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Bank of America invests $2 billion in Countrywide (Reuters)
Countrywide is the latest mortgage lender to sell a stake in itself at a discount price. In a move to be more liquid, the company has sold $2 billion worth of preferred stock to Bank of America. The non-voting shares yield 7.25% and can be converted into common stock at $18/share, well below the market's closing price. There'd been lots of talk around town that Warren Buffett wanted a piece of the action, and this might be how he is getting it. Buffett owns 8.7 million shares of Bank of America.
Fighting for the pooling equilibrium (Marginal Revolution)
On the matter of major banks tapping the fed to reduce the stigma of tapping the fed, the quote of the day goes to Tyler Cowen: "I don't know if this will work, but it is a neat trick. Imagine that you, as a smart person, went around saying stupid things, in an attempt to limit discrimination against the stupid."
Utah Mine Boss Vows to Keep Searching (AP)
The relentless (and some might say foolish) hope on display by the continued rescue mission in Utah is both impressive and bewildering at the same time. And yet we have to wonder whether the operation would have gone the way it has had there not been such stigma attached to mine owners and mine safety. It seems pretty safe to say that no matter how safe a given mine is, if an earthquake traps a group of miners, the owner will be called negligent. It seems that if anything, the owners' continued efforts at bringing this thing to a conclusion could be motivated by a desire to simply get the facts, in anticipation of years of legal headaches.
Fed's Uncertainty Over Growth Makes Early Rate Cut Less Likely (Bloomberg)
All of the sudden, that rate cut with a 380% chance of happening is looking less likely -- maybe it's just 250% now (maybe less). With each passing day, a chorus of folks are starting to question the assumption. Days like yesterday, when the stock market rallied comfortably, aren't helping anything. Perhaps that whole discount window wasn't actually a message that rates will be cut, but just that the Fed is standing by, paying attention, not asleep, as suggested by Cramer. So if need be, a cut will be made, but if there's no cut, it's not because the Fed is clueless.
Global Stocks, U.S. Futures Rise; Barclays, Countrywide Gain (Bloomberg)
After yesterday's US rally, stocks rallied across the globe, and serious people were heard uttering the C-word following Bank of America's investment into Countrywide: "It's a significant vote of confidence,'' said Simon Carter, who helps oversee $3 billion at Aegon Asset Management in Edinburgh. `The subprime problem now looks more contained.'' Just a couple days ago, people using the word were laughed at and called fools. All it takes is one day of good news and it becomes acceptable again. Meanwhile, the rise in Euro stocks and Euro debt led to a big drop in the Yen, as traders started to fire up the carry trade again.
UBS report on the fallout: Not everyone thinks it's all over (FT Alphaville)
The long period of low volatility on the stock marked wrecked havoc on various quant models, which were ill prepared for a rapid turnaround on that measure. But that's to be expected, at least to some extent, because the recent past always biases current thinking. On that note, it really is astouding to us this morning how many articles and analysts seem to have completely changed their tone and views, after just one day. Perhaps it's not so much a change, but the bullish crowd, which for awhile had been pounded into submission, is now comfortable getting quoted again. As Alphaville notes, some analysts are feeling the need to speak up and stick up for the bear case, pounding the drums that all is not right in Denmark, even if stocks rallied for a day. Fact is, if borrowing gets more expensive, then it's really hard to imagine that a host of other things won't get more expensive too. To believe otherwise is certainly wishful.
KKR denies report that IPO on hold (Retuers)
It's funny, we had just sort of assumed that the KKR deal was cooked, at least for the time being. But, according to the company, it's all systems go, as it's denied reports in the Times of London that it will put things on hold. While the Blackstone IPO didn't exactly get investors clamoring for more access to PE firms, KKR should still be able to find a market price for its assets, which is really all you need if you want to go public.
JDS Loss Narrows, and Shares Move Higher (NYT)
Here's one that brings back some rich memories. JDS Uniphase (apparently now it's just JDS) was one of the great bubble stocks, having soared to dizzying, impossible heights, only to see it collapse into a gigantic pile of zilch. But its pile of zilch was apparently just big enough to keep it hanging on. The networking company now sports an impressive $3 billion market cap, and if you factor out compensation expenses, it actually turned a slight profit. Well done.
GM Cuts Reveal Troubles (WSJ)
GM has announced plans to cut production of pickup trucks, which is really weird, since we thought the company was on a smoothly paved road to recovery -- at least that's what we'd read before. Now some are starting to question that assumption. Fascinating.