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Monthly Archives: September 2011

John Paulson is Wrapping Up the 3rd Quarter with the Worst Performance Possible

This is the performance of Paulson’s holdings, over the past three months, excluding his near full wipe out in Sino-Forest.

No. Ticker Inst. Holdr. (% outstanding) Institutional Holder 3-month Return
1 PMI 3.09 PAULSON & COMPANY, INC. -81.23
2 DEXO 7.33 PAULSON & COMPANY, INC. -69.17
3 ANR 9.93 PAULSON & COMPANY, INC. -57.57
4 FCH 4.58 PAULSON & COMPANY, INC. -57.01
5 MNI 9.77 PAULSON & COMPANY, INC. -52.45
6 BZH 7.66 PAULSON & COMPANY, INC. -51.80
7 SPMD 16.82 PAULSON & COMPANY, INC. -48.51
8 BPOP 6.55 PAULSON & COMPANY, INC. -44.87
9 CBG 4.15 PAULSON & COMPANY, INC. -43.84
10 AHT 4.41 PAULSON & COMPANY, INC. -43.74
11 VECO 7.31 PAULSON & COMPANY, INC. -43.42
12 BAC 1.22 PAULSON & COMPANY, INC. -42.83
13 RF 1.54 PAULSON & COMPANY, INC. -41.98
14 SHO 3.13 PAULSON & COMPANY, INC. -38.46
15 BYD 4.64 PAULSON & COMPANY, INC. -38.44
16 HIG 9.10 PAULSON & COMPANY, INC. -37.36
17 FHN 2.91 PAULSON & COMPANY, INC. -36.41
18 WHR 3.27 PAULSON & COMPANY, INC. -35.92
19 C 1.15 PAULSON & COMPANY, INC. -35.33
20 LNG 4.05 PAULSON & COMPANY, INC. -35.16
21 THC 4.22 PAULSON & COMPANY, INC. -34.98
22 BEE 4.31 PAULSON & COMPANY, INC. -33.53
23 HHC 4.88 PAULSON & COMPANY, INC. -32.55
24 CNO 9.80 PAULSON & COMPANY, INC. -29.39
25 LIFE 4.17 PAULSON & COMPANY, INC. -29.06
26 STI 5.99 PAULSON & COMPANY, INC. -27.70
27 RLJ 2.59 PAULSON & COMPANY, INC. -27.49
28 BZ 6.59 PAULSON & COMPANY, INC. -27.42
29 SLXP 2.54 PAULSON & COMPANY, INC. -26.47
30 MYL 3.50 PAULSON & COMPANY, INC. -25.39
31 GEN 6.69 PAULSON & COMPANY, INC. -25.07
32 NG 8.47 PAULSON & COMPANY, INC. -24.72
33 GGP 2.07 PAULSON & COMPANY, INC. -24.25
34 ACAS 12.36 PAULSON & COMPANY, INC. -24.03
35 WY 5.57 PAULSON & COMPANY, INC. -22.92
36 RKT 6.23 PAULSON & COMPANY, INC. -21.87
37 BLK 1.04 PAULSON & COMPANY, INC. -20.81
38 MGM 8.53 PAULSON & COMPANY, INC. -20.77
39 COF 4.59 PAULSON & COMPANY, INC. -20.27
40 SNI 2.35 PAULSON & COMPANY, INC. -19.43
41 AON 2.81 PAULSON & COMPANY, INC. -19.18
42 LEA 4.04 PAULSON & COMPANY, INC. -18.54
43 RIG 5.87 PAULSON & COMPANY, INC. -17.01
44 IP 2.29 PAULSON & COMPANY, INC. -16.05
45 BSX 5.26 PAULSON & COMPANY, INC. -12.61
46 RAH 6.70 PAULSON & COMPANY, INC. -12.45
47 MTN 6.21 PAULSON & COMPANY, INC. -12.06
48 XL 0.00 PAULSON & COMPANY, INC. -11.79
49 APC 3.36 PAULSON & COMPANY, INC. -9.36
50 NVS 0.27 PAULSON & COMPANY, INC. -6.90

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FLASH: AMD Plunges on Bad Guidance

Advanced Micro lowers Q3 revenue guidance (6.15 -0.34)
Co announces that revenue for the third quarter ending Oct. 1, 2011 is expected to increase four to six percent as compared to the second quarter of 2011. The company previously forecasted third quarter 2011 revenue to increase 10 percent, plus or minus two percent, from the second quarter of 2011. Current consensus calls for a 9.1% increase over last qtr. In addition, AMD expects third quarter gross margin to be approx 44 to 45%. The company previously forecasted third quarter 2011 gross margin to be approximately 47 percent. 9.1%

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Today’s Biggest Winners and Losers

No. Ticker % Change
1 ALTI 32.69
2 CIIC 30.26
3 CGA 13.07
4 XNY 11.43
5 LQDT 11.38
6 SNX 11.20
7 ZA 10.89
8 COSI 10.29
9 HSOL 10.04
10 CPSL 9.62
11 POWR 8.97
12 CNET 8.62
13 JBL 8.40
14 GOLF 8.33
15 TNGN 8.33
16 ESEA 7.78
17 WEBM 7.49
18 NEXS 7.38
19 TWMC 7.34
20 SABA 7.31
21 CSUN 6.84
22 SKH 6.80
23 CXM 6.67
24 AHT 6.55
25 ADGE 6.50
No. Ticker % Change
1 CIS -21.67
2 USAT -21.05
3 YRCW -20.67
4 FRZ -20.25
5 HEV -19.47
6 KIPS -17.47
7 HMIN -15.45
8 ENER -15.41
9 GLUU -15.19
10 EK -15.11
11 GMR -15.09
12 ZZ -15.08
13 BIOD -15.07
14 SVN -15.01
15 GU -14.83
16 RLD -14.73
17 NANX -14.67
18 UXG -14.22
19 JVA -13.83
20 TLR -13.64
21 HAUP -13.45
22 JKS -13.38
23 EMKR -13.10
24 YNDX -13.09
25 AERG -13.04

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Cuba continues to desert communism

HAVANA (AP) – Cuba legalized the sale and purchase of automobiles for all citizens on Wednesday, another major step in the communist run island’s economic transformation and one that the public has been clamoring for during decades.

The government announced the move in April, but sales have been on hold until the measure was published into law in the Official Gazette.

Under the law, which takes effect Oct. 1, buyers and sellers must each pay a 4 percent tax, and buyers must make a sworn declaration that the money used for the purchase was obtained legally.

Unrestricted sales had previously been limited to cars built before the 1959 revolution, one of the reasons Cuba’s streets are about the only place on the planet one routinely finds a multitude of finned American classics from the 1950s such as Chevrolets Bel Airs and Chrysler Imperials, all in various states of disrepair.

Doctors, athletes, artists and others sent abroad on official business were allowed to bring cars back or purchase a boxy, Russian-made Lada or Moscovich from the state. Some senior workers were given company cars, though gas usage is strictly monitored to make sure they are only driven for work reasons.

The new law will allow the sale of cars from all models and years, and it legalizes ownership of more than one car, although tax rates go up slightly.

“It is a very positive step,” said Rolando Perez, a Havana resident who was standing in line to get a license to go into business for himself. “They should have done it a long time ago.”

The purchase of new cars will be easier than in the past, but still extremely limited. Buyers will have to go to a small number of state-owned dealerships and demonstrate they made the money to buy the car through salary earned in an approved field, as opposed to from remittances sent from relatives abroad.

That would seem to limit such purchases to the same doctors, athletes and others who had been eligible to import cars following official travel abroad.

The 40-page Gazette also says that Cubans who leave the island for good can transfer ownership of their car to a relative or sell it outright. Previously, the state could seize the automobiles of those who emigrated.

While most car sales have been illegal without government permission since the early 1960s, used automobiles have been widely traded in a booming black market for years. Buyers would hand over large amounts of cash under what amounted to handshake agreements, with title not changing hands.

Many cars are generations removed from the original title holder, meaning ownership will have to be untangled once the new regulations take effect.

Because they could be legally traded among Cubans, old cars can fetch prices many times what their value would be off the island, often thousands more than modern cars. Several people involved in such trades told The Associated Press they did not expect prices to be greatly affected by the new law until the government starts to import new cars for wider distribution, and it was not clear when or if that will happen since few Cubans will be able to qualify.

Most islanders make just $20 a month, although doctors and others serving abroad can make much more. Most of it is saved for them in state-managed bank accounts they get access to once they complete their missions. A small number of successful new business owners may also be able to parlay their profits into a new set of wheels, though it was not clear whether they would qualify to purchase new cars.

Cuban President Raul Castro has instituted a series of free-market reforms designed to rescue the island from economic ruin. Cuba has legalized some private enterprise, and allowed citizens to rent out rooms and hire employees.

The government has also announced it plans to legalize the sale and purchase of real estate by the end of 2011.

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Markets Sell Off Into the Bell

DOW off 179, S&P off 24, NASDAQ off 55, Oil off $3.58, Gold off $42.90; investors left wondering

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An opinion piece on US/Japan and monetary policy/free markets

Interesting take on U.S./Japan comparison and the nature of we two to the rest of the world.

TOKYO — Japan and the United States combined produce 30% of global economic output and register 50% of all new patents.

These two powerhouses of productivity and innovation should be leading the world into a dynamic new age of prosperity, right?

But they’re not. Why? That’s what I kept asking myself as I listened to a parade of global industrial executives, government policymakers and academic big brains hold forth at the 43rd annual Midwest-U.S.-Japan Association conference, where Gov. Rick Snyder began his weeklong Asian trade mission.

Why are the economies of both the U.S. and Japan stalled? Why are their middle classes hollowed out?

Why was Keiro Kitagami, vice-minister of Japan’s once-vaunted Ministry of Economy, Trade and Industry talking about his nation’s industrial giants rapidly shifting operations overseas, mostly to Southeast Asian countries? Doesn’t that sound like Michigan over the past few decades?

Why do government leaders in two such sophisticated nations seem clueless about how to stop the bleeding?

I put my questions to several attendees and speakers. The responses were intriguing.

Sandy Baruah, president of the Detroit Regional Chamber, noted the troubling parallels between Japan’s 20-year tailspin and America’s current funk. “They each began with real estate busts and breakdowns in financial services. Japan didn’t fix those problems fast enough and neither did we,” he said. “Are we repeating the same cycle?”

Are we, indeed?

Cheng-Guan Michael Quah, who was chief technology officer of the nonprofit NextEnergy incubator in Detroit before becoming chief scientist of the Energy Studies Institute at the National University of Singapore in 2009, said Wall Street and hedge fund lobbyists now control policy making in the once-rich nations — and their focus on short-term gains is choking the manufacturing sectors.

“I believe we are still a very innovative nation,” said Quah, who led a panel on innovation at the Tokyo conference and who travels often between Singapore and Farmington Hills, where his wife still resides. “We need to revive manufacturing. We need to get Wall Street off our backs.”

OK, but how?

Perhaps the most sober, but still unsettling, assessment came from Diego Donoso, president of Dow Japan and Korea, a unit of Midland-based Dow Chemical.

The dynamic economies of Asia at the moment — China, Singapore, South Korea — are “all tremendously focused on where they are and where they want to go, and their governments are all tremendously focused” on massive support of leadership in key technologies, Donoso said.

Winners in the global economy, by his reckoning, will be those companies and hands-on government units that collaborate intensively to implement key technologies in ways that are deemed to benefit their societies.

What we’ve witnessed in Japan, and seem to be seeing in the U.S. today, are endless rounds of federal monetary tinkering that are insufficient to re-ignite economic growth. Yet among free market purists and their powerful lobbies, there is an entrenched aversion to overt industrial policy that would choose winner and loser industries or — heaven forbid — decree that the manufacturing sector must be maintained at a certain scale for the national good.

Which leaves the rich nations of the U.S., Japan and Western Europe sort of sitting on the sidelines, watching the aggressive growth strategies of China, Singapore and Korea — and wondering whether they will fizzle or leave us in their dust.

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Iran moving warships into U.S. maritime territory

Read here:

According to the English-language paper based in Tehran, the announcement came from a top Iranian naval officer on Tuesday.

“As the global arrogance (forces of imperialism) have a (military) presence near our sea borders, we also plan to have a strong presence near the U.S. sea borders with the help of the soldiers who are loyal to the vali-e faqih (supreme jurisprudent),” said Rear Admiral Habibollah Sayyari, as quoted and paraphrased by the Tehran Times.

“We’ve been pushing freedom of the seas for years and the Iranian navy can go wherever it wants,” said Pentagon Spokesman Capt. John Kirby.

Iranians might face a challenge in refueling its fleet. Some in the Pentagon have speculated it could gas up in Venezuela, whose President, Hugo Chavez, is known to have a close relationship with Iranian president Mahmoud Ahmadinejad.

The Iranians gave no indication of when or what kind of vessels they might deploy, but the announced plan comes just months after Iran sent warships through the Suez following the fall of Egyptian President Hosni Mubarak. It was the first time Iran had moved ships into the Mediterranean and the move put Israel on high alert.

The naval unit plans to establish direct contact with the U.S. when it hits the Gulf of Mexico, a commander in the Iranian navy said. Officials in the Pentagon strongly denied any planned port visits by the Iranians.

One senior official echoed Capt. Kirby in saying that Iran has the pleasure of moving wherever it desires in international waters. But with known intent to approach U.S. maritime borders, he added, “they might have some company.”

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Government bank secretly financing loans to WH pet projects


Sitting at the center of the Solyndra scandal is an off-balance-sheet bank at the Treasury Department that dates back to 1973.

This little-known government bank, the Federal Financing Bank [FFB], had a zero balance in 2008 for green energy projects, but now, with little Congressional oversight, it is giving out billions of dollars in loans to White House pet projects often at dirt-cheap interest rates below 1%.

In July alone, the government bank, which had $61 billion in assets, lent nearly three quarters of a billion dollars in taxpayer funds with no Congressional checks and balances.

Plus the bank is funding the insolvent U.S. Post Office; the White House’s expensive green car projects at Ford Motor, Nissan and Tesla Motors; a $485 million loan to an expensive solar project that’s lost $160 million over the last three years that’s backed by Google, BP and Chevron; plus the FFB is funding the teetering HOPE housing bailout program, which gives delinquent mortgage borrowers breaks on their loans.

And according to KPMG’s audit report of the bank, the FFB is losing billions of dollars in taxpayer money because it is forgoing collecting interest costs on already inexpensive loans that are financing projects at agencies like the Agriculture Dept.

What’s scary for taxpayers is this: The FFB can borrow unlimited amounts of taxpayer money from the Treasury for these kinds of political pet projects. Under the 1973 “FFB Act, the bank may, with the approval of the Secretary, borrow without limit from the Treasury,” says the bank’s audited statements from KPMG.

The Treasury Department’s inspector general is now investigating the bank over its $528 million loan to Solyndra. FFB’s chairman of the board is Treasury Secretary Tim Geithner, and the bank’s board executives are Treasury officials.

Who is getting the FFB’s green energy money? As the White House and Democrats in Congress rail against tax breaks for oil companies, the FFB gave taxpayer loans to green companies with high cash burn that were spilling red ink.

For instance, Solyndra was still getting loans from the FFB up until it filed for bankruptcy. It got $3 million in loans at a 0.89% rate just a month and a half before it filed for bankruptcy protection.

The FFB is also giving loans to risky solar companies as well as to a money-losing solar energy outfit backed by companies such as Google, Morgan Stanley, Chevron and BP that has spilled $160 million in red ink for the last three years.

In the month of July alone, the FFB gave a $12.5 million loan to Abound Solar; 60% of Abound’s balance sheet will come from federal taxpayers, or $400 million in guaranteed federal loans.

FFB also gave a $117,330 loan to the struggling Kahuku Wind Power and more than $77 million to the Solar Partners companies, which are due $485 million in White House approved loans.

The Solar Partners companies are units of BrightSource Energy, which is building a massive solar-powered energy plant near the Mojave Desert in San Bernardino, California.

BrightSource lost $45 million in 2008, $44 million in 2009, and $72 million in 2010, even though it has rich backers that include Google, Chevron, Morgan Stanley and BP, among others, says FOX News analyst James Farrell.

Besides the green energy projects, the FFB provides a backdoor government bailout of the US Post Office, which has been spilling red ink. The FFB has lent the US Post Office so far $12.6 billion. The Post Office faces an estimated $10 billion shortfall this year, as the Internet, companies like FedEx and UPS, and high retiree health-benefit costs slice into its bottom line.

And the government bank gave loans to car and car parts manufacturers to retrofit their plants to make green cars. The FFB lent Ford Motor $163 million for its green car programs. The FFB is now financing projects at Fisker Automotive, Nissan North America and Tesla Motors, with $528.6 million, $1.4 billion and $465 million in federal loans, respectively.

However, the FFB’s balance sheet is backed by U.S. taxpayers, “except for loans to the U.S. Postal Service,” says KPMG’s audited statements for the bank. Because you, U.S. taxpayers, are the cushion for the bank, unlike other banks, the FFB “does not maintain a reserve for loan losses,” says the KPMG report.

Not booking loan loss reserves would get any other bank in trouble with federal bank regulators such as the Federal Deposit Insurance Corp., the Federal Reserve and the Securities and Exchange Commission.

Why can the FFB get away with this?

Because the KPMG report says the bank told it in true Pollyannish fashion that “no future credit-related losses are expected,” even though Solyndra clearly disputes that optimistic bureaucratic resolve. (The bank did earn $449.5 million for the fiscal year ended September 30, 2010, up slightly from $444.2 million in fiscal 2009.)

Why was this federal government bank created in the first place? Congress launched the FFB in 1973 to “reduce the costs of Federal and federally assisted borrowings,” smoothing the way for the government’s fiscal policies — fiscal policies which at the time were wading into the private credit markets like never before.

At the time, the federal government first began to see an avalanche of Congressionally approved off-budget financing for Fannie Mae, Freddie Mac and Sallie Mae. These quasi-government operations began to help grease loans for housing and for students by aiding loans securitized as bonds in the secondary markets. Banks packaged these loans as securities and sold them on to Fannie, Freddie and Sallie Mae.

These bonds though began to compete with Treasury securities, and Congress at the time feared Treasury would have to offer higher yields to attract investors away from those securities. The Vietnam war was still going, and the government was struggling to pay for the war and at the same time was battling a deep recession that had hit the U.S. economy, along with an oil shock exacerbated when OPEC plus Egypt, Syria and Tunisia hit the U.S. with an oil embargo due to its support of Israel in the Yom Kippur War with Egypt and Syria.

So to keep the government’s borrowing costs low, Congress launched the FFB and gave it broad statutory authority to purchase any “bonds issued, sold, or guaranteed by federal agencies,” says KPMG’s audit report. The bank then became a vehicle through which all sorts of federal agencies could finance their programs.

Since then, the FFB has helped finance a broad range of government operations, from agricultural to military programs, to now green energy projects.

Congress almost got the FFB in hot water beginning in 2006 when lawmakers pressured then Treasury Secretary Henry Paulson to open the window at the FFB to help finance student loans.
At the time, Sallie Mae was posting losses as students in droves began defaulting on their high-priced college loans.

A slew of lenders, about a seventh of the student loan market at the time, had stopped giving federally guaranteed student loans. Sallie Mae then pressured lawmakers such as Senator Christopher Dodd (D-CT) to give student lenders a bailout via the Federal Financing Bank, but President George W. Bush frowned on that, and the effort went nowhere.

And now it’s the White House’s use of the FFB for green energy projects that will likely raise eyebrows.

The FFB lent no money to green companies backed by Department of Energy guarantees from 2007 to 2008, even though it could have done so starting in 2007 under the Energy Policy Act of 2005, signed into law under President George W. Bush.

That act authorized $42 billion in federal green energy loans, notes FOX News analyst Farrell.
Under the 2005 law, the government could make federal loans for companies battling greenhouse gas emissions, energy efficiency and renewable energy, as well as nuclear power projects.

The FFB then began giving green loans backed by the Dept. of Energy after the Obama Administration’s stimulus bill of 2009 was enacted. After stimulus was signed into law by President Barack Obama, the FFB then began funding clean energy programs, backed by $2.4 billion appropriated by Congress. Under this program, Solyndra got $528 million.

The FFB doesn’t just fund green energy projects. It also funds the Home Ownership Preservation Entity (HOPE) Fund, enacted under the Bush Administration to help distressed borrowers avoid foreclosure by reducing their mortgage payments.

The bank is going full bore in helping to fund the White House’s foreclosure bailouts via buying HOPE bonds, a program that could hit $300 billion in federal costs.

The bonds essentially give investors a stake in government housing bailouts. But what should give taxpayers pause is this: the Treasury Secretary can issue HOPE bonds “without any limitations as to the purchaser of the issuance,” KPMG’s audited statements note.

Translation: The Treasury can willy nilly issue these bonds, and the FFB then buys the HOPE bonds that investors don’t’ want.

“Due to the cost of issuing special purpose bonds to the public, the Secretary of the Treasury has decided to issue the HOPE bonds to the bank,” KPMG notes in its report.

That means those bonds now sit on FFB’s balance sheet, more than $492 million worth. “The bank (FFB) borrowed funds from Treasury,” says KPMG’s audit, “to purchase the HOPE bonds.”

The amounts involved can rise to $300 billion, because the Hope for Homeowners Act authorizes Treasury to issue up to $300 billion in HOPE bonds. “FFB does not have the money to buy the bonds, so it has to borrow money from Treasury to buy the bonds,” notes FOX News analyst Farrell.

However, KPMG notes in its report that “the purchase of HOPE bonds is consistent with the core mission of the Bank.”

The FFB also acts as essentially a slush bank for federal loans, an operation that helps clean up the balance sheets of other federal agencies. KPMG notes that the “lending policy of the bank is flexible enough to preclude the need for any accumulation of pools of funds by agencies.”
But the FFB also lets federal agencies slide on interest costs they owe the bank on loans, even though their interest rates are dirt cheap.

For instance, the FFB has been hit with losses on loans to the U.S. Department of Agriculture, loans the Agriculture Dept. received to service rural utilities. The Agriculture Dept. is stiffing the FBB on interest it owes on these loans, a cumulative $1.7 billion in losses here.

The bank also lets the General Services Administration [GSA], as well as “Historically Black Colleges and Universities,” and the Veteran Administration slide on interest costs on their loans, too. The bank lets them defer interest costs “on their loans until future periods,” the KMPG report says.

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