Weekend review w/e 071908

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(What a week, Yahoo Tech-ticker, link)

China’s role in the Fannie/Freddie mess
As Fannie/Freddie crisis deepens, people find China in akward postion because China is the largest holder of 2F’s bonds: total $376.3 billion. I don’t know exactly how China got into this mess, but I think one reason is decision maker in China must think 2F bonds are safe because of US goverment implicit gurantee. At least the market thinks so because the rating agency S&P, Moody and Fitch all gave Fannie/Freddie top rating. But wait a minute, didn’t those rating agency give a pass to those toxic MBS and CDOs? One thing I am sure is the China 2F buyers’ job are still safe, because at least they did better than the guys bought Blackstone at IPO, bought Morgan Stanley at $50s couple months ago.

Financial companies using lots of oil?

What a week in the stock market last week. All the financial stocks, good or bad, got a big boost after Wells Fargo and JP Morgan announced better than expected earning, with the retreat of oil price from high $140s to less than $130. Financial companies certainly don’t use oil as direct inputs, but it appears the smart money has flow from oil (energy) to financials, in addition to the short covering after SEC says stopping nakes shorts on Fannie, Freddie and primary brokers. So go short the big bad oils, not the big bad GSEs and wall street banks…

Eat/drink Oberweis ice cream/milk, not Oberweis fund
The latest Barrons (July 21) featured Oberweis fund, which is not new to me because I read it from Fortune (columnist) couple months ago. The thing interesting is Oberweis fund lost to its benchmark Russell 2500 Growth Index in last 3, 5, and 10 years: in the respective period, Oberweis Mid-Cap (OBMDX) annualized returns were 4.8%, 6.2% and 4.4%, vs. 5.2%, 9.8% and 4.8% for the index.

So why should a rational investor hand his/her money to Mr. Oberweis? I just don’t get it.

oberweis ice cream pic

Starbucks closing
Starbucks is closing 600 US stores in the near future. Here is the list (PDF) from their web site. It seems SBUX initially was reluctant to share this information, it did so after pressure from local communities. A sad thing for coffee lovers and the affected 12,000 employess.

WSJ: Why no outrage?
“For every dollar of equity capital, a well-financed regional bank holds perhaps $10 in loans or securities. Wall Street’s biggest broker-dealers could hardly bear to look themselves in the mirror if they didn’t extend themselves three times further. At the end of 2007, Goldman Sachs had $26 of assets for every dollar of equity. Merrill Lynch had $32, Bear Stearns $34, Morgan Stanley $33 and Lehman Brothers $31. On average, then, about $3 in equity capital per $100 of assets. “Leverage,” as the laying-on of debt is known in the trade, is the Hamburger Helper of finance. It makes a little capital go a long way, often much farther than it safely should. Managing balance sheets as highly leveraged as Wall Street’s requires a keen eye and superb judgment. The rub is that human beings err.”

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