« October 02, 2005 - October 08, 2005 | Main | October 16, 2005 - October 22, 2005 »
From an AFP story on today's inflation numbers, which showed the Consumer Price Index has risen 4.7 percent in the past 12 months, and 1.2 percent in September alone.
Dick Green at Briefing.com said he viewed the report as positive."Gasoline prices at the pump have declined since this survey, and global oil prices continue lower," he said. As energy prices in CPI flatten (or even drop) the next several months, the total index could post some very low numbers."
"It is amazing how much pessimism persists amidst such good news," Green added.
Well, one reason people could be pessimistic is that inflation is rising (which means things cost more) and wages are falling (which means people have less money to buy all that stuff that costs more.)
From the same article:
"Wage pressures were tame. In a separate report, the Labor Department said average weekly earnings fell 1.2 percent after adjusting for inflation. Real average hourly earnings are down 2.4 percent in the past year, while real average weekly earnings are down 2.7 percent, the biggest drop in 14 years."
At least that dreaded inflation in workers is under control.
Posted by dan at 01:52 PM
Treasury Secretary John Snow, on his trip to China, urged his hosts to stop saving so much money and adapt U.S.-style consuming, spending, and borrowing habits. Yeah, that's exactly what we need: a billion more people in this world leveraging up homes they can't afford, to buy SUVs they can't afford to drive, to drive to the mall to buy merchandise they can't afford.
U.S. exports may never be competitive in the Chinese market. But if Snow is successful at encouraging the Chinese to binge on credit, the already-robust U.S. bankrtupcy industry may find itself with a gigantic new market.
Posted by dan at 09:30 AM
Yes, it's only one month's data. And yes, the numbers are hinky due to Katrina and Rita. But if you combine today's report on inflation (the CPI is up 4.7 pecent in the last l2 months) with today's report on retail sales for September, it seems like we're starting to gather the ingredients for a stagflation stew.
Posted by dan at 09:21 AM
This is the kind of dilemma we've all faced. You just bought a $44 million penthouse apartment with a Rockefeller pedigree on Fifth Avenue, and now you're stuck with this giant, three-floor loft in Soho. You'd like to get $28 million for the joint, but haven't had much luck drumming up any interest. In fact, while the place has been on the market for four months, it hasn't attracted a single offer.
Well, you could slash the price. Or you could take out some splashy ads in the Robb Report. Or, if you're Rupert Murdoch, you could just get convince the New York Times House & Home section to give you a gigantic free advertisement--one that takes up about three quarters of the section's front page and an entire page on the inside.
Good on you, mate!
Posted by dan at 09:02 AM
HCA, the hospital company founded by the Frist family, continues to reap the benefits of its strategy of concentrating operations in states where residents are the least likely to have health insurance.
Each quarter, it seems, HCA has to write off a larger chunk of its revenues--either as bad debt, or as part of a new policy of providing discounted services to the uninsured. Earlier this week, HCA gave a preview of its third quarter.
The company will have revenues of $6 billion. Not bad. But discounts to uninsured patients will total $238 million (more than twice the level of the first quarter of 2005), and the provision for doubtful accounts "is expected to approximate $618 million or 10.3 percent of revenues, compared to $688 million or 11.9 percent of revenues in the prior year's third quarter." That's a wee bit misleading, since the uninsured discount policy wasn't in place in the third quarter of 2004. To calculate the full amount of revenues that HCA won't be collecting, you have to add the doubtful accounts and the discounts to the uninsured. Do that, and you get $856 million, or about 14 percent of revenues.
Why? Despite the Bush boom and the allegedly impressive job growth we've seen in the past year, fewer and fewer of HCA's patients arrive at the hospital covered by insurance.
"On a same facility basis, uninsured admissions in the third quarter of 2005 are expected to reflect an increase of approximately 15 percent and emergency room visits an increase of approximately 14 percent over the third quarter of 2004. Uninsured admissions represented 5.6 percent of total same facility admissions in the third quarter of 2005 compared to 5.0 percent in the third quarter of 2004. Same facility uninsured emergency room visits represented 21.5 percent of total same facility emergency room visits in the quarter compared to 19.7 percent in the same period last year."
Posted by dan at 08:53 AM
Last week, Phillip Bennett was at the apex of American society. The CEO of a major publicly-traded corporation, Refco, he was worth more than $1 billion.
Today? Well, he's still worth a few hundred million dollars. But he's out of a job, and now he's been charged with securities fraud.
And here we though social mobility had declined in the U.S.
Posted by dan at 04:02 PM
In an effort to save up to $18 million a year in newsprint costs, the Wall Street Journal is shrinking its page size, according to the New York Times.
The new domestic Journal, to appear in January 2007, will go from about 15 inches wide to about 12 inches wide and will remain about 22¾ inches long. It will be roughly the size of The Washington Post, The Los Angeles Times and USA Today, other daily newspapers that have reduced their widths.
As long as Peter Kann & Co. are in paper saving mode, why not go a bit further. For example, eliminating the editorial page entirely would save on newsprint costs and have the added benefit of improving the morale of beleaguered reporters who are continually embarrassed by the faux-intellectual right-wing hackery that regularly appears on the page.
Posted by dan at 10:45 AM
My latest in Slate, on Delphi's bankruptcy and the re-proletarianization of industrial work.
Posted by dan at 08:14 AM
The latest hedge fund flameout is Wood River Partners, which should henceforth be known as S****'s Creek Partners. Lets hope that, as the Wall Street Journal editorial page suggested of the investors in Bayou Management, all the folks who lost money here could afford to lose it.
This seems like a case of incompetence layered with some short-term dishonesty, rather than a multi-year fraud, as was the case at Bayou.
Gregory Zuckerman and Ian McDonald of the Wall Street Journal have the goods.
"Investors in Wood River Partners LP tried to withdraw money from the hedge-fund firm late last month and earlier this month as concern mounted about the fund's bet on a tiny stock that was plunging in price, according to people familiar with the situation.Wood River's founder, John H. Whittier, couldn't meet all investors' requests, largely because so much of the fund's money was invested in shares of the small wireless-communications provider, Endwave Corp., according to these people. The large position appears to have violated terms of Wood River's offering memorandum, according to someone who has viewed the documents. . . .
Now the investors and Mr. Whittier are trying to figure out how to salvage what is left of the hedge-fund firm, which said that at one point it managed more than $275 million but now may not hold many assets beyond almost 4.3 million shares of Endwave, a position valued at about $60 million. . . . . .
In the past month, Mr. Whittier informed some of Wood River's investors that his firm had established a large position in Endwave, according to an attorney who represents investors in the hedge fund. According to a Schedule 13D securities filing on Friday, Wood River owns almost 4.3 million shares of Endwave, about half of all its shares available for trading.
The investors contend that Mr. Whittier previously told them that the firm would never take such a large position in a single stock. In marketing materials and meeting with investors, Mr. Whittier says that he typically keeps his bets on a given position to less than 2% of the fund's assets. . . ."
Beteween Bayou, Wood River, and Marsh & McLennan, there's a theme here: don't invest in financial vehicles with water-related themes. Avoid Swamp Partners, the Bog Fund, and, of course, Pond Scum Value Trust III.
This seems like a pretty clear case in which requiring hedge funds to file audited holdings with the SEC on, say, a quarterly basis, might have spared investors a lot of pain. Irony for the day: those who oppose more SEC oversight over hedge funds say regulation would stunt growth. But as the industry expands, and as more poor managers attract capital -- and then piss it away -- the unregulated industry may be doing that job all on its own.
Posted by dan at 09:00 AM
In the Wall Street Journal, Karen Richardson gently impales a bunch of Wall Street analysts who continued to recommend that investors buy or hold onto the stock of Delphi as it careened toward bankruptcy.
Right until Saturday, when the world's biggest auto-parts supplier filed for bankruptcy-law protection, some Wall Street analysts maintained "buy" or equivalent ratings on Delphi stock. At least two issued bullish reports within the two days preceding Delphi's Chapter 11 filing, citing the possibility that the company's prior owner, General Motors Corp., might bail it out.As of early last week, the consensus rating of 17 analysts who covered Delphi stock was "a little better than a hold," said John Butters, a research analyst at Thomson Financial in Boston. The analysts' mean was 2.9 on Thomson's five-point scale, in which one is a strong buy and five is a strong sell. . . . .
Darren S. Kimball at Lehman Brothers Holdings Inc. on Friday -- the day before the bankruptcy announcement -- repeated his "overweight" rating on Delphi and his price target of $10 on the stock. Delphi shares closed on Friday at $1.12. In that same note, Mr. Kimball wrote that a bankruptcy filing seemed more likely than he had thought in the past.
The day before, Thursday, J.P. Morgan Chase & Co. analyst Himanshu Patel reiterated his "overweight" rating on Delphi, which he had upgraded from "neutral" on Aug. 10. Interpreting a letter posted that morning by the United Auto Workers union, he concluded that investors had a reason to be optimistic about the company's labor talks. "We expect the negotiations to go down to the wire, but we still believe an out-of-court restructuring is most likely," he wrote. . . .
John A. Casesa, an auto-parts analyst at Merrill Lynch & Co., also dropped coverage of Delphi yesterday, telling investors that they "should no longer rely upon estimates and/or opinions issued in previous reports." Mr. Casesa upgraded Delphi to a "buy" from "neutral" on Sept. 23 with a 12-month price target of $6.50, or 88% higher than the stock's closing price that day. A Merrill spokeswoman said Mr. Casesa was unavailable to comment.
What could possibly explain why these highly paid, intelligent professionals continued to recommend that investors hold on to, or even buy a stock that was clearly -- clearly -- heading toward zero?
Karen Richardson guesses at one possibility:
Some of Wall Street's biggest brokerage firms have done investment-banking business with Delphi, which was spun off from General Motors in 1999. Citigroup, J.P. Morgan, Merrill Lynch, Morgan Stanley and UBS AG are among the firms that have underwritten stock offerings for Delphi since the start of 2003, according to research firm Capital IQ.
Hmmmmm.
Posted by dan at 08:45 AM
September was a poor month for auto sales generally, but a pretty good one for hybrids. Toyota sold 8,193 Priuses, 2715 Highlanders, and 2,113 Lexus RX 400hs, for a total of 13,021, or about 7.3 percent of total unit sales.
Honda sold 1,916 Civic Hybrids and 2,352 Accord Hybrids, for a total of 4,351, or about 3.6 percent of total units.
Ford sold 1,808 Escape Hybrids.
By my count, that's 19,180 hybrids sold in September.
Posted by dan at 05:20 PM
In the past few weeks, there's been a detectable sense of optimism among many analysts that the public and private financial costs to Katrina might not be so bad after all. Insured losses are now pegged at about $35 billion, not as bad as initially feared. The death toll won't be nearly as bad as the 10,000 initially feared. And there's a sense that the Federal government won't spend anywhere near the $150 billion to $200 billion initially feared. That's all to the good.
But we're probably overlooking a lot of public and private costs that will either be higher than initially feared, or that weren't considered in the first place. For example, consider municipal bonds. The tax basis of much of Louisiana and significant chunks of Mississippi has been destroyed. And there are billions of dollars of bonds in the hands of investors that are supposed to be backed by revenues from various public entities in the Gulf region.
On Friday, Rob Wells reported in the Wall Street Journal that:
By mid-September, Moody's Investors Service had placed 51 issuers in Louisiana and Mississippi covering $9.46 billion in rated debt on its watch list.
Some big chunk of those bonds will default, and will surely trigger a bunch of municipal bankruptcies, which can be messy affairs. After all, creditors can't simply take ownership of public assets like police stations and public schools. And of course, Treasury Secretary John Snow has warned that the federal government isn't about to step in to help the strapped municipalities with their debts.
In the same article, Wells writes:
But Mr. Snow warned that any federal guarantee to state and local muni-bond investors "would be an intrusion in the private markets, disrupting the assessment of risk, which is essential to the proper function of markets."
Posted by dan at 04:59 PM
So it turns out that an entity controlled by Phillip Bennett, CEO of Refco, the financial trading firm that went public recently, owed some $430 million to the company. Bennett has apparently made good on the debt, which his entity may have acquired from a third party. But apparently it didn't occur to anybody around Refco that a CEO essentially owing $430 million to the company where he works might be a related-party transaction until today.
The stock is off about 40 percent, for a loss of $1.4 billion on the day.
I'm sure some people at the SEC and at securities-strike law firms are compiling a list of highly paid and respected professionals who failed to do their jobs properly and ask the right questions.
Obviously, there's Bennett himself. Then the senior management team. Oh, and the board of directors, which includes the highly regarded Thomas H. Lee, whose eponymous private equity firm owns a big chunk of the company. Don't forget the investment banks who sold the company's shares to the public on August 11. Lead managers were: Credit Suisse First Boston, Goldman, Sachs, and Banc of America Securities. And we'd be remiss without mentioning the three august white-shoe law firms who helped shepherd the offering public. Weil, Gotshal & Manges; Mayer, Brown, Rowe and Maw; and Cravath, Swaine & Moore. Good on you, dudes! And finally the accountants, who are always the last to know: Grant Thornton.
Keep in mind that at the time of its IPO, one of Refco's subsidiaries was already under an SEC investigation. Given that, you'd think that all parties involved would be extra punctilious about dotting every i and crossing every t, especially in this post Sarbanes-Oxley environment. Either Bennett did a very good job hiding this related-party transaction, or some people didn't do their jobs appropriately. And anybody who bought the stock at the IPO or afterwards has gotten screwed as a result.
Posted by dan at 03:57 PM