clients best, what do they need right now, how can I help them and in turn help myself and my business.
The secret of the successful companies in any economic climate is the ability to understand what potentials customers want now and deliver it in an easy access, easy to understand format at the right price. It really is that easy.
Right now we need to ask ourselves how I can serve my customers. There are so many options available; its about working smarter not necessarily harder.
Its the green grocer who holds a survey or competition so that it can get the e-mail addresses and mobile numbers of its clients and then contacts them weekly with offers.
Its the shoe store who clubs together with a foot specialist, a pedicurist and clothes store so you can each offer discounts if the customers shop with you.
It the business to business organization who is selling the same as other people and only relying on good quality customer to get them through until now, who set up a client loyalty scheme (NOW as their clients are beginning to loose their loyalty due to cost), and organizing group discounts with tire companies, lease car hire, office supplies and even electric and gas companies by offering them 2,3 or 4,000 potential clients in return for a group discount so these clients save so much money on every day needed equipment that they dont mind changing and want to stay with you so they can save where they can on other products.
Its the companies who learn to "share" leads, the vertical market companies who become your refers and get a cut of your sales, why have 10 sales people when you could have 300 all recommending your products or services. Dont work harder, get smarter and work in co-operation. For further details on business solutions view my website: Results for "www.lateral.webnode.com" - Webnode Learn to thrive while others loose their bottle, gain new business while those around you are loosing theirs! Sarah Sillitoe Results for "www.lateral.webnode.com" - Webnode