Friday, January 29, 2010

"Germany aims to delay solar incentive cuts: sources say" (FSLR)

There's going to be a rush to get as many installations in as possible.
First Solar should benefit in the immediate term, they have the capacity and aren't shy about offering financing and/or rebates.
The stock is trading up $2.15 at $116.50.
From Reuters:
German Environment Minister Norbert Roettgen wants to delay his proposed 15-percent cuts in solar power incentives by one month until May 1 rather than April 1, government sources told Reuters on Friday.

Roettgen has faced criticism from within his own party, with regional leaders urging him to delay or water down his proposed 15-percent cut in the incentives that utilities are obligated by law to pay producers of solar power.

Solar power companies in Germany, where about half of the world's photovoltaic energy is produced and fed into the grid, have also complained about Roettgen's proposed cuts. They said they are too steep, too fast and will kill jobs.

The government sources also told Reuters that further cuts after 2011 could be steeper than Roettgen is now planning.

If there are more than 3,500 megawatts of solar power capacity added within one year the cuts would sink 3.5 percent in the following year instead of 2.5 percent now planned....MORE

Carbon Traders Quit Emissions Market Amid Drop in Demand (JPM)

From The Guardian:

Copenhagen dampens banks' green commitment

Banks and investors are pulling out of the carbon market after the failure to make progress at Copenhagen on reaching new emissions targets after 2012.

Carbon financiers have already begun leaving banks in London because of the lack of activity and the drop-off in investment demand. The Guardian has been told that backers have this month pulled out of a large planned clean-energy project in the developing world because of the expected fall in emissions credits after 2012.

Anthony Hobley, partner and global head of climate change and carbon finance at law firm Norton Rose, said: "People will gradually start to leave carbon desks, we are beginning to see that already. We are seeing a freeze in banks' recruitment plans for the carbon market. It's not clear at what point this will turn into a cull or a rout."

Paul Kelly, chief executive of Eco­Securities, which develops clean energy projects, said that while markets had not expected a definitive post-Kyoto Protocol deal at Copenhagen, they had expected some progress.

"The lack of regulatory certainty in the post 2012 world affects the market's view of what CERs [carbon credits from clean energy projects] will be worth and subsequently will constrain financing for projects. If you had an agreement at Copenhagen with a bit more detail, people would be more willing to take risk.">>>MORE

Also from The Guardian:

We're So Proud! Our Most Popular Post this Month...

...was actually from December.
Even worse, the bit folks want was originally posted in October '08.
Here's "Obama: 'Fat-cat' bankers owe help to U.S. taxpayers (BAC; C; GS; JPM; WFC)":

From USAToday:

President Obama, already at odds with bankers over big bonuses and new regulations, plans to urge executives at a White House meeting today to provide more loans to small-business owners.

Top White House economic adviser Lawrence Summers said Sunday that Obama will remind the bankers of the taxpayer help they received during last year's financial crisis.

"We were there for them," Summers said on ABCsThis Week With George Stephanopoulos. "And the banks need to do everything they can to be sure they're there for customers across this country."

During a taped interview broadcast Sunday night on CBS' 60 Minutes, Obama blasted banking executives for opposing tighter regulations on Wall Street and for awarding themselves multimillion-dollar bonuses after they had repaid federal bailout money.

"I did not run for office to be helping out a bunch of, you know, fat-cat bankers on Wall Street," Obama said....MORE

From our Oct. 4, 2008 post:

Save the Bankers

Citi Slicker

Fat Cat

Save Me! I'm a BSD Dammit!

fat cat

Country (wide) Cousin (It's BAC!)

Fat cat!

El Nino to boost 2010 U.S. crops: report

From Reuters:

U.S. farmers grew record-large corn and soy crops in 2009 but production in 2010 could be even bigger, aided by an El Nino weather pattern that is typically a boon to the Midwest but less so for growers in Australia and southeast Asia, a forecaster said on Thursday.

Allen Motew, meteorologist at QT Weather, forecast a dry U.S. spring, which should minimize problems at planting time, followed by a favorably wet summer growing season.

"It's exactly what we need to increase (crop) yields," Motew said at the Top Producer Seminar, a farmers' conference held in Chicago.

Temperatures in the U.S. Corn Belt are expected to be mostly below normal this summer, while precipitation will be above normal.

"We have a double-whammy here -- colder and wetter," Motew said. "The odds say we are going to have quite a good year."

Motew said corn yields typically increase when an El Nino weather pattern persists for two years in a row. The same is likely true for soybeans, he said....MORE

Siemens energy plan: Diversify (SI; GE)

From Marc Gunther's blog:
When it comes to the energy, Randy Zwirn doesn’t play favorites. As CEO of the global energy service division of Siemens and president of Siemens Energy, Zwirn has a stake in the coal, nuclear, gas, wind and solar industries, as well as the smart grid and transmission business.

It’s a big stake, too. When we spoke today, Zwirn told me that one-third of all the energy-generating capacity in the U.S. uses Siemens’ power-generating equipment. Impressive. Siemens Energy employs about 12,000 people in the U.S., mostly in manufacturing and services.

Siemens has factories that make rotor blades and nacelles for wind turbines in Hutchison, Kansas, and Fort Madison, Iowa. It operates a factory that make turbines for gas-powered plants in Charlotte, N.C. In nuclear, after pulling out of a joint venture with Areva in which it was a minority partner, Siemens has formed a partnership with Rosatom, a fast-growing state-owned atomic energy firm in Russia. Last year, Siemens bought a 40% stake in Arava, an Israeli firm that makes utility-scale solar thermal power plants. That’s a business that should work in the southwest U.S., Zwirn says.

As for coal, Siemens has turned to the U.S. Department of Energy for help in going forward with projects designed to capture and store carbon emissions from coal plants. It’s working with Tenaska, an independent power producer, on a $3,5 billion – not cheap! – clean coal plant under development near Taylorville, Illinois. That plant has been selected by DOE for a loan guarantee of up to $2.5 billion. Meanwhile, DOE has provided a $350 million grant for a coal plant near Odessa, Texas, proposed by Summit Energy that will use Siemens gasification and power generating technology. “We need to figure out a way to utilize coal,” Zwirn says.

(Much as I am tempted to editorialize here, I’ll reserve for another day the question of whether subsidizing clean coal plants is a good use of your tax dollars; like it or not, it seems as if every single form of low-carbon energy generation–wind, solar, nuclear, clean coal–is seeking help from Washington. If I’m wrong, and you’re aware of a low-carbon energy project going forward without benefit of subsidies, please let me know.)

Randy Zwirn’s a straight shooter, so I’m delighted that he has agreed to speak at FORTUNE’s Brainstorm Green conference in April. You can listen to a podcast of our conversation at The Energy Collective; what follows are edited excerpts. I began by asking him about President Obama’s State of the Union speech....MORE

Here's What the Future of America's Infrastructure Might Look Like

From Popular Science:
25 new technologies that will transform America's systems

Step 1: Transportation

Defeating soul-deadening gridlock, monster potholes and dangerous road ice

Roads, Bridges & Trains Paul Wootton

Chicago road crews are scrambling to fill 67,000 potholes a month. Communities in Pennsylvania rely on 100-year-old water pipes made of wood. Squirrels still cause widespread blackouts. The country’s 600,000 bridges, four million miles of roads, and 30,000 wastewater plants desperately need attention. The solution isn’t patches, it’s an overhaul. Soon roads and power lines will fix themselves, and we’ll mine energy from sewage. America’s 21st-century tune-up won’t happen overnight, but we could start reaping the benefits (faster broadband! cleaner water!) within the next few years.

Cars that Report Potholes

Task: Fix the third of major roads that are in poor shape
Status: Three years to a prototype

In a new system developed at Northeastern University, vehicles that cover lots of asphalt—taxis, buses, garbage trucks—will be outfitted with acoustic wave sensors to detect potholes before the human eye can see them. Sound waves probe the top three feet of the road for telltale air pockets and small cracks, while ground-penetrating radar looks inside bridge decks for corrosion and lasers scan the road surface. A cellular data connection sends data to control centers, where it can be assembled into maps of trouble spots.

Roads that De-Ice Themselves

Task: Reduce the 1,300 road deaths a year from snowy and icy winter conditions
Status: In testing by more than 20 state departments of transportation

A new road coating called SafeLane not only gives tires more traction, it actually helps prevent the accumulation of ice and snow by holding on to de-icing salts, allowing road crews to scatter salt a couple of days before a blizzard rather than waiting until the snow is already on the ground. SafeLane consists of layers of epoxy mixed with dolomitic limestone. The epoxy layer is snowplow-proof, lasts up to 15 years, and helps seal the pavement to keep corrosive salts from leaching down to steel bars in sensitive bridge decks. Anecdotal results from its first five years in the field show up to a 70 percent decrease in winter accidents.

Bridges that Flex on the Fly

Task: Upgrade the 26 percent of decrepit bridges
Status: Pedestrian versions exist; traffic bridges in 10 years

Regular bridges are fairly rigid structures that break down over time from stress. “Tensegrity” structures disperse load over a nest of tensed cables and compressed struts that allow them to be both flexible and structurally rigid. Now the University of California at San Diego is developing traffic-bearing tensegrity bridges with feedback sensors to guide subtle adjustments in cable length, which could alleviate the shifting stresses of an overladen truck, counteract the vibration frequency of an earthquake, or disperse the load of a severed cable.

Concrete that Senses Cracks and Heals on its Own

Task: Replace miles of concrete highways with smarter versions
Status: Field-testing for self-sensing concrete in progress

Carbon nanotubes are prized for both their strength and their piezoresistance—they change their electrical resistance as they’re stressed. Xun Yu, a mechanical-engineering professor at the University of Minnesota–Duluth, is cooking up a concrete mix that contains 0.1 percent carbon nanotubes, making it harder to crack than traditional concrete, and smart too. By embedding electrodes into it as it sets, Yu can measure changes in electrical resistance to detect compression from passing cars. Future versions will better calculate speed and vehicle weight on the go for a real-time view of the road’s stress. Meanwhile, a new concrete mix developed by Victor Li, a professor of civil and environmental engineering at the University of Michigan, contains unhydrated cement grains that are activated when exposed to carbon dioxide in air and water from rain—exactly what you’d find in a small crack in the road. The reaction produces a calcium carbonate seal, restoring the slab to its normal load-bearing capacity.

Trackless Elevated Trains

Task: Add urban railways for a third the cost of conventional light rail
Status: Texas A&M University’s Texas Transportation Institute has offered free land for a two-mile test track

To save the multibillion-dollar cost of clearing 24-foot-wide swaths for new track, trainmaker Tubular Rail wants to shoot trains up to 150 mph over existing infrastructure through a series of elevated rings 100 feet apart. As it passes through each ring, the 400-foot-long carbon-fiber car is pushed along by electrically powered steel rollers. To save juice, the motors gear up only as a train approaches; up to 90 percent of the kinetic energy of the train can be recaptured as the rollers wind down.

Read the rest of PopSci's plan to rebuild America

Mess #1: Transportation

Mess #2: Water

Mess #3: Power

Mess #4: Telecom

Mess #5: Sewage

Thursday, January 28, 2010

Cheapest Route to Walmart From China May Skip Buffett’s Railway (BNI; BRK.A; BRK.B)

From Bloomberg:
Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the U.S. East Coast may bypass Warren Buffett’s $33.8 billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea.

The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east. That could save exporters 30 percent, the canal operator said.

The $5.25 billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.’s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje, a shipbuilding analyst at Mirae Asset Securities Co. in Seoul.

“It is inevitable that railways, such as Burlington Northern, will lose some of their cargo once the Panama Canal is expanded,” said Jee Heon Seok, a shipping analyst for NH Investment & Securities Co. in Seoul. “Many more containers can be moved in a single voyage on a ship than going through the West Coast ports.">>>MORE

President Obama "Cleans" up in State of the Union Speech (FAN; PBW; TAN)

UPDATE: A reader points out that Al Gore's favorite carbon trader, Camco (CAO.L) is down 9.37%.
Original post:
A quick search of the transcript of the President's speech shows 10 uses of the term "clean energy"and one each of "clean nuclear" and "clean coal"

The President used the terms "climate change" once and "energy and climate bill" once.
There was no mention of "global warming".
There was no mention of the phrase "cap-and-trade".

Here's the transcript at the New York Times.

The PowerShares WilderHill Clean Energy ETF (PBW) is down 2.69%.
The Claymore/MAC Global Solar Energy ETF (TAN) is down 1.33%.
The First Trust Global Wind Energy ETF (FAN) is down 2.41%.
The Nasdaq and S&P 500 indexes are down 2.28% and 1.56%, respectively

Massachusetts Counts on Obama in $28.2 Billion Budget

Who's next, Illinois?
From Bloomberg:
Massachusetts Governor Deval Patrick, who is seeking re-election in November, proposed a $28.2 billion budget for the fiscal year starting July 1 that counts on President Barack Obama to deliver more financial aid.

Patrick, a Democrat elected in 2006, assumes that Congress will extend increased Medicaid reimbursements, generating an additional $600 million to help balance the state budget he unveiled today. The governor said he “spoke with the White House yesterday” about its effort to get legislation passed to continue higher federal support for state spending on the health insurance system for low-income people.

“This is a very reasonable assumption,” the governor said at a press briefing at the State House in Boston today. Without federal help and other new revenue and budget cuts, the state faces a $2.7 billion deficit in the fiscal year starting July 1, he said.

The $787 billion American Recovery and Reinvestment Act that Congress approved a year ago included at least $126.5 billion for states to boost Medicaid and education spending, according to estimates from the Washington-based Center on Budget and Policy Priorities. The funding expires at the end of this year and the U.S. House already tried to extend some of the support by passing health care and jobs bills.

Patrick joins at least one other state leader balancing a budget on the hope Obama and Congress deliver more aid. California Governor Arnold Schwarzenegger assumed in his $82.9 billion spending plan this month an additional $7 billion of federal support, including $1.2 billion from extending the increase in Medicaid reimbursements....MORE

Iran leader predicts destruction of Israel

Of course he also bet on Germany in 1940:
"It was looking so good; Poland in September '39, Denmark in April '40, Belgium and The Netherlands in May of '40, Norway and France in June; man it was a lock".
Here's the Israel story.

SEC Issues Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change

This "guidance" is vague enough to open almost any reporting corporation to legal action under the disclosure provisions of the '33 Act.
Let the good times roll (for the plaintiffs bar).
From the Securities and Exchange Commission:

Washington, D.C., Jan. 27, 2010 — The Securities and Exchange Commission today voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.

Federal securities laws and SEC regulations require certain disclosures by public companies for the benefit of investors. Occasionally, to assist those who provide such disclosures, the Commission provides guidance on how to interpret the disclosure rules on topics of interest to the business and investment communities. The Commission's interpretive releases do not create new legal requirements nor modify existing ones, but are intended to provide clarity and enhance consistency for public companies and their investors.

The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis.

"We are not opining on whether the world's climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics," said SEC Chairman Mary Schapiro. "Today's guidance will help to ensure that our disclosure rules are consistently applied."

Specifically, the SEC's interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:

  • Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.

  • Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.

  • Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.

  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

* * *

The SEC's interpretive release will be posted on the SEC Web site as soon as possible.

# # #

Fannie Mae and Freddie Mac Are Dead. What's Next? (FNM; FRE)

I've been asked why I take such an interest in the formerly Government Sponsered Entities.
The quick answer is "They're so damn big".

With balance sheets in the trillions of dollars, with bailouts in the hundreds of billions they are major players in the financial system.

Additionally they are conduits of Federal Reserve policy and have been since at least 1998 when Alan Greenspan used them to supply liquidity to the markets during the Russian default and subsequent failure of Long Term Capital Management.

With the purchase of $1.25 Trillion of Mortgage Backed Securities Chairman Bernanke took a page from the (former) Maestro's playbook.

Oh, and finally, if you understand this stuff you can [maybe -ed] make a buck or two.

Here's a threefer on the possible endgames for Fannie and Freddie. First up, the headline story from The Motley Fool:

"This committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance; that's the approach, rather than the piecemeal one." -- Rep. Barney Frank, Jan. 22, 2010.

What if Frank isn't just talking out of his rear, and Fannie Mae (NYSE: FNM) and Freddie Mac are really on a path to being put out of their misery? What would happen?

Your guess is as good as mine. Frank offered exactly zero details. Logically, major overhaul of Fannie and Freddie would either be:

  • A complete eradication of their roles, ending government-backed mortgage securities and loan insurance.
  • A continuation of their current roles, but only after being brought 100% onto the government's books.

Here's a rundown of each possibility.

1. Complete eradication
To the dismay of Randians everywhere, this possibility really seems like a dream. The odds of completely ending Fannie and Freddie's roles in the housing market are about the same as completely ending Social Security.

Why? Because despite the glaring flaws, the fact is there's essentially no functioning mortgage market outside of government-backed issuance. This table gives an idea just how reliant the market is on the two:


Share of First Mortgages Outstanding

Fannie Mae


Freddie Mac


Banks and Thrifts




Private Label Securities


Source: Freddie Mac.

And that's just the market share of outstanding mortgages. The market share of current mortgage issuance is even more lopsided. Fannie and Freddie combined currently make up about 70% of new mortgage issuance, with the FHA taking up close to 20%, for a total of around 90% reliance on these three government-backed vehicles.

Why such reliance? The best explanation is that large banks -- like Citigroup (NYSE: C), Bank of America (NYSE: BAC), JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC) -- don't have the appetite to lend directly to homeowners after being sufficiently wrecked by housing over the past three years. Also, with the yield curve the way it is, it makes sense for banks with a long-term outlook (I'd like to believe they exist) to invest in short-term Treasury securities instead of longer-term assets like mortgages. Wells Fargo recently admitted it's doing just that.

Second, the market for private securities (like CDOs) packaged by banks like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) is virtually extinct compared with prior years, because investors now know how dangerous they can be.

At any rate, know this: If private banks were the only issuers of mortgage funding, the cost (interest rate) would blow up in a big way. To compensate, housing prices would get nuked. For example, a 30-year fixed mortgage at 5% with a $1,500 monthly payment will finance around $275,000 worth of house. The same $1,500 mortgage at 9% will only finance about $185,000.

Few politicians want to explain to their constituents why annihilating home values is worth it -- that's why there's very little chance that Fannie and Freddie's roles will actually be eradicated.

2. Continued roles, fully owned by Uncle Sam
The most likely "new system of housing finance" Frank wants is a continuation of the government-backed mortgage market, but only after Fannie and Freddie's assets and liabilities are brought entirely onto the government's books....MORE

And from American Banker via Structured Finance News:

FASB Rule Complicates GSEs' Future

Long criticized for their excessive leverage, the balance sheets at Fannie Mae and Freddie Mac will explode this quarter as they account for mortgage loans worth trillions.

The government-sponsored enterprises are being hit hard by a rule released last summer by the Financial Accounting Standards Board (FASB) requiring companies to bring securitizations onto their balance sheets.

For Fannie, that means bringing $2.8 trillion of mortgage loans onto its books; it had $890.3 billion of assets at Sept. 30. Freddie held $866.6 billion of assets at Sept. 30 and plans to transfer $1.8 trillion of mortgage loans to comply with the FASB rule.

Fannie and Freddie are unlikely to raise more capital to account for their expanded balance sheets since the Treasury Department has committed itself to infuse as much as is necessary into the GSEs to keep their net worth positive. But with the accounting changes potentially tripling or quadrupling Fannie's and Freddie's balance sheets, important questions arise about how they will emerge from conservatorship.

"Do you think the federal government can move to a post-conservatorship world with Fannie and Freddie with those kinds of balance sheets?" asked Joe Murin, the managing director of the Collingwood Group and a former chief executive of Ginnie Mae. "It's a big deal for us as taxpayers to look at the leverage here. It almost guarantees the federal government is going to be involved in this for many years."

Reckoning with the future of Fannie and Freddie is largely seen as a task for another day. The more immediate question is whether the FASB rule will send Fannie and Freddie into negative net worth and back to the Treasury Department for funding.

In a controversial Christmas Eve announcement, the Treasury effectively lifted any cap on how much Fannie and Freddie could borrow from their government credit lines.

In its third-quarter report, Freddie acknowledged the accounting change could "have a significant negative impact on our net worth and could result in additional draws" from the Treasury. Fannie said the change "will affect our net worth," but its report did not address whether it would require further borrowing from the Treasury.

Through the third quarter, Fannie had borrowed $60 billion from the Treasury and Freddie had tapped it for $51 billion. Analysts said it is impossible to guess how much more the GSEs may need to borrow.

"There certainly will be some impact on implementation," said Brian Harris, an analyst at Moody's Investors Service. "If you want to quantify it, we can't do that."

But it is almost certain that regulators will not require the companies to raise additional capital privately.

The Federal Housing Finance Agency (FHFA), which acts as the conservator for Fannie and Freddie, effectively abandoned minimum capital rules after the companies were seized by the government in September 2008.

Fannie said it was $91.7 billion below its minimum capital level by the end of the third quarter, and Freddie said it was $43.8 billion short....MORE

Finally from ZeroHedge:

Observations On The Ongoing $1.5 Trillion GSE Wealth Transfer

John Hussman shares an interesting perspective on yet another from of intergenerational wealth transfer (aka theft), this time involving the US (and by implication its taxpayers), its increasingly unmanageable debt load, and the resultant preservation of wealth of lenders to the nationalized GSE complex, which is massively underwater but will never be forced to be impaired on its holdings, for as long as the current Fed leadership is in place, and the chimera of "change" continues being just that. The kicker - Congress has no way whatsoever to prevent this theft from happening. Once again, America's entire legislative apparatus has been bypassed in order to bail out the reckless lenders who inflated this whole credit bubble in the first place.

How to spend $1.5 trillion without Congressional approval

Step 1: Federal Reserve purchases $1.5 trillion in Fannie Mae and Freddie Mac securities, creating $1.5 trillion of monetary base to pay for these purchases.

Step 2: U.S. Treasury quietly announces unlimited support for Fannie Mae and Freddie Mac on December 24, 2009, exploiting a loophole in a 2008 law that was originally written to insure a maximum of $300 billion in total mortgage principal (not losses, but principal).

Step 3: Over the next several quarters, the U.S. Treasury issues $1.5 trillion in new Treasury debt to the public, taking in the $1.5 trillion in base money created by the Fed in Step 1.

Step 4: U.S. Treasury hands that $1.5 trillion in proceeds from the new debt issuance to Fannie Mae and Freddie Mac.

Step 5: Fannie Mae and Freddie Mac use the proceeds to redeem the $1.5 trillion in mortgage securities held by the Fed, thus reversing the Fed's transactions in Step 1, without the need for any other "unwinding" transactions (watch). The base money created by the Fed comes back to the Fed, and the mortgage securities purchased by the Fed disappear, by burdening the American public with a new, equivalent obligation in the form of U.S. government debt.

Outcome: The Federal Reserve closes its positions in Fannie Mae and Freddie Mac securities, the quantity of outstanding Fannie Mae and Freddie Mac liabilities declines by $1.5 trillion, thus allowing their remaining assets repay the remaining liabilities without a $1.5 trillion hole of insolvency, and the outstanding quantity of U.S. Treasury debt expands by $1.5 trillion in order to protect the lenders, while ordinary Americans continue to lose their homes and jobs.

Throughout this crisis, the ultimate objective of Bernanke and Geithner has consistently been to protect the bondholders. This objective will not change unless the leadership changes.

While Obama's "War on Wall Street" is progressing with no impact, and will likely stimulate the bankers to merely find new loopholes to extract wealth, the one aspect of financial reform that the Administration should be focusing on, the shadow nationalized balance sheet, that of Fannie and Freddie, keeps getting absolutely no focus....MORE

Wednesday, January 27, 2010

Carbon Markets Are Under ‘Dark Cloud,’ Merrill Says

From Bloomberg via BusinessWeek:
Carbon markets are under a “big, dark cloud” of uncertainty about future regulation and falling natural-gas prices, analysts at Bank of America Merrill Lynch said in a research report.

European Union carbon dioxide emission volumes from fossil fuels probably dropped 9.5 percent last year, reducing demand for EU permits, Merrill analysts including Sabine Schels said today. The EU market probably has 166 million too many allowances in the five years through 2012, they said. Prices are holding up because allowances can be saved and used after 2012, the report said, without giving a specific forecast.

“A string of bearish signals is currently hanging over the European and global carbon markets like a big, dark cloud,” Merrill said. “Last week’s resilience in pricing seems particularly remarkable in light of the energy complex selling off and temperatures warming up.”

EU carbon prices fell 1.6 percent last week as benchmark crude oil dropped 5.6 percent. EU emission allowances declined 34 percent the past two years as the recession reduced demand in the world’s biggest greenhouse gas market.

Selling by factories with spare permits may weigh further on prices, Merrill said. “We do not foresee significant price upside over the next three-to-six months.”>>>MORE

Italian mobsters buck downturn, may target bourse (stock market for you Americans)

Long time readers know that I am just fascinated by this stuff, see links below.
From Reuters:
*Mafia digs in as Italy's biggest 'company'
*Mob thrives on credit crunch, unemployment
*May target bourse to launder profits

Italy's mafia crime syndicates bucked the recession in 2009 to raise 'profits' by almost 8 percent with the financial crisis making companies and even the stock market even more vulnerable to cash-flush mobsters.

"Mafia Inc. is reinforcing its position as the number one Italian company," said a report published on Wednesday by a body whose members bear the brunt of mafia extortion and crimes, the small business and shopkeepers' association Confesercenti.

It estimated that the impact on business equalled about 7 percent of Italy's economic output, enjoying healthy growth in a year when the Italian economy shrank by almost 5 percent.

Experts had predicted when the crisis began that Calabria's 'Ndrangheta, with its huge slice of the global drugs trade, Sicily's Cosa Nostra, Naples' violent Camorra and Puglia's Sacra Corona Unita would see more demand for loan-sharking.

But the report said mobsters had also been able to launder their earnings by buying up cheap assets and had found a cheap and willing workforce among the newly unemployed.

"In times of crisis the Mafia's money, even though it is dirty, makes people's mouth water," the report says.

Confeserscenti's research arm SOS Impresa, citing data from police, mob informants, magistrates, government agencies and its own network across the country, said the boom had been so strong that organised crime may target the bourse to launder its money.

"There is a risk the Mafia could take advantage of the difficulties of some large business groups who are undergoing a liquidity crisis to attempt to get into the stock market behind the scenes in a big way," said the report.


It estimated the mob's joint turnover last year at 135 billion euros, topped by trafficking in drugs, people, weapons and contraband worth just under 68 billion euros. Second came "business" interests like public contracts, gambling, forgeries and supplying illegal labour at 25 billion euros, then extortion and loan sharking at 25 billion euros....MORE

HT: Foreign Policy's Passport blog


So a Sicilian mafioso walks into HSBC…

Mafia crime is 7% of GDP in Italy, group reports

Why the Mafia Loves Garbage

Mafia link to Sicily wind farms probed

Zeitgeist: Mafia Cash Increases Grip on Sinking Italy Defying Berlusconi

Interpol: "Forest-CO2 scheme will draw organized crime"

China's Kyoto Scam = $Billions

Noble Environmental Power offers 24M shares in IPO (NEPI; WNDY
This should be an interesting offering circular. If you recall, Nobel Environmental was one of the wind project developers mentioned in the Aug. 17, 2008 New York Times story "In Rural New York, Windmills Can Bring Whiff of Corruption"...

How's That "Short AIG Working Out?" "Back-month bears bet on an extended slide for the insurance issue" (AIG)

As the hearings go on, Secretary Geithner uses the Sergeant Schultz defense and the stock is trading down 20 cents at $24.20.

In our September 1, 2009 post "
American Intl Group: Downgraded to Underperform at Sanford Bernstein; $10 target (AIG)" I said:
In early pre-market trade the stock is down $2.23 (4.92%) at $45.33. If SB is correct that leaves some downside, eh?...
We followed up with:
Sep 9
Credit Suisse Analysts on AIG: ‘Little to No Value for Common Equity’
Sep 22
AIG Shares: Still Not Worth Anything.
Nov 30
American International Group: AIG Reserves Deficient - Sanford Bernstein (AIG)
Dec 1
AIG Tangible Common Equity -$162.06 a Share, Analyst Says (AIG)
Dec 4
"Trading Idea: Sell AIG" (AIG)
The stock is trading at $30.51, up 62 cents....
Whether you got the idea in September or December or anywhere in between, you've got a down stock in a (generally) up market.
From Schaeffer's Research (Jan 26):

American International Group (AIG: View sentiment for AIGsentiment, chart, options) – better known as just "AIG" – has been the focus of some fervent put trading today, as investors prepare for a congressional hearing on the insurer's payments of taxpayer funds to large banks. Among those on the roster to testify tomorrow are former U.S. Treasury Secretary Henry Paulson and former chairman of the New York Fed Stephen Friedman.

So far today, the bailed-out behemoth has seen almost 18,000 puts cross the tape – nearly doubling its average single-session volume of fewer than 9,300 puts. Most popular has been the in-the-money February 28 put, which has seen about 3,350 contracts exchanged. However, most of the puts have traded closer to the bid price, indicating they were likely sold, and implied volatility has ebbed 1.9%. In other words, it seems some February 28 put traders may be cashing in on AIG's recent retreat by liquidating their positions.

Meanwhile, the at-the-money March 25 put has seen close to 3,200 contracts change hands – most of which have traded at the ask price, suggesting they were likely bought. What's more, the March 25 strike currently harbors fewer than 450 open put contracts, implying that a healthy portion of today's activity should translate into new positions after the closing bell....MORE

I am continually amazed that Efficient Market Hypothesis is still taught in major business schools.
Especially on the short side, the lag time between financial or economic realities and the market's reaction to same can take months.

The best recent example was back in 2007. The sub-prime mess was being fairly widely discussed in the spring of that year yet the major averages went on to set their highs in early October.

Global maco can be rewarding on so many levels.

The Supreme Court Ruling on Corporate Free Speech is A Win for Incumbent Politicians and Incumbent Corporations

Established businesses use any trick they can muster to stifle competition.

This has been going on as long as business has been transacted and is deleterious to the greater economy. Big business free market advocates are remarkably anti-free market in their actual behavior with negative consequences for innovation and growth in the societies in which they operate.

I don't really care much about the partisan effects of the Supremes 5-4 ruling in Citizens United v. Federal Election Commission. The important effect will be in how big business promotes rules and regulations that hamstring their up-and-coming competitors.

On last Friday's PBS NewsHour David Brooks touched on this point:

...JIM LEHRER: Meanwhile, also this week, the United States Supreme Court handed down this decision on campaign finance. Some people say it's a huge catastrophe. Some people say it's a blessing, a freedom of speech issue, a First Amendment issue.

A tragedy? A victory? How do you see it?

MARK SHIELDS: It is the single biggest decision the Supreme Court, politically, in my lifetime. Everybody I talk to who is involved in campaigns, who has raised money politically said -- is terrified by it, in the sense...

JIM LEHRER: Terrified?

MARK SHIELDS: ... its implications.

American corporations, by IRS' judgment in 2005, are worth $23 trillion dollars. Barack Obama raised $800 million. Now, if we are -- say I'm Goldman Sachs, and David is sponsoring legislation to get back my bonuses. And David's got a safe district. I don't have to go after David.

All I have to do is take somebody who is sponsoring, sponsoring David's legislation, supporting David's legislation, and I go in and spend $3 million and beat him. I have hanged that person. My lobbyist says, we're going to stop this one way or the other. We will spend whatever we have. I don't want to hurt you, David, but, I'm sorry, Shields just had to sacrifice his seat.

That is -- the implications of this are absolutely unfathomable and they are terrifying.

DAVID BROOKS: Yes, I think it is a bad decision. I do -- I think it will have a poisonous effect on political atmosphere, but for different reasons than most people that I have read and heard from.

First, I'm not convinced it will have a -- it will totally change the landscape, because I'm not convinced a lot of corporations are going to want to have a political profile.

JIM LEHRER: Why not?

DAVID BROOKS: Because you are a corporation. You want to sell everybody.


DAVID BROOKS: And, so, why stick your neck out?

But I do think it will have this effect. What do corporations, when they go to Washington, what do they want? One, they want subsidies from Washington. Two, they want to crush small businesses who are hoping to compete with them by erecting regulatory hurdles.

So, I think they will use that money to try to essentially hurt small business, who don't have lobbyists, don't have money to spend. And I think both of those are very negative effects on the country.

I do not necessarily think it is great for the Republican Party and terrible for the Democratic Party, because when you look at who is willing to subsidize corporations and erect regulatory barriers, both parties actually do that. So, I think will have bad effects, but not necessarily partisan effects.

JIM LEHRER: When President Obama said yesterday, we're going to do -- I'm going to talk to Congress and we are going to have a forceful response, what can he do? What can anybody do about this, whether they like it or not?

MARK SHIELDS: Well, I mean, the way that the opinion, the decision was written, it's going to be awfully tough. I mean, they have made it constitutional...

JIM LEHRER: The Supreme Court of the United States has made a decision.

JIM LEHRER: Do you agree with that, David, that there's not too many options?

DAVID BROOKS: Yes. I mean, people like Chuck Schumer are working on it, but it's -- from what I have read -- and I don't understand it completely -- they are nibbling on the edges, rather than going at the core.

MARK SHIELDS: Yes. No, it is -- I'm serious -- this is big-time. It really is. And the -- just the presence of that kind of money, why would anybody volunteer in a campaign?

JIM LEHRER: Why do you assume -- this is a question -- David is going to ask you this question, but I'm going to ask it before he does.


JIM LEHRER: Why do you assume that people will use it in evil ways, the money?

MARK SHIELDS: Well, I don't find corporations, historically, in this country to have been altruistic agents.


DAVID BROOKS: I think they are altruistic when they make great products. I happen to like my iPod and all that kind of stuff.

MARK SHIELDS: I am talking about public policy.

DAVID BROOKS: No, I agree.

MARK SHIELDS: Public policy.

DAVID BROOKS: They try to stifle competition.


DAVID BROOKS: That is what businessmen do.

MARK SHIELDS: And they -- and they are not -- and they don't take a wide perspective. They don't take -- I didn't see them -- did you see the corporations really pushing for the civil rights acts? I mean, did you see them pushing for Americans With Disabilities Act? I missed that, I guess.

JIM LEHRER: Mark, David, it has really been nice chatting with you.

I'll be coming back to this, I wanted to bookmark the link.

The 6 Most Statistically Full of Shit Professions

From Cracked:

People get paid a lot of money to be experts on things, so one would assume they're much more knowledgeable than the average Joe or, at the very least, a blindfolded monkey throwing darts.

Sadly, in many cases this just isn't true, and the so called "expertise" in question amounts to little more than a shot in the goddamn dark. Here are a few cases of experts that probably shouldn't inspire as much confidence as they do.

Stock Market Experts

Many of us find the stock market too intimidating to put money into, or at least we would if we had the money to invest in the first place. How do you decide what stocks to pick? We can't even pick where to go for lunch half the time and we understand lunch.

...don't we?

That's when you call in a professional, or if you're not rich, you buy a pre-set package of stocks and bonds that a professional has pre-picked for you, and then sit back and, uh...

Watch your stocks grow more slowly than if you picked them at random.

Yes, as it turns out, the majority of professionally managed funds picked by stock market experts (70 to 85 percent) actually underperform the Dow or S&P indexes, which are technically supposed to represent the average performance of the market to begin with.

Results not typical.

If you do have to peddle your nest egg off to someone else, try to hand it to Warren Buffet, whose Berkshire Hathaway stocks have outperformed the index by 11.14 percent on average for over 30 years. So it's not like financial advisors can't know what to pick. They usually just don't.

But hey, there is some good news: When going up against a bunch of dudes throwing darts at a chart to randomly pick their stocks, the stock professionals performed better.


Wine Tasters

One thing we all can be sure about is that people that make their living writing about wine must be able to sniff out differences between wines much better than us plain ordinary folk.

Sure, Joe Consumer actually likes cheaper wines better, but that's because Joe Consumer is a stupid Philistine. The experts can tell the difference between a 2006 and 2007 Stag's Leap Cabernet Sauvignon in their sleep because everyone knows 2006 was a pedestrian year for Napa Valley reds.

Hell, they are so good they can tell the difference between two bottles of the same wine. In one experiment, wine experts were given two bottles of the same wine, only one was labeled a "vin de table" (France's version of "Night Train") and one was labeled a "grand cru" (top-rated vineyard since 1855). Want to guess what happened?

According to the article: "Whereas the tasters found the wine from the first bottle 'simple,' 'unbalanced,' and 'weak,' they found the wine from the second 'complex,' 'balanced,' and 'full.'" Not only were their tasting skills put to shame, it didn't even occur to them that nobody buys a $40-plus bottle of wine for a university experiment.

"...this tastes like vodka and grape soda."

Not only can professional wine tasters be convinced that the same bottle of wine was both award-winning and hobo juice, but they could even be convinced that the same bottle was both red and white with the cunning use of food coloring.

That's not to say the whole idea of wine tasting is a crock- it just seems like a field where judging with one's eyes is a temptation too easy to fall into. For example, in the 1976 Judgment of Paris, French experts picked American wines as superior to their own, recoiling in horror when they found out.

Art Critics

Despite being the battle cry of the bad artist, it's really true that art is subjective. So we don't expect art critics to be able to tell us which art is the "best." We do expect them to at least be able to tell the difference between a Van Gogh and a Picasso, or a Vermeer and a Gary Larson.

The good news is that one of those expectations is correct....MORE

Zeitgeist: "Davos Dialog Will Downplay Carbon, Talk Up Energy And Infrastructure"

Not a surprise for our loyal [and long-suffering -ed] readers. Here's a comment I left at Environmental Capital:
C’mon guys, get with it!
Global warming is so last year.
Everybody, from Al Gore to the blogs you link to are reinventing themselves and talking energy.
Energy production
Energy cost.
Energy security.
It’s all about framing and re-framing.
Low impact man’s time has come and gone. The eco-soirée has moved on to erudite discussions of thorium between nibbles at the canapés.
By this winter the only references to carbon among the salon crowd might be Carbonic acid (H2CO3).
You watch.
Comment by
Climateer - July 22, 2008 at 8:37 am
This stuff is all political and investors must keep an ear to the political ground or risk tremendous losses. There are only two viable approaches to rentseeking investing and politicians, buy 'em or play 'em....
I meant buy the politicians.
That was seventeen months ago.
From CNBC:
Organizers may have created a low-carbon, green zone for the occasion of the 40th annual global gabfest in the Swiss mountain town on Davos, but it may no longer be the best environment for high-profile chatter on climate change.

With little progress in talks at last December’s UN Copenhagen conference, and with economic growth still tepid, expect discussions of carbon emissions and climate change to take a back seat at the World Economic Forum's annual meeting this week.

“There was a lot of focus on climate change leading up to Copenhagen,” says Jon Sohn, climate change expert at law firm McKenna Long & Aldridge LLP. “It is not surprising they wouldn’t be the focus because we’re so fresh off of that.”

Carbon emissions and climate were headline items at last year's Davos conference, but this year's theme—"Rethink, Redesign, Rebuild"—promises to look at more ways to rework the world economy than simply making it low-carbon.

Jake Schmidt, international climate policy director at the Natural Resources Defense Council, NRDC, says while the low billing climate change is getting at Davos this year can partly be explained bu conference’s organizers rotate their themes, other venues may now be more important to top-level discussions on climate change.

“People are trying to let the dust settle” after Copenhagen, he says, adding that 75 percent of last year’s Davos sessions were on climate change. “In Copenhagen, you had a much greater engagement by heads of governments and heads of corporations than we’ve ever seen on any issue.”>>>MORE

Berkshire Hathaway: "Warren Buffett and the S&P: What it Means" (BRK.A: BRK.B) Arbitrage Anyone?

UPDATE: A reader pointed out that I failed to mention dividing by the recent 50:1 split to get to Warren's original arbitrage rule of thumb.
Original post:
In early pre-market trade the B shares were trading up $5.46 (8%). It means more business for the specialist in the stock, Jim Maguire. I looked to see if anyone had talked to him, nada. I looked to see if anyone had commented on arbitraging the A and B shares and a Climateer Investing post pops up, see below.
From MarketBeat:

Baby Berkshires are getting bid up in premarket trading, after Tuesday’s announcement that the class B shares in Warren Buffett’s iconic company will replace shares of Burlington Northern Santa Fe in the S&P 500 stock index. The Journal’s Scott Patterson reports:

Berkshire’s addition to the index means fund managers who track it will need to rush to buy shares. Many index funds controlled by money managers, such as Vanguard Group, are benchmarked to holdings in the S&P 500, a broad gauge of corporate America. S&P estimates that more than $3.5 trillion in assets are held in investment funds, including index funds, tied to components of the S&P 500.

Previously, Berkshire Hathaway shares had been excluded from the S&P 500 because their high prices cut down on how often they were traded....MORE

November 3, 2009
Baby Berkshire split may put shares in S&P 500 Index (BRK.B)

The Berkshire Hathaway Arbitrage (BRK.A: BRK.B; LAB)
The quick and dirty:
This is a repost from February, with a couple additions at the end.

As a followup to yesterday's "Buffet Urges Investors to Read Graham’s Chapters 8 and 20 in Times of Financial Crisis (but wait, there's more!)", Market Movers brings a pair trade to our attention (it's not a classic arbitrage as the "B" shares are not good delivery for the "A"):

...Now the B shares have 1/30th of the economic value of the A shares, but only 1/200th of the voting rights. They began the week worth about 1/31 of an A share, and ended it worth less than 1/32 of an A share. Given that the seeming arbitrage persisted all week, the market might well be starting to value those A-share voting rights.

"In my opinion," says Warren Buffett, "when the B is at a discount of more than say, 2%, it offers a better buy than the A." Right now the discount is a whopping 7%. So if you want to take Buffett's advice, start buying up B shares. If, that is, you want to buy his stock in the first place. Which is a different matter entirely....SOURCE

We are conversant with the issue. From Berkshire Hathaway (oops, just noticed that Mr. Salmon has the link to the memo, here it is anyway:...Memo

Whose the happiest guy on the floor today? From Barron's, April 25, 2005....

Tuesday, January 26, 2010

"As an addendum to Monday’s political rant, Rochdale Securities banking analyst Dick Bove has made a flow chart."

FT Alphaville puts itself in the running for the prestigious Climateer Line of the Day.
Here's the story.

Solar: Jefferies Upgrades Some Stocks After Sell Off On German Subsidy Cut (SPWRA; STP)

From Tech Trader Daily:

Solar shares this morning are getting a lift this morning from Jefferies analyst Paul Clegg, who upgrades a number of stocks in the group following the recent sell-off in the sector triggered by reductions in German subsidies for the industry.

“A recent valuation pull-back and the market having digested potential disruptions around the German FIT leave us incrementally more constructive on some names, although risks remain,” he writes. Clegg notes that the firm downgraded the solar sector last August over concerns about aggressive pricing and possible subsidy cuts....MORE

Stuyvesant Town Peter Cooper Village: "Church of England counts cost of New York property deal"

From the Times of London:

The Church of England has suffered a £40 million loss on a disastrous investment in a New York apartment complex that was acquired by a consortium in 2006 for $5.4 billion — the biggest single residential property deal in the United States.

A spokesman for the Church Commissioners said that it had written off the entire value of its investment and added that the commissioners were “looking carefully” at the lessons to be learnt....MORE
HT: FT Alphaville
See also the January 20 ToL story "MPs want crumbling cathedrals to get Government cash"

Sometimes all you can do is ask "Who are these guys?"
We began our October post "Church of England could lose [$35 Mil.] in StuyTown" by saying:

Never one to kick a Bishopric when it's down.
Ah what the heck, as we said in Sep. '08's "On Leverage, Investment Banks and Incompetence":

"Don't kick a guy when he's down?
Shit, that's the best time."
-a trader to your correspondent, some years ago.

A 50% haircut on a $70 mil. investment. See below for more on the CofE.
The disdain came from the Church's sanctimonious condemnation of short selling while at the same time hiring managers who employed the tactic:
...The Church has a lot of work to do to get it's spiritual and financial houses in order:
Hedge funds win Church of England blessing (no new comments on 'Bank Robbing Traders')

Archbishop of Canterbury Tells Bankers to Repent

Short-Sellers `Clearly Bank Robbers,' Says Archbishop

Church of England accused of short-selling after its attack on 'bank robbing' traders

Goldman bonuses grow on Obama stock rout (GS)

From the New York Post:

By trying to do the right thing on bonuses, Goldman Sachs CEO Lloyd Blankfein might have inadvertently done very right by his employees -- while at the same time creating unintended consequences.

And he can thank President Obama.

Though Blankfein was trying to stave off another p.r. nightmare by reducing the cash component of bonuses in favor of more stock, he and the bank's 30 top employees got a huge gift last Thursday when Obama once again declared war on Wall Street, this time proposing limits on banks' risk-taking and limiting investment banking activities at firms that also run commercial banks.

The news sent bank shares tumbling sharply both Thursday and Friday -- the day on which Goldman priced shares it will use to pay employees. But because Goldman's stock had sunk more than 8 percent during that two-day sell off, Goldman employees will end up getting more stock to reach the dollar equivalent of their bonuses. And that means the bonus amount could be even higher as the shares recover.

Goldman shares closed basically flat at $154.98, vs. Friday's close of $154.12....MORE

Bloomberg had the story before the Post, with:

Goldman Sachs Bonuses May Get Boost as Obama Plan Hammers Stock
President Barack Obama’s call last week to curb bank risk-taking and crack down on “obscene” Wall Street bonuses may help boost those very payouts at Goldman Sachs Group Inc.

Goldman Sachs, like many banks, is awarding more of its bonuses in stock to tie them more closely to performance. The firm priced those shares at $154.12, the closing level on Jan. 22, a person familiar with the matter said, after a two-day, 8.1 percent slide prompted by Obama’s plan.

The biggest two-day drop since March means employees will receive more shares than they would have earlier in the week, and have a greater opportunity to profit should the stock gain. The firm said last month that its top 30 executives will get bonuses entirely in stock that they can’t sell for five years. Goldman Sachs rose 1.9 percent to $156.99 at 12:19 p.m....MORE


Back on Dec. 4 we posted "Is This Why the Stock is Trending Down?: "Top Goldman Sachs Executives Are Likely to Receive Their Annual Bonuses in Stock " (GS)" and guessed at a $150 stock on pricing day:

As the old traders used to say, "Well bought is half sold". Why take your bonus in stock valued at $200 if you can get a third more shares when it's priced at $150. I'm just sayin'...

Climateer Line of the Day: Fannie Mae/Freddie Mac Edition (FNM; FRE)

In early pre-market trade, Fannie was down a penny at $0.93 while Freddie was flat at $1.15.

When we posted "Frank to Recommend Replacing Fannie Mae, Freddie Mac (FNM; FRE)" last Friday the teaser we copied out from the Bloomberg story was their first draft. They went through four updates which is something they won't spend time doing unless a story is important.

The Bloomberg writers moved this bit to the third paragraph (our emphasis):
...Frank said Congress also needs to figure out what to do with the remaining shareholders in Fannie Mae and Freddie Mac as well as investors in the companies’ $5.4 trillion in mortgage bonds and $1.7 trillion in unsecured corporate debt.
“That will be one of the things we will be talking about,” Frank told reporters after the hearing.

“The stockholders were of course already pretty much beaten up.”
My rather sharp-tongued grandmother used to say, "A remarkable grasp of the obvious".
Fannie traded over $70 as recently as August, 2007.

As I said in "Nightly Business Report: "The President's Plan for Fannie Mae & Freddie Mac" (FNM; FRE)":
...Although I don't have any inside information on this, my best guess is that current common shareholders will get wiped out with maybe some warrents or an equity stub as a bone to this rather powerless constituency....

Monday, January 25, 2010

Bill Gates: "Why We Need Innovation, Not Just Insulation" (BRK.A; MSFT)

Mr. Gates' pal and bridge buddy, Warren Buffett, tucked Johns-Manville into the stable back in 2001.
Here's how J-M describes itself:
Johns Manville, a Berkshire Hathaway company, is a leading manufacturer and
marketer of premium-quality building insulation, commercial roofing, roof insulation, and specialty products for commercial, industrial, and residential applications.
JM’s product offerings include: Formaldehyde-free™ fiber glass building insulation,
commercial roofing membranes and roof insulations, filtration media, and mats and reinforcements.
A year ago we posted "
Stimulus: Tips on Trading the Caulk/Putty/Grout Complex":
...I got nuthin'. The largest caulk manufacturers are privately held.
The largest caulk gun manufacturer is a family business.
The largest silicone supplier is Momentive Performance Materials Inc. (formerly GE Silicone) controlled by an affiliate of Apollo Management.
Their slogan is "Changing the way you think about caulk".
They seem to be hurting. Here's the last 10Q....
I forgot about Johns-Manville! So we came back with "Berkshire Hathaway A Triple Play in Renewable Energy (Now with Solar-y Goodness) BRK.A; ENER" in July, '09.
Here's Mr. Gates via the Huffington Post:

People often present two timeframes that we should have as goals for CO2 reduction - 30% (off of some baseline) by 2025 and 80% by 2050.

I believe the key one to achieve is 80% by 2050.

But we tend to focus on the first one since it is much more concrete.

We don't distinguish properly between things that put you on a path to making the 80% goal by 2050 and things that don't really help.

To make the 80% goal by 2050 we are going to have to reduce emissions from transportation and electrical production in participating countries down to zero.

You will still have emissions from other activities including domestic animals, making fertilizer, and decay processes.

There will still be countries that are too poor to participate.

If the goal is to get the transportation and electrical sectors down to zero emissions you clearly need innovation that leads to entirely new approaches to generating power.

Should society spend a lot of time trying to insulate houses and telling people to turn off lights or should it spend time on accelerating innovation?

If addressing climate change only requires us to get to the 2025 goal, then efficiency would be the key thing.

But you can never insulate your way to anything close to zero no matter what advocates of resource efficiency say. You can never reduce consumerism to anything close to zero.

Because 2025 is too soon for innovation to be completed and widely deployed, behavior change still matters.

Still, the amount of CO2 avoided by these kinds of modest reduction efforts will not be the key to what happens with climate change in the long run.

In fact it is doubtful that any such efforts in the rich countries will even offset the increase coming from richer lifestyles in places like China, India, Brazil, Indonesia, Mexico, etc.

Innovation in transportation and electricity will be the key factor....MORE

The above originally appeared on Bill's blog, "The Gates Notes" which intro's with:
Since leaving my fulltime job at Microsoft to dedicate more time to our foundation, a lot of people have asked me what I'm working on....
reminding me of this post from 2008:
Bill Gate's and the Retirement Planning Team

I'm not sure who the guy in the red sweater is, probably an actuary
or something.

By the way, here's the real retirement video. I know, I thought the CES vid was real.
HT (on the real retirement video): Gizmodo

Here's the retirement video Bill showed at CES, 2008:

Albert Edwards, Societe Generale: "Theft! Were the US & UK central banks complicit in robbing the middle classes?"

From ZeroHedge:

...We present Albert Edwards' latest in its complete form as it must be read by all unabridged and without commentary. These are not the deranged ramblings of a fringe blogger - this is a chief strategist for a major international bank.

Theft! Were the US & UK central banks complicit in robbing the middle classes?

by Albert Edwards, Societe Generale

Mr Bernanke’s in-house Fed economists have found that the Fed wasn’t responsible for the boom which subsequently turned into the biggest bust since the 1930s. Are those the same Fed staffers whose research led Mr Bernanke to assert in Oct. 2005 that “there was no housing bubble to go bust”? The reasons for the US and the UK central banks inflating the bubble range from incompetence and negligence to just plain spinelessness. Let me propose an alternative thesis. Did the US and UK central banks collude with the politicians to ‘steal’ their nations’ income growth from the middle classes and hand it to the very rich?

Ben Bernanke?s recent speech at the American Economic Association made me feel sick. Like Alan Greenspan, he is still in denial. The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion in a pathetic attempt to deflect blame from their own gross and unforgivable incompetence.

The US and UK have seen a huge rise in inequality over the last two decades, as growth in national income has been diverted almost exclusively to the top income earners (see chart below). The middle classes have seen median real incomes stagnate over that period and, as a consequence, corporate margins and profits have boomed.

Some recent reading has got me thinking as to whether the US and UK central banks were actively complicit in an aggressive re-distributive policy benefiting the very rich. Indeed, it has been amazing how little political backlash there has been against the stagnation of ordinary people?s earnings in the US and UK. Did central banks, in creating housing bubbles, help distract middle class attention from this re-distributive policy by allowing them to keep consuming via equity extraction? The emergence of extreme inequality might never otherwise have been tolerated by the electorate (see chart below). And now the bubbles have burst, along with central banks? credibility, what now?

After reading Ben Bernanke?s speech, once again denying culpability for the bubble, I really didn?t know whether to laugh or cry (remember that Ben Bernanke, like Tim Geithner, was a key member of the Greenspan Fed). I feel like Peter Finch in the film Network, sticking my head out of the window and shouting "I'm as mad as hell and I'm not going to take it anymore!" Although criticism of the Fed (and the Bank of England) has now become louder and more widespread, I feel my longstanding derision for their actions during the so-called ?good years? puts me in a stronger position than some to offer further comment.

Opening my 2002-2005 file of old weeklies I did not have to go any further than the first paragraph of the top copy (end of December 2005). “As far as Alan Greenspan’s tenure at the Fed is concerned, we have spared few words of derision. We have made plain our views that the supposed US prosperity that has accompanied his tenure has been based on a grotesque mountain of debt. We have likened the economy to a Ponzi scheme which will ultimately collapse. He has allowed the funding of strong economic activity by mortgaging the US’s future against one bubble (equity) and then another (housing), which is now beginning to implode”. These are almost consensus thoughts now, but not then....MUCH MORE