Hello everyone, sorry I’ve been away. I do wish everyone is doing well in these economic hard times. If it pleases this court, I would like to start something new today. Talking to our esteemed Mister Oak, he noted that something would be nice to fill in the weekend shift. Well, today I would like to submit “Econ’ Notables & Quotable”.
This Saturday series will be a collection of some interesting quotes I’ve come across for the past week. Now they may be things news report have people quoted as saying, or something of keen that has stuck out in someone’s major op ed piece. They will be in the quote box format, and of course a link to the source. Eventually, I would like to add a picture to each person that says it (for example, say Warren Buffet or Jim Rogers). This may not always be possible, so please bear with me. Anyways, I do hope you folks out there like this, and if not or have any recommendations or critiques, I’m always open.
On the current banking crisis in the UK….
In this inaugural issue (no pun intended), we start across the Atlantic in merry ole England.
“I would urge you to sell any sterling you might have,It’s finished. I hate to say it, but I would not put any money in the U.K.”
Following Rogers’ comments, the Pound fell from a near $1.50 USD to $1.38 USD. Rogers later added in the television interview:
“The pound sterling is going to be under pressure. The U.K. hasn’t got much to sell to the world anymore. You have stupendous debts.”
(editor’s note: The second quote is found in a separate Bloomberg article)
The former partner to George Soros in the Quantum Fund, Rogers has been saying for years that the economic center of gravity will switch from the West to East. His comments ushered a response from several British several rebukes from Prime Minister Gordon Brown.
"If you think we are going to build our policy around the comments of a few speculators who want to make money out of Britain then you are very, very wrong. The decisions we take about the future of the economy are based on what is right for Britain."
Yet these were soon overshadowed when one of the countries chief executives essentially echoed Jim Rogers’ comments
“At the moment, I would expect things to continue getting worse rather than better,”
Meanwhile, on this side of the Pond…
The economy has been weighed down by the financial industry. The so-called “Masters of the Universe” have been exposed. Even great mavens of investing, like Warren Buffet, was not immune to the falter in the economy or from criticism. His company, Berkshire Hathaway, a former textile company turned holding company, had so far been having a horrible year. The company’s stake in financial companies has eroded the company’s earnings. Indeed, many of the investing musings have come under fire.
"It's never paid to bet against America.... We come through things, but it's not always a smooth ride....This is an economic Pearl Harbor."
One of Warren’s largest detractors is Doug Kass, of The Street.Com, who highlights how the “Oracle of Omaha” has gone off his investment reservation into products in the past he’s damned.
Equally important, I have repeatedly uttered the notion that Berkshire's large derivative position -- namely, short puts on the S&P 500 -- was evidence of investment style drift. Regardless of that view, Berkshire has now likely recorded a nonrealized loss in excess of a $10 billion on the index short put position. A loss on that scale, whether realized or unrealized, is large even for Warren Buffett.
In 2008 and (so far) 2009, The Oracle of Omaha has been wrong; it has paid to bet against America.
Moreover, the U.S. "economic Pearl Harbor" has humanized and brought down to earth many of the smartest investors in the world (e.g., Warren Buffett), as well as the entire private equity universe, many well-regarded hedge funds and investors (e.g., Marty Whitman and Bill Miller), and some masters of the universe in residential and nonresidential real estate, among others.
Bankers once hailed as geniuses are now have the Sword of Damocles hanging over them. One in particular is the Chief Executive of one of the now-labeled “Fortress 5 Banks,” Bank of America, Kenneth Lewis. At the start of the banking crisis, it seemed BOA would escape much of the carnage. Many criticized his purchase of Countrywide Financial, yet hailed as an Einstein for scooping up Merrill Lynch at “depressed prices.” It now seems though, that the joke was on Lewis, as more revelations of the true nature of the historic broker’s finances are now point to the fact that either the broker is worth nothing or that Lewis overpaid. Either way, major shareholders are very angry and he could be on the way out if BOA’s stock price starts to resemble that of beleaguered Citigroup.
"Lewis is skating on thin ice, if there are more negative surprises coming out of the combined balance sheets, Lewis will be very vulnerable."
Not just shareholders, but market watchers and economists say that if history is any insight, Lewis is a goner.
The problem is that, today, we reward error with recrimination and reprisal: Off with his head! And Ken Lewis has, alas, committed some awful errors of late. Among them:
--Let’s just admit it: He got hornswoggled by John Thain at Merrill Lynch, who forgot to give Ken a heads-up on billions of dollars in new, unexpected losses. Then Lewis complains to the feds about it a few weeks ago, but somehow forgets to tell his shareholders before they voted to approve the deal.
"The market will give Ken as much time as he needs, so long as the stock performs. The stock's performance is a function of how successfully he can integrate Merrill Lynch, and how he maintains the credit quality of the consumer loan book. Those are tall orders in this economy."
While there are plenty criticisms (and now a lawsuit) against Lewis, the drama at Bank of America merely highlights the US’s own banking woes that are hammering the economy.
"I don't see the tangible value in these financial institutions. And will the government care about the equity holder? I don't think so."
Just now, with finance in ruins, the nexus of markets and non-banks that make up the “shadow banking system” has failed. Decent businesses are being starved of credit and driven into bankruptcy. For their sake, and for the people who work for them, it is time to admit that the first round of bank rescues was not enough. With talk of huge public subsidies—nationalisation even—the question is what to do next?
“Each day brings, I think, greater focus on the problems that we’re having not only in terms of job loss, but also in terms of some of the instabilities in the financial system.”
“The government cannot solve this problem. The American people have to solve it and the way they can solve it is if they are allowed to keep more of the money they earn.”
Away from Wall Street to the Golden State, things don’t seem so shiny
This past week, the situation in the State of California has gotten worse. Several companies in the famed Silicon Valley reported they were laying off scores of employees. Joining in the job cut chorus was the state government itself, which now appears to be heading towards bankruptcy. Already, and to the protest of organized labor and other social groups, Sacramento ordered the sacking of social workers.
"Organizations are saying, 'What is the absolute nuclear winter? Let's plan for that. "What you're seeing now is organizations putting those plans into reality."
"We're going from bad to worse and then ugly. It's going to be really nasty the next couple of quarters. But if [federal] tax cuts kick in and there's a little infrastructure spending, hopefully the third and fourth quarters won't be as bad.
"At the moment, there's only one leg to stand on, hospitals and education. And pretty soon there will be no leg."
"This thing is still getting worse,"