The allure of rotting mortgage bonds has grown so strong that Wall Street’s vultures have begun picking over their carcasses — a signal the credit crisis has entered a crucial stage in its vicious cycle.
In the past two months, these intrepid investors have begun betting billions of dollars on a hunch that mortgage security prices have fallen enough. It is a risk few have taken for a year or more as the credit crisis rooted in this very market wreaked havoc in financial markets around the world.
In early February, bid lists for bonds backed by middle-quality mortgages found no takers, even at what were then considered fire-sale prices, between 75 cents and 80 cents on the dollar. But the following month, though, Jeffrey Gundlach, chief investment officer at bond manager Trust Company of the West, began snapping up these same securities at 65 cents on the dollar during what he calls the “darkest moments for the markets.
“You had a massive, massive supply-demand imbalance that had developed into a death spiral,” Gundlach said of the systemic liquidity squeeze in early March cash advances. “Those securities were really cheap against the fundamentals, so we went in big and started buying.”
WATCH THE VULTURES
The behavior of Gundlach and those like him is important because this brand of investor — patient, value scavengers willing to stomach some initial loss in exchange for huge windfalls when a market turns — frequently signals that a market is forming a bottom when they are active.
In early March, banks and hedge funds stripped of access to credit had to sell mortgage securities to raise cash for margin calls. That helped send already panicky U.S. markets into a full-fledged credit freeze.
But the Federal Reserve stepped in and announced that it would lend up to $200 billion of U.S. Treasury securities to banks for 28-day periods in return for debt, including a range of mortgage-backed securities. That broke a month-long sell-off, sending the mortgage securities rallying strongly.
Nelson Peltz’s Trian Partners said on Friday it will seek a special meeting of Wendy’s International Inc (WEN.N: Quote, Profile, Research) shareholders after the hamburger chain rejected two separate takeover offers from Trian and the billionaire investor’s Triarc Cos Inc (TRY.N: Quote, Profile, Research).
One proposal called for combining Wendy’s and Triarc’s Arby’s sandwich chain. The other involved buying 100 percent of Wendy’s “for over $900 million in cash with the balance in stock,” Trian and Triarc said in a letter addressed to Wendy’s Chairman James Pickett.
In the letter, which was included with a regulatory filing on Friday, the suitors said their proposals would have required the approval of the shareholders on each side of the transaction and that neither was conditioned on the receipt of third-party financing.
“Our most recent proposals were summarily rejected in less than 24 hours,” they wrote pay day loans.
The suitors also said they want any transaction entered into by Wendy’s to be approved by all shareholders, and not just the special committee of the board of directors that rejected the Trian/Triarc takeover proposals.
Wendy’s spokesman Bob Bertini declined to comment on the filing.
Wendy’s directors have been weighing a sale of the company since June 2007 under pressure from Peltz, who has been pressing for a better financial performance.
Earlier this month, Wendy’s said first-quarter sales at restaurants open at least 15 months fell at both franchised and company-owned locations, hurt by bad weather and an early Easter.
Orders to U.S. factories fell for a second straight month, a worse-than-expected performance that reinforced worries that the risk of recession is rising.
The Commerce Department reported Wednesday that factory orders dropped by 1.3 percent in February, about double the downturn that economists had been expecting. Orders had fallen an even bigger 2.3 percent in January, the largest decline in five months.
The falloff in demand was widespread, with steep declines in orders for motor vehicles, various types of heavy machinery and demand for iron and steel.
The report on factory orders showed demand falling by 1.1 percent for durable goods, items expected to last at least three years, while orders for nondurable goods, products such as oil and chemicals, fell by 1.5 percent.
The weakness in manufacturing occurred even though orders for commercial airplanes rose by 5.1 percent in February, rebounding from a big decline in January cheap payday loans. Orders for motor vehicles fell by 2 percent in February after no gain in January. Automakers are struggling with weak demand in the face of soaring gasoline prices.
Overall, orders for transportation products posted a 1.8 percent rise in February as the strength in commercial and defense aircraft orders as well as higher demand for ships and boats offset the drop in motor vehicles.
Orders for heavy machinery plunged by 12.3 percent in February, the biggest decline since January 2004, while orders for iron and steel fell by 2.3 percent.
For 2008, the tax rate on capital gains is reduced to 0 percent for income under the normal 15 percent bracket. If our income moves us into a higher bracket, do we get a 0 percent tax on a portion of the capital gains? Also, does this 0 percent rate apply to qualified dividends?
Long-term capital gains and qualifying dividends for the 2008 tax year will be taxed at 0 percent if your other taxable income does not exceed the 15 percent tax bracket for your filing status. For single filers, that is taxable income under $32,550; for married, filing joint that is taxable income under $65,100.
If your long-term capital gains and dividends are pushing you through the 15 percent bracket, they are taxed at 0 percent to the extent that gets you to the top of the taxable bracket, and the remainder of long-term capital gains and qualifying dividends are taxed at 15 percent no fax payday advance.
Once all of your other taxable income exceeds the 15 percent bracket, based on your filing status, your taxable income will be calculated based on the tables plus 15 percent tax on your long-term capital gains and qualifying dividends.
The intricacies of these new rules create planning opportunities throughout 2008.
Sun Capital Securities Group completed its $21-per-share tender offer of outstanding shares of Kellwood Co. stock, and now has a 93.7 percent stake in the Town and Country apparel manufacturer. The offer is part of a $542 million acquisition of Kellwood by Sun Capital, an affiliate of Sun Capital Partners, a Boca Raton, Fla.-based private investment firm.
After the acquisition is consummated, Kellwood will become a subsidiary of Sun Capital’s Cardinal Integrated LLC and will no longer be publicly traded faxless payday loans. Holders of the remaining shares not already owned by Sun Capital will be eligible to receive $21 for each share.
European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation, attempting to quash speculation he'll follow the U.S. Federal Reserve in cutting interest rates after stocks plunged.
“Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility,'' Trichet told the European Parliament in Brussels today.
Bond investors dismissed his comments and raised bets on an ECB interest-rate cut. European two-year government notes rose the most since September 2001 and yields on June rate futures dropped as much as 21 basis points. The U.S. central bank cut its benchmark by three quarters of a percentage point to 3.5 percent yesterday after global stocks tumbled on concern a recession in the world's largest economy will curb global growth.
“Europe is not going to get special dispensation from a global slowdown,'' Stephen Roach, chairman of Morgan Stanley in Asia, said on a panel at the World Economic Forum in Davos, Switzerland. “Europe is not this dynamic, rapidly growing economy.''
Euro-region service industries grew this month at the slowest pace in more than four years after credit tightened and the euro neared a record, an industry report showed today.
Room for Maneuver?
Trichet on Jan. 10 threatened to raise the bank's key rate from 4 percent if unions push through wage increases that take the jump in inflation into account. Euro-region inflation was 3.1 percent in December, the fastest in six years and well above the ECB's 2 percent limit.
He suggested today that slowing growth may give the Frankfurt-based ECB more room for maneuver. While the bank is sticking to its base scenario that the economy of the 15 euro nations will expand about 2 percent this year, there are “downside'' risks to the outlook, Trichet said.
“We'll see how the real economy develops in the future because it can have an effect on inflation,'' he said.
That remark “suggests any cut in rates by the ECB will only come on the back of poor economic data,'' said James Nixon, an economist at Societe Generale in London. The Fed's “concerns of a credit crunch appear to be absent in Frankfurt, even though European bank stocks have been hit just as hard as in the U.S.''
European stocks extended declines. The Dow Jones Stoxx 600 Index shed 1.6 percent as of 3:20 p.m. in London, erasing yesterday's gain that was triggered by the Fed's cuts. The index has plunged 15 percent already this year cash advance flexible payments.
Summers Concerned
“The outlook for Europe is being revised downwards quite rapidly,'' former U.S. Treasury Secretary Lawrence Summers in a Bloomberg Television interview in Davos. “One has to be concerned about financial strains and what they bring in Europe.''
European bonds rallied on speculation the ECB will be forced to follow the Fed and cut interest rates. The yield on the two- year note fell as much as 24 basis points, the biggest decline since the day after the terrorist attacks of Sept. 11, 2001, and was at 3.22 percent at 2:49 p.m. in London.
“Trichet's warning about inflation risks today does not mean that he won't cut interest rates in three months,'' said Marco Kramer, co-head of European economics at UniCredit MIB in Munich. “It's only rhetoric to fight inflation expectations.''
BNP Paribas SA today said it now expects the ECB to lower its key rate to 3.75 percent in June rather than September. Barclays Capital said the central bank will reduce rates twice this year instead of keeping them unchanged.
`Difficult Year'
“We're already in a recession in the U.S.,'' Klaus Kleinfeld, chief operating officer at Alcoa Inc., the world's third-largest aluminum producer, said in Davos. “2008 will be a difficult year. I don't think that the world can decouple itself from what's happening in the U.S.''
Still, ECB council member Axel Weber said last night that any impact in Europe from a U.S. slowdown “could emerge with a time lag'' and may “be less strong than in former times.''
ECB Vice-President Lucas Papademos and Executive Board member Juergen Stark also said yesterday that economic fundamentals in Europe remain sound.
European manufacturing unexpectedly maintained its pace of expansion in January. A gauge of manufacturing held at 52.6, beating economists' forecasts for a decline to 52.1, a report from Royal Bank of Scotland Plc showed today.
“Our mandate consists of ensuring price stability for European citizens in the medium term,'' Trichet said. The ECB has to be “credible in guaranteeing price stability.'' Policy makers next meet to decide on interest rates on Feb. 7 in Frankfurt.
Before the Fed's rate cut, the Bank of England was cautious about reducing its interest rates further. Policy makers on Jan. 10 voted 8-1 to keep the benchmark rate unchanged at 5.5 percent, minutes of the meeting published today showed.
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