Apoios do E-Lar vão dos 146 euros para placas até aos 615 para termoacumuladores

[salvadorveiga]

Eric Fry, reporting from Laguna Beach, California…

Now that Fannie Mae and Freddie Mac have become wards of the state, forward-looking investors will want to know how many more orphans the Treasury Department can afford to adopt. In fact, forward-looking investors might want to know how the Treasury Department will manage to keep Fannie and Freddie clothed and fed, even before adopting any other financial urchins.

We have no idea. But we would guess that the Treasury will find the necessary resources in some vast industrial space where printing presses go "chi-chug, chi-chug, chi-chug" day and night. Neither one of your congenitally optimistic editors can seem to formulate a scenario that ends with 2% inflation and a 4% yield on the 10-year Treasury. Instead, rising inflation and soaring bond yields seem the likeliest outcome.

The mega-billion-dollar bailouts, workouts and quasi-nationalizations conducted by the Treasury and the Fed during the last few months would not seem quite as troublesome, if not for the fact that the asset side of the Fed's balance sheet continues to degrade. It is quickly becoming a Superfund Cleanup site.

To enact its various bailout schemes, the Fed clear-cut the stands of pristine Treasurys that once blanketed its balance sheet, and replaced them with exotic, non-indigenous species of debt securities. No one knows whether these species will flourish or perish, but the early indications are not encouraging.

The mortgage-backed securities that that Fed has been buying are only as good as the mortgages that back them…and many of those mortgages are no good at all. That's because the credit crisis that is sweeping the country has become a mortgage-default crisis. Or maybe it's the other way around. But whatever the precise cause, twice as many California homeowners are defaulting on their mortgages this year compared to last year. And default rates are climbing across the rest of the country as well.



Meanwhile, home prices continue tumbling and the inventory of homes for sales continues rising. This toxic cocktail is (almost) certain to produce another wave of mass defaults and foreclosures.

Our reasoning is as simple as it is frightening: Since most of the folks who cannot afford to keep their homes, cannot sell them either…they will hand their keys to bankers.

The nation's ailing housing market and soaring foreclosure rate is not merely a problem for the U.S. government – now the largest mortgage-holder in the country – these woes are also a problem for hundreds of private banks that are struggling to survive. Many of these private banks will NOT survive, as guest columnist, John Mauldin explains below…

Dead Men Walking
By John Mauldin

What strikes me the most about impaired companies, whether they are automakers, airline companies, banks, brokers or GSE's is that they tend to repeat the same pattern of behavior. I call this pattern, "The Dead Man Walking Cycle." Investors who recognize this pattern early, can avoid dangerous stocks…or try to profit by selling them short.

The first worrisome tip-off or "tell" is when a company releases earnings or some sort of positive announcement and the stock falls. Another important tell is when the credit spreads of the company's debt begins to widen [i.e., the company's bonds fall in price]. Then, the company will usually announce that "all is well," or that things are so great that the company will buy back stock. After this comes the "acceptance" phase and write-offs/write-downs are announced. But then some Sovereign Wealth Fund or Private Equity firm will inject capital, or a company within the same industry will buy a "strategic stake." After a brief pop in the stock and short-covering rally, the stock begins to fall further and credit spreads begin to blow out and preferred shares get hammered. Then, uh-oh, more write-downs and more write-offs and yes, another capital raise and finally a dividend cut to "preserve capital."

Sound familiar yet...?

All of this goes on for quite some time, until the doomed company runs out of ways to raise equity. Its trades like junk, and the preferred shares rise to double digit yields. Further, the former strategic buyers, Sovereign Wealth Funds and Private Equity firms have taken such a beating that there are no further buyers.

Yet the write-downs and write-offs continue unmercifully. Eventually, the company is a Dead Man Walking.

There are only a few things that can happen to the companies that are walking "The Green Mile." Either they take a seat in the electric chair and cease to exist or they fall into the arms of a better capitalized institution. Over time, I expect a bit of both, but mostly of the latter.

(In the end, perhaps years from now, many banks and brokers will be merged into an international list of "good banks" or "Live Men Walking." Who are the Live Men Walking? They are likely Bank of America, Bank of New York, JP Morgan Chase, Northern Trust, State Street, US Bancorp, ABN Amro, Deutsche Bank, BNP Paribas, Royal Bank of Scotland, Barclays, Allianz and a few others.)

Let's use Lehman Brothers as the poster child of the Dead Man Walking Cycle. I wrote a piece recently that singled out National City, Washington Mutual and Lehman Brothers. Before the credit crisis started, Lehman, at the time known for its savvy timing, suddenly came to market for $5 billion of long-term bonds, even though it said it didn't need capital. Last year, with the credit crisis in its infancy, Lehman announced a $100,000,000 stock buyback. The shares, as you would expect, popped on the news, but of course no stock was ever re-purchased. As the stock began to sell off, Lehman kept saying that capital was not needed.

Then, on June 9, 2008 the company sold 143,000,000 shares at $28 per share. As hedge fund manager David Einhorn said, "They've raised billions of dollars they said they didn't need to replace losses they said they didn't have." In between was an enormous preferred stock deal – 75,900,000 shares at $25 per share at a rate of 7.95%. This preferred stock now changes hands at $8.80 per share, for an indicated yield of about 23%. It's pretty hard to turn a profit when your cost of capital is twice as high as Pakistan's.

During this time, in January, the company actually raised its common dividend by 15% year-over-year. Before yesterday's earnings announcement, Lehman had written off north of $8 billion since the credit crisis began. But yesterday morning, the company heaped another $5.6 billion of write-downs of its growing pile of garbage assets. Who can say when the write-downs will end?

Based on Lehman's example, here's the approximate recipe for "Dead Men Walking":

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Common stock too low to issue new shares.
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Preferred stock yield too high to issue new shares economically.
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Issuing debt is uneconomic.
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More write-offs in days to come.
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Business trends are awful.
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Denial.

Now that we have identified the "poster child", let's find a few more... Or sadly, more than a few.

Zions Bancorp

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Equity has traded down from $75 to $32.
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Tried to issue a $200 million preferred stock offering at 9.5% but only was able to sell $47 million.
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Their debt trades in the open market approximately 1,000 basis points above Treasuries, IF you can sell them.
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They are geographically in Utah, but the bank expanded into Florida, Nevada and Arizona at the top of housing boom – i.e., some of the nation's worst housing markets.
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They say they need $200-300 million capital. Good luck.
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They maintained their common dividend.

KeyCorp

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Common Stock has traded down from $40 to $12.
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Preferred Stock trades at 13%.
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Debt trades in the market at 10-11% yield.
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Cut dividend in half in July, still yields 6% even while they lose money.

Fifth Third Bank

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Equity has traded down from $60 to $14.
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There are no preferred issues outstanding.
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Debt trades in 10-11% range, if you can sell it.
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Cut dividend by 75%.

Washington Mutual

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Equity has traded from $40 to $3.
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No preferred outstanding except convertible preferred.
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Debt trades in the 20-25% range.
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Cut the dividend to $0.01 per share in April.
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Has admitted they will lose money for the next several years.

National City

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Equity has traded from $40 to $5.
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Preferred stock trades at 13-15%.
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Sold a huge amount of shares at $5 per share in April.
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Cut dividend to $0.01 per share in April.

Regions Financial

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Equity down from $40 to $11.
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Preferred Stock Trading at 10%.
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Debt trades in the 10-11% range, if you can sell it.
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Cut dividend by 75% in June.
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Needs to raise $2 billion, according to Sanford Bernstein.

General Motor/GMAC

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Equity has traded from $80 to $11.
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Preferred stock trades in 18% area.
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Short-term debt trades in 25-30% range.
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Long-term debt trades in 17% range.
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Eliminated common dividend in July.

Ford/Ford Motor Credit Co

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Equity has traded from $60 to $4.
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Preferred stock trades in 16-17% range.
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Long term debt trades in the 18-20% range.
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Eliminated common dividend in September.

Wachovia

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Equity has traded from $60 to $15.
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Issued a $3.5 billion "hybrid security" in February that now trades at 11%.
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S&P has stated they cannot issue any more hybrids.
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Sold 92,000,000 shares of an 8% preferred stock in December at 8%. This preferred now trades for $14.40 to yield about 14%.
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Cut common dividend twice since February to $.05 a share or 90%.
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Debt trades at 9.5-10.5%.

In addition to the "dead men" I've identified above, a few other financial firms might serve long prison terms, but will probably manage to stay off of death row. These companies would include those that may be "too big to fail," have enough quality assets to sell, a franchise that is worth something to an acquirer or could just be broken up into pieces. They include:
- Citi
· Merrill Lynch
· Morgan Stanley
· Suntrust
· Legg Mason
· Capital One
· AIG
· MetLife
· Prudential

I am certain that I have missed a bunch of names on the "Dead man Walking List," but the pattern is rather easy to discern. When we have only one or two firms in trouble, the financial system can deal with it. But when you add rising unemployment, explosive debt growth in recent years and $1 trillion of non-performing assets into the mix, the situation becomes a little dicier.

For this reason, we remain cautious towards credit, expect a hard sell-off in stocks into 2010, consolidation in the financial services industry and some pain, like it or not. I am just not sure where the capital will come from to bail everyone out simultaneously. And even if the capital showed up, it would likely come at a cost that is uneconomic and would likely be dilutive for many years to come.

In the meantime we should position our portfolios so that if we are wrong, the most we can lose is opportunity, not precious capital.

John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. For other articles by John Mauldin, click here

[Joel's Note: As it so happens, our own resident short seller, Dan Amoss, recently gave readers of his Strategic Short Report the opportunity to cash out of a Lehman Brothers play for a whopping 472%. Not bad, eh?

For the reasons Mr. Mauldin explained above, we expect many more banks to follow Lehman's fateful path.

[Rude Endnote: It's not often these markets give cause for a good old belly laugh. Yesterday, one of our colleagues sent around the following email. We hope you get a giggle out of it:

"This song lyric quote comes to me courtesy of my sister. This song was prominantly featured in a memorable scene of the classic film Easy Rider, and seems prophetic at this juncture...from 1968.

'Take a load off Fanny, take a load for free;
Take a load off Fanny, and (and) (and)
You put the load right on me.'

– The Band, 'The Weight,' 1968

Good luck out there today.

Until tomorrow...

Cheers,

Joel Bowman