Archive for July, 2008
July 31, 2008 3:51PM
By Alexis Glick
Here’s a story that I really, really like… and guess what? It’s about trash.
This morning, RecycleBank CEO Ron Gonen joined me to talk about his company. What do they do? They make deals with municipalities to pick up and sort trash and recycle the products you and I use everyday. Their system is revolutionary and has the backing of some of the most famous names and businesses in the world. Who? Coca Cola, Columbia University and the very famous eco-conscious venture capital firm Kleiner, Perkins, Caufield & Byers where Al Gore, the former Vice President, is a partner. Don’t forget it’s also the firm that backed Google and Sun Microsystems. Not a bad track record!
Currently, their business is in 12 states and they recently announced a deal with Allied Waste. They’re part of a a multi-billion dollar industry and their technology is transforming the landfill business. Keep an eye on this company. They are not publicly traded. You can learn more about them on their Web site at recyclebank.com.
July 31, 2008 3:13PM
By Alexis Glick
This morning on Money for Breakfast we got together some of the experts to discuss whether or not we are in a recession. I know what you are thinking — Alexis don’t depress me! I promise this segment will not depress you. It was extremely informative about the state of our economy.
I was joined by Mark Lieberman, our senior economist, Stephen Leeb, President of Leeb Capital Management, Ted Marzilli, a senior vice president at BrandIndex, and Gary Harpst, CEO & Founder of Six Disciplines Corp to discuss the future, the emotional impacts of the recession talk and why, in a recent U.S.A. Today poll, less economists thought we were in a recession today as opposed to last quarter. Maybe they were right?
I do want to note that the gentlemen were on the show before the economic numbers came out. Also note that the 4th quarter 2007 revision to negative growth was the first time we have seen a negative quarter of GDP since the 3rd quarter of 2001.
July 31, 2008 6:14AM
By Alexis Glick
Last night I hosted Neil’s show on the FOX Business Network called Cavuto. One of the people that I interviewed earlier in the day for the show was Energy Secretary Samuel Bodman. I’ve interviewed him before on several occasions on Money for Breakfast, but, given the President’s plea yesterday to pass an energy bill before Congress goes on recess, it seemed like the perfect time to revisit our current energy policy and what the Secretary feels about the current environment. Unfortunately, I interviewed him just before the Israeli Prime Minister Ehud Olmert announced his resignation. That news coupled with some weakness in gas inventories sent crude up almost five dollars.
Here’s what surprised me about this interview: the secretary didn’t seem too confident about what would be in the energy bill, if one was to go up for a vote, and when I asked about our current energy policy, he talked about energy efficiency. I don’t think I’m alone when I say in the interview that people don’t know or understand what our energy plan looks like. That is a problem. I know that when he responded with the “Gee, I don’t know what will be in the bill,” he didn’t mean that literally, but on the other hand, tell me who out there really knows what’s in the bill.
Last night I had on Senator Jim DeMint who was opposed to the housing bill and thought that FNM and FRE should be banned from lobbying the government since we just gave them the financial backing to stay in business. What I didn’t fully realize until I saw all of his talking points was that the bill was more than 700 pages long. It was staggering to see all of the junk inside the bill. I applaud Congress for getting something done, but did you know that everyone in the financial and mortgage industry has their fingerprints on this bill? Did you know that the IRS will now have permission to see all of your credit card transactions? They will be able to tell if you are not filing as much taxes as you should be and using your credit card to spend above the income you put on your W-2. Who will have access to that information? How many people? Do you want the government knowing about your credit card information or credit card numbers? Isn’t that scary? I had no idea. You can be assured that I’ll be all over this story.
Anyhow, going back to this energy bill, will this be another 700-page document? Have we lost our minds? Can we not agree on a handful of points to set the course for change in our dependence on foreign oil? Can you clearly tell me what our energy policy is? This morning I asked my assistant Melissa to pull a ton of articles on the bill, and guess what? Most of them say nothing about the contents of the bill other than the fight about offshore drilling and the OCS (Outer Continental Shelf). That’s not encouraging. I saw one Democratic proposal to counter oil market speculation that failed, a Senate bill aimed at curbing abuses in oil markets that has been stalled but with one sentence could allow builders of nuclear power plants eligible for tens of billions of dollars, four Republican proposals about oil speculation, and talk of tax credits for wind, solar and other alternatives. Are you confused? I am. Maybe it’s intentional. The less we know the better or maybe everyone is voting on self interests and they’re not thinking about us. If Congress goes on their five-week summer recess without coming to some conclusion on an energy bill, we will be mocked. How can we complain about global oil prices and not do anything about it? It’s embarrassing.
July 30, 2008 4:38PM
By Alexis Glick
Yesterday, Senator Obama met Federal Reserve Chairman Ben Bernanke for a one-on-one meeting at the Federal Reserve Bank. The meeting got a lot of attention, as it marked the first time a presumptive nominee met with an acting chairman. (If you recall, both Bill Clinton and George W. Bush met with Fed Chairman Greenspan, but they were each president-elect at the time.)
Still, the bigger story is the context of the visit and what it might portend for the future.
If you’re not aware, let me give you the scoop on the terms of the Fed Chairman and the seven members of the Board of Governors that are appointed by the president and confirmed by the Senate. Each of the Fed governors serves a 14-year term. Members, for the most part, serve one consecutive term, although there are instances where they retire early and can be reinstated. The president, on average, can only appoint two governors during a 4-year presidential term because appointments are intentionally staggered and come up each even-numbered year. Fed Chairman Bernanke’s term expires in 2010, but the next president could choose to keep him on.
This morning, the Federal Reserve Bank announced that they were going to extend the Term Auction Facilities (or discount window) to broker dealers until January 30, 2009. Access to the TAF was expected to expire this September. As you may recall, the Fed opened the discount window to the broker dealers following the collapse of Bear Stearns for fear that another broker dealer would collapse.
So why do you care and why would Obama care? Here’s why:
1. January 30th… interesting date right? First of all, it covers the broker dealers through the election. Second of all, it covers the broker dealers through Inauguration Day – which is January 20th in case you were wondering.
2. If Obama were to be elected the next president of the United States, it would give him the power to target regulation of the broker dealers. How so? Obama has talked about increased regulation and hinted at more fiscal stimulus. If the broker dealers are still in hot water come January, Obama would have the platform on Inauguration Day or immediately after to suggest the Federal Reserve take over regulation of the broker dealers. Right now the Fed overseas commercial banks. The broker dealers are pretty unregulated with the exception of the SEC and Treasury. The fact that the broker dealers have been given access to the discount window for an extended period of time (which allows people like New York Fed President Timothy Geitner and his staff to make regularly scheduled visits to these broker dealers to make sure that they are well capitalized and making sound financial decisions) suggests that the broker dealers have no choice but to live with the Fed’s temporary oversight. If you’re Obama and today you heard the Fed announce that they will extend the discount window and, assuming the SEC followed suit and continued the naked short sale rule change in effect through that date to protect those broker dealers that have access to the discount window, wouldn’t one of your first economic blueprints as a new president be to propose that the Fed oversee and regulate broker dealers? If Obama were elected and Democrats keep the majority in Congress might that be the first and most highly publicized move. He may not make friends on Wall Street, although the number of broker dealers by then will have dwindled and it will make him appear as the advocate for the shareholders and individuals who have seen their net worth cut in half. I think the Fed just did Obama a favor today, if Obama has enough faith in the Fed’s job and if he can successfully win this election. McCain would clearly be opposed to more regulation and big government.
3. Another point worth noting is the growing power of FASB or Financial Accounting Standards Board. Look at what Thain, CEO of Merrill Lynch, did yesterday, marking the CDO portfolio to 22 cents on the dollar. As the broker dealers continue to face oversight, albeit temporary, from the Federal Reserve Bank because of their access to the discount window, the scrutiny and tightening of the accounting reigns will only get more difficult and make more Wall Street executives unhappy. I remember interviewing one expert who said the financial world should have a governing body like the FDA to approve and sign off on all new products. That might very well be taking it too far but it may not. Should there be trillions of dollars in off balance sheet risk? Probably not. Will this happen again in our lifetime? Maybe but if I were a betting person I’d say this will not happen again in the near future.
This morning on Money for Breakfast, I was joined by Dan Gerstein, Lieberman’s former communications director; Joe Mathieu, the Program Director from XM Satellite Radio, and Flip Pidot, an investment analyst, to discuss the implications of Obama’s meeting with Bernanke and how each candidate can win the heart of voters who feel the economy is the pressing issue.
Check it out.
July 30, 2008 3:33PM
By Alexis Glick
After the bell yesterday Electronic Arts reported weaker than expected earnings and the stock certainly reflected that today closing down more than 6%.
This morning I talked to the President Peter Moore. We talked about the future of gaming. He believes the industry and his company needs to adapt to the online gaming market or face the risk of going the way the music industry did, losing share and power. Speaking of losing share, Electronic Arts is losing market share pretty consistently and they need to do something about it.
That is in part the reason why they are aggressively pursuing a takeover of Take Two Interactive. Will it work? What games do they have up their sleeves? Will they look to team up and create games that match the success of some of this summer’s blockbuster movies? See what Mr. Moore says about that.
July 30, 2008 3:02PM
By Alexis Glick
The Department of Transportation’s Secretary Mary Peters has created a new plan to revitalize and fund the crumbling infrastructure in this country. It’s a bold plan that would cut over 100 federal transport programs and would rely on funding through new revenue sources. Not the gas tax that we so often hear about, but pricing options like increasing toll prices and empowering states to access roughly $400 billion in private sector funding.
This morning Tyler Duvall, the assistant secretary for transportation policy and acting under secretary for policy at the U.S. Department of Transportation joined me to discuss the new plan which Secretary Peters will bring to Capitol Hill later this week and to discuss this staggering statistic. Transportation spending has increased by over 100% over the last 10 years and at the same time congestion has risen 300%. How will the Transportation Department tackle this issue ahead of an election, take a look. The secretary did a great job explaining the risks and the conundrums.
July 30, 2008 6:04AM
By Alexis Glick
I’ve been writing this blog for two days and have yet to finally complete it. Dick Bove, one of the best and most well respected analysts covering the banks at Ladenburg Thalmann emailed me on Monday morning about the two small regional banks that failed. We exchanged emails about the severity of the situation and also about the importance of the housing bill and a rescue plan for Fannie Mae and Freddie Mac.
Here are some excerpts of those emails.
—– Original Message —–
From: Richard X Bove
To: Glick, Alexis
Sent: Mon Jul 28 11:02:22 2008
Subject: RE: Bank Closings
Alexis,
During the first banking crisis in the post war period (1987 to 1993), the United States under then Treasury Secretary Nicholas Brady did a study of the industry and concluded in very simple terms that American banks were too small (Citibank was the 22nd largest in the world) and that there were too many of them. It has been the policy of the government since that time to get rid of as many of these banks as possible (you will not find a public statement on this but call Jim Leach in Iowa if you doubt it). So, yes at some point there will be 3,500 banks or less.
The FDIC is crucial but so few banks are about to fail or stated differently the amount of bank deposits at risk is so small that the FDIC resources are not likely to be endangered.
Richard X. Bove
________________________________
From: Glick, Alexis
Sent: Monday, July 28, 2008 10:52 AM
To: Richard X Bove
Subject: Re: Bank Closings
Dick,
This is excellent. Should I then assume that all of this is being taken out of context? Also do you think we will be sitting here one year or five years from now talking about 3,500 institutions? More consolidation where the % of assets wind up with a smaller group of banks. Also isn’t the FDIC crucial here? If they can prove that they have enough funding to prevent losses if and when banks fail.
Alexis
—– Original Message —–
From: Richard X Bove
To: Glick, Alexis
Sent: Mon Jul 28 07:29:33 2008
Subject: Bank Closings
Alexis,
I noticed the comments on Fox this morning concerning bank closings and the article in the NY Times about bank lending.
I thought you might be interested in a couple of statistics:
1. In 1983 there were approximately 14,500 banks in the United States. Today there are roughly 7,200. This means that every week for 25 years 6 banks have been merged out of existence or shut down for other reasons. Over the six years period in the last banking crisis from 1987 to 1993, 9 banks were eliminated every week.
2. The top 5 banks in this country represent 52% of the industry’s assets. Banks with over $20 billion in assets are 70% of the industry. The smallest 6,000 banks in this country have fewer assets in aggregate than Citigroup.
3. Year-over-year bank loans to businesses are up 17.7% this is 70% higher than at the same time last year.
——————————————————————————————
Dick makes so many important points. First of all, everything must be put in context. Second of all, the banking world is getting smaller and will continue to do so. When I pressed Dick on the motivation behind the move to rescue Fannie Mae and Freddie Mac he said the following:
“The key thought I would have is that if the FNM/FRE bailout sticks, the deficit doubles (obligations of the U.S. government). This should drive the dollar lower and the interest rates/costs to taxpayers higher. It makes it absolutely impossible to avoid a tax hike no matter who is elected President or who controls the Congress. It is actually critical for FNM/FRE to be broken up as soon as is feasible. My guess is that a system similar to the Federal Home Loan Bank system will be put in place in 12 to 18 months – i.e. 12 regional banks are created that are owned by the local financial institutions and they buy out the current FNM/FRE debt. These banks take over the secondary market function performed by FNM/FRE. It may sound far out but seven months ago or before the Barney Frank program was created I wrote a very similar proposal and it was reviewed by the President. He rejected it out of hand and is now doing exactly what we suggested for housing. So it is possible that this 12 district idea may see the light of day also.”
Dick is on vacation but I wonder what he would have said about the covered bond announcement Monday. Four of the best known commercial banks announced a plan to issue covered bonds. What are covered bonds? They’re actively used in other countries but essentially they’re prime mortgages pre-packaged or high quality securitized debt that must sit on the balance sheet — not the asset backed mortgages or sub-prime mortgages that caused us to get into this problem in the first place but mortgages backed by solid buyers / owners.
Why would the Treasury announce this on the Monday following the passage of the housing bill over the weekend? It’s simple. The Treasury and the Fed are trying to create a back stop for mortgages much like Fannie Mae and Freddie Mac. The banks need business and institutions, whether they are pension funds or mutual funds, who will purchase their debt for two reasons. One, as a source of revenue and two, as a way to access liquidity so that they can lend more money to homeowners.
What is the Treasury, Fed or FDIC doing? They’re saving their rear end. Excuse my French! How? They need Fannie Mae and Freddie Mac to originate mortgages but they cannot fully rely on them when some say they are insolvent and when they have two missions that contradict one another. One mission, originate loans and implicitly back mortgages so that other banks can give loans to potential home owners and two, de-leverage or write down loans that have filled their balance sheets with junk. Dick said in the above note that 12 banks would assume the duty of FNM and FRE on Monday morning. Monday afternoon the Treasury paved the way for 4 banks to begin doing that. I’m not a fortune teller but this was right on the money.
One other point about Merrill Lynch’s announced write down and capital raise: Thain has a credibility issue. Twelve days ago he said MER was well-capitalized. What happened in 12 days? I’m not one to point fingers, but I would guess that he is not a very popular guy on Wall Street or on Main Street. Yes, the market was on fire last yesterday. Ironically, Charles Payne was emailing me all day in 50 point fonts because I said earlier in the morning on The Opening Bell that we could very well be up 300 points today.
Merrill wrote down the junk on their books to 22 cents on the dollar. This mark-to-market accounting is killing them and everyone else. Merrill threw in the towel and may have forced the hands of everyone else. Citi, Lehman, UBS, JPM, Morgan Stanley……anyone with exposure to these CDO’s will now have analysts attaching a 78% loss on that paper. Not good and yet the market reacted favorably. What John Thain, the CEO of Merrill Lynch, did yesterday, is say you want a price, here it is. It’s not the price he wanted but now we have a value, a mark-to-market value for today that the entire street can mark their paper at. Is it the right price? Could they have held out longer? Did they pull the trigger too soon? Perhaps.
Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.
Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who
That it’s namin’.
For the loser now
Will be later to win
For the times they are a-changin’.
Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s a battle outside
And it is ragin’.
It’ll soon shake your windows
And rattle your walls
For the times they are a-changin’.
Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin’.
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’.
The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’.
And the first one now
Will later be last
For the times they are a-changin’.
BOB DYLAN’S “THE TIMES THEY ARE A_CHANGIN’.”
July 29, 2008 3:17PM
By Alexis Glick
This morning on Money for Breakfast we talked about the record breaking budget deficit predictions for next year with former Governor Jesse Ventura, Ron Haskins of Brookings and Jordan Goodman, author of Fast Profits in Hard Times.
Between the three, they universally agreed that fighting this budget deficit is a monumental task and talk of any additional stimulus package is unrealistic. Jesse, who is not afraid to let his thoughts be known, feels that the mounting deficit of $10-$12 billion a month to fight the war on Iraq and provide international aid to others when our country is hurting is the first thing that needs to be fixed. Look at what Jesse, Ron and Jordan had to say about how to fix the problem.
July 29, 2008 6:27AM
By Alexis Glick
Yesterday afternoon I hosted Neil Cavuto’s show on Fox News called “Your World.” One of the people that I had the opportunity to interview was former Treasury Secretary Lawrence Summers. He was Treasury Secretary during the second term of the Clinton Administration from 1999-2001 and was known for supporting free trade, reducing the federal budget deficit, using the budget surplus to repurchase Treasury debt (the first time since the 1920’s), reforming the IRS and contributing to some of the biggest changes on the international stage, including an important role in negotiating the agreement to allow China to join the World Trade Organization. During his tenure, the U.S. had the longest period of sustained economic growth in history.
The reason he joined me on “Your World” was to discuss a meeting he had earlier in the day with Senator Obama, his economic team and some big-time economic bigwigs. I asked the former Treasury Secretary about the ballooning budget deficit, raising taxes, whether the Senator would have to reconsider offshore drilling now that the American people are behind it and what report card he would give this economy. He made some very interesting points, particularly about Obama’s plan to push a second stimulus package. It was the first former Treasury Secretary or economist that I have talked to in a while who said a second stimulus package is OK to do even though the budget deficit is swelling. I wouldn’t make light of that. What surprised me was that he said we could do both and he sounded confident. I don’t know if a second stimulus is necessary but the fact that a deficit hawk is cool and calm about the ballooning budget deficit gives me reason to think.
If you missed his article in the Washington Post yesterday called “Unfinished Business at Freddie and Fannie” here it is. He makes some great points about the future of FNM and FRE.
