by Calculated Risk on 4/21/2009 12:02:00 AM

From the WSJ: TARP Watchdog Urges Better Oversight

A report by the TARP watchdog said the Treasury should take steps to better manage its financial-rescue effort so that taxpayer dollars are safeguarded and programs are more fraud-resistant, accountable and transparent.

And on the potential for gaming the PPIP:

"The significant Government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit," [the report said]

This is the second quarterly report to Congress on the $700 billion TARP.

From the LA Times: Inspector general cites potential flaws in bank bailout, urges Treasury to adopt safeguards. An excerpt on the PPIP:

"The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives," the report states.

This is harsh criticism of the PPIP (well deserved in my view). And a pretty critical report of the overall handling of the TARP.

by Calculated Risk on 4/20/2009 07:35:00 PM

Here are some excerpts from the Texas Instruments conference call (ht Brian)

You'll recall at the midquarter update we raised the middle of our guidance range and referenced that 3G communications infrastructure in China was the most notable area of better than expected strength. In the last few weeks of the quarter, in addition to base stations, we also saw better than expected demand from notebook computers, some other sectors of the handset market, as well as from LCD-based HDTVs.

Regionally, most of the strength is coming from Asia, while the other regions remain subdued. Therefore, we wouldn't characterize the stronger demand as broad based, as it was concentrated in a few high volume end markets and the Asian region. Nonetheless, it is encouraging to see our revenues stabilizing, albeit at what remains a low level.

We also caution that the stabilization is likely being driven by customers that are slowing their inventory reduction and not by broad-based increases in end consumption or by customers rebuilding inventory. Let me explain. Over the last few quarters, we saw dramatic drop in demand for our chips because customers slowed their production and began to reduce the chip inventory they had in stock. Now that they have realigned their own production with the lower level of consumer end demand and reduced their existing chip inventory, order trends for our chips have started to improve. This leads us to believe that the worst of the inventory drain is now finished and our shipments will more closely reflect our customers' production levels. However, the most important determinant of our business levels in the second half of this year will be the real end consumption trends. From our perspective, there remains significant uncertainty about the direction of end consumption. As a result, we are careful not to misread the completion of inventory reduction as a return to higher end demand. Our approach is that we will keep our operations highly flexible to respond to whatever direction demand will track, while remaining highly diligent to inventory and costs.
emphasis added

More on inventory correction:

The reduction in inventory that we achieved resulted in inventory days declining to 77 at the end of the quarter, compared with 94 days at the end of the year-ago quarter, and 89 days at the end of the fourth quarter. TI orders in the quarter were 2.19 billion, up 18% sequentially. After a five-month slide, product orders bottomed in the month of December and increased each month through the first quarter. TI book to bill increased to 1.05 in the quarter from 0.75 in the prior quarter.

But they have drastically reduced capital expenditures:

Going forward, we anticipate for this year that we would spend upwards of $300 million on capital for the year. ['08 was $763 million, '06 was $1.27B]

And from the Q&A:

Analyst: Could you go into a little bit more detail on what you guys are looking for that would enable you to think that we are at the beginning of a new semiconductor cycle?

TXN: What we saw was just one region, primarily Asia, and just a couple of large verticals, primarily the -- infrastructure, notebooks, and some handsets and LCD TVs as picking up a little bit late in the quarter. We did not see it importantly in other regions around the world and we did not see it in the industrial or consumer sectors. So until we see demand pick up in other regions, as well as in other sectors, we don't believe that we're looking at something that suggests that there's an overall increase in demand to be anticipated. Right now, it feels more to us like our demand [from] our customers are lining up their orders to end demand – at an overall level lower than it has been for quite sometime.

by Calculated Risk on 4/20/2009 05:11:00 PM

Excerpt (any errors by CR):

Q: What about capital adequacy. Are you expecting to raise new capital?

Lewis: We are not expecting to need more capital. The issue of course - which was brought up today which is hurting all bank stocks - will some be required convert some of their preferred to common. We don't think we have an issue there. But that is now in the hands of the regulators, and we have not heard back from them at this point in time.

Q: What should we look for as far as the most important things to come out of the stress tests?

Lewis: I think it will be what requirements are there on what banks in terms of conversion of TARP preferred into TARP equity.

Q: You said you want to pay back the TARP money in 2009. Is that still on the table? Are you expecting to pay back that TARP that soon?

Lewis: Well, we would like to, and we would prefer to. But again that is now in the hands of the regulators and we will be in consultation with them as to what the best avenue will be in that regard.

What does converting preferred shares to common accomplish? Krugman comments on this today: Preferred shares to common equity: an analogy

by Calculated Risk on 4/20/2009 03:54:00 PM

I'm looking forward to the housing news later this week!

And on the false Stress Test rumor this morning, from Bloomberg: Treasury Says ‘No Basis’ to Report on Bank Testing

A U.S. Treasury spokesman said there’s no basis to a blog posting that buffeted financial stocks by saying that most of the nation’s largest banks are insolvent.

Why are they even responding?

DOW down 3.6%

S&P 500 down 4.3%

NASDAQ down 3.9%

Click on graph for larger image in new window.

The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

This is the 2nd worst S&P 500 / DOW bear market in the U.S. in 100 years.

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

The second graph compares four significant bear markets: the Dow during the Great Depression, the NASDAQ, the Nikkei, and the current S&P 500.

See Doug's: "The Mega-Bear Quartet and L-Shaped Recoveries".

by Calculated Risk on 4/20/2009 01:31:00 PM

Zach Fox at the North County Times brings us another half off sale ... this time in a little higher price range. This is a 5,500 sq foot home in Escondido. Zach says the bank ate $815,000.

Photo by Zach Fox

Click on photo for larger image in new window.

November 2006: $1,650,000

February 2009: $805,000*

*Zach Fox notes this was the price the bank bid at the foreclosure auction. For some time it wasn't worth going to foreclosure auctions because the banks would bid what they were owed - and that would be more than the property was worth. I'll see if I can more details on this house.