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Harold Maass of The Week The Best of Today's Business

Harold Maass of The Week, The Best of Today's Business

Shorting Out Shorts, Mopping Up A Mess

by Harold Maass of The Week

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Posted on Friday, September 19, 2008, 12:00AM

NEWS AT A GLANCE

Short-selling ban cheers markets

The Securities and Exchange Commission, following the lead of its British counterpart, temporarily banned short selling in the shares of 799 financial firms. The emergency ban is immediate and will last through at least Oct. 2. (MarketWatch) Short selling, in which investors bet that a borrowed stock will fall in value, has been blamed for the sharp fall in the shares of Lehman Brothers and other financial companies. (AP in Yahoo! Finance) The British and U.S. bans on short selling, and the U.S. plan to mop up mortgage assets, helped push stocks sharply higher early today, including record jumps in Britain's and China's benchmark indexes. London's FTSE 100 was up 8.3 percent. (Bloomberg)

U.S. mega-bailout in the works

Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, and leaders of Congress started work on an ambitious plan for the government to buy up toxic mortgage-linked assets from U.S. financial firms. The plan, which Congress hopes to have finalized by the end of next week, could easily be the largest bailout in U.S. history. (The New York Times) The idea of the unspecified plan is to buy up the distressed assets so that banks will resume borrowing and lending. (Los Angeles Times) Possibilities include creating an $800 billion fund to buy the toxic assets and having Fannie Mae and Freddie Mac buy them. "It sounds like there's going to be a giant dumpster for illiquid assets," said Mirko Mikelic at Fifth Third Asset Management. (Bloomberg)

HSBC drops Korean bank offer

Britain's HSBC dropped its $6.3 billion offer for 51 percent of Korea Exchange Bank, South Korea's sixth-largest bank. HSBC blamed the market turmoil in scuttling the long-running deal, but the move fed speculation that HSBC is looking to buy closer to home. "Maybe it's better for HSBC to look at other markets," said analyst Y.K. Lee at Core Pacific-Yamaichi in Hong Kong. "U.S. bank valuations are very depressed." (Reuters) Citigroup, also looking to take advantage of the down market, is considering a bid for Washington Mutual. (The Wall Street Journal) And Berkshire Hathaway's MidAmerican Energy unit agreed to buy Constellation Energy for $4.7 billion in cash. Constellation shares are down almost 60 percent this week. (MarketWatch)

Folgers goes for the budget gourmands

Folgers is the top-selling packaged coffee in the U.S., even though it's seen its market share eroded by higher-end brands like Starbucks and Caribou. Now, with what it calls "the biggest innovation since the launch of decaf," Folgers is making a play for coffee lovers who have fallen on harder times. Folgers, in its most expensive ad campaign to date, is touting a new roasting method -- completely drying the beans before roasting, to keep down the bitterness. If it works, the high-end market has room for poaching: a record 17 percent of Americans had a dailygourmet coffee drink last year. "People may be willing to forgo the high end but don't want to have a bad cup of coffee either," said coffee industry consultant Judy Ganes. (The New York Times)

BEST COLUMNS OF THE DAY

If you're looking to buy . . .

"Trying to call the bottom in a stock market crash is a fool's game," says Brett Arends in The Wall Street Journal. But that said, there's some "value out there in the market" now. First, avoid financial stocks, even if they look like a good value. Nobody knows what they're worth, and they probably have farther to fall. But if you screen for companies selling for less than 14 times forecast earnings and carrying dividend yields of more than 4 percent, you get a group of reasonable-looking "top quality blue chips" -- long on telecoms, oil, and utilities, but also including some tech and pharmaceutical stocks. It's folly to try and "time" the market, but if you invest in good companies at good prices, "you will usually end up happy."

You want these guys in charge of your retirement?

About now I bet you're relieved that Bear Stearns, Lehman Brothers, and the other "financial wizards of Wall Street" aren't handling your Social Security, says Chris Farrell in BusinessWeek.com. Isn't it also worth asking: "Should Wall Street manage any of our long-term retirement savings funds?" The 401(k) is now the main vehicle for retirement savings, but how reasonable is it to expect already-stretched-thin workers to wisely allocate their retirement assets? The "democratization of stock ownership" is and has been great for growth, but retirement is different. "Many people aren't wired to invest well" and mutual fund managers tend to fleece individuals. Maybe we should explore if "the great 401(k) experiment has run its course."

GOOD DAY FOR: Capitalist gloating, as a Berlin auction house is selling off four slabs of the Berlin Wall today, for an expected price of $4,350 each. Much of the Wall, which the communist East German government built to isolate capitalist West Berlin, has already be chipped away by souvenir hunters or ground into material for roads. (Reuters)

BAD DAY FOR: Landing in hot water, after plans to expand Japan's geothermal energy industry have run headlong into millions of angry naked bathers. The owners of Japan's 7,700 spas are worried that increased use of natural hot springs for geothermal plants could dry up the spas' baths. Japan, with 10 percent of the world's active, hot-spring-feeding volcanoes, imports $183 billion worth of fuel each year. (Bloomberg)

NOTED: Dow Jones & Co. said that Kraft Foods will replace AIG in the Dow Jones Industrial Average starting Monday. AIG will not be replaced in the 30-company index by another financial firm, Dow Jones said, due to "extremely unsettled conditions." Kraft will be the only food company in the index. (The New York Times)

This column was written by Peter Weber and edited by Harold Maass of TheWeek.com.

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42 Comments

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  • BTG - 1 - Friday, September 19, 2008, 11:16AM ET  Report Abuse

    • Overall: 4/5

    Good summary by Maas as always. As for the perennial gay exchanges, I've said my piece before, but as I keep pointing out that those who favor gay marriage do so because they have come to ASSUME such sexual attractions are just as immutible as one's race or sex. The simple fact is that this has never yet been proved by credible scientific research or by the mere fact that there have definately been people who have chosen to change from a straight to a homosexual lifestyle and vice-versa. (I know someone personally who followed the gay lifestyle for many years who turned to Christ and subsequently with His help left it. He is now married with kids and as far as I know is still happy with that decision.) I don't have a clue whether hate, religious faith, or personal philosophy underlies Jus' comments, but he is absolutely correct that the homosexual lifestyle has generally been characterized by considerable promiscuity that has led to STD's well in excess of the heterosexual community. I for one, do not believe we should extend the special rights and priveledges of heterosexual unions ---which alone can produce the next generation of human beings --- to unions that cannot do the same. Particularly when there is no solid evidence that homosexual attraction (however sincere and real such desires may be in the minds and emptions of those involved) is truly an immutible and good thing that should be accomodated in every way possible.

  • Yahoo! Finance User - Friday, September 19, 2008, 11:03AM ET  Report Abuse

    • Overall: 5/5

    Slogan for Jus's presidential campaign: (Jus)t What America Needs.

  • Devin - Friday, September 19, 2008, 10:40AM ET  Report Abuse

    • Overall: 5/5

    Excellent point about how fortunate we are that SS wasn't privatized, which would have allowed those responsible for this mess to have made an even bigger one. And while I fail to see how this is the appropriate forum for gay-bashing, I must respond to the accusation that allowing gays to marry would be bad for the economy. First, I fail to see how allowing 10% of the population to have the same rights as the other 90% of the population is granting "special" rights. Second, I fail to see how providing economic benefits to 10% of the population that the other 90% already enjoys is going to break the bank. If you don't like the "promiscuous" lifestyle of gays, wouldn't you want them to be allowed the privilege of being locked into marriage like the rest of us :-) And to the person who thinks the US resembles the Soviet Union, I think we've got a LONG way to go before such a comparison is valid. Maybe if Jus really were in charge there'd be a valid comparison but thankfully that's not yet the case.

  • PaulM - Friday, September 19, 2008, 10:32AM ET  Report Abuse

    • Overall: 4/5

    The advice to stay away from financial stocks is stupid. Otherwise, good review. To: Jus. Your ideals may seem extreme to some but it may be just what we need to get back on track. Also some may be offended and call you a bigot when they themselves are bigots and are the very ones responsible for ruining the entire economy of the USofA. We need those with some backbone, unlike the spinelss fish we call politicians who only look out for the best interest of getting a vote! Way to go. The point about gay marriage is well taken; the cost involved because of their explicit lifestyle should not be paid with from my pockets! Jus for president!

  • Yahoo! Finance User - Friday, September 19, 2008, 10:12AM ET  Report Abuse

    • Overall: 4/5

    Nice article. Also, good comments by Jus! Especially concerning the gay marriage ban. I had never thought about that. I figured what's the harm in giving gay couples special rights? But if that also includes social security benefits then it will cost the system a lot of money. There's nothing hateful about pointing that out.

  • Yahoo! Finance User - Friday, September 19, 2008, 10:07AM ET  Report Abuse

    • Overall: 3/5

    I agree with Jus and would have done the same. These are common sense steps and those who disagree cannot see the reality and are not able to think about the root cause of this mess.

  • Yahoo! Finance User - Friday, September 19, 2008, 10:06AM ET  Report Abuse

    • Overall: 4/5

    Jus cracks me up-- a solid example of the success of Reagan's War on Education.

  • Yahoo! Finance User - Friday, September 19, 2008, 9:36AM ET  Report Abuse

    • Overall: 4/5

    Ban on short sellers? Brilliant. Punish those who might have started buying the financials at lower prices by preventing the short sellers from driving the prices low enough to justify the risk. While the bureaucrats are at it, why not preventing any selling of the financial stocks; and lock up that wall street journal guy that says to not buy now? The FREE Market is a now a myth. The U.S. looks more and more like the Soviet Union.

  • Yahoo! Finance User - Friday, September 19, 2008, 9:25AM ET  Report Abuse

    • Overall: 5/5

    Jus for President!

  • Rick - Friday, September 19, 2008, 9:23AM ET  Report Abuse

    • Overall: 5/5

    Jus is a bigot and deserves to be banned for his use of this forum as a personal political platform against gays. I suggest the rest of you report him for abuse. I have.

  • Yahoo! Finance User - Friday, September 19, 2008, 9:22AM ET  Report Abuse

    • Overall: 4/5

    Jus, Just like breeding, anyone with a mouth can voice their opinion, thank god for comedy! You made me laugh today! Just remember I'm laughing "with" the others.... not "at" you! Shaaaaaaah!!

  • Yahoo! Finance User - Friday, September 19, 2008, 9:17AM ET  Report Abuse

    • Overall: 5/5

    Thankfully Jus is not in charge. Ditto.

  • Yahoo! Finance User - Friday, September 19, 2008, 9:11AM ET  Report Abuse

    • Overall: 5/5

    Amen, curvehead...

  • Yahoo! Finance User - Friday, September 19, 2008, 9:01AM ET  Report Abuse

    • Overall: 5/5

    Avoid financials? What moronic advice. Avoid the companies that are going under, but there are lots of other ones (ING, US Bankcorp, Bank of America, etc.) that are buying up the remnants of the others and will be stronger mega-financials in the future because of it, even if they have to write down a little more in the near-term. And if you don't know enough about stock valuations or picking good, solid companies, then stay out of it and spread your IRA amongst several well-diversified mutual funds (large-cap, mid-cap, small-cap, bonds, emerging markets, etc.). There are tons of quick and easy tools on most sites like Fidelity, Vanguard, Wells Fargo, etc.. You don't have to be a rocket scientist. Virtually all mutual funds may be down this year, but that's just temporary. And if you're not "wired to invest well", I guess that's called natural selection and you're doomed to work until you're 80 at Wal-Mart. Anyone out there that puts their entire retirement into a single hedge fund deserves to get wiped out. Even the former CEO of AIG had virtually all of his assets in AIG stock and got wiped out. That is just plain dumb.

  • Chris - Friday, September 19, 2008, 8:53AM ET  Report Abuse

    • Overall: 4/5

    Thankfully Jus is not in charge.

Showing comments 6-35 of 42<< PreviousNext >>
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