Randomly Noted

Trading began today in two new securities designed to let investors bet on whether housing prices will rise or fall. And the message from the trading? Investors believe housing prices have more to go up than down right now.

The Macroshares Major Metro Housing Trust is benchmarked to the S&P/Case-Shiller Composite 10 Home Price Index which is a weighted measure of home prices in Boston, Chicago, Denver, Las Vegas, Los Angeles, New York, Miami, San Diego, Washington, D.C. and San Francisco. There is a Macro Housing Up Trust (symbol: UMM) and a Down Trust (symbol: DMM). They are paired and supposed to be worth $50 together although for some reason today the paired value is $50.50.

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Pirate Bay, the rogue internet file-sharing site, is being acquired for $7.8 million by another Swedish firm, Global Gaming Factory X AB. The new owners say they’ll turn Pirate Bay into a legal and profitable company. As pirates like to say, Arrr!! Or as landlubbers might put it, Good luck! Pirate Bay “worked” because it offered valuable content at a bargain-bin price otherwise known as free. What Global Gaming Factory’s buying is a saucy brand name. Whether it’s worth the 60 million Swedish kronor they agreed to pay remains to be seen. Yeah, Pirate Bay had around 20 million users, according to DJN colleague Gustav Sandstrom. But will they stick around – or jump to the latest file-sharing upstart? As my pirate pals would say: The latter.

Malaysia’s economic prospects have been hampered by the market-constraining aspects of a long-standing affirmative action program designed to improve the prospects of the country’s ethnic Malay majority. Now, the country’s new prime minister, Najib Razak, has made an initial bold move to unravel the policy. It’s very canny of him, given the feisty political opposition nipping at the ruling party’s heels. To be sure, the New Economic Policy isn’t being dismantled – far from it. But, as my colleagues report, Najib has “outlined a package of measures to spur foreign investment in the Malaysian economy” at a time when some experts think GDP could shrink as much as 5% this year. Najib, who is also Finance Minister, knows that if he doesn’t do the right thing to jump-start economic growth, his political future will be in jeopardy. As long as he ignores  retrograde  forces within the political establishment, Najib’s interests will be aligned with growth. One new proposal: Permit 100% foreign-owned fund management firms in Malaysia for the first time while allowing foreigners to own up to 70% of stock broking firms (the current is 40%.) Malaysia’s affirmative action policies, introduced in 1971 after violent race riots, were designed to help ethnic-Malays, who comprise 60% of the population, catch up economically with ethnic-Chinese Malaysians. As colleagues James Hookway and K.P. Lee report, the fundamental “target of putting 30% of the economy in Malay hands remains intact” according to the Prime Minister. “But this 30% figure is now a macro target, not a micro target,” Najib said. Here’s coverage of Najib’s announcement by the official wire service, Bernama: http://www.pmo.gov.my/?menu=newslist&news_id=203&news_cat=13&page=1731&sort_year=&sort_month=

If you are looking for relative economic optimism, check out the latest monthly result from the Dow Jones Economic Sentiment Index. This leading indicator of U.S. economic activity registered 31.8 in June, up 2.8 percentage points from the prior month.

It’s the fourth consecutive month of increase and the gurus behind the report say if the trend upward continues, it could mean a forecast of actual  U.S. economic growth in the fourth quarter of this year.

The index is a measure of positive and negative words used about the U.S. economy in 15 major U.S. newspapers. It’s a “wisdom of crowds” concept that has proved pretty accurate in forecasting some economic turning poisnt in the past couple of decades.

The numbers aren’t large by any stretch of the imagination. But they are a sign that investors are beginning to feel a little more comfortable getting back into the markets. Nuveen Investments said during a conference call today that its assets under management gre to $127.7 billion as of the end of the second quarter (we’re almost there) from $115.3 billion at the end of the first quarter. Now, $10.9 billion of those gains come from rebounding stock and bond markets. But the fund company did see $1.5 billion of net inflows into its funds, with nearly $1.1 billion of that number into mutual funds, a product used more by retail investors. A good sign that people are slowing feeling more comfortable being invested rather than sitting on cash.

For auto industry geeks, a sad bit of history was made today as General Motors Corp. said it’s walking away from its 25-year-old joint venture with Toyota Motor Corp. Known as NUMMI (New United Motor Manufacturing Inc.), the JV was in Fremont, Calif. There, in 1984, a stodgy GM signed up to learn how to make profitable, desirable  fuel-efficient cars. For Toyota, NUMMI was a way to demonstrate goodwill to an American political and business establishment wary (to say the least) of Japan Inc.’s lean-manufacturing prowess. The plant wasn’t hugely important to Toyota’s American ambitions, especially as it began dotting the southern landscape with factories employing a non-union workforce. Somewhat ironically, however, GM’s decision to end the JV creates a burden for Toyota, which has to figure out what to do about the Corolla car and Tacoma pickup capacity it will retain at Fremont. GM is killing its Pontiac brand (part of the bankruptcy diet it’s on) and so no longer needs to make the Vibe car at the NUMMI facility. As DJN colleague Sharon Terlep reports, Toyota is scrambling to right-size its American operations as part of a broader turn-around program; the end of  the JV complicates matters. For NUMMI’s official history, check out the official website here: http://www.nummi.com/co_info.php

Also today comes news that GM is advising Roger Penske’s company on how to market the Saturn brand it now owns. GM is worried that tying Saturn to the Penske name will distract or turn off consumers. My advice to Penske Automotive Group Inc.: The last company you should take advice from is GM, which single-handledly turned Saturn into a stale commodity from the fresh-faced upstart it had been. Here’s the WSJ story:http://online.wsj.com/article/SB124623102240666083.html#mod=testMod.

Back to NUMMI: Auto industry expert and former colleague Paul Ingrassia once wrote that the creation of NUMMI “rocked the auto industry: For the first time, an American and a Japanese auto maker would build cars together on American soil.” As Paul recounted in a 1992 WSJ piece, the JV talks kicked off in 1982 when GM was the No. 1 U.S. auto maker and Toyota, No. 1 in Japan. Leading GM’s effort was an up-and-coming executive called John F. “Jack” Smith; a decade later, he became GM’s CEO and Chairman. As Paul wrote, “the NUMMI talks were a crucial lesson in the power of the rival GM faced. Mr. Smith got a close look at Toyota’s efficient methods of product development, manufacturing and purchasing management. Those methods, often called ‘lean production,’ propelled Toyota ahead of GM in profitability, quality and product success in the 1980s.”

The idea behind a poison pill is simple – management’s enact them so if an unwanted suitor acquires a big stake, the pills are triggered making it harder for the company to be taken over. Casual Male, a specialty retailer that has about 500 stores catering to big and tall men, has a poison pill that it just tightened. Before, if a holder bought stock that took him/her above 15% ownership, a rights plan would kick in, creating more shares and making it more expensive for a would-be acquirer. Casual Male just lowered that threshold to 5%.

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The U.S. business media and even the general news mediums will be busy today with all Madoff all the time.  

A couple of comments to add to the fray:

-Besides the symbolism of the 150-year sentence for fraudster Bernard Madoff, U.S. District Judge Denny Chin called the crimes “extraordinarily evil.” The sentence length and the language are usually reserved for violent crimes committed against other human beings. This shows that white collar crime, if pervasive and long-standing as Madoff’s crimes were, are starting to equate with violent crimes in the view of the courts. Many were shocked a few years back when Worldcom Inc. Chief Executive Bernard Ebbers got 25 years in jail for his white-collar crimes. This continues the trend. Whether it will prove a deterrent to further white collar crimes, or whether, as some argue, there are some people who are just simply going to violate the rules whatever the rules may be, we”ll let the pyschologists and criminologists ponder. 

-For all the recent criticism of the actions or inaction of the Securities and Exchange Commission in recent years, the Madoff case stands out as the watchdog agency’s most egregious failure.  SEC staff were being provided with information from Madoff rivals. Nothing happened. The nature of the crime should have played to the SEC’s historical enforcement strengths: a Ponzi scheme involving traditional securities.

Of course, the Madoff story isn’t over.

Argentina’s stock and bond markets are up following the weekend’s midterm elections which dealt a humiliating blow to the ruling leftist Front for Victory coalition. In Honduras, many people are celebrating as its Chavez-embracing president is ousted – amid some odd tut-tutting by the Obama administration. WSJ columnist Mary Anastasia O’Grady raises this interesting issue: Why is Secretary of State Hillary Clinton, on behalf of President Obama, condemning what might be considered a legal ouster of a constitution-defying political leader? At the very least, one would think the U.S. President would avoid taking sides in this particular fight. Here’s the column:http://online.wsj.com/article/SB124623220955866301.html

Another REIT Looking For Commercial Mortgage Opportunities

As we wrote earlier about the Invesco Mortgage Capital, the smart folks managing money see some good opportunities in beaten up corners of the markets – like residential and commercial mortgage backed securities. The challenge is getting investors to pony up some money and make those risky bets.

Another REIT filed threw its hat into the game today – CreXus Investment Corp. wants to raise $500 million to invest initial in commercial mortgage backed securities but ultimately it sees the portfolio becoming more heavily weighted toward commercial real estate loans. CreXus will be managed by a unit of Annaly Capital Management, which will own a little under 10% of the REIT after the IPO is completed. Annaly manges a portfolio of about $58 billion of agency and residential mortgage backed securities.

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