Disappointing New Home Sales and PCE

New home sales unexpectedly fell 11% in November to an annual pace of 355,000 and the median sales price declined by 1.9% from a year ago. Furthermore, October was revised down from 430,000 to 400,000. As Calculated Risk points out, in November 2009, a record low 25,000 new homes were sold, beating the previous record low of 26,000 in November 1966. Yes, you have to go all the way back to 1966. Were they even making new homes back then? If so, I think Toll was building the main house and Beazer would install the outhouse for you. In any event, this is a very weak report that puts a major damper on yesterday's more robust-appearing existing home sales data.

Personal income was up 0.4%, disposable income was up 0.5% and personal consumption expenditures were up 0.5%. The personal savings rate as a percentage of personal income was 4.7% in November, unchanged from October. While a higher savings rate is good for the long run, economic growth today is dependent on spending, spending and MORE SPENDING.

In honor of the weak personal consumption report and given that it is two days before Christmas, I'm asking all of you to do your patriotic duty and go stimulate the economy. Buy something significant. Like a car, for example (maybe in the shape of an Audi, preferably in red?) Or a new house. You can worry about getting a job in the New Year.

Posting will be light and sporadic for the next few weeks. Happy Holidays!

GDP Revised Down But Everybody Buys a House

Third-quarter GDP was revised lower again to a 2.2% annual pace from a previously reported 2.8% gain, which had already been revised lower from an initially reported 3.5% pace. It seems the more the folks at the Commerce Department looked at it, the worse it got. But no worries, the third-quarter of 2009 is so yesterday and all the bullish analysts are now focused on predicting that GDP growth is going to be 4% in the fourth quarter and then at least 10% in 2010. Comically, Bloomberg has a quote from a senior economist in the article about the GDP revision saying "We are really starting to see the mechanisms for a sustained recovery coming into place." It's as if Bloomberg had already written the article with the quote intact before the actual statistic was released when everyone was still expecting the number to be 2.8%, and then just stuck in the part about the downward revision. Unless they just screwed up and meant to put it in the article about existing home sales.

In better news, existing home sales in November were up 7.4% to a 6.54 million annual rate from a revised 6.09 million pace the prior month. The median price declined 4.3% from the same month a year earlier. This was the highest rate of home sales we've had since Feb 2007, right before all the subprime lenders imploded. So congrats to the government for re-inflating the housing market back to its subprime, no down-payment, no doc, no income, no problem glory. We'll see how everything goes when the tax credits expire in April (if they ever do) and the Fed stops purchasing agencies and MBS.

Buy Low/Sell High Still Best Way to Make $7 Billion

The WSJ reports today that David Tepper's hedge fund Appaloosa was the big winner this year in the competitive world of hedge funds. Appaloosa managed to eke out gains of 120%, which amounted to over $7 billion in profits this year. Even taking into account Appaloosa's lousy 2008, where it punted 25%, a 120% return is amazing. What complicated strategy did Mr. Tepper employ? Surely something involving derivatives, structured something or others, hedged against CDS. Nah. He just bought the low. He bought some Bank of America while it was trading below $3 and Citi when it dipped below $1. He kept buying and buying bank stocks, preferred shares and bank debt, even though at times in the depths of the market's misery in February and March, it seemed as if he was the only one buying. While rumors of bank nationalization floated around earlier in the year, investors dumped bank stocks for fear that shareholders would be wiped out, much like in the case of the conservatorships of Fannie and Freddie. However, Mr. Tepper steadfastly held onto his belief that the government would do nothing of the sort. After all, Geithner promised to prop up the banking sector by injecting additional capital and the Fed swore it would take drastic measures to pump free money into the economy. It seemed only logical that we would avert a Great Depression. He didn't understand why government officials would lie about this type of thing, so he just kept buying. And then he rode the rally all the way up.

Market volatility of the kind we've seen in the past couple of years always produces a couple of huge winners. John Paulson emerged as the big winner on the short side as the market imploded, with his prescient shorting of subprime, while Tepper is being crowned king of the long side on the way up. It's usually never the same guy who outperforms in both directions, which is why I personally find Mr. Paulson's returns to be far more impressive so far. Not only did he short financials and produce spectacular returns, but he's had decent returns this year as he was also a big buyer of bank stocks earlier in the year.

Regardless, Mr. Tepper deserves his time in the limelight as the reigning hedge fund master of 2009. Certainly the folks at Carnegie Mellon will be calling him soon. The business school of Carnegie Mellon is named after Mr. Tepper since his $55 million donation in 2004. Although generous to his alma mater, Mr. Tepper still lives in the same two-story home he purchased in 1990 for $1.2 million. And if you discount the fact that he owns a brass replica of a pair of nuts that he likes to rub for luck during the trading day, he doesn't sound like your run-of-the-mill mega-rich hedge fund clown.

Hedge Fund Manager Having Ex-Wife Issues

One of the world's most successful hedge fund managers, Steven Cohen, is being sued by his ex-wife for at least $100 million. Patricia Cohen, who was married to Mr. Cohen from 1979 until their separation in 1988, claims she was stiffed in their divorce settlement. What makes this case more interesting than the average, run-of-the-mill, angry ex-wife of a rich guy, is that she is also accusing him of a long-running racketeering scheme. Ms. Cohen claims that Mr. Cohen engaged in insider trading while they were married and then proceeded to hide assets from her by concealing a Miami bank account that held millions, in order to avoid having to pay her a bigger settlement. Let me get this straight. According to Ms. Cohen, Mr. Cohen made his money illegally, then hid those illegal gains from her. So she's mad that she didn't get a cut of his illegal profits? And now she wants at least $100 million to compensate her for...what exactly? For her bad timing of choosing to marry him in the 80's instead of the 90's, when his annoying habits would've been far more tolerable when they came with an enormous estate with a hockey rink?

I suppose that Ms. Cohen thinks that her ex, who is reportedly worth billions now, is rich enough to fork over, say, $50 million to get her to drop the case, particularly since he has been the target of allegations of insider trading by a former employee. He doesn't need any more bad publicity. Besides, with the recession and all, $50 million can actually buy you something decent to live in in Manhattan. Maybe she's thinking "$100 million is nowhere nearly enough compensation for having to endure watching my jackass ex become a billionaire over the past couple of decades. The emotional pain, well, it's just excruciating. I've gone through eight therapists." Or maybe, she really has a case. Either way, this will get interesting.

Financial Headlines 12/17/2009

• Yesterday's Fed decision yielded little unexpected news. Chairman Bernanke and his cronies basically said that the economy was a bit better, but not enough for them to actually do anything to stop the potential for a massive bubble reflation. The fed funds target will remain stuck between zero and .25%, so please, won't you please, keep buying the long bond cause we're going to need to sell ALOT more of those. But don't worry about agencies and MBS, we plan to buy another $150 billion or so of those. Oh, and by the by, you should expect some volatility in Feb after we let most of the artificial liquidity supports expire.
• Citi completed its $20 billion offering. The sale was considered a bit of a bummer, as the shares wound up being priced at around a 20% discount. Furthermore, the government backed out of its plans to sell up to $5 billion in Citi's shares that was intended to lower its stake from 34% to 30%. According to the FT, the government backed out because it would have suffered a loss on its investment. Frankly, that's a fairly stupid reason to back out of selling stock. I know the government wants to keep crowing about what a great money manager it turned out to be and how much money it has made on the TARP so far. You know, because Paulson and Geithner were smart enough to buy preferred stock in GS with a 5% dividend when Buffett got his with a 10% dividend? While the rest of the market was pricing in insolvency and the government could've and should've received a 25% dividend? Yeah, they're a bunch of geniuses. In any event, they're probably going to wait until the stock hits $2 and then try to offer it out at $3.
• In the cheery world of commercial real estate, Morgan Stanley handed over 5 more office buildings in downtown San Francisco to lenders. In yet another example of why we don't want these "savvy" investors, who don't lend to small businesses or consumers, playing with money that carries an implied government guarantee, the buildings have lost around 50% of their value since the purchase. The buildings were part of a $2.5 billion deal where MS purchased 10 buildings from Blackstone Group in May 2007. Blackstone had just purchased the buildings in its $39 billion buyout of Equity Office Properties and then flipped them for a nice profit. It's still hard to fathom how nobody recognized a bubble back in 2007 when office building flipping was a major financial activity.
• Bank of America finally found a new CEO. The job went to Brian T. Moynihan, a longtime B of A employee. In a sign that big transformative changes will be afoot as a result of hiring an insider, Mr. Moynihan said that he doesn't foresee any "big changes," nor does he plan to exit any of the companies current businesses. So yeah, his hiring will make a really big difference.

Abu Dhabi Wants Its $7.5 Billion Back

Back in the day when it seemed like a great idea to pay over $30 a share for Citigroup, Abu Dhabi struck a deal with the bloated investment bank to pump billions of dollars into the bank. At the time, Citi needed the cash, and Abu Dhabi was looking for a sure thing. The sovereign wealth fund invested in Citi in November 2007, in return for an 11% dividend until March of 2010. Doesn't sound like a horrible investment so far, right? Alas, part of the deal was for Abu Dhabi to begin buying $7.5 billion in Citi shares at $31.83 each. I'm certain I don't have to remind readers of the sad fact that Citi's shares are currently trading at around $3 and change. The good news is that this makes the folks at Citi look like maybe they weren't the biggest bunch of bumbling idiots in the sea of financial idiocy of the past couple of years. The bad news is that Abu Dhabi is pissed and no longer wants to honor the contract. You see, the thing is, it has to fork over $10 billion or so to prop up Dubai World, so it kind of needs the cash.

Abu Dhabi is insisting that Citigroup scrap the deal entirely, or pay $4 billion in damages if the deal is upheld on account of some "fraudulent misrepresentations" it claims Citi made. I'm not sure exactly what those representations were. Mismarking assets? Accounting fraud? Who knows? But I'm fairly certain than anyone who paid over $30 for Citi in 2007 suffered from the same misrepresentations. Maybe some enterprising lawyer can pick up Abu Dhabi's case and turn it into a class action lawsuit.

Fund of Funds Losing Assets

Investors are finally catching on to what may have been the best fee-skimming scam of the past decade: the fund of fund. 2009 has turned out to be the worst year on record for funds of funds, with net redemptions totaling $164 billion in the first 11 months of the year, leaving total assets at $440 billion. The fact that $440 billion remains invested in these money-leaching parasites is a bit of a mystery given how lousy performance has been in 2009. Funds of funds have underperformed hedge funds by around 9% this year. Ordinarily funds of funds underperform by a few percentage points, mostly due to their fees. But this time, it appears as if the underperformance was marred by poor investment choices as well, that included large allocations towards ponzi schemes. Why pay a money manager a bunch of fees so they can pay someone else higher fees, if they can't be bothered with investing in the best performing funds? It seems as if I'm not the only one asking these questions anymore.

President Obama Talks to the Fat Cats

Upon hearing the news that Wells Fargo, the last of the big bank holdouts, had announced plans to repay TARP, President Obama rounded up the chief executives of the big banks for a stern tongue lashing. In addition to calling them "fat cats," the President let them know that he was not happy at all with how well they were doing. In fact, all the promised bank bonuses contrasted against the sorry state of employment was really getting on his nerves. So he urged them all to increase lending to small businesses and boost mortgage refinancing. Fortunately the heads of Goldman Sachs and Morgan Stanley exchanged confused glances and possibly exchanged the following words as they listened to the President on mute (neither of the two CEOs could be bothered to make it to the meeting in person, so they were conferenced in):

Blankfein: Do you know what he's talking about? We don't do small business loans. Do you?

Mack: Hell no! Why would we waste our time with that crap? We don't do refi's either. You?

Blankfein: Be serious! Although we do love to buy MBS from Fannie and sell it to the Fed the next day at a huge mark-up. Does that count? That's got to count.

Mack: Beats me. Anyway, just agree with everything he says.

When the executives pledged their support of tougher regulation of the financial services industry, the President responded with: "The problem is there's a big gap between what I'm hearing here at the White House and the activities of lobbyists on behalf of these institutions."

Mack: Crap! He's on to us.

Blankfein: Who cares? You want a sandwich? I'm sending my guys out for some lunch.

Citi, Dubai, and Other News

Equity futures are higher on some bullish headlines:

• Dubai received $10 billion from Abu Dhabi, which will pay part of the debt held by Dubai World and its property unit Nakheel. $4.1 billion of the bailout will be used to repay Nakheel's bonds that mature today. The rest of the money will be used to finance Dubai World's needs up until the end of April 2010. So, if you were confused about whether Dubai World was going to get a bailout, (and why wouldn't you be? What part of "investors understand nothing!" did you not understand?) this should help clear things up. At least until the end of April.
• Citigroup has finally negotiated its partial exit from the TARP. However, the government is requiring that the bank raise $20.5 billion in equity to replace the $20 billion in TARP funds its wishes to repay. Additionally, the US Treasury will sell up to $5 billion of the common stock it holds in a secondary offering at the same time. The rest of the government's 34% stake will be sold "in an orderly fashion," or in a frenzied panic, whatever the case may be. Here's hoping Citi's efforts to escape the claws of the government is worth all the dilution shareholders will suffer.
• Speaking of dilution, Exxon Mobil will spend $31 billion in stock to acquire XTO Energy in a bid to boost its presence in the natural-gas industry. The bid represented a 25% premium to Friday's closing price. The market still loves a good M&A deal, particularly on Monday morning. You know, because all of those huge M&A deals are always such value creating opportunities. Like all of those big bank mergers from the past ten years, not to mention AOL-Time Warner. That one worked out really well...for the investment bankers.

UK Bonus Tax Angers Bankers, Emboldens Foreign Governments

Yesterday's announcement by the UK government that it intended to levy a 50% tax on bankers' bonuses has taken the bonus discussion to a whole new level. For a while, it seemed as if we were stuck in a cycle of banks preparing to pay record bonuses (and somehow not being able to keep their traps shut about it, despite all the populist anger) and regulators and legislators responding by telling them that they were bad and greedy people. Other than the Pay Czar, who really only controlled pay for a select few and a few firms, nobody was willing to take a hard line. But a 50% windfall bonus tax? Alistair Darling has just put his foot down. And UK bankers are pissed!

Emboldened by the UK, France has stepped up to the plate and plans to impose a similar tax. Both France and the UK are pushing for an EU-wide windfall bonus tax, just to make things fair. While the US has yet to follow suit, the WSJ is hinting that some sort of similar restrictions might take place. In a front page story on comp, the WSJ claims that the Pay Czar is poised to enact much tougher rules for pay at companies receiving large amounts of government assistance. After capping salaries of top employees, he is moving on to the next tier and planning to impose $500,000 salary caps on hundreds of employees at the firms. He is expected to allow firms to pay more if they can show "good cause," but which managers are going to step up to the plate for their employees when their own pay is getting capped? We're talking about a bunch of greedy folks, aren't we?

Generally speaking, I am strongly opposed to windfall taxes. I don't think a government should pick and choose specific people or industries to penalize whenever they get angry about something and need to raise extra bucks. A few years back when oil companies were making a killing due to high oil prices, legislators in the US wanted to impose windfall taxes on oil companies. Fortunately, that never went anywhere. The key difference here is that banks have disproportionately profited from significant government subsidies that were enacted by governments around the world at a huge cost to taxpayers. To add insult to injury, the bailouts and subsidies were the result of recklessness, greed, excessive risk-taking, and a huge dose of stupidity that caused a massive bubble (for which bankers were highly rewarded for years,) followed by an extraordinary crash (during which bankers didn't have to give any of that money back.) Now banks are rushing to pay back TARP specifically so they can reward their employees again with large payouts, even though it isn't entirely clear whether some of the banks will be able to survive another downturn in the economy.

The UK bonus tax is aimed at the employer, not the employee, and only on bonuses above 25,000 pounds. Consequently, it provides a disincentive for the firms to pay out large individual bonuses as it will affect the capitalization of firms that pay out a large percentage of their revenues every year. The most likely outcome, assuming that a similar tax is enacted in most global banking centers, will be less of a catastrophe than predicted by the banking industry. The tax is only for one year so firms are unlikely to move their headquarters to more tax-friendly locales in far off places, particularly if every government is doing the same thing. Pay will probably be deferred, and certainly some firms firms will find other clever ways around the restrictions. A few angry bankers might leave for hedge funds. But mostly, there will be some grumbling from those affected by the tax (in the UK, we're talking about roughly 20,000 bankers according to the Treasury) and probably predictions of the apocalypse from the opinion section of the Wall Street Journal. But we'll be back to business as usual in a matter of months.

Got $2 Million For a Manhattan Hotel?

The glitzy W Hotel in Manhattan was sold to the highest bidder in a foreclosure auction on Tuesday. The winning bid was $2 million. That's a far cry from the $282 million ($50 million in equity and $232 million in debt) that Dubai World's private-equity arm Istithmar World Capital ponied up in 2006 for the prestigious property. Oh sure, Dubai has some financial issues and many high profile real estate investors are losing properties left and right, so what's the big deal? Well, Istithmar World Capital has $20 billion in private equity investments, much of it spent in 2006-2007. As evidenced by the loss taken on the W, any or all of those investments can go to zero in a hurry. And you thought Nakheel was Dubai World's biggest problem...

The $232 million in debt on the W was divided into $115 million in senior debt, now in CMBS, and $117 million in mezzanine debt. The mezzanine debt defaulted in October and the most junior of the three mezzanine investors, LEM Mezzanine, pushed the property into foreclosure and won the auction with the $2 million bid. It is now LEM's responsibility to bring current any defaulted debt that is senior to it ($97 million of mezzanine debt senior to LEM's original $20 million piece) as well as keep the first mortgage current. Istithmar made a last ditch effort to keep the property by throwing out a $2.1 million bid contingent on not having to pay anything to bring the hotel's senior debt back to current status. That whole "we don't feel like keeping our debts current" thing might work in Dubai, but not in the US. Unless, of course, you are a systemically important financial institution and can get the Fed to bail you out.

Headlines 12/8/2009

• Both Fitch and Moody's out stating the obvious today, with massive downgrades of both Greece and Dubai. The Dubai downgrade is patently ridiculous. If there is anyone left out there that doesn't know that Dubai World defaulted on its debt and the Dubai government refused to step in to bail it out, Moody's is here to educate and protect those investors about to make a foolish decision. Maybe word hasn't reached those sitting in debtor's prison in Dubai? Who knows? Oh, and also, in a completely shocking development, Nakheel, Dubai World's real estate development subsidiary that owns all those half-built buildings on man-made palm shaped islands, lost a boatload of money, $3.65 billion in the first half of 2009 to be exact. As for the Greek downgrade? Rumors abound about the country's troubled finances. But don't worry. The Dubai crisis, much like the subprime crisis, is contained.
• US consumer credit shrank for the ninth month in a row, by 1.7% in October. A couple of interesting highlights from the WSJ article: In 2005, over six billion credit-card offers were sent out to consumers. This year just 1.4 billion have been sent out. Also, Visa reported earlier this year that people for the first time were using their debit cards more than credit cards. The trend lower is likely to continue for some time in order to reverse the absolute explosion in consumer credit over the past few decades. What's shrinking along with consumer credit? The probability of a strong V-shaped recovery. Good chart at Calculated Risk.
• Citigroup and Wells Fargo are getting in on the "We wanna pay back the TARP" action, according to the WSJ. The banks are wrestling with the US government over how much capital they need to raise to exit from the program so they too can "compete" with all the other large banks that have managed to negotiate an exit. The problem is that issuing more stock is expensive. Of course, with the strong market rally looking like its finally petering out, they'd better pick up the pace before it gets even more expensive. I'm all for paying back the TARP. Get on with it. Just as long as everyone agrees that there is no next time if you were wrong about your balance sheet being strong.
• As if you needed yet more evidence that the government employees in charge of protecting our TARP dollars are a bunch of spineless twinkies, the Pay Czar actually caved in to AIG's general counsel's demands for no pay cuts for her and her cronies. It seems that the five employees who threatened to quit so they could collect a fat severance package will get to keep their over-$500,000 salaries. That's right, because without the right general counsel, there's no way that AIG will ever crawl out of that $100 billion hole.

AIG Pay Problems Grow More Ridiculous

The WSJ presents yet more evidence this morning that the true reason for AIG's failure was its executives' propensity to spend all day crafting their pay packages rather than focusing on running an insurance conglomerate profitably. Five high-ranking executives threatened to quit last week if their pay is cut significantly. The charge is being led by AIG's general counsel, Anastasia Kelly, who informed her other co-conspirators of how they can "protect themselves" against losing what amounts to some golden-parachute payments that the executives are "entitled" to collect.

The new pay fracas revolves around a severance plan that was put in place before the bailouts, where certain executives are entitled to severance benefits if they resign for "good reason" which includes significant cuts in their annual base salary or target bonus. First of all, what compensation committee in their right mind would agree to this type of a provision? If your pay is about to be cut, it generally means that you are doing a lousy job. So, why would a company agree to let you quit and then agree to pay you a huge severance? Yet more evidence that boards are too conflicted and not operating in the best interest of shareholders.

Worried that this opportunity to collect severance won't be around next year, the execs thought it only fair to use it as a negotiating tactic to keep their current pay packages in place. I know that Mr. Geithner and Mr. Bernanke don't enjoy negotiating and have pretty much let AIG dictate their own bailout terms. But maybe the Pay Czar is a better negotiator. Here's my advice on how to resolve some of these pay standoffs. Anyone threatening to quit over comp at AIG should be immediately fired for cause for neglecting their professional duties and devoting too much time to personal matters at work. I'm sure the company would have no trouble finding another general counsel. There are plenty of highly skilled, out of work lawyers floating around who would love the job.

Nonfarm Payrolls Boost Stocks

Did you ever think the phrase "unemployment falls to 10% would elicit such enthusiasm?" Relatively speaking, the employment report was not too shabby, with the Labor Department reporting that nonfarm payrolls fell by only 11,000. That's practically an increase. Last month's number was also revised to an 111,000 drop. The unemployment rate edged slightly lower to 10% from 10.2% the prior month. See? Obama's jobs summit, begun just yesterday, is already working.

Assuming Mr. Bernanke gets to keep his job for another four years, an improvement in employment conditions should convince the Fed Chairman that it might be time to pull in the reigns on the quantitative easing. But then again, wouldn't it be nice to let the banks have yet another year of blockbuster profits so everyone on Wall Street can party like it's 2007 again? Certainly, that would be the easy thing to do. After all, easy has been the road that the Fed has chosen time and time again over the past few decades. Easy first, then worry about the mess from the blow-out later. Certainly, Chairman Bernanke had to take quite the beating yesterday from angry Senators who berated him for allowing the financial crisis to occur and then bailing out Wall Street, without taking any blame themselves for not enacting any regulation that might have enforced some discipline on a banking sector run-amok. And certainly his easy money predecessor Alan Greenspan never had to listen to this kind of garbage when he was in office. But it's a small price to pay to hold on to the coveted position of the man who controls the money supply in the US. No doubt Mr. Bernanke will be reconfirmed, but soon enough we are likely to learn that who we really need right now is Paul Volcker.

Bank of America To Pay Back TARP, Pay New CEO Whatever It Wants

Bank of America has reached an agreement to pay back the $45 billion in TARP dollars it required to stay solvent last year. The first $25 billion came in October when Hank Paulson force fed capital to all the major banks. The following $20 billion in extra cash came later, when Ken Lewis finally realized that maybe purchasing Merrill Lynch for $29 dollars a share the Friday before the investment bank would've filed for bankruptcy wasn't such a hot idea. Bank of America is the first of the seven companies that received "exceptional" assistance from taxpayers to pay the government back and it is doing so ahead of schedule so this is being viewed positively by the market. With this move, B of A will be free from the shackles of government meddling in its bonus pool and hopefully will be able to lure another CEO with promises of a big fat paycheck. For those who don't recall, in an unanticipated move, Ken Lewis resigned, leaving the board scrambling for another CEO, because somehow, they were blindsided by the fact that their embattled CEO, despite growing a beard and looking somewhat haggard, would leave ahead of schedule. Apparently, nobody wants the CEO job because of fears of going head-to-head with the Pay Czar. The truth is, I'm sure the board has looked at a handful of candidates, all of whom think they need $50 million a year to properly run the bank. In reality, all of the money boards have thrown at CEOs for the past decade didn't stop any of them from taking too much risk, blowing up their companies, requiring government bailouts and tanking our economy, so I'm still pretty amazed that this idea of a rock star CEO persists in banking. Frankly, I'm sure if B of A's board broadened its search a bit, it could find someone who would do a decent job without requiring a huge pay guarantee. But, better to just pay back the government its $45 billion and dilute shareholders AGAIN by raising yet another $18 billion or so in capital. That way, we can all bury our heads in the sand, go back to business as usual, and forget that 2008 ever happened..

Headline Financial News 12/2/2009

Another relatively slow news day, but here are some highlights:

• GM's CEO Fritz Henderson was given the boot after less than a year, and replaced on an interim basis by Chairman Ed Whitacre. Let's see how much better Mr. Whitacre is at getting US auto sales back up to a 16 million pace.
• The ADP employment report showed companies axing 169,000 jobs in November. This is the smallest drop since July 2008, but, alas, still a negative. All eyes are on Friday's employment report to get a better picture.
• If you are one of those crazy types (yours truly included) that are concerned that the extraordinary amount of monetary easing is going to lead to another bubble, then rest assured, you may not need to be institutionalized after all. The FT reports the return of covenant lite, PIK toggle notes and dividend recaps. Considered by many sane folks to be a preposterous assumption of risk for no upside, the fact that debt investors are willing to throw money at these types of deals again shows that the credit bubble might be back. Mission Accomplished Fed!
• Across the pond, the UK Treasury has taken control of the bonus pool at RBS. Seems like a fair deal considering the fact that the UK Treasury owns a 70% stake. RBS bankers, however, may not be so thrilled.

Dubai "Reassures" Investors

The ruler of Dubai on Tuesday attacked the media for coverage of Dubai World's debt default and blamed investors for misunderstanding the situation. In response to questions related to Dubai World, Sheikh Mohammed bin Rashid Al Maktoum said that international investors "do not understand anything." He went on to call the media's reaction as "exaggerated." It was quite an interesting attempt to reassure markets, and ahem, investors, after two days of rather strong sell-offs in the regional equity markets. But then maybe Dubai doesn't have a particularly developed PR industry.

While I totally agree that investors often overact and behave in mysterious way, I'm not sure how investors misinterpreted the phrase "we don't want to pay our debt obligations for at least six months, give or take" coming out of Dubai World. And sure, maybe investors shouldn't have expected an explicit guarantee from the Dubai government, or the UAE, but then maybe the subsidiary should've been named something other than Dubai World. But sure, you can blame that on investors. As for the "media uproar" over a large debt default of a quasi-government guaranteed subsidiary in the Middle East right before the holiday weekend? Totally shocking. The news rightfully should've been buried in the lifestyle section of the New York Times.

In any event, Dubai World is in talks to restructure $26 billion of its debt with its stupid investors. International markets have moved on to misunderstanding other events and rallied back nicely. The media awaits other news to exaggerate.