Warren Buffett has a wonderful reputation as an investor. His accumulated stakes in Coca-Cola, Gillette, and the Washington Post are all good examples of "sticking to what you know" as an investment philosophy.
But his investment opportunities in the securities and funds industries are certainly not the ones about which he is the most convicted.
In 1987, the Sage of Omaha came in as a white knight to take a stake in Salomon Brothers, who had a hostile bid from corporate raider Ron Perelman on the table. Eleven years later, after a painful government bond scandal among other things, Sandy Weill took him out (of his misery???) with a tidy profit.
Then in 1998, he was asked to help stave off a global liquidity crisis by rescuing Long-Term Capital Management. Perhaps remembering his Solly experience (John Meriwether being a common denominator), he conveniently went on an Alaskan vacation with his new best friend and bungled the mechanics of his bid, which forced a consortium of banks (not including Bear Stearns) to come to the rescue.
Today, there are reports of Buffett taking a stake in Bear Stearns, perhaps to keep it independent as Wachovia and Bank of America are looking to expand their securities businesses through acquisition. Supposedly on vacation, just like in 1998 (what is it with these post-Labor Day retreats?), Buffett may change his tune on derivatives if the price is right.
Wednesday, September 26, 2007
Friday, September 14, 2007
Liquidity Problems North of the Border
One of the lesser publicized, yet more dramatic, stories of this summer's liquidity crisis has been the literal shutdown of the asset-backed commercial paper market in Canada.
Why Canada? It has very little to do with the underlying asset quality, and almost entirely to do with how the market operates. Dominion (DBRS), the Canadian rating agency, has continued to give most ABCP prime (investment grade) credit ratings, in spite of the fact that there was never any liquidity backstop from banks in the case of market turmoil. Standard & Poor's doesn't have the same policy, and for good reason, as a liquidity backstop for a CP program is an investor's only assurance of timely repayment.
Good thing the Canadian market is only about US$32 billion (as compared with almost US$2 trillion for all of the USCP market), although that has not meant any less angst and anxiety for market participants.
Why Canada? It has very little to do with the underlying asset quality, and almost entirely to do with how the market operates. Dominion (DBRS), the Canadian rating agency, has continued to give most ABCP prime (investment grade) credit ratings, in spite of the fact that there was never any liquidity backstop from banks in the case of market turmoil. Standard & Poor's doesn't have the same policy, and for good reason, as a liquidity backstop for a CP program is an investor's only assurance of timely repayment.
Good thing the Canadian market is only about US$32 billion (as compared with almost US$2 trillion for all of the USCP market), although that has not meant any less angst and anxiety for market participants.
Friday, September 7, 2007
Who's Afraid of the TED spread?
A lot has been written recently about the rise in yield of LIBOR, the short-term rate that banks charge each other, even as rates on other short-term fixed income instruments have fallen. Reasons have ranged from impact of the collapse of the asset-backed commerical market to hoarding of cash (and not lending it out) to broader liquidity issues.
One thing that we learned from our fixed income strategist mentor (for me, the great Curtis Shambaugh) is that if you are looking for a reliable barometer of fear and greed, the TED spread is practically unbeatable.
The "T" in TED is the Treasury bill yields, and the "ED" is Eurodollar futures, the way the market trades future 3-month LIBOR settings. Because of their risk-free nature, Treasuries will always yield less than LIBOR, so the wider the spread between the two, the more fear is apparent in the market.
Therefore the spot TED spread is very wide (at a 20-year high according to some), indicating lots of current fear. But the future TED spreads are much narrower, since the T-bill curve is positively sloped (3-month bill yield = 4.07%; 6-month bill yield = 4.20%) but the Eurodollar curve is massively inverted (Sep '07 =5.56%, Dec '07 = 4.76%).
Maybe things aren't going to be so bad after all...
One thing that we learned from our fixed income strategist mentor (for me, the great Curtis Shambaugh) is that if you are looking for a reliable barometer of fear and greed, the TED spread is practically unbeatable.
The "T" in TED is the Treasury bill yields, and the "ED" is Eurodollar futures, the way the market trades future 3-month LIBOR settings. Because of their risk-free nature, Treasuries will always yield less than LIBOR, so the wider the spread between the two, the more fear is apparent in the market.
Therefore the spot TED spread is very wide (at a 20-year high according to some), indicating lots of current fear. But the future TED spreads are much narrower, since the T-bill curve is positively sloped (3-month bill yield = 4.07%; 6-month bill yield = 4.20%) but the Eurodollar curve is massively inverted (Sep '07 =5.56%, Dec '07 = 4.76%).
Maybe things aren't going to be so bad after all...
Night Tennis II
In response to comments:
1. I agree with surprise at the 50% profit margin ($110M out of $220M). Not sure if the number is inclusive of the purse or not, but is a difference of 10% (approximately $20M out of $220M).
2. And what other sport cares about making sure players are adequately rested vs. insuring good television coverage? (The (presumably less popular) men play 5 sets -- not three -- on 24 hours' rest.)
3. "Grinding" works on the PGA Tour, admittedly. But the point is that it has worked a lot better in the post-Tiger Era. In 1996 (the last year before the PGA Tour was "Tiger-ized", 10th place on the money list was worth about $977K (And who was #10? David Duval); for the ATP Tour, the money was about the same: $961K (Wayne Ferreira). As noted earlier, today #10 on the golf list is worth about 4x as much money as #10 on the tennis list.
In 1996, Pete Sampras stood astride the tennis world, but he did nothing to 'raise the tide' for his fellow competitors; Alexander Waske makes $176K at #100 on the tennis list. In contrast, Cliff Kresge (#100 on the golf list, earning a cool $806K so far this year) ought to be thanking Tiger every time he walks by him in the locker room.
One other point: not only to the tennis pros make less, their travel costs have to be more. Take the month of April: the ATP Tour touches down in Houston ($416K total prize money) and Valencia, Spain ($416K) (both the week of 4/9); Monaco ($2.45M) (week of 4/16); Barcelona ($1M) and Casablanca ($416K) (week of 4/23); and Munich ($416K) and Estoril, Portugal ($625K) (week of 4/30).
The PGA Tour's April schedule starts with a Major (The Masters in Georgia), with a purse of $7M (week of 4/8); then to Hilton Head, South Carolina ($5.4M) (4/15); New Orleans ($6.1M) (4/23); and Dallas, TX ($6.3) (4/30).
1. I agree with surprise at the 50% profit margin ($110M out of $220M). Not sure if the number is inclusive of the purse or not, but is a difference of 10% (approximately $20M out of $220M).
2. And what other sport cares about making sure players are adequately rested vs. insuring good television coverage? (The (presumably less popular) men play 5 sets -- not three -- on 24 hours' rest.)
3. "Grinding" works on the PGA Tour, admittedly. But the point is that it has worked a lot better in the post-Tiger Era. In 1996 (the last year before the PGA Tour was "Tiger-ized", 10th place on the money list was worth about $977K (And who was #10? David Duval); for the ATP Tour, the money was about the same: $961K (Wayne Ferreira). As noted earlier, today #10 on the golf list is worth about 4x as much money as #10 on the tennis list.
In 1996, Pete Sampras stood astride the tennis world, but he did nothing to 'raise the tide' for his fellow competitors; Alexander Waske makes $176K at #100 on the tennis list. In contrast, Cliff Kresge (#100 on the golf list, earning a cool $806K so far this year) ought to be thanking Tiger every time he walks by him in the locker room.
One other point: not only to the tennis pros make less, their travel costs have to be more. Take the month of April: the ATP Tour touches down in Houston ($416K total prize money) and Valencia, Spain ($416K) (both the week of 4/9); Monaco ($2.45M) (week of 4/16); Barcelona ($1M) and Casablanca ($416K) (week of 4/23); and Munich ($416K) and Estoril, Portugal ($625K) (week of 4/30).
The PGA Tour's April schedule starts with a Major (The Masters in Georgia), with a purse of $7M (week of 4/8); then to Hilton Head, South Carolina ($5.4M) (4/15); New Orleans ($6.1M) (4/23); and Dallas, TX ($6.3) (4/30).
More on Night Tennis
A few more notes on night tennis at the US Open, which was also featured in Greg Garber's ESPN column today:
1. Television dollars are clearly driving the scheduling, but that doesn't necessarily help the men's tour (ATP) rather than WTA (women's tour) or the US Open/USTA itself.
2. In addition to being the only Grand Slam tournament on US soil, the US Open was the first tournament to move to night tennis, according to Garber (Australia has subsequently followed suit, altough Wimbledon and Paris remain day-only events).
3. If the women are the main draw, why are the women's semis being played during the afternoon? (The mens' SF are also being played in the afternoon, but on a weekend, rather than a Friday.)
4. In response to a comment, if Meghann Shaughnessy had defeated Sybille Bammer in the second round, and Jamea Jackson had defeated Nicole Pratt in the first, bringing the Yanks closer to .500 (31-33, ex. additional results), then...what exactly?
1. Television dollars are clearly driving the scheduling, but that doesn't necessarily help the men's tour (ATP) rather than WTA (women's tour) or the US Open/USTA itself.
2. In addition to being the only Grand Slam tournament on US soil, the US Open was the first tournament to move to night tennis, according to Garber (Australia has subsequently followed suit, altough Wimbledon and Paris remain day-only events).
3. If the women are the main draw, why are the women's semis being played during the afternoon? (The mens' SF are also being played in the afternoon, but on a weekend, rather than a Friday.)
4. In response to a comment, if Meghann Shaughnessy had defeated Sybille Bammer in the second round, and Jamea Jackson had defeated Nicole Pratt in the first, bringing the Yanks closer to .500 (31-33, ex. additional results), then...what exactly?
More from Daly City (II)
The strange tale of Norman Hsu, fundraiser and felon, continued yesterday.
After posting $2M bail last week, Hsu was scheduled to appear Wednesday before a California judge to ask that the bail be reduced; instead he skipped town and was arrested (with FBI assistance) in Colorado. He also apparently required medical attention, at the time of the arrest.
More, undoubtedly to follow...
After posting $2M bail last week, Hsu was scheduled to appear Wednesday before a California judge to ask that the bail be reduced; instead he skipped town and was arrested (with FBI assistance) in Colorado. He also apparently required medical attention, at the time of the arrest.
More, undoubtedly to follow...
Thursday, September 6, 2007
Coach Hubie Brown Visits Flushing Meadows
You are the head of the ATP Tour.
You have seen tennis fall way behind its main competitor (golf) in the hearts and minds of American sports fans since the advent of the Tiger Era.
You know that at comparable spots on the respective money lists, your tennis pros -- whose careers are significantly shorter -- make 1/4th to 1/3rd of the money that the equivalent spot on Tim Finchem's golf pros make. (E.g., tennis #10 Richard Gasquet: $791K; golf #10 Adam Scott: $2.96M; #20 tennis pro Carlos Moya: $676K; #20 golf pro Mark Calcavecchia, $2.29M; #50 tennis pro David Nalbadian, $350K; #50 golf pro Billy Mayfair, $1.38M)
You also know that the PGA has upped the ante with a flawed -- but still widely publicized -- Fedex Cup.
And finally, you get the most dominant player of the era -- Roger Federer, his sport's answer to Tiger Woods (at least according to Gillette) -- playing the highest-ranked, and last-remaining, US player -- Andy Roddick -- in the sole Grand Slam event played in America.
So what do you do?
Naturally, you start the match after 10pm, and for the second night in a row, an Open semifinalist is determined after midnight; the night before, 15th-seeded David Ferrer defeated popular #2-seed Rafa Nadal in four sets, the final point coming at 1:50am.
See, if you want to attract a new generation of fans -- young players who will in 20 years be interested in buying tickets to Grand Slam events -- there's no better way than having the biggest point of the night (Federer's handcuffing block of Roddick's 140-mph serve at 4-4 in the second set tiebreak) be seen by dozens of television viewers.
You have seen tennis fall way behind its main competitor (golf) in the hearts and minds of American sports fans since the advent of the Tiger Era.
You know that at comparable spots on the respective money lists, your tennis pros -- whose careers are significantly shorter -- make 1/4th to 1/3rd of the money that the equivalent spot on Tim Finchem's golf pros make. (E.g., tennis #10 Richard Gasquet: $791K; golf #10 Adam Scott: $2.96M; #20 tennis pro Carlos Moya: $676K; #20 golf pro Mark Calcavecchia, $2.29M; #50 tennis pro David Nalbadian, $350K; #50 golf pro Billy Mayfair, $1.38M)
You also know that the PGA has upped the ante with a flawed -- but still widely publicized -- Fedex Cup.
And finally, you get the most dominant player of the era -- Roger Federer, his sport's answer to Tiger Woods (at least according to Gillette) -- playing the highest-ranked, and last-remaining, US player -- Andy Roddick -- in the sole Grand Slam event played in America.
So what do you do?
Naturally, you start the match after 10pm, and for the second night in a row, an Open semifinalist is determined after midnight; the night before, 15th-seeded David Ferrer defeated popular #2-seed Rafa Nadal in four sets, the final point coming at 1:50am.
See, if you want to attract a new generation of fans -- young players who will in 20 years be interested in buying tickets to Grand Slam events -- there's no better way than having the biggest point of the night (Federer's handcuffing block of Roddick's 140-mph serve at 4-4 in the second set tiebreak) be seen by dozens of television viewers.
Wednesday, September 5, 2007
Lost In Translation
Certainly one of the most difficult challenges in professional sports is performing at the highest level while adjusting to a new culture. The prevalence of Japanese baseball veterans moving to the Major Leagues gives us some interesting data to observe.
Hitters, whether emphasizing speed or power, seem to do okay. Pitchers, on the other hand, have been maddeningly unpredictable (see: $46m disaster and Fat Toad).
Which brings us to the curious case of Hideki Okajima, the much less hyped of Boston's two Japanese pitching acquisitions this offseason, but arguably the more valuable. Okajima's star was born when he surprisingly closed out the first Yankee game of the year, and he went on to go 3-0 with 4 saves, allowing only 6 ER, 32 H and 12 BB, in his first 51 games of the year (55.1 IP).
But since then he is 0-2, allowing 7 ER, 12 H and 5 BB, in his last 10 games (10 IP), including allowing the game-winning HR tonight.
So what to make of the drop off in performance? One explanation could be that he's having trouble adjusting to an increased workload.
Since 2002 in Japan, Okajima never pitched in more than 55 games or logged more than 55.2 IP in any one season. So having busted through those barriers with more than a month left in the regular season, he is sailing into uncharted waters as far as recent history is concerned.
So much like the NBA rookie who "runs into the wall" in February or March as he adjusts to the rigors of his new travel and practice/game schedule, Okajima could be out of gas come October. For the sake and sanity of Red Sox Nation, let's hope that the Wizards of Yawkey Way figure out how to get Clay Buchholz on the postseason roster....
Hitters, whether emphasizing speed or power, seem to do okay. Pitchers, on the other hand, have been maddeningly unpredictable (see: $46m disaster and Fat Toad).
Which brings us to the curious case of Hideki Okajima, the much less hyped of Boston's two Japanese pitching acquisitions this offseason, but arguably the more valuable. Okajima's star was born when he surprisingly closed out the first Yankee game of the year, and he went on to go 3-0 with 4 saves, allowing only 6 ER, 32 H and 12 BB, in his first 51 games of the year (55.1 IP).
But since then he is 0-2, allowing 7 ER, 12 H and 5 BB, in his last 10 games (10 IP), including allowing the game-winning HR tonight.
So what to make of the drop off in performance? One explanation could be that he's having trouble adjusting to an increased workload.
Since 2002 in Japan, Okajima never pitched in more than 55 games or logged more than 55.2 IP in any one season. So having busted through those barriers with more than a month left in the regular season, he is sailing into uncharted waters as far as recent history is concerned.
So much like the NBA rookie who "runs into the wall" in February or March as he adjusts to the rigors of his new travel and practice/game schedule, Okajima could be out of gas come October. For the sake and sanity of Red Sox Nation, let's hope that the Wizards of Yawkey Way figure out how to get Clay Buchholz on the postseason roster....
Saturday, September 1, 2007
Favorite Sons
In the late 1780s, William Safire reports in his "Safire's New Political Dictionary", George Washington was referred to as "Freedom's Favorite Son." In the 1830s, Martin Van Buren was "New York's favorite son", and a few years later, Henry Clay was the same for Kentucky.
Throughout the succeeding century, it was an American tradition, as Safire explains, for the leading politician of a particular state to go to the national convention as the "favorite son" and control that particular state's delegates; the purpose was not to gain the nomination, necessarily, but to promote his particular state's interest.
The phrase -- and the gambit -- has gone out of style in the last few years, and as almost all state's delegates are elected by direct voting, it seems unlikely to return.
But two GOP candidates have taken the demise of the 'favorite son' gambit to an extreme: Rudy Giuliani and Mitt Romney have made an art of running against their respective home states.
Romney has famously been running against Massachusetts for the last several years.
Guiliani's indictment of New York City is more nuanced. He does not so much criticize NYC, as (apparently) stand aside while conservative Republicans around him do so:
Candidates' background has already become something of an issue in this election. Barack Obama is a Senator from Illinois, but was born in Hawaii and grew up (for a few years) in Indonesia. Hillary Clinton has made claims to Illinois, Arkansas, and (now) New York, where she serves as a Senator.
The trend towards nationalization of the election means that viable candidates are becoming 'citizens-of-the-world', or at least citizens-of-the-entire-nation. If Romney or Giuliani are ultimately successful, it will accelerate that trend. At the very least, it shows that the 'favorite son' gambit is probably a distant memory.
Throughout the succeeding century, it was an American tradition, as Safire explains, for the leading politician of a particular state to go to the national convention as the "favorite son" and control that particular state's delegates; the purpose was not to gain the nomination, necessarily, but to promote his particular state's interest.
The phrase -- and the gambit -- has gone out of style in the last few years, and as almost all state's delegates are elected by direct voting, it seems unlikely to return.
But two GOP candidates have taken the demise of the 'favorite son' gambit to an extreme: Rudy Giuliani and Mitt Romney have made an art of running against their respective home states.
Romney has famously been running against Massachusetts for the last several years.
"Being a conservative Republican in Massachusetts," [Romney] told a GOP audience in South Carolina, "is a bit like being a cattle rancher at a vegetarian convention."Needless to say, his former constituents (aka, citizens of Massachusetts), are less then enamored with Mr. Romney's current assessment of the state.
Guiliani's indictment of New York City is more nuanced. He does not so much criticize NYC, as (apparently) stand aside while conservative Republicans around him do so:
Speaking before the Alabama legislature this spring, he received a standing ovation, and Governor Bob Riley told him, “One of these days, you have to tell me how you really cleaned up New York.” To conservatives, pre-Giuliani New York was a study in failed liberalism, a city that had surrendered to moral and physical decay, crime, racial hucksterism, and ruinous economic pathologies. Perhaps the most common words that Giuliani heard when he travelled around the country this spring were epithets aimed at his city (“a crime-infested cesspool,” one Southern politician declared), offered without fear of giving offense. Giuliani cheerfully agreed.Giuliani so far has avoided direct criticism of his city; Romney does not bother so limiting himself.
Candidates' background has already become something of an issue in this election. Barack Obama is a Senator from Illinois, but was born in Hawaii and grew up (for a few years) in Indonesia. Hillary Clinton has made claims to Illinois, Arkansas, and (now) New York, where she serves as a Senator.
The trend towards nationalization of the election means that viable candidates are becoming 'citizens-of-the-world', or at least citizens-of-the-entire-nation. If Romney or Giuliani are ultimately successful, it will accelerate that trend. At the very least, it shows that the 'favorite son' gambit is probably a distant memory.
The Heat is On
If you thought Michigan fans were dissatisfied with Lloyd Carr going into this season, then get ready for a virtual bonfire tonight and the rest of this week after a 34-32 loss to I-AA Appalachian State (while Division I-AA is now known as Football Championship Subdivision (FCS), it is still light-years from BCS/I-A; the phrase "former I-AA school, Appalachian State" implies that the Mountaineers have moved up to the main division, rather than merely a re-naming of the division).
What is amazing about the victory is that the Mountaineers blew a two touchdown lead (28-14, late in the first half), put a two-minute drill together in the fourth quarter to re-take the lead at 34-32, and then blocked a field goal (for the second time in the fourth quarter) to preserve the win.
The last big-time coach to lose to a I-AA school (Jack Crowe of Arkansas, after a loss to The Citadel in 1992). Carr had best defeat Ohio State in November.
What is amazing about the victory is that the Mountaineers blew a two touchdown lead (28-14, late in the first half), put a two-minute drill together in the fourth quarter to re-take the lead at 34-32, and then blocked a field goal (for the second time in the fourth quarter) to preserve the win.
The last big-time coach to lose to a I-AA school (Jack Crowe of Arkansas, after a loss to The Citadel in 1992). Carr had best defeat Ohio State in November.
Pitchers with 1,000 Appearances
Over at the Fens last night, a big cheer went up with the announcement that Mike Timlin was entering the game, and would be making his 1,000th big league appearance, which is good for 13th on the all-time list. (Of course, the cheers would have been muted if the fans had known that Timlin was headed for a 0.2 IP, 4 H, 4 ER, 1 BB line.)
The all-time list of career games pitched is an intriguing one. A few expected names (Dennis Eckersley (4th all-time, Hall of Famer), Hoyt Wilhelm (5th, HoF), Lee Smith (8th, likely HoF) and Goose Gossage (12th, 1002 G, should-be HoFer), mixed in with Mike Stanton (2nd, active leader), John Franco (3rd), Dan Plesac (6th), Jose Mesa (9th, active), Mike Jackson (10th), and Roberto Hernandez (11th, active).
Two other pitchers of note on the list: Kent Tekulve (7th) is probably not a Hall of Famer, although his resume is not shabby: 1050 G, 2.85 ERA, 184 Saves. Like Sparky Lyle and Mike Marshall (and for that matter, Gossage) he suffers from the lack of clarity about closers' standards in the pre-Eck era.
The all-time leader is Jesse Orosco with 1252 G. Orosco's record is similar to Tekulve's (87-80 for Orosco; 94-90 for Tekulve; 3.16 ERA vs. 2.85; 144 S vs. 184); but Orosco, no matter his numbers, holds a special place in the 'hearts' of Red Sox fans.
The all-time list of career games pitched is an intriguing one. A few expected names (Dennis Eckersley (4th all-time, Hall of Famer), Hoyt Wilhelm (5th, HoF), Lee Smith (8th, likely HoF) and Goose Gossage (12th, 1002 G, should-be HoFer), mixed in with Mike Stanton (2nd, active leader), John Franco (3rd), Dan Plesac (6th), Jose Mesa (9th, active), Mike Jackson (10th), and Roberto Hernandez (11th, active).
Two other pitchers of note on the list: Kent Tekulve (7th) is probably not a Hall of Famer, although his resume is not shabby: 1050 G, 2.85 ERA, 184 Saves. Like Sparky Lyle and Mike Marshall (and for that matter, Gossage) he suffers from the lack of clarity about closers' standards in the pre-Eck era.
The all-time leader is Jesse Orosco with 1252 G. Orosco's record is similar to Tekulve's (87-80 for Orosco; 94-90 for Tekulve; 3.16 ERA vs. 2.85; 144 S vs. 184); but Orosco, no matter his numbers, holds a special place in the 'hearts' of Red Sox fans.
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