One Car Too Few.


The Porsche business model is the subject of this excellent NYT piece. Worth reading in full.

Cutting Losses.


The New York Times would have been well-advised to shutter The Boston Globe and The International Herald Tribune last fall. Both are losing vast amount of money (the Globe loses $7 million a month), and there's not even the remotest chance of a turnaround.

For whatever reason, Arthur Sulzberger has been unable to make these two decisions. If he wants to save The New York Times Company and its flagship newspaper, then prepackaged bankruptcies for the Globe and the IHT are necessary first steps. It's as simple as that.

Maybe It's A Retention Bonus.

Let's see. NYSE's stock lost two-thirds of its value last year, a dreadful performance by any standard. What to do about the CEO who oversaw this debacle? Give that man a bonus!

We'll All Go Down Together.

There's an old expression that says: companies get the labor unions they deserve. And, as if on cue, The Guild offers its thoughts on why its members should not agree to a proposed pay cut at The New York Times.

Side Letters.

Was AIG an epic fraud, the largest Ponzi scheme in human history?  Institutional Risk Analytics offers a persuasive argument that fraud was the modus operandi of AIG's Financial Products division.

Two Happiest Days of Your Life.


The first is the day you buy a boat. And the second is the day you get rid of it. Apparently, many boat-owners are embracing the second day by abandoning ship.

Mexico Goes to the IMF

From Stratfor:

Mexico's currency commission announced April 1 that it will open a one-year line of credit with the International Monetary Fund (IMF) worth $47 billion, which will be used to shore up the Mexican central bank's reserves. The reserves have been stretched thin in the process of supporting the Mexican peso, which has been destabilized by the international financial crisis.

As a result of investors putting most of their money into the U.S. dollar in response to the crisis, the Mexican peso has depreciated 45 percent over the past eight months. In addition to contributing to inflation (about 50 percent of Mexican imports come from the United States, and the strengthening dollar increases the price of imports for Mexican consumers), the devaluation of the peso makes it difficult for Mexico to finance its current account deficit. This has led the Mexican central bank to spend about $21 billion since October 2008 to stabilize the currency.

This is where the IMF comes in. The IMF has recently opened up a new way to borrow from the organization, called the Flexible Credit Line (FCL), which is available to countries with good histories of macroeconomic management. Under the general terms of the FCL, there would be no set upper limit on the amount Mexico would be able to borrow, and Mexico would have the flexibility to draw on the credit line as needed with a repayment period of between three and a half and five years. More important, under the new IMF rules, the FCL is available without the policy revisions the IMF has required in the past, which would otherwise impose strict measures on states to bring macroeconomic policies into line with IMF recommendations in order to qualify for a loan.

Mexico likely will qualify for an FCL. The country has followed a very fiscally responsible path since the 1994 economic crisis (also known as the Tequila Crisis). Mexico has managed to not only get its debt to a manageable 20 percent of gross domestic product, but has also been able to attain a balanced budget every year for the past four years (although Mexico has authorized deficit spending for 2009 in light of the crisis).

Despite Mexico's high level of fiscal responsibility, if it chooses to draw on the IMF loan to help stabilize the country's currency, it will carry some risks. In the first place, money spent to stabilize a currency tends neither to come back to the country of origin, nor is it an investment that will see a return and nor will it directly generate recovery in the real economy. This makes it more of a burden to repay the loan in the future. Secondly, by guaranteeing to support its currency even further, Mexico essentially tips its hand as it seeks to out-game international currency traders who might be interested in betting against the peso.

Mexico is the largest country to seek financing from the IMF since the crisis. It is difficult to say at this point how much Mexico will actually draw from the institution. Opening the line of credit essentially gives Mexico the option of drawing on additional reserves, and the commission has stated that it does not intend to use the financing. However, by floating the possibility of a credit line worth $47 billion, Mexico has greatly increased the IMF's loan disbursement in the wake of the crisis, which already totals approximately $64.4 billion.

Jay Cutler is Unable to Come to the Phone.

As a result, he will no longer be working in Denver, Colorado.  Broncos owner Pat Bowlen has decided to trade him.  I can't imagine what it would be like to pay someone millions of dollars a year and find that he refuses to return your phone calls.

PIPP Explained.


I know you've been struggling with PIPP. No more! Ellisblog is your E-Z Pass to understanding. Here's the link to the Cumberland Advisers overview, Part 2 of which has excellent commentary from various folks. (Thanks to Juan for the heads up).

The Elephant in the Room.

Henry Blodget raises the issue for the umpteenth time: Why is it that taxpayers are taking a hit while the bondholders go untouched?  It's a very good question.

The AIG Scam (continued).

From Zero Hedge:

For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:

AIG, knowing it would need to ask for much more capital from the Treasury imminently, 
decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.

In simple terms think of it as an auto dealer, which knows that U.S. taxpayers will provide for an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).

What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.

For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this "one time profit", which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers' money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.

Center Cut.

He won the US Open last year playing on a broken leg. He won the Bay Hill Invitational today by making birdie at the last. Tiger Woods is all the way back from knee surgery and rehab. The Masters begins in 10 days. 

Ghost Net.

John Markoff has a must-read report on Chinese espionage. The scope of their "spyware" infiltration operation is quite vast.