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Virtually every day brings fresh news of woes in the subprime residential housing lending market. The tendency is to lay a lot of the blame for the defaults and losses at the feet of dumb money -- individuals with poor credit and relatively low incomes who had no business taking on so much debt, greedy mortgage brokers, and foolhardy up-start subprime lenders. Examples of dumb money all.
But as this trend continues, it will be clear that some of the world's (allegedly) smartest financial minds are going to get hurt. Take, for example, Resmae, the subprime lender that filed for Chapter 11 on Tuesday.
Resmae, which offered truly exotic mortgages, attracted investments from some of the most-respected private equity and hedge funds out there. In 2003, TH Lee Putnam Venture Partners provided $25 million in capital to Resmae. And in July 2005, TPG-Axon Capital, a fund created by former Goldman, Sachs star Dinakar Singh, plunged $100 million into the company. The financing was led by J.P. Morgan Chase.
The day of the filing, Credit Suisse agreed to buy Resmae for about $19 million. Easy come, easy go.
Posted by dan at 09:58 AM
People in the Northeast are bummed becuase it appears that global warming, a phenomenon generally thought to be influenced by emissions caused by the burning of fossil fuels and the production of electricity, seems to be reducing the amount of snow they've come to expect in the winter.
So what are they doing? They're using gas- and electricity-burning devices, which cause the sort of emissions that are generally thought to cause global warming, to make their own freaking snow. Penelope Green reports from frontier of self-defeating, mindless consumerism in the New York Times:
For some, Valentine’s Day is much too late in the year for their first snow. Since Nature can no longer keep to her early deadlines, men like Mr. Heaven (snowmaking, like barbecuing, is still a gendered hobby) are taking matters into their own hands, and creating their own seasons, at least when it comes to winter.Snowmaking, since the mid-1960s the provenance of ski resorts and, more recently, some party planners, has gone domestic.
Companies like Snow Economics, a maker and inventor of resort-quality snow machines in Natick, Mass. — from which Mr. Heaven bought his two Backyard Blizzard snowmakers a few years ago — have been selling home snowmakers since 2000.
Snow at Home, a Cheshire, Conn., company run by Matt Pittman and Ken Jackie, has been shipping snowmakers for use in backyards from New Jersey to New Zealand for four years; sales are now “in the hundreds,” Mr. Pittman said.
“We’ve hit every state but Hawaii,” he said last week.
Posted by dan at 08:16 AM
The global trade in services continues apace. Something tells me this won't make the next edition of The World is Flat.
From Reuters:
BUENOS AIRES, Feb 14 (Reuters) - Argentina's notorious football hooligans are selling their trouble-making expertise abroad, principally to Colombia and Mexico, a report in the sports daily Ole said Wednesday.Ole quoted a government source as saying members of Argentina's barras bravas - a hardcore groups of fans -- had travelled to the two countries to meet supporters and organise conferences, charging for their advice in U.S. dollars.
The subject matter included terrace chants, the use of weapons and methods for extorting money from club directors and players.
The report said a leading fan from Mexico's Pumas UNAM had twice visited Buenos Aires to obtain first hand experience of the methods used by the notorious Boca Juniors supporters club known as "La Doce" (The 12th man).
He stayed in a top five-star hotel and continued the exchange via e-mail after returning to Mexico, the report added.
Rafael Di Zeo, leader of La Doce, was quoted as saying: "As far as the world's hooligans are concerned, La Doce is Harvard. They come here to learn."
Posted by dan at 08:08 AM
Soon we'll hear someone on CNBC en Espanol say, "ex-Botox, inflation was actually pretty tame last month."
Yahoo! News reports:
Plastic surgery, homeopathy and dieting have become such a way of life for Spaniards that they are being added to the basket used to calculate monthly inflation, the INE statistics institute said on Monday.Nose jobs, tummy tucks and slimming products will join housing and electricity in the monthly tally of prices from February 20, as will the cost of physiotherapy and laser eye surgery.
How do you say "culture of narcissism" in Spanish?
Posted by dan at 02:59 PM
Don't put a needle in the high-end housing bubble just yet. There's apparently plenty of liquidity sloshing around. Check out this item in my hometown website: a 7,200-square-foot waterfront home, built in 1997, was sold in 2006 for $8.5 million. Now, it's just another tear-down.
Posted by dan at 09:08 AM
Shareholder activists led by former SEC Chairman have goaded Applebee's into looking into a sale of the underperforming company. It may stimulate a bidding war that will lead to a premium for the stock. But unless Breeden or some genius private equity types can figure out how to (a) get more after-tax/after-housing/after-gas income into the hands of middle-income customers; and (b) get in the kitchen and start cooking edible, non-sweet food, it's not clear how they'll engineer an impressive turnaround.
Posted by dan at 09:05 AM
David Leonhardt has an interesting column in the New York Times on prediction markets like Intrade and elections. But the chart presented with the article, which shows the price of futures on the contract that would pay off if Republicans retained control of the Senate, seems to undermine the claim that political futures like those traded on Intrade actually predict close races accurately. The chart notes that on election eve, the contract traded at above 60, and then spiked above 80 between 11 p.m. and midnight--indicating the market "believed" with a very high degree of confidence that the Republicans would retain control. Oops. Later in the evening, when more results began to pour in indicating that the Republicans might lose, the political future in question plummeted.
Political futures may be interesting to look at. But their performance on and around election days in close races shows that the investors in such contracts are simply watching the exit polls and the results along with the rest of us. At crunch time, there isn't much wisdom in our collective ignorance.
Posted by dan at 08:58 AM
The Commerce Department reports flattish retail sales for January. Something tells me that next year we might not be hearing so much about how the rising trend of gift cards and January sales is extending the Holiday shopping season.
Posted by dan at 08:52 AM
Miriam Jordan and Valerie Bauerlein report in the Wall Street Journal that Bank of America is pitching a credit card to illegal immigrants. And the company apparently put executives on the record to discuss it.
In the latest sign of the U.S. banking industry's aggressive pursuit of the Hispanic market, Bank of America Corp. has quietly begun offering credit cards to customers without Social Security numbers -- typically illegal immigrants. . .The new Bank of America program is open to people who lack both a Social Security number and a credit history, as long as they have held a checking account with the bank for three months without an overdraft. Most adults in the U.S. who don't have a Social Security number are undocumented immigrants.
The Charlotte, N.C., banking giant tested the program last year at five branches in Los Angeles, and last week expanded it to 51 branches in Los Angeles County, home to the largest concentration of illegal immigrants in the U.S. The bank hopes to roll out the program nationally later this year.
"We are willing to grant credit to someone with little or no credit history," says Lance Weaver, Bank of America's head of international card services, whose team designed the program based in part on the bank's experience in markets like Spain, which lack conventional credit bureaus to rate a client's credit-worthiness.
The credit cards involved aren't cheap. They come with a high interest rate and an upfront fee. And the idea of catering to illegal immigrants is controversial.
Bank of America defends the program, saying it complies with U.S. banking and antiterrorism laws. Company executives say that the initiative isn't about politics, but rather about meeting the needs of an untapped group of potential customers.
"These people are coming here for quality of life, and they deserve somebody to give them a chance to achieve that quality of life," says Brian Tuite, the bank's director of Latin America card operations and one of the architects of the program.
Posted by dan at 05:51 PM
I'm not particularly troubled by the fact that Mitt Romney chose to announce his candidacy from a museum that pays tribute to one of the most notorious American anti-Semites of the 20th century, Henry Ford.
If there was to be a ban on candidates appearing at institutions that had a history of being less than philo-Semitic, or at institutions and companies named for people hostile to Jews, there wouldn't be many campaign appearances at Harvard, or Yale, or the Morgan Library.
No, I'm more troubled by the fact that somebody who is basing his candidacy on innovation and transformation is trying to associate himself with the Ford Motor Company's record of innovation and transformation. After all, while historians regard Ford as a tremendous innovator, contemporary auto analysts and buyers clearly don't. Indeed, Ford's contemporary trevails--the continued losses in marketshare, the inability to turn profits, the failure to execute on business strategy, and the recent track record of timing the market incorrectly--haven't just wiped out market capitalization. They've wiped out a big chunk of Ford's historic reputation.
It all makes Romney appear more backward-looking than his newfound social policies would indicate. Of course, the fact that the struggling company that bears Henry Ford's name bears so much resemblance to the struggling administration Romeny wants to succeed doesn't help matters either.
Posted by dan at 04:51 PM
My latest in Slate, on signs of a hedge fund top. Note the early and gratuitous plugging of author's yet-to-be-published book.
Posted by dan at 11:48 AM
Over at The New Republic, Jonathan Chait wonders what would be the meaning of a Giuliani/Lieberman candicacy.
My answer: how about the first ticket ever *not* to carry either home state of the presidential or the vice presidential candidate.
Posted by dan at 11:46 AM
The Financial Times has the following small squib in the paper today.
Robert Kimmittt, US deputy Treasury secretary, said yesterday there was a worrying trend toward investment protectionism in the US, Europe and Asia.Speaking on the sidelins of the annual security conference in Munich, Mr. Kimmitt mentioned two examples in the US: the failed bid by Dubai Ports World to manage six US ports, and a big by China's state-controlled CNOOC earlier this year to buy American oil company Unocal.
Actually, the worrying trend seems primarily to be a U.S. phenomenon. The front page. One of the lead stories on the front page of the FT today involves a European company bidding $18.8 billion to buy an Indian cell phone company.
Posted by dan at 11:55 AM
Damon Darlin has a good piece in the New York Times today about a flat-screen TV maker that had the brilliant idea of gaining market share by slashing prices to insane levels.
If his Olevia line of televisions was ever going to get any attention from consumers, Vincent F. Sollitto Jr. would have to do something big, splashy and, in economic terms, just plain crazy.On the day after Thanksgiving, Mr. Sollitto, the chairman and chief executive of Syntax-Brillian, had 32-inch Olevia liquid-crystal display TV sets selling at Circuit City for $475, almost half its regular price.
Syntax almost certainly lost money on the TVs. The flat screen that makes up about half the cost of an L.C.D. TV is about $350 on its own. But Mr. Sollitto could not have been more pleased. The Olevias outsold Sony and other brands while they lasted. That forced the premium brands to lower prices throughout the holiday season and take notice of the upstart from Tempe, Ariz.
“I think we are being annoying to those guys at the moment,” he said. “We are going to be on that radar screen soon if we aren’t there already.”
In the battle for market share in big-screen TVs, there is a lot of pain to go around as prices drop sharply. Circuit City, for instance, lured a lot of customers into its stores with the promotion. But last Thursday it said it would have to close about 70 stores because of slim profit margins on televisions and other products. Profits at almost all of the major TV makers are down.
The only ones not getting hurt are consumers, who enjoyed sliding prices on HDTVs in 2006. They are likely to see a rerun of the same action in 2007 as prices are expected to fall further by 40 percent or more. For that they can thank the low-price brands like Syntax’s Olevia.
Olevia? Oye veya!
Posted by dan at 11:40 AM
My latest in the New York Times, on congestion pricing on highways.
Posted by dan at 11:36 AM