September 24, 2008

Global Market Comments for September 24, 2008

1) Congress plays the fiddle while the economy burns. Bernanke is warning that the US may enter a decade of sub par growth, as Japan endured during the nineties.

2) Bill Gross at Pimco, the country's largest bond fund manager, has calculated that the government could make a $56 billion profit on the $700 billion bail out package. He assumes that the government borrows at 5%, buys distressed assets at 65% of face value, and sees a 20% default rate on a 40% decline in home prices, all conservative assumptions. Pimco has offered to manage the entire plan for the government for free. You won't see a better deal than that.

3) There is a huge legal mess brewing in England where it appears that Lehman was engaging in the practice of rehypothecation, which was made illegal after the Barings collapse. This involves the relending of securities held in customer accounts to third parties to raise cash. This is why Lehman's prime broker has been unable to return securities held in segregated customer accounts. At this stage the bulk of Lehman's unclaimed assets are in Europe. In this enviroment, possession is nine tenths of the law.

4) I spent 1 ½ hours last night with Meg Whitman, the just retired CEO of Ebay. A classically trained Harvard MBA with stints at Disney and P&G, in ten years she built Ebay revenues from $4 million to $8 billion, and staff from 30 to 16,000. The company booked $50 billion in revenues last year and would rank as the country's 9th largest retailer. More than 1.3 million people now make a full time living selling stuff on Ebay. Ebay packages account for 20% of shipments by the German post office, Ebay's second largest market. Over 1 million cars were sold on Ebay last year and are now the company's largest revenue item. (I bought one of the first cars sold on Ebay eight years ago and watched with amazement as maps were emailed to me daily tracking its progress from Texas to San Francisco). Whitman is now the co-chair of the McCain campaign and is evidence of the emergence of a new type of Republican; engaging, pragmatic, professional, and economically oriented, not an ideological religious fanatic.

SPX0924.png  picture by sbronte


'Unattended real estate has the half life of a head of cabbage.' A hedge fund manager in reference to the possible government takeover of 1 million foreclosed homes.