The FoH Stock Market Game

[Gryeyes]

What a fun thing to mess around with.

[Vonsid Darktower]

Is this gonna be ran again?

[Tyen]

Originally Posted by Vonsid Darktower

Is this gonna be ran again?

Virtual Stock Exchange - Home

[Josh]

I claim victory for myself.


Thanks for playing, ole chaps.

[prescient63]

I think we should run a 6 month contest on marketocracy. I'm pretty sure I have an fog group set up already. Marketocracy is much more like trade g a portfolio than this crappy site.

[Guild Lackey]

I wish Berk would stop screwing around. It's killing me right now.

[prescient63]

What I thought was an excellent interview with Merideth Whitney:

Maria Bartiromo: WELCOME BACK. TODAY THE FEDERAL RESERVE EXTENDED THE EMERGENCY PRIMARY DEALER CREDIT FACILITY TO INVESTMENT BANKS TO AT LEAST JANUARY '09 AS OPPOSED TO THE EXPECTED EXPIRATION OF Trash THAT OPENING OF THE CREDIT WINDOW BY SEPTEMBER OF THIS YEAR. MERRILL LYNCH THIS WEEK BECOMING THE LATEST FIRM TO TRY AND SHORE UP THE BALANCE SHEET BY SELLING OFF TOXIC MORTGAGE INVESTMENTS AT A HUGE LOSS. ANNOUNCING AN $8.5 BILLION CAPITAL RAISE. IT'S A MOVE INVESTORS HAVE BEEN SCRUTINIZING AS THEY TRY TO ASSESS WHERE THE BOTTOM IS AND WHETHER THE WRITEDOWNS WILL END ANYTIME SOON. TAKING A LOOK AT THE FINANCIALS' FUTURE, IN A CNBC EXCLUSIVE RIGHT NOW I'M JOINED BY MEREDITH WHITNEY, EXECUTIVE DIRECTOR OF EQUITY RESEARCH AT OPPENHEIMER. MEREDITH, WELCOME BACK TO "CLOSING BELL ."




Meredith Whitney: THANKS FOR HAVING ME.




Bartiromo: GOOD TO SEE YOU. SO TELL ME ABOUT YOUR OPINION OF THIS FED OPENING THE DISCOUNT WINDOW AND EXTENDING THAT OPENING TO JANUARY OF '09. WOULD YOU SAY THAT THIS IS A POSITIVE OR DOES IT WORRY YOU THAT PERHAPS THINGS ARE EVEN WORSE THAN PEOPLE THOUGHT?




Whitney: WELL, EVERY TIME THEY OPEN THE WINDOW THEY LEAVE THEMSELVES LESS ROOM FOR THE NEXT CRISIS, RIGHT? SO THERE'S AN AREA WHERE THE BROKERS NEEDED THE WINDOW TO BE OPEN AND IT'S GOTTEN THIS EXTENDED NOW A COUPLE OF TIMES, A FEW TIMES. AND I THINK THAT'S BECAUSE THEY'RE NOT -- THERE'S NOT A LOT OF CAPITAL OUT HERE THAT WANTS TO RESCUE ANY OF THESE BROKERS, THAT WANTS TO COME IN AND BUY ASSETS, AND AS A RESULT THEY NEED TO BACKSTOP IT. THE BROKERS ARE PLAYING A VERY IMPORTANT ROLE HERE. BUT WITH THAT EXTENSION YOU REALIZE THE FED AT LEAST HAS REALIZED THERE'S NO QUICK FIX ON THE HORIZON AND THEY NEED TO GIVE THEM THAT MUCH MORE OF A LIFELINE.




Bartiromo: WHERE ARE WE IN THIS CYCLE, MEREDITH? DO YOU THINK WE'VE SEEN THE WORST YET OR NOT?




Whitney: I THINK THAT -- I KEEP SAYING WE'RE LESS THAN 50% OF THE WAY DONE. AND IT SEEMS LIKE WE'VE BEEN LESS THAN 50% FOR A REALLY LONG TIME. BUT WHAT YOU KNOW IS THAT CAPITAL TODAY, ALL THE CAPITAL THAT HAS BEEN RAISED, HUNDREDS OF BILLIONS OF DOLLARS OF CAPITAL, HAS JUST BEEN PUT ON HOLD. AND THE VALUATIONS AND THE ASSUMPTIONS THAT COMPANIES ARE USING IN CARRYING ASSETS OUT ARE STILL UNREALISTIC. SO THE CENTRAL ROOT OF ALL THIS ISSUE IS HOUSING PRICES. HOUSE PRICES CONTINUE TO DECLINE. AND THESE ASSETS ARE VALUED AT REALLY ASPIRATIONAL VALUES. SO THEY'RE GOING TO CONTINUE TO BE WRITEDOWNS. CAPITAL WILL CONTINUE TO BE RAISED, RECAPITALIZATIONS BY SO MANY OF THE FINANCIAL INSTITUTIONS.



AND THE WHOLE COMPONENT OF – OR THE WHOLE NOTION OF EQUITY IS REALLY DESIGNED TO FUND GROWTH. THIS EQUITY'S JUST PLUGGING HOLES. IT'S NOT FUNDING ANY GROWTH. AND AS A RESULT THERE'S LESS AND LESS LENDING AVAILABLE. AND THAT MEANS THAT THERE'S MORE AND MORE STRAIN ON BUSINESSES AND MORE AND MORE STRAIN ON THE CONSUMER.



INTERESTINGLY, AMERICAN EXPRESS REPORTED LAST WEEK, AND THEY TALKED ABOUT HOW MUCH MORE DIFFICULT THE SPENDING AND CREDIT ENVIRONMENT WAS THAN THEY EXPECTED, AND ONE THING THAT THEY'VE SEEN AND ONE THING THAT EVERY CREDIT CARD ISSUER HAS SEEN IS THEY'VE CUT LINES OF CREDIT FOR CONSUMERS IN THE AREAS THAT HAVE HAD THE GREATEST HOUSE PRICE DEPRECIATION.



WELL, THOSE ARE THE GUYS THAT NEED THE CREDIT THE MOST. AND AS A RESULT YOU'VE SEEN THE STREAM AND REDUCED CREDIT LINES PUSH CONSUMERS OVER THE EDGE. SO THAT GETS WORSE. THE ON BALANCE SHEET CREDIT IS WORSE THAN PEOPLE EXPECTED, AND IT'S BEYOND THE HOUSING CRISIS. AND I THINK THE CORPORATE STRAINS YOU'RE GOING TO START TO SEE THE CORPORATE LOAN MARKET GET INTOXICATED AS WELL.




Bartiromo: IT'S REALLY BEEN AN EXTRAORDINARY PERIOD. MEREDITH, IS THERE ANY REASON TO BELIEVE THESE STOCKS RETURN TO THE HIGHS ANYTIME SOON? WOULD YOU BET ON THAT? EVEN IN THE NEXT TWO, THREE, FOUR, FIVE YEARS? CAN THESE STOCKS GO BACK TO THE HIGHS?




Whitney: IN FIVE YEARS I DON'T KNOW. IN TWO YEARS, NO WAY . THREE YEARS, NO WAY.I MEAN, THEY'RE EXPECTED TO MAKE SIMILAR PROFITS ON DRAMATICALLY SMALLER ASSET BASIS. AND THEY'RE NOT GROWING CAPITAL. SO YOU KNOW



MERRILL LYNCH, CITI, THEY'VE CUT -- REDUCED THEIR CAPITAL BASE -- OR BOOK VALUE PER SHARE BY 50% IN A YEAR'S TIME AND THAT'S NOT UNIQUE AND IT WILL NOT BE UNIQUE TO THOSE COMPANIES. SO WITH THAT MUCH LESS CAPITAL THEY CAN GROW THEIR ASSET BASE THAT MUCH LESS AND AS A RESULT HOW DO THEY GROW EARNINGS?




Bartiromo: LET'S TALK ABOUT THE MERRILL MOVE. $30.6 BILLION THERE. I'M READING YOUR REPORT HERE. MERRILL LYNCH ANNOUNCING AN $8.5 BILLION EQUITY RAISE AS WELL AS THE SUBSTANTIAL SALE OF A.B.S. AS CDOs REDUCING THE CDOs' EXPOSURE BY 11.1 BILLION.HOW DO YOU VIEW THE MERRILL MOVE, MEREDITH?




Whitney: I WAS ON THEIR CONFERENCE CALL, THE SECOND QUARTER CONFERENCE CALL ASKING THAIN TO DO THIS. AND EVERYTHING I HEARD ABOUT THAIN FROM PEOPLE WHO KNEW HIM WELL EXPECTED HIM TO DO THIS BEFORE, YOU KNOW, THIS WEEK. AND AS A RESULT I THINK THIS IS A MOVE THAT HE WAS REALLY COMFORTABLE WITH. THE BEST THING YOU CAN DO IS GET YOUR WORST PROBLEMS BEHIND YOU. AND I THINK THAT'S WHAT HE DID.



BUT AGAIN, RAISING A TREMENDOUS AMOUNT OF CAPITAL JUST TO PLUG A HOLE. SO MERRILL STILL HAS A LOT OF ISSUES IT HAS TO DEAL WITH ON A CAPITAL BASE THAT HASN'T GROWN. THEY STILL HAVE TO SHED ASSETS. I THINK IT'S DEFINITELY A MOVE IN THE RIGHT DIRECTION, BUT THEY'RE NOT OUT OF THE WOODS YET.



I DO THINK MOST IMPORTANTLY THAT WHAT THEY WROTE THEIR ASSETS DOWN TO EVERY INSTITUTION IS GOING TO HAVE TO FOLLOW IN LOCK-STEP, SO YOU'RE GOING TO SEE MORE INSTITUTIONS THAN JUST MERRILL IN A SHORT PERIOD OF TIME MARK ASSETS DOWN AND COME BACK TO THE CAPITAL MARKETS.




Bartiromo: WHO'S POISED TO DO THE BIGGEST CAPITAL RAISE AND HAVE THE MOST SIGNIFICANT WRITEDOWNS? YOU STILL BETTING ON THE BANKS DOING SO? WHICH ONES ARE ON YOUR LIST?




Whitney: IT'S ALL THE GUYS WHO GOT SO IN BED WITH THESE HOUSING-RELATED ASSETS. SO IT'S CITI, UBS, YOU KNOW, OBVIOUSLY MERRILL HAS TAKEN ITS WRITEDOWN. BUT CITI AND UBS HAVE THE GREATEST EXPOSURES. BANK OF AMERICA STILL HAS SOME EXPOSURES. TO A LESSER DEGREE. I THINK THAT WACHOVIA, NOT WITH THE SAME EXPOSURES, WILL BE IN THE MARKET SOON.




Bartiromo: WACHOVIA IN THE MARKET SOON TO DO ANOTHER RECAP?




Whitney: YEAH. LOOK, THEY'RE GOING TO BE -- THESE INSTITUTIONS ARE NOT ALONE BECAUSE EVERYONE WAS INVOLVED IN MORTGAGES. IT'S INTERESTING, WITH THAT CLIP THAT YOU SHOWED EARLIER, HOW MUCH OF WALL STREET AND BANKING REVENUES REALLY GRAVITATED TOWARDS THE MORTGAGE MARKET. I MEAN, THESE WERE LOPSIDED BUSINESS MODELS. AND AS A RESULT, BECAUSE THEY'RE SO LEVERED IN THE MORTGAGE MARKET THEY HAVE SO MUCH DOWN SIDE TO THE MORTGAGE MARKET. AND SO I THINK YOU'RE GOING TO SEE, YOU KNOW, 25-PLUS INSTITUTIONS COME BACK FOR CAPITAL INSIDE OF THE NEXT TWO MONTHS.




Bartiromo: DO YOU THINK THESE DIVIDENDS ARE IN JEOPARDY AND CONTINUE TO BE IN JEOPARDY? YOU SAID THAT THE LAST TIME, YOU SAID CITIGROUP WILL PROBABLY HAVE TO CUT THE DIVIDEND, OTHERS AS WELL. DO YOU STILL FEEL THAT WAY?




Whitney: I JUST DON'T UNDERSTAND WHY A COMPANY WOULD GO TO THE MARKET AND RAISE CAPITAL AND CONTINUE TO PAY ITS DIVIDEND. SO I STAND BY MY BELIEF THAT I THINK CITI ELIMINATES THE MAJORITY OF ITS DIVIDEND. LET'S SAY IT PAYS, YOU KNOW, 5 CENTS A QUARTER DIVIDEND LIKE WACHOVIA CHOSE TO DO. IT'S ABSOLUTELY IMPRUDENT FOR BOARD MEMBERS TO RECOMMEND A DIVIDEND PAYOUT WHEN THESE COMPANIES ARE SO CAPITAL CONSTRAINED.




Bartiromo: THE FANNIE AND FREDDIE STORIES ARE INTERESTING. AND OF COURSE THIS IS THE WHOLE FOCUS OF HANK PAULSON'S HOUSING PLAN. GIVE ME YOUR THOUGHTS ON FANNIE AND FREDDIE AND WHETHER OR NOT WE'RE GOING TO SEE FURTHER SHOES TO DROP ON THAT SIDE OF THE PAGE HERE AND WHETHER OR NOT WE'VE SEEN ANY INSIGHTS IN TERMS OF THE BOTTOM BEING REACHED FOR THESE TWO. REACHED FOR THESE TWO.




Whitney: FOR FANNIE AND FREDDIE, THEY'RE IN THE SAME SITUATION AS EVERY OTHER INSTITUTION IN TERMS OF THEY ARE BETTING ON THE ASSUMPTIONS THAT THEY MADE IN TERMS OF WHERE HOUSE PRICES WOULD DECLINE. THE FUTURES MARKET SAYS THAT HOUSING WILL BOTTOM RIGHT AROUND 33% PEAK-TO-TROUGH. NOW, EVERY INSTITUTION THAT I COVER, INCLUDING FANNIE AND FREDDIE ARE ESTIMATING A FAR LESS STEEP DECLINE. AND MY POINT IS THAT A 33% PEAK-TO-TROUGH DECLINE IN HOUSE PRICES WOULD GET YOU TO A NATIONAL AVERAGE BETWEEN 2002 LEVELS AND 2003 LEVELS. WHEN HOME OWNERSHIP WAS ACTUALLY HIGHER. THAT'S MATHEMATICALLY IMPOSSIBLE.

SO I THINK THAT THE PRESSURE FROM LOSSES FROM BAD MATH, EFFECTIVELY, IS GOING TO APPLY TO EVERYONE. THAT WILL INCLUDE FANNIE AND FREDDIE.



IF YOU LOOK AT BETWEEN 2005 AND 2007, 2.5 TRILLION DOLLARS WORTH OF MORTGAGES WERE SECURITIZED. SINCE 2000, 85 PERCENT OF LIQUIDITY IN THE MARKET CAME FROM THE SECURITIZATION MARKET. NO ONE INSTITUTION CAN REPLACE THAT TYPE OF VOLUME. AS A RESULT YOU'LL SEE FEWER HOMEOWNERS AND FEWER BUYERS MEANS PRICES GO DOWN.




Bartiromo: CAN LEHMAN SURVIVE THIS?




Whitney: I -- I THINK -- I DON'T KNOW. I DON'T KNOW.




Bartiromo: OKAY. FAIR ENOUGH. REAL QUICK ON THE SHORT SELLING RULES. I'VE GOT TO GET YOUR TAKE ON THIS. VERY HARD TO GET ANY INFORMATION FROM THE REGULATORS IN TERMS OF DEFENDING OR SORT OF EXPLANATIONS ABOUT LIMITING SHORT SELLS.WHAT'S YOUR TAKE?




Whitney: I'M VERY OPINIONATED ON THIS. IF YOU WANT TO HAVE FAITH IN THE SYSTEM AND FAITH IN THE CAPITAL MARKETS, THE LARGEST CAPITAL MARKETS IN THE WORLD, YOU HAVE TO HAVE TWO SIDES TO EVERY TRADE AND YOU HAVE TO HAVE OPTIONALITY ON EVERY LEVEL. PEOPLE HAVE TO HEDGE THEMSELVES, BE ABLE TO -- NAKED SHORTS, FINE, THAT'S ONE THING. BUT TO RESTRICT PEOPLE'S ABILITY TO TRADE FREELY I THINK IS GETTING INTO VERY DANGEROUS GROUND. AND WHEN YOU DO THAT, YOU'RE GOING TO HAVE MULTIPLE CONTRACTIONS. SO YOU'RE GOING TO HAVE THE OPPOSITE EFFECT OF PROTECTING THE MARKETS, I THINK YOU'RE GOING TO ENDANGER THE MARKETS.



Bartiromo: ANYBODY IMPRESSING YOU IN THIS ENVIRONMENT, HANDLING IT WELL?




Whitney: I WAS WITH JAMIE DIMON ON FRIDAY. ALL HATS OFF TO HIM. THE MORE HE ACCOMPLISHES, THE MORE HUMBLE I THINK HE GETS. I WAS WITH GOLDMAN YESTERDAY. THESE GUYS ARE ALL ABSOLUTE PROS. AND THEY'RE VERY CAUTIOUS AND THEY'RE VERY AWARE OF THE RISKS TO ALL THE OPPORTUNITIES THEY SEE. SO, YOU KNOW, KEN CHENAULT DID A STAND-UP JOB LAST WEEK. HE WAS ON THE CONFERENCE CALL FOR THE FIRST TIME I'VE HEARD HIM ON A CONFERENCE CALL AND REALLY LAYING OUT WHAT HE SAW. SO I THINK YOU'RE SEEING GREAT LEADERSHIP HERE. AND THERE ARE A LOT OF PEOPLE TRYING TO FIND THEIR WAY.




Bartiromo: CERTAINLY HAS BEEN A CHANGE IN LEADERSHIP, THAT'S FOR SURE. AN EXTRAORDINARY PERIOD. WE LOVE HAVING YOU ON THE PROGRAM. APPRECIATE IT.MEREDITH WHITNEY, OPPENHEIMER.

[Eomer]

AND AS A RESULT THERE'S LESS AND LESS LENDING AVAILABLE. AND THAT MEANS THAT THERE'S MORE AND MORE STRAIN ON BUSINESSES AND MORE AND MORE STRAIN ON THE CONSUMER.

It's even getting bad up here. A lot of the developers we work for are deferring condo projects etc because they can't get financing from banks. Typically they'd have to have 20-30% presales to move ahead with the project. These days banks want 100%, which is them basically saying "no we don't want to lend you money under any circumstance." Combined with the housing market peaking and declining somewhat (nothing like in the US), things are starting to look a little ugly even here in Alberta despite all the resource wealth. Thankfully commercial and industrial construction keeps hopping along. Problem is we've been out of that market for 5+ years and will have to work hard to re-establish ourselves. And it was so easy to make money the past while :/.

[rinthea]

Property developing as an 'occupation' or career is dead. I'm really enjoying it as these 'property magnates' blow up. Revered as geniuses, time is now showing them for what they truly are.

The mere idea that one can run a sustainable business revolving around buying property, building something on it and then expecting to get paid for ANYTHING more than your labor is ludicrous.

You cant buy something for $10, spend $20 'improving' it and expect to sell it for $50. These guys werent smart, they are gambling fools who were in the right place at the right time. Now its the wrong time and any still trying to hang on are going to burn.

Property in places like Canada and Australia will catch up with the US, although to a lesser extent as commodity prices have given these countries a nice buffer.
However the undoubted correction in commodities is already underway and will bring to these countries what it has to the states as commodity prices slide with a slowing global economy. The next 2/3 years will be tough. Commercial and industrial construction will catch up (or down?) with residential. Dont go betting the farm in this direction, its only going to get more competitive in the near future.

[Eomer]

You keep making predictions about property development and commercial/industrial construction collapsing, and I'll keep making money hand over fist.

Deal?

[rinthea]

Originally Posted by Eomer

You keep making predictions about property development and commercial/industrial construction collapsing, and I'll keep making money hand over fist.

Deal?

Fine with me, one of us is going to be wrong and lose money. I do ok.

The easiest money I've made is from betting against people who think things will always continue unabated. Turning a blind eye to obvious road signs.

Government construction will be the only growth in this area in the next few years.

I'm not jealous or angry at people for being successful and making bank. Rather, I hold disdain for those who have had success and made cash due to luck and risk they dont understand and mistakenly think they're genius. I'm not suggesting this is you. My above example of property developers in a bubble is a good example.

[Eomer]

Hey don't get me wrong, I agree that things will slow somewhat. I just found it kind of amusing how you were making this sweeping prediction that all of Canada and Australia would be affected. I don't know about Australia, but Western Canada (BC, Alberta, Sask) are not going to see a significant slowdown. BC has the Olympics in a couple years causing a construction boom, along with the ever present drug money being thrown around. Alberta and Saskatchewan are similar in that they have oil, mining, agriculture, and numerous other industries that are doing quite well and will most likely continue for some time. Even if oil or other commodities drop significantly, things will keep rolling along. They might slow, and in fact I'd welcome that to kill off some of the brutal contractors, developers and so on that are only in business because it's been too easy to make money here the past 5 years.

I also found your rant on property developers to be kind of funny. Yes people who speculated and leveraged to the hilt might be losing their shirts. But for every one of those guys, there's 10 that will keep doing what they've been doing for decades. Property developers aren't going anywhere.

As far as me personally, I readily admit that our success in the past 5 years has been largely the result of being in the right place at the right time. Granted the company is 50 years old and has weathered every boom and bust that Alberta has thrown at it, so it's certainly not all luck. But the scale of our success the past while, sure a lot of that has to do with the boom. I don't think we're a bunch of geniuses, but I do think we're good at what we do and subsequently were positioned to ride this wave as far as it could take us.

We've largely been doing multi-unit residential, and there's no question that we can see clouds on the horizon. One developer in particular is slowing everything down significantly. The others we work for are largely insulated from the slowdown, either because the project is in Fort McMurray (which will NEVER slow down), or because they've pre-sold 3 phases and we're only halfway done the first phase. And we just had a meeting last week with another who will be starting a 1200 unit project on a design build basis because the architect recommended us. Good contractors will never be short of work.

That said, we are going to be moving back to commercial, as commercial construction is still going crazy and won't be slowing down any time soon.

Industrial and infrastructure, we're not involved in. But considering there's 200 billion dollars worth of mines, upgraders/refineries and so on planned or under construction, something tells me that sector doesn't have much to worry about. Even a large drop in the price of oil shouldn't be a problem, most projects underway have break even points of $50-60 a barrel. And if oil were to drop that much, so would the Loonie, and subsequently they'd be more profitable.

As far as losing money, it's not really possible. We're a contractor, so we aren't speculating. We either do work or we don't. Unless I shit the bed and fuck up a bid, we'll make money. We might not make as much money, sure.

So like I said, it's just amusing to hear someone 15,000km away pronounce that the bottom is about to fall out of our economy, when the chances of that happening are really quite incredibly small.

[rinthea]

Sure there will always be patches across countries that do better than others and good people will always find it easier to find work. I generally look at things as a whole though, because well, its what I do.

Property developers are already gone. Theres a been a 30 year bubble in property induced by mispriced credit. That is what has supplied this as a lucrative career. Its not coming back. Its gone. Its being sustained in a few places because of another bubble, which is also ending. To assume that commercial ventures aren't bloated for the same reasons is naive.

Unfortunately macro trends dont change depending on where Im currently living. Neither does information.

CAD wont drop as fast as oil. Which thankfully for me broke down last night. Off to a funeral now. God, why do people kill themselves. Two long time friends with the world at their feet in a month. So sad.

[Tyen]

1 Tyen $156,111.05 +56.11%



That's right, respect.

[kasey]

oh dammit i forgot this game totally