Where investment banking headed?

What a terrible week it was!! Panic all around. Hard to say what will be the future of investment banking.

A couple of good articles to read

On Wall Street as on Main Street, a Problem of Denial

Old-School Banks Emerge Atop New World of Finance

Another article from Economist talks about impact from the fallout of Lehman Brothers

The fallout from the bankruptcy of Lehman Brothers

Fannie Mae

A lot is going with Fannie Mae/Freddie Mac this year. I think the year has been FNM/FRE year.

Treasury secretary's plan for Fannie Mae/Freddie Mac couldn't subside the fear in the market. LEH is following the Bear's path and few other firms showing signs of same trouble. The following article in WSJ provide good insight on soundness of Treasury Secretary's plan.
How Paulson Would Save Fannie Mae

Hope some rescue plan can be derived today for LEH. Waiting to see what happens before asian markets open.

Oil prices really dropping?

How real is the recent drop in oil prices? According to an article “Nothing to smile about” in the Economist, there is nothing to cheer about the recent drop in the oil prices. The real rate of interest is negative due to lower nominal rate and higher inflation. There is no incentive for oil producers to pump more oil in this negative interest rate scenario. The money produced by pumping more oil is not going provide positive return. The oil producers are better off by letting the oil in the reserve and pumping it when prices are high enough. During the time when inflation is so high, the lower oil prices remain distant dream.

End of road for car leasing?

The trouble for Detroit's Big Three continues, the car makers are now trying to minimize losses by ending loss making lease business.

http://online.wsj.com/article/SB121737722208895269.html?mod=hpp_us_whats_news
WSJ article (Refer link above) mention reasons behind this step.

1. Banks are turning their backs on leasing as falling used-car prices make the business less profitable.
2. Declining resale values of trucks and SUVs that were leased two to three years ago, before gasoline prices shot to $4 a gallon. When leases expire, the auto makers' finance units must sell the vehicles and recoup some of their costs. But with today's fuel prices, used trucks and SUVs are selling for far less than the Big Three had anticipated. So they're losing money when they sell those vehicles.

Ford last week wrote down $2.1 billion in pretax profits as a result of unprofitable leases (a key factor in the company's $8.7 billion loss for the period). GM reported $2 billion loss (out of total of $15.5 billion for the latest quarter) due to declining residual value.

Auto Alternative
http://online.wsj.com/article/SB121737803358095319.html?mod=article-outset-box
The article above mention some good alternative to the lease option.

• Buy the car, Look for deals on domestic models, priced to move inventory.
• Lease from a foreign auto maker, such as Toyota or Honda.
• For those with spotless credit, get an independent bank to finance the lease.

Auto makers are looking to make alternatives as attractive as possible or in some cases they are planning to make buying more attractive than leasing (Ford aims to make vehicles like the F-Series trucks and Explorer SUVs "lease proof" by making terms on leases so tight that the monthly payments are too high to justify.).

KKR to go public

KKR's announcement of going public came at a time when market is hitting bottom everyday. KKR’s rival Blackstone went public at the peak of the market last year (June, 2007). Blackstone milked money through its public offer but it is very unlikely that KKR will be able to cash on IPO offering. Blackstone got listed at $31 and reached to $37-$38 very first day. Since then it never came back to same price. Today it is being traded at around $17. A sad story for a company, which made lot of news and front page stories on all the business magazines till last year.

Unlike Blackstone’s founders, KKR’s executive won’t take out cash from public listing. KKR’s share expected to be valued at 10 to 12 times of 2009 earnings, giving KKR a total valuation between $12b and $15b. Blackstone’s shares are traded at 13 times the company’s expected 2009 earnings.

Blackstone’s executives are happy that they won’t be alone in Private Equity segments to report company’s result to public every quarter. I am happy that I now have choice to buy shares in Private Equity segment.

http://online.wsj.com/article/SB121717198753387877.html?mod=hps_us_whats_news

http://www.reuters.com/article/businessNews/idUSN2741395420080727?feedType=RSS&feedName=businessNews&pageNumber=1&virtualBrandChannel=0

Morningstar’s Rating

Came across following article in today’s WSJ.
http://online.wsj.com/article/SB121702192232585849.html?mod=hps_us_whats_news


I always use to think that highly reputed independent research firms like Morningstar's research is always data-driven and there is hardly any chance of internal influence or pressure to tweak these reports. The article seems to be telling some other story. In future, I will have to be more careful reading analyst’s report on a company. The idea behind reading analyst’s report is to collect data and information from their reports and make your own judgement. What if data and information provided by analysts are misleading (or influenced)? What is the point in paying Morningstar for analyst’s report if these reports are not providing the right information?

Indian Govt. Survives

Much debated India-US nuclear deal passed an important hurdle yesterday. Prime Minister Mr. Manmohan Singh put coalition government on stake for this deal. Political party “Left” had been threatening to withdraw the support from the government and finally withdrew the support. This forced government to face confidence vote in the Lok Sabha. During whole this confidence vote drama, some political party and politicians have come out as winners, while others failed miserably. Left comes out to be biggest loser and Samajwadi party (and arguably Ms. Mayawati) comes out to be biggest winner in this political game.

Though it is big win for Mr. Manmohan Singh, there are others who got a chance to enhance their political career. FM got a chance to speak strictly in terms of economies and comparing growth of India and China. It’s another thing that nobody listened to his speech in the Lok Sabha. Congress party’s prospective PM candidate for next general election Mr. Rahul Gandhi got a chance to make his first major speech in the Lok Sabha. Mr. Lalu got a chance to enlighten the atomsphere with his humor one more time. It was a nothing to lose kind of scenario for BJP. If government lose in confidence vote, it’s good to go for election and raise inflation point against government. If government wins, BJP is right there where it was before. No gain for Mr. Advani. The biggest winner of political drama is Samajwadi party. Mr. Mulayam Singh got government hands on his head and Mr. Amar Singh got recognition as architect of the whole process of collecting MPs for the support. By not supporting government, BSP should be at worse position but Ms. Mayawati turns out to be a winner. She managed to make a strategic alliance, Third Front, for next general election and became leader of that alliance. Looks like a good move towards next PM position.

The nuclear deal now should move at full pace. The India-US nuclear deal should provide a boost to already booming Indian economy and a good strategic partner to the USA both in terms of business prospects and competing against China. This deal still has a long journey to cover. The US congress and UN’s IAEA and NSG group has to approve the pact.

Indian markets welcome the news. BSE sensex was up 838.08 points (almost 6%).

Some good article to read on this news.
http://online.wsj.com/article/SB121672514943973317.html?mod=hps_us_pageone
http://online.wsj.com/article/SB121675052745674159.html?mod=PageOne_1