MQC sent us this: Standard & Poor’s Downgrades ACA Capital to Junk Status. MQC notes: “S&P cut ACA’s rating to ‘CCC,’ or eight levels below investment grade, from ‘A,’ the sixth-highest investment-grade rating. It also said it may cut Financial Guaranty Insurance Co’s ‘AAA’ rating.” Here is a sobering snippet: “The entire US economy is $14 trillion or so in contrast to $42.6 trillion in credit default swaps. The entire derivatives trade is now a record $681 trillion.”
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Ready Made Resources just added a new photovoltaic (PV) power product to their line. For those of us that can’t afford a full-blown PV system, they now sell the Brunton Solarport –a 4.4 watt compact folding PV panel designed to charge electronics like cell phones, digital cameras, GPS receivers, and PDAs via a USB port, as well as charging batteries for radios and flashlights, with and included charging tray. It come with a 20″ extendable power cable with a modular adapter plug. Up to three units can be linked together for more current output. See the Ready Made Resources web site for complete specifications and pricing.
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Chrysler CEO: We’re ‘operationally’ bankrupt. “To raise money, Chrysler is looking to sell over $1 billion in land, old factories, and other holdings, even if it has to let those properties go for under book value, the Journal said.”
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David in Tennessee found a fascinating Financial Times interview of Bill Gross of Pimco (one of the world’s largest fixed income managers) on interest rates, recession, and government intervention. You can read the transcript, or watch the video. Here is one of the most crucial parts of the interview:
Mr. Gross: “…most modern financial derivatives have been highly leveraged, and it’s that leverage that has rather stealthily snuck in to the economy. And when the leverage goes too far, when the spreads get too tight, when the prices get too high, the de-leveraging is very painful. Especially in the property market, which is, perhaps, the most highly levered asset class of all.
And so, yes, the financial derivatives to the extent that even a subprime is a derivative, or an option-adjusted ARM is a derivative, and then of course, the conduits that include them, all of them levered at five, 10, 15, 20 times – and all with the assumption that things can’t go wrong, and that the only task is to scrape off the carry and the return off the top – you know, that concept is, basically a dying concept and will lead to an implosion at the edges, at least, of this new financial marketplace.
FT: So we’re going to see the whole concept of some hedge funds no longer operating?
Mr. Gross: A hedge fund basically, makes its money – hopefully, through brilliance, but in reality, through leverage and the ability to borrow short and to lend longer and riskier. That’s what a hedge – hedge fund is basic –
FT: Do you think this has been a giant con? The investors haven’t been smart enough to see through that?
Mr. Gross: Well, a hedge fund, to my way of thinking, is an unregulated bank. I mean, a bank isn’t a con, but a bank is a regulated entity. A hedge fund is not, and so from that standpoint it’s been a con on the government, in terms of their unwillingness to regulate the industry. And it’s been a con as well to those investors that have felt that hedge funds could provide double-digit returns forever – or even for a short period of time. That can be done, and was done, but ultimately, you can’t manufacture asset returns simply through the employment of leverage.”