Randomly Noted

iStar Chairman and CEO Jay Sugarman Asks Shareholders Not To Give Up In The 2008 Annual Report

The commercial real estate market will get worse before it gets better. That’s at least what one of the big players in this market seemed to be saying during his company’s conference call earlier today.

Jay Sugarman, chairman and CEO of iStar Financial, a finance company that focuses on commercial real estate, was asked by an analyst during an earnings conference call for his thoughts on the state of commercial real estate markets. Sugarman noted that the top 10% of the market in terms of asset quality is seeing interest from domestic and offshore buyers.  But then here’s what he had to say about the rest of the market:

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I’ve just come from a chat with the University of Michigan’s president, Mary Sue Coleman, and was tempted to headline this blog “Michigan’s Only Bright Light.” But I decided that would be unfair and inaccurate – in addition to U Mich, there are certainly other things going well there, just not all that many due to the Detroit auto industry’s collapse and wretched unemployment.

As Coleman puts it, the University of Michigan has been in austerity-budget mode for several years; it was fairly obvious shortly after she arrived on the scene, in 2002, that the U.S. auto industry was in decline and public funding for the university was heading downhill. The economic crisis sealed the deal, and along with state money, alumni giving dropped. So did the university’s endowment, which took a 21% hit.

Coleman is dynamism personified, despite a broken hand wrapped in a cast: when she says she actually likes the fund-raising chores that plague college presidents, one believes it. Of course, extracting money from alums’ wallets has been rather difficult since the economy tanked, but Coleman sees signs alumni interest may be picking up.

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Merriam Webster’s definition of hedge: a means of protection or defense (as against financial loss). We thought it would be worth checking on that definition again as we read with interest MetLife’s third-quarter earnings release (just out a short while ago) that included some information about its $1.4 billion investment loss (after-tax) in the quarter. About $860 million of that loss was connected to derivatives.

In its own words: “MetLife uses derivatives – in connection with its broader portfolio management efforts – to hedge a number of risks, including changes in interest rates and foreign currencies.” It went on to say that $582 million of that $860 million came from its own credit spreads improving (this apparently has to do with the way the company values some liabilities on its books, like variable annuities.)

Still seems hard to call that hedging…

A few of us just had lunch with the CEO of  Eaton Corp., Alexander “Sandy” M. Cutler, and got a glimpse of how at least one corporate chieftain views the economy and government policy-making. As corporate executives go, Cutler’s fairly outspoken: U.S. government debt is waaaay too high and we have to do something about it “sooner than later.” That means raising interest rates to attract capital while also making sure the Congress and president don’t pass too many deficit-expanding policies, he argues.  Cutler’s not against some of these programs per se but the timing is wrong, he maintains.

The rest of the world, anxious about our debt load, needs clear signals, soon, that the U.S. has a grip on its finances, he says. Today’s news that third-quarter gross domestic product rose 3.5% is pleasing, of course. But Cutler sees enough stumbling blocks to forecast a 10%-plus unemployment rate lasting through 2010 and effectively hampering much in the way of economic growth.

Companies, including Eaton, won’t jump to re-hire laid-off workers for more than a year; they’re too cautious, having endured a shocking economic downturn, and will prioritize generating improving profits even if it means maintaining low inventories as demand picks up, Cutler believes. Continue reading…

Never will the presumptive end of a recession be so little celebrated.

And with good cause. With the U.S. unemployment rate hovering near 10% and likely not yet done ascending, we’re probably done with recession in name only. And even that may not prove lasting.

So there is little zing in what in abstract could be seen as a most impressive number. The gross domestic product rose at a seasonally adjusted 3.5% annual rate in the third calendar quarter in the U.S., the first increase since the second quarter of 2008.

Luca Di Leo and Jeff Bater of Dow Jones Newswires write that the news “served as an unofficial confirmation that the longest and deepest recession since the Great Depression has ended.” The recession in the U.S. has been pegged to have officially begun in December 2007.

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GUEST BLOG from Mike Reid, a deputy managing editor of Dow Jones Newswires:

We, the media, have been played.

This Fox-White House feud is too good to be true. We fell for it, swallowing it whole. We delivered the message to all, daily, that Presidents shouldn’t joust with the media, no matter how venomous and relentless the attacks.

What we didn’t realize, and mostly still haven’t yet, is that this isn’t about Fox, nor the White House, nor media independence or criticism. It’s not about the First Amendment, or quashing dissent, or any of that. And it’s not White House clumsiness: in fact, it’s cynical and calculating, and brilliantly so. This is solely about redefining the Republican Party… a strategy which, albeit risky, is James Carville-like in its audacity.

The White House doesn’t like Fox News, they love it. They like the ratings boost it’s getting, they like the shrill hostility of its commentators. For them, the hardcore supporters of Fox commentary are politically unreachable anyway. The more popular the likes of Beck, Hannity and O’Reilly become, the more emboldened they are and the more caustic their tone is. It makes it easy for the White House to portray this sort of commentary as the voice of the Republican Party! The subliminal message to the moderate conservative or the wavering independent is compelling: You may not like us, broader government, bailouts, and bigger deficits, but check out that lot, then make a decision. It’s no longer the party of Lincoln, it’s the party of Beck. (Note: Fox is owned by News Corp, which also owns Dow Jones Newswires).

If Fox gets better ratings, who loses exactly? Fox doesn’t, nor the White House. Michael Steele does, John McCain, Lindsay Graham, Olympia Snowe all do. Moderate Republicans lose hugely. The message of the party is redefined. Republicanism isn’t a mantra of small government, low taxes, defense and fiscal restraint… it’s that the Federal Government’s coming to kill grandma!

It’s a cunning, cynical strategy, but a brilliant one. And it’s crowning glory? Get the mainstream media to deliver the White House message, amplifying it daily. Pundit after pundit, commentators, editors, reporters, all united in an unwitting chorus of the White House’s own propaganda: The words “Fox” and “Republican,” “extreme” and “biased”, “the GOP” and “crazy” repeated constantly, tempting people to go look for themselves.

How did they achieve this? Everyone in authority knows a journalist’s worst fear is being cut off, alienated, denied access. Good reporters scoff that they can be equally effective without access to officialdom, but they know it makes life much tougher. Threaten one media outlet and the rest will circle the wagons. So the collective groan of disapproval from the mainstream media has played perfectly into the White House strategy.

The media’s universal reaction has been that the strategy is clumsy and ill-considered. Maybe it’s the media’s reaction which is. We were too gullible: In bemoaning attempts at media manipulation, we just got manipulated!

Jeremy J. Siegel, a highly regarded finance professor at University of Pennsylvania’s Wharton School, takes issue with those who blame the efficient market theory for creating the financial crisis that nearly felled Wall Street last year. The theory, which states that the prices of securities reflect known information that impacts value, has been under attack by some who say it led to lax regulation, asset bubbles etc.

Siegel, in an op-ed piece in today’s Wall Street Journal, argues that the theory doesn’t claim that market prices are always right. But there’s another line in his well crafted argument in defense of efficient market theory, that resonates with someone who has been following Wall Street for awhile – would the credit and financial crisis have occurred if Wall Street was still dominated by the partnership structure?

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If the hedge fund adviser registration bill that sailed Tuesday through the House Financial Services Committee becomes law, it had better come with a budget supplement for the Securities and Exchange Commission.

If it does not, there might be a lot less present than meets in the eye in the bill to force hedge fund advisers along with those working for private equity firms and other private pools of capital to register with the SEC.

The committee approved the measure by a vote of 67 to 1.

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With Ford the sole (relatively) healthy U.S. auto maker, this week’s newsflow is very instructive: The big events include the likely sale of its Volvo unit to China’s Geely, and Ford’s efforts to get UAW locals to approve measures that would reduce its labor costs. Both news events are key to Ford’s survival. Bidding a final adieu to Volvo, should the Geely deal stick, would conclude an odd period in Ford’s history. Ford bought Volvo in 1999 for $6.4 billion;  as WSJ colleague Norihiko Shirouzu writes, after racking up Volvo-related losses Ford finally decided last year to ditchi t. Ford never should have bought another brand – it needed to improve its own vehicles, which it has finally done. The UAW situation speaks to Ford’s disadvantage relative to rivals Chrysler and General Motors; the latter are in worse financial shape but enjoy lower labor costs thanks to deep UAW concessions made in the heat of the crisis that sent the firms into Chapter 11 bankruptcy protection. As I and others have written, Ford is at a competitive disadvantage by virtue of being the only one of the Detroit 3 to have skirted the need for a federal bailout and bankruptcy protection. It would behoove the UAW locals to get with the program and let Ford function at cost levels that are within hailing distance of Chrysler and GM’s.

The New York Yankees and Philadelphia Phillies square off tonight in Game 1 of the 2009 World Series. Past performance does not indicate future results, but on the basis of past performance, it’s no contest. The Yankees won more games (103 to 93), scored more runs (915 to 820) and had a higher run differential (162 to 111). The Yankees have far more league championships (40 to seven) and World Series titles (26 to two). The Yankees have the highest all-time winning percentage (.568), and the Phillies have the most losses of any team in North American professional sports (10,167). According to Forbes, at the start of the season the Yankees franchise was worth more than three times as much as the Phillies ($1.5 billion to $496 million).

In one area, though, the Phillies’ success has to make the Yankees envious: game attendance.

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