For What Itâ€™s Worth
Transparency and valuation are hot topics right now. HedgeWorld will be devoting the June issue of Accredited Investor to the topic, and Martin de Saâ€™Pinto recently wrote about SuperDerivativesâ€™ take on the matter.
Today, the New York Times carried a story from a conference Thursday put on by Standard & Poorâ€™s. Itâ€™s not the most in-depth piece on valuation, but it clearly illustrates the divide between bankers and some economists when it comes to valuing hard-to-price or long-term securities on balance sheets.
Banks are particularly concerned about having to mark down assets simply because the markets have frozen up. Bob Traficanti, head of accounting policy and deputy comptroller at Citigroup, suggested that some assets could be marked as if they would be held until they matured.
But the accountants in the room fired back. Mr. Traficantiâ€™s suggestion did not seem â€śparticularly economically grounded,â€ť said Robert H. Herz, the chairman of the Financial Accounting Standards Board, which oversees accounting rules.
Weâ€™re going to be hearing a lot about FAS 157 in the days and weeks ahead. To prep, it might be helpful to check out some of the primers on the accounting rule, including this good one from November on the Wall Street Journalâ€™s MarketBeat blog. As always, the comments section is nearly as interesting as the main entry.
The Naked Fed
So, banks are lining up to use the Fedâ€™s discount window and the cash theyâ€™re getting is greasing the skids of the global credit markets. This is supposed to be a good thing. If itâ€™s so good, how come the Fed doesnâ€™t disclose which banks are using this lending facility? And what about the collateral?
And frankly, the Fed announcing this reminds me of Lt. Frank Drebinâ€™s efforts at crowd control in The Naked Gun.
Carlyle Conspiracy Theories
Thereâ€™s really no secret conspiracy to Carlyleâ€™s moves, including its recent purchase of Booz Allen Hamilton. Itâ€™s just good business. Carlyle knows that the true guaranteed cash is in government contracts, and so Carlyle is keeping Booz Allenâ€™s government business and will spin off the commercial part of the consulting company. Look at it as a knowledgeable bet on the direction of the economy.
Not Getting It
From the Chicago Tribune: The Saudis have made it clear that they see no great world demand for increased production, Stephen Hadley, the president’s national security adviser, said after private meetings between the president and king at Abdullah’s ranchâ€”and they are not bowing for one customer, albeit the world’s biggest consumer.
Right. They wonâ€™t increase production because they canâ€™t. Whatâ€™s amazing about stories like these, which swallow the Saudi line about how theyâ€™re â€śmeeting demandsâ€ť hook, line and sinker, is that they uniformly fail to read between the lines, and ignore what a growing number of scientists contend is the reality that the Saudis arenâ€™t producing more oil because they cannot produce any more oil.
The hint is right here: Lately, the Saudis have pledged to raise their full capacity for drilling from 11 million barrels a day to 12.5 million by the end of 2009. But in the meantime, the Saudis have been actually producing just 9 million barrels a day, about 10 percent of the world’s supply.
Still Not Getting It
News Story: Construction of new homes posted the biggest increase in more than two years in April.
Itâ€™s always interesting to parse terminology. New home construction in this case means apartments. Construction of single-family homes, which has constituted the bulk of the U.S. economy for a good long while, now, actually declined by 1.7%.