Wednesday, April 25, 2007

Links of the day

Bank of Korea Takes Aim at “Yen Carry” Traders..."Tokyo is the ultimate source of inflation in global commodity and stock markets"...that seems correct to me, but this is the first time I've seen it said so directly...

UPS Misses on Sales as Domestic Shipments Lag...evidence of the US economy slowing...


1Q07 Insurance Earnings: What's Working, What's Not..."Insurance is different from other industries because of the accounting complexity involved. That complexity is necessary, because insurance is one of the few industries where one does not know the cost of goods sold at the time of sale. That’s why insurance is one of the slowest industries to report earnings. As one might expect, the insurance companies generally report in order of increasing accounting complexity"...

KKR: Japan 'Fertile Territory' for PE...what I get from this is that reforms in the corporate sector in Japan are still moving very slowly despite the country's economic problems of the last 15 or so years. The telling statement from KKR is this: "Regarding the slow change in Japan to embrace more efficient operations and shareholder value, Kravis commented that it will "eventually happen," but it will "take time" and is "not going to happen overnight." He said KKR believes there will be change"...the implication is that change hasn't been happening very much...

Crashes: The Florida Real Estate Craze...

"Florida became the popular U.S. destination/residence for people who don't like the cold. The population was growing steadily and housing couldn't match the demand, causing prices to double and triple in some cases, which was not exactly unjustified at this point. But, news of anything doubling and tripling in price always attracts speculators. So, once people began pumping huge amounts of money into the real estate market it took off. Soon everyone in Florida was either a real estate investor or a real estate agent.

Unfortunately, the rules are the same whether you pay too much for a stock or for a piece of land: you have to make that much more to claim a profit. This did happen for awhile, and land prices quadrupled in less than a year. Eventually, however, there were no "greater fools" to buy the disgustingly overpriced land, and prices began to adjust ever so subtly. Speculators realized there was a limit to the boom, and began to sell their properties to solidify their profits while they could.

Then everybody simultaneously saw the writing on the wall, and panic selling ensued. With thousands of sellers and very few buyers, prices came down with a sickening thud, twitched a bit, and then crawled down even lower"


When did this happen? Not 2006, but in 1926...

WaMu Option Arm Capitalized Interest - And Why Its DANGEROUS..."In March of 2006, Washington Mutual recorded net income of $985 million dollars. 4Q06 they booked $1,058 mln. This last quarter, they booked $784mln.

But in those three quarters they booked $194mln, $333mln and $361 million, respectively, in PayOption ARM "Capitalized Interest." This was booked and recognized as EARNINGS.

Now here's the problem: In 1Q 06, 194 million out of $985 is 19.7%. In December, it was 31%. But this last quarter, it was FORTY SIX PERCENT, more than a DOUBLE over the year ago levels"...so they are recording as income interest that borrowers failed to pay(what is referred to as negative amortization)...I agree with the author of the linked post that WaMu is likely to have to eat quite a bit of this paper income at some point in the next couple of years...

Developers! Developers! Developers!..."A Seattle developer has proposed a mixed-use project in Columbia City aimed at providing homes typical workers can afford to buy, while another developer also has condo plans in the up-and-coming South Seattle neighborhood.

The 63-condo development, called Columbia City Place, would be built on a vacant former auto lot at 5201 Rainier Ave. S., and units would cost between $200,000 and $400,000"..."Shapiro said he and partner Murray Kahn are keeping prices down by using more basic finishes and wood construction for the upper floors, rather than concrete and steel, by installing above-ground parking and by building in Columbia City, where land is cheaper"...

IBM Gets Religion: Board Authorizes $15 Billion Stock Buyback..."We have generally been critical of tech companies overinvesting"..."We are all for innovation and opening new markets, which is also why we are against overinvesting in existing markets. Too much capacity has largely commoditized the semiconductor business. That industry would do better by limiting its capacity growth, investing marginally in new opportunities, and returning the rest to shareholders so they can put the money to use in other exciting new areas. Industries mature, and when they do they need to recognize their maturity and act their age"..."Credit Oracle (ORCL) for being among the first to recognize it - but in keeping with the general growth mindset rather than returning capital to their own shareholders they are returning it to the shareholders of companies they acquire. The end result is still less capital in the industry"...amen!!...

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