Thursday, November 13, 2008

My faves for the day (11-13-08)

Big Three

"What happens if the Big 3 go into Chapter 11?

Consumers will be even more hesitant to buy Big 3 autos, due to warranty concerns.

Hundreds of part suppliers will likely go into Chapter 11 within 60 days (this could even hurt the transplants, who sometimes use the same suppliers) as their pre-filing accounts receivable will be frozen. There will be a chain reaction across numerous sectors of the economy (steel, tires, electronics).

Massive job cuts will occur, following the major job cuts that have already occurred. Whole communities would quickly become waste lands. Ohio and Michigan will take an incredible beating, after a decade of beatings. Ugh."

RW: And then….

The Bankruptcy of GM

“We don't like to let financial firms go bankrupt because bankruptcy shuts down their business. Buying and selling financial assets is what they do, and bankruptcy requires that financial claims be largely frozen while the court sorts it out.

By contrast, there is no good reason not to let non-financial businesses go into chapter 11. They keep running--as businesses--and emerge from bankruptcy or do not.”

Investment advice for a wild market

“Outside of a 401(k) or 403(b), one disadvantage of stock index funds is that you're taxed on realized capital gains as they arrive, whereas if you buy and hold individual stocks, you can postpone the capital gains tax. Because of compound interest, this can make a big difference. For example, if you face a 50% tax rate assessed every year on the gains from your 6% return, after tax you're re-investing 3% for a 20-year cumulative return of [(1.03)^20 -1] or an 81% total return. On the other hand, if you can hold that 6% as unrealized capital gains and only pay the 50% tax when you sell, you've got 0.5[(1.06)^20 - 1] = 110% total return.”

Agency Bonds

“One trader noted that GE now has an FDIC guarantee and that company’s debt is now competition for agency paper.”

RW: That is simply amazing! One of the reasons that F/F became as overleveraged as they did!

Canada Pension Plan Fund Gets Nuked in Q2

“The Canada Pension Plan Investment Board (CPPIB), Canada's second-biggest public pension manager, reported an investment loss of 8.5% in the fiscal second quarter as world stock markets declined. Canada Pension Plan covers every Canadian province except Quebec.”

Explaining the Credit Crisis

Q: What’s the main thing that you would say what went wrong and how can we fix it?MIT Sloan School of Management professor and former IMF chief economist Simon Johnson

A: (MIT Sloan School of Management professor and former IMF chief economist Simon Johnson) The big mistake made in the U.S., was to create a crisis of confidence by not saving Lehman and saving A.I.G. Now you have to focus of restoring confidence. In Western Europe they didn’t understand the vulnerability (of) the banking system. Owning up to those mistakes and coming up with coordinated responses — which include emerging markets – is important.”

You Know Things are Bad When Baseball Players Take a Pay Cut

“But all that may be about to change. ESPN’s Buster Olney says free-agent spending is looking more muted this year, noting several factors, including stagnant prices, that could negatively impact team’s winter spending.”

Little Hope In “Hope for Homeowners?”

“The federal initiative to kick foreclosures began in earnest on October 1 of this year when the “Hope for Homeowners” (H4H) program, part of the Housing and Economic Recovery Act of 2008, was put into action. Unfortunately, so far the program has proven to be a dud — such a disappointment that, according to CNBC’s Diana Olick, HUD took their projection of helping 400,000 homeowners avoid foreclosure in three years off of their press release (dated October 1, 2008). The program which carries a budget of $300 billion will, based on the latest projections, only service 19,000 homeowners in the first year:”

RW: Spend a lot, get a little. (Admittedly, Tim offers some positives in his article, but I highlighted the negative).

And one from my ueber-talented friend, Kerry Hawkins:

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