Tuesday, August 30, 2011

Burlington Northern; may be just priceless...information to Mr Buffett

Imagine, the head start on the "market" if you could triangulate securities gum shoes earnings reports, channel checks, industry confabs, supplier checks, conference calls, forward looking statements and official guidance, the Reg FD variety with REAL time shipping information from...manifests.

It's likely what Mr Buffett had in mind when he conjured up buying the railroad giant. Priceless, information, not just who is shipping, and where it's going, not just whether it's more or less weight compared to the previous shipment but likely SKU level information available to the investment pros "faster-than-I-can-type-this-sentence-fast" back in Omaha. Got SKU's and their origins and destinations can triangulate gross margins-critical to forecasting EPS.

BUT WAIT IT'S EVEN BETTER...shippers can't just show up to BN's with a container and say ship this to Chicago for me; they have to, da da da arrange for and disclose what they're shipping IN ADVANCE.

What could be better for the lucky Berkshire Hathaway shareholders and for Mr Buffett.

You never know what you'll think of when you watch one of those miles long Burlington freight trains wind slowly around the bend when you're driving from LA to Vegas.

Monday, August 29, 2011

One year, one Trillion dollars; the education of Ben Bernanke from 2007 - 2008...

In the span of one short year, the head of the Fed, apparently learned he HAD TO hand out one trillion long.

Mr Bernanke, in a speech delivered on October 15, 2007 made a distinguishing point:
"At one time, most mortgages were originated by depository institutions and held on their balance sheet. Today however, mortgages are often bundled together into mortgage backed securities or structured credit products, rated by credit rating agencies and sold to investors."

This is the same man, who a year later, would be buying over $1 Trillion (of _______) interactive portion see if you can fill in the blank from the cellars of certain depository institutions in a certain Federal Reserve district east of the Hudson.

When or ever will Mr Ben tell us when exactly he came to learn, understand and appreciate that certain banks did not sell mortgage backed securities TO investors; unless of course, Mr Bernanke forgot to mention he was including off balance sheet entities (special purpose vehicles, erstwhile SIV's) of the same depository institutions to be "investors" as if they were truly arms - length; but then he may have (or should have had) a problem with those same institutions' "safety and soundness".

And of course, there's more and more financial data flying around but it seems Mr Bernanke was unaware of size of balance sheet and supporting equity; in particular the utter lack thereof.

Mr Bass, testified to the FCIC in January 2010. Mr Bass in paragraph after paragraph repeated institutional "LEVERAGE" including by "depository institutions" and provided a spreadsheet detailing certain (now TBTF) bank's leverage as of the end of 2007; just a few months after Mr Bernanke entertained the NY Economic Club.

Cheers to Mr Bass.

This writer breaks the housing bubble down into two simple financial steps.
1) borrower's leverage measured by the required down payment (or the lack thereof) and
2) Bank's balance sheet leverage
In the old days, we all will recall that borrowers typically, but not always, put 20% down. This allowed them to buy a house worth 5 times as much or 5 times leverage. Banks levered their balance sheets around 12 times. So financial system leverage was historically 60x (5 x 12).

In and around 2004, banks changed BOTH leverage factors above. Borrowers were ALLOWED by banks to put zero down, and banks decided they would lever their balance sheets at 30 X. Oh I need to remind you that Zero down payments, which banks ALLOWED, equal 100 times leverage on the borrowers end. So let's do the math, 100 times 30 = ____? 3,000X financial system leverage, known, approved and controlled not by borrowers, but by, and only by the banks; otherwise known as depository institutions.

However, the American people, writ large, still have not been told the indispensable direct cause of the financial crisis nor the housing bubble which caused it; and yet we pay for this...still.