The summer silly season brought out the inner libertarian in John Mackey of Whole Foods (NYSE: WFMI). You’d think he might have been chastened by his last (incognito) foray into the public sphere when his alter ego Rahodeb was outed for running down the stock of takeover target Wild Oats. Far from it. His Op-Ed published by the Wall Street Journal offering his own prescription for health care reform sent many whole-foodies rushing for their digital pitchforks to decry Mackey’s views. Calls for a boycott of Whole Foods is unfortunate (as well as apparently ineffective), as Mackey makes some interesting points that are worthy of rational discussion.
One does not have to agree with Mackey to see that he is making an earnest and reasoned case and several of his suggestions make sense, no matter what your politics. One argument that got his critics’ blood boiling was his statement that there is no “right” to healthcare in the US. In comparing the right to health care with the right to food and shelter, he misses an important point. There is a well-established right to BUY food and shelter without discrimination. If I walk into my local Whole Foods and ask for a grass-fed organic steak, I don’t expect to be told that I will have to pay way more than other customers because it might not be good for me, or worse, they won’t sell it to me at all because I have a higher risk of a heart attack. That’s the case with health insurance: in many states, some people have to pay more or cannot buy health insurance at any price if they have any kind of “pre-existing condition.”
Still, I can take heart in Mackey’s concluding comments: if I eat only the healthy food sold by Whole Foods and get my exercise, I won’t need health insurance.
(Disclosure: the author is fortunate enough to have health insurance, to shop regularly at Whole Foods and to own Whole Foods stock.)
Ask Chuck. Another CEO taking a risky stand is Charles Schwab, (NASDAQ:SCHW), who defended his company’s marketing of auction rate securities, using the caveat emptor argument, also in a WSJ OpEd: Brokers Aren’t Responsible for Bad Bets. Unlike other purveyors of the discredited instruments, Schwab refused to settle with the regulators and will take their chances in court. As has been pointed out, whether one agrees with Schwab or not, his stand risks undermining his company’s carefully cultivated image of simplicity and straightforwardness. Likewise Mackey’s position risks undoing the work Whole Foods has done to change its elitist image. Still, the comments appear not to have hurt either company’s stock, suggesting that they are having a bigger impact in the media than in the real world.
Mackey’s Op-Ed was among the most-emailed at the WSJ for many days, a position now taken up by the paper’s revelation that Commercial Real Estate Lurks as Next Potential Mortgage Crisis. This will come as no surprise to readers of Research Recap. We have been following this issue for over a year, as highlighted in one of our most popular posts of the summer Research Zeitgeist: Commercial Real Estate wobbles.
Other popular posts of the last month include:
Housing market won’t recover until employment does (CreditSights)
Investors swarming back into leveraged finance markets (Fitch Ratings)
Commercial loan losses cast shadow over regional banks (Standard & Poor’s)
and
High leverage may lead Moody’s to downgrade some REITs
Technorati Tags: (SCHW), (wfmi), Charles Schwab, commercial mortgage-backed securities, commercial-real-estate, housing, leveraged finance, regional-banks, REIT, Whole Foods, Zeitgeist
We have been tracking the problems of the commercial real estate sector for over a year, and the topic has now bubbled up to the top of the heap. CRE was the most popular topic recently on Research Recap during, led by Oxford Analytica’s US commercial real estate bust threatens regional banks followed by Moody’s Expects US CMBS Delinquencies to Reach 5-6% and US Commercial RE Roll Rates Suggest Higher Delinquencies from Fitch.
More recently The Economist and the Dismal Scientist added their weight to the view that the sector could be in trouble for a while yet in Commercial Real Estate Slump May be Widespread, Long-lived.
Residential real estate, of course, remains a hot topic with recent indicators suggesting the worst may be over as reported in US Housing Nearing Bottom, But Foreclosures Worrying Vol 1 and Vol 2.
Posting will be light for the next few days as we take some R&R. Meanwhile, we welcome your feedback and also submissions of guest posts for consideration for featuring on Research Recap. You can contact us at editor@reserachrecap.com.
Technorati Tags: commercial mortgage-backed securities, commercial-real-estate, housing, Zeitgeist
While “green shoots” do seem to be emerging, there are still plenty of noxious weeds around to choke off their growth.
Certainly, the weeds are getting more attention than the green shoots among visitors to Research Recap. This week’s top post was the news that Standard & Poor’s has increased its loss assumptions for 2005-2007 vintage subprime and Alt-A residential mortgage-backed securities transactions. S&P then pulled out its weed whacker to downgrade a raft of these instruments.
Visitors were also interested in the possibility a “jobless recovery” posited by Oxford Anaytica. and in a survey from McKinsey finding that US consumers are choosing not to spend.
The top post of the last month by a large margin was the news from Fitch Ratings of a sharp jump in delinquencies on US auto-loan backed securities.
On a more positive note, Oxford Analytica’s forecast of a tripling of carbon trading by 2012, spurred by efforts to curb greenhouse gas emissions, also drew strong interest.
In a week when the possibility of AIG’s equity value being zero it’s worth revisiting this quote:
Research Recap Requote of the Week
It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 on any of those transactions. - Joe Cassano, former head of AIG’s Financial Products group commenting on AIG’s 2005 vintage subprime credit default swaps in August 2007 as quoted by Michael Lewis in Vanity Fair.
Technorati Tags: (AIG), Alt-A, auto loan ABS, carbon-trading, CDS, Consumer-spending, economy, jumbo mortgages, mortgage-backed-securities, structured-finance, subprime-mortgage, unemployment, Zeitgeist
Now that US financial institutions have dodged a major bullet and most look likely to live to fight another day, the bullets are being removed from the regulatory firing squad one by one. When the financial system was on the brink of total meltdown, there was widespread agreement that only a thorough overhaul of the regulatory system could prevent a recurrence. But now that things have settled down a bit, it looks like changes will be marginal and will leave the alphabet soup of agencies largely intact.
It’s a depressing but not surprising prospect to see the power of the industry lobbies and the turf fighting of the agencies win out over the public good. There’s a real possibility that the “reform” emerging from the worst financial crisis since the depression will be of the worst kind: adding cosmetic changes that make it look like Congress is doing something meaningful but that only increase the regulatory burden without any significant benefit to the system.
To be sure, as Tyler Cowen points out, the Department of Homeland Security has not been a smashing success and argues that more modest reform may not be such a bad thing. Does anybody seriously believe that if you started with a clean slate, you would end up with anything like the current hodge-podge of overlapping and competing financial regulatory bodies? As Felix Salmon writes, the current regulators have clearly failed at their jobs and there’s no reason for entities like the OCC and the OTS to continue to exist.
It is not more regulation that’s needed, but better regulation.
The testimony of Bank of America chief Ken Lewis was the latest example of the increasingly symbiotic relationship between government and Wall Street, as Lewis refused to admit he had been strongarmed by government heavies Ben Bernanke and Hank Paulson into taking over Merrill Lynch, despite strong evidence to the contrary. After all, he still needs their “protection.”
Visitors to Research Recap are clearly not convinced that the problems are solved, as they show strong interest in posts cataloging continuing problems in the financial markets.
McKinsey’s estimate that commercial loans will bear the brunt of US bank losses of some $125 billion a quarter through 2010 was the most popular recent post, along with Moody’s similar projection that US Banks will lose or write down another $470 billion by 2010.
Visitors are also watching closely the continuing downgrades of prime jumbo and Alt-A mortgage backed securities by Standard & Poor’s.
Two reports from CreditSights also drew strong interest: Warrants remain an issue for US banks exiting TARP, and on a more optimistic note, Rise in credit card delinquencies may be peaking.
Technorati Tags: Alt-A, credit-cards, financial-regulation, mortgage-backed-securities, TARP, U.S. banks, Zeitgeist
The aftermath of the government stress tests has been the hot topic of recent days, topped by Standard & Poor’s gloomy assertion that the Banking Crisis Could Go On For Another 3 or 4 years and CreditSights‘ prediction that Smaller Regional Banks May Slide into Junk Bond Status.
Meanwhile Fitch saw another shoe continuing to drop in US Credit Card Losses Will Be Meaningfully Higher in 2Q and S&P observed that Commercial Real Estate Under Stress as Refinancing Dries Up.
Moody’s added insult to injury with Global Junk Bond Default Rate to Hit 14.8% but also offered a sliver of better news for some with New Accounting Rule a Boon for Bank Bargain Hunters.
Still, the most popular recent post was the news that France leads OECD nations in Eating and Sleeping. Is there a correlation? No wonder freedom fries didn’t catch on.
The French spend more time sleeping than anyone else in OECD countries. They also devote more time to eating than anyone else and nearly double that of Americans, Canadians or Mexicans.
But did they factor in that Americans have learned how to eat and sleep at the same time?
Research Tweetgeist:
Deloitte Spending Index (tax burden, unemployment claims, wages, home prices) fell 1.46% in Apr after 1.95% rise in Mar http://bit.ly/Yfu6o
Which is the better deal: the $700 bn TARP or the TRAP (Treasury Relief Art Project) 10,000+ works of art for $873,784? http://bit.ly/KbGWf
MIT US commercial real estate index for Q1 down 5.8% from Q4, placing the index 26.4% below its 2007Q2 peak. http://bit.ly/HRhHf
Weekend listening while contemplating the stress tests: The Fix Is In, by Elbow. http://bit.ly/4mEEm
Technorati Tags: accounting, Bankrate, commercial-real-estate, credit card debt, demographics, junk-bonds, stress test, TARP, Zeitgeist
The bank stress test process, if it can still be called a process, is in danger of devolving into a mess. With repeated delays, “negotiations” and (orchestrated?) leaks, the eventual official announcements are likely to be anticlimactic at best and a self-fulfilling prophesy to boot. It seems the back-and-forth between the banks and the government will continue until the “right” outcome is arrived at i.e. one that will not surprise the markets and that will instill confidence in the banking system.
This may be all to the good, but it does perpetuate the reputation of the banking system being overly complex and opaque.
The banks, however, have already apparently passed the Buffet stress test, with the sage of Omaha telling ABC News that all 19 banks will be OK.
Meanwhile Standard & Poor’s revised its assumptions for loan losses under its stress tests that could result in ratings downgrades for the most vulnerable US banks.
S&P also provided the top post of the week at ResearchRecap with it latest weakest links report. Its list of companies with negative outlooks or with ratings on CreditWatch with negative implications has now topped a record high 300.
Oxford Analytica’s Weak fundamentals suggest oil prices will remain low, also attracted strong interest, as did its report on India’s Pharma industry being poised for strong growth.
Research Recap Quote of the Week
Actually, banks are doing very well on new business, and their deposits are coming in … those 19 banks [that received bailout money] will all be OK. – Warren Buffet on ABC News
Research Recap Tweet of the Week:
France Leads OECD Nations In Eating, Sleeping: http://tinyurl.com/cpagnp
Technorati Tags: junk-bonds, oil prices, stress test, U.S. banks, weakest links, Zeitgeist
Commercial real estate continues to be a hot topic among visitors to Research Recap. And while there’s a general consensus that times are bad, there’s disagreement on how bad and whether they are bad enough to prompt widespread downgrades and defaults.
The Chapter 11 bankruptcy filing of General Growth Properties, which controls many of America’s leading shopping malls, led Fitch to downgrade the outlook for a bunch of related CMBS transactions to negative. Despite the GGP filing, CreditSights reiterated its view that no major REIT is likely to default.
George Soros does not seem to agree. Speaking on The Diane Rehm Show, Soros predicted that many commercial real estate loans would not be renewed. He noted that the typical commercial real estate loan covers 85% of the value, whereas prices have fallen by 30% or more. Moody’s commercial property price index is down about 21% from the peak, but Moody’s also notes that “few CMBS loans maturing in the next two years are from vintages with more than 10% price depreciation.” And as reported in our last Zeitgeist, Fitch says REITs are facing headwinds maintaining adequate liquidity to meet ongoing funding obligations.
Our most popular recent post was Oxford Analytica’s prediction that the global recession could lead to emerging markets countries to trigger a round of currency devaluations. This was followed by Fitch’s analysis of the drastic drop in cigarette sales volumes.
Technorati Tags: commercial-real-estate, currency, devaluation, REIT, tobacco, Zeitgeist
While politicians of all stripes, egged on by most of the media, were foaming at the mouth over the financially insignificant “AIG bonus scandal,” visitors to Research Recap during the last week were focused on meatier fare.
Our top post this week was based on a CreditSights analysis of the Flow of Funds report, once considered fodder for only the hungriest of economic analysts, but now the stuff of headlines. The worrisome implication is that the US is facing a massive cut in lending to US consumers and the corporate sector over a period of not months, but years.
In second place came another complex but important topic: the potential impact of mortgage cramdowns ordered by bankruptcy judges. While much of the mortgage industry has been strongly opposed to the legislation, the analysis finds that lenders (and hence holders of mortgage-backed securities) might fare better under a cramdown scenario than under foreclosure.
Also drawing interest: Jim Kaplan’s Guest post defending Moody’s for publishing a “Bottom Rung” of companies at highest risk of default. Of course, Kaplan’s Audit Integrity is in the business of identifying companies with high-risk corporate governance attributes, but his point is valid nonetheless. If only the rating agencies had been as vigilant about identifying high-risk debt derivatives.
There has been no shortage of horror stories about the misfortunes of many hedge funds, but another popular post from Aite found that as a group hedge funds have actually fared pretty well. Although there will undoubtedly be regulatory changes and adjustments to the business model, hedge funds are here to stay - though the sector is a prime example of past performance being no indication of future results.
Recent Reason for Reading Research Recap:
Apparently, the German government reformed its vehicle tax, which provided ample incentive for Germans to dump their clunkers and order new cars. Perhaps U.S. policymakers could take a page from the German playbook.
U.S. Automakers Race to the Bottom, (ResearchRecap, March 5, 2009)
Proposed bill would allow government to buy vehicles — at least eight years old — for recycled parts and grant owners vouchers toward more fuel-efficient N. American vehicles.
(Washington Post, March 19, 2009)
Technorati Tags: auto bailout, corporate-default, cramdown, credit-markets, foreclosures, Hedge-Funds, lending, Moodys, mortgage-backed-securities, Zeitgeist
There’s no doubt that Jon Stewart’s extended defenestration of Jim Cramer and CNBC has captured the national zeitgeist. When the topic takes up a good chunk of the likes of public radio’s Diane Rehm Show , you know the topic has transcended the financial news arena. On the show’s Friday News Roundup The Atlantic’s Andrew Sullivan likened the event to the storming of the Bastille, with Stewart championing the cause of the populace.
Whether it will have any real impact on Cramer’s “Mad Money” antics or the boosterism of CNBC is debatable, but it was certainly cathartic to witness them in the modern equivalent of the medieval stocks and pelted with virtual rotten fruit and vegetables.
Meanwhile, Cramer and CNBC are rapidly being usurped as whipping boys by AIG, the object of public tongue lashings from Ben Bernanke, Larry Summers and Barack Obama, in what seemed like a coordinated attack. Not that AIG doesn’t deserve whatever it gets, but it would be a shame if the focus on AIG drew attention away from the industry-wide issues that still have not been adequately addressed.
Posts on struggling financial institutions have been the most popular at Research Recap recently. The top post by a mile was our Research Roundup of the latest efforts to recapitalize Citigroup, while another Roundup, featuring HSBC was also well read.
Standard & Poor’s report on US regional banks feeling the pain featured prominently, and outside the financial sector the most popular posts were a Forrester Research report finding that booksellers offer the best online experience and S&P’s analysis of the recession’s impact on public power utilities and co-ops.
Research Recap Quote of the Week: What else, but….
I understand you want to make finance entertaining. But it’s not a fucking game. Jon Stewart to Jim Cramer on The Daily Show.
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Technorati Tags: (c), booksellers, Citigroup, CNBC, HSBC, Jim Cramer, Jon Stewart, online, regional-banks, utilities, Zeitgeist
Barack Obama’s blockbuster budget has stunned the financial and political worlds, leaving many struggling to get their arms (or brains) around it. In some respects it should come as no great surprise, as it reflects the priorities laid out by Obama during his presidential campaign. However, the consensus view was that his ambitions would be tempered by the reality of a reeling economy and ballooning government debt.
Au contraire, as they say, but even many Obama supporters must be feeling at least a little bit unsettled by the scale and scope of the budget and the debt load associated with it. No matter how worthwhile or even necessary many of the budget initiatives may be, it is hard to escape the feeling that the country continues on the path of borrowing from the future that has led it into the current mess.
It has the hallmarks of a policy wonk’s budget that sees the world through spreadsheets, totting up every spending cut, revenue enhancement and other “efficiency” that is theoretically possible. Unfortunately that will run headlong into the obstacles of entrenched interests and the vagaries of economics. Further, the budget’s projections looked overly optimistic even before the sharp downward revision in GDP. It’s a lot like a corporate budget that assumes sales projections will be exceeded while expenses are cut. How often does that happen, even in a good economy?
And speaking of debt, the growing problems associated with credit cards attracteda a lot of attention at ResearchRecap, with Fitch Ratings reporting that late payments reached record levels in December. Now comes more bad news on that score with Moody’s reporting that all the credit card metrics it tracks deteriorated in January.
ResearchRecap Tweet of the Week:
Bad Bank:This American Life’s latest explainer. Not as good as the excellent “Giant Pool of Money” but well worth a listen.
…when we talk about an insolvent bank, what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses? Also, two guys go to New Jersey to look at a toxic asset.
Technorati Tags: bank bailout, Barack Obama, budget, credit, national-budget, toxic assets, Zeitgeist
