Friday, February 29, 2008

End of Month Desk Clearing Time

Berkshire has released Buffett's shareholder letter for 2007. A couple interesting points:

  • "In 2002 when the Euro averaged 94.6¢, our trade deficit with Germany (the fifth largest of our trading partners) was $36 billion, whereas in 2007, with the Euro averaging $1.37, our deficit with Germany was up to $45 billion. Similarly, the Canadian dollar averaged 64¢ in 2002 and 93¢ in 2007. Yet our trade deficit with Canada rose as well, from $50 billion in 2002 to $64 billion in 2007. So far, at least, a plunging dollar has not done much to bring our trade activity into balance."
  • "Whatever pension-cost surprises are in store for shareholders down the road, these jolts will besurpassed many times over by those experienced by taxpayers. Public pension promises are huge and, in many cases, funding is woefully inadequate."
Some older items from my inbox:
"...private-jet demand generally lags GDP by two to three quarters. So if we’re in a recession in the first quarter, the jet market will slow in the third or fourth quarter. But Mr. Duckson is already seeing a growing supply of mid-size older jets, which is notable given that inventories of used jets have been slim for the past two years. 'The old, mid-size jets are the part of the market that usually sees a drop first,' he says."
Retailers Taking Their Medicine and Turning Cautious Over Growth:
Announcements over the last couple months include Movie Gallery closing another 400 stores... Starbucks closing 100 stores and slowing expansion plans by 34%; Ann Taylor shuttering 117 stores... Sprint Nextel closing 125 stores... Cost Plus World Market closing 18 stores; Liz Claiborne closing 54 Sigrid Olsen stores; New York & Company axing the Jasmine Sola brand and its 32 stores; Ethan Allen closing 12 stores; PacSun closing all of its 173 demo stores; and Talbots exiting its kids and men's lines through closure of 78 stores... Macy's closing nine stores; ...Rent-A-Center closing 280 stores; Sofa Express closing 44 stores in bankruptcy;
From Mish's Changing Social Attitudes About Debt:
Remember the catchphrase "throwing away money on rent"? The bottom will come when people start bragging about the day they stopped "throwing away money on an overpriced house". That's a long ways away from here in terms of both price and time...

The secular trend towards consumption has peaked.

A year ago only fools saved money. Saving money is becoming more socially acceptable with each passing day. Eventually it will be embraced.
This is from a Calculated Risk post on the JP Morgan conference call:
James Dimon:
This is a lesson that's been learned over and over about broker originations, they perform much worse than our own originations, and if you separate home equity into we call it kind of good bank, bad bank, and broker so I would say it's less than 20%, but a lot of the losses are coming from that 20%, which is high LTV, broker originated businesses. High LTV business is also bad in its own.

And the 20% you referred to a minute ago in round numbers is the sort of specifically high LTV and originated away [by brokers] is that right?

James Dimon:
It's been very consistent In both our own originated and broker originated, high LTV, stated income is bad. It is three times worse in broker than it is in our own.

Wow indeed. Guess who has a lot of broker originated, high LTV, stated income loans?

Harley-Davidson also appeared eager to extend easier credit.
In a loan-securitization filing last August, Harley-Davidson said 42.9% of the loans it was selling in the securitization trust had zero down payment, which is double the level of zero down-payment loans recorded for securitizations done in 2006.
Disclosure: short M and DSL

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