Markets getting whacked: Cover your eyes. The Dow is down over 200 points at last check amid lots of concern about the future of Fannie Mae and Freddie Mac (see below). Appearing on CNBC, Ben Lichtenstein, president of TradersAudio.com, suggested that a 9,500 Dow is not out of the question (it fell under 11,000 but has bounced back slightly). Oh, and oil has shot up to over $147 a barrel (more concerns about supplies, as well as hedging against the stock marketís losses).
Fannie-Freddie crisis: Shares of the two mortgage finance giants fell by nearly half in early trading as talk increases of a government takeover. U.S. Treasury Secretary Henry Paulson said "our primary focus is supporting Fannie Mae and Freddie Mac in their current form" (whatever that means). The basic problem is that both companies need more capital - and they certainly won't get it from Wall Street. Here's the NYT story. From the WSJ:
The declines have set off a raging debate on Wall Street over whether the companies, which are crucial to the battered housing market, will need a big cash infusion and possibly government help. One possible scenario if Fannie and Freddie's financial position worsens: Under existing law, if either company were severely low on capital, it could fall under the control of their government regulator, which would then be responsible for the firm. That step -- known as placing it in a conservatorship -- would allow the mortgage company to continue operating, but the extent of its abilities in such a distressed situation remains unclear.
What about short-sellers?: Good question. Betting that the share prices of Fannie Mae and Frdddie Mac would fall, they've been cleaning up. As of mid-June, reports the NYT, investors had a cumulative short position that was three times the figure of a year ago. (Short sellers borrow shares and then sell them, hoping to buy them back later at a lower price and profit from the difference.) As you can imagine, short sellers are not especially liked these days, especially because they are accused of passing on rumors in the hopes that stocks will be driven down. Short sellers are always accused of this, but the desperate situation involving Fannie and Freddie makes those practices even more suspect.
Not surprisingly, most the big players are not talking. No comment, wrote James Chanos, a widely known short seller, in an e-mail when asked if he was shorting Fannie and Freddie. Ditto for David Einhorn. The normally talkative hedge fund executive who made headlines and money on his successful bet that Lehman Brothers stock would fall, also declined to comment, said a spokesman. In a climate where members of Congress rail against short sellers, and chief executives like James Dimon of JPMorgan Chase say that those who start and pass on rumors should go to jail, it is not surprising that hedge fund executives are choosing to remain silent.
Primers on Fannie, Freddie: If you don't know much about the two mortgage giants, check out the WSJ Q&A. Also, Felix Salmon has a good overview at portfolio.com. And if you have access to the print edition of the NYT, there's a good info-graphic that explains what Fannie does (I couldn't find it online).
Gas prices edge lower: The average price of self-serve regular gasoline in the Los Angeles-Long Beach area is $4.564 per gallon, which is 3.3 cents less than last week, according to the Auto Club's new survey. Prices have now fallen for three consecutive weeks, but the declines have been slight.
Studios say SAG rejected "final" offer: But the Screen Actors Guild says the offer wasn't rejected, per se. "We made a comprehensive counterproposal that adopted some of their proposals and offered alternatives on others," says SAG's chief negotiator Doug Allen. The guild did say that the networks and studios gave short-shrift to such areas as new media and DVD residuals. SAG leadership also refused to send the offer to the guild's rank and file, as the Alliance of Motion Picture & Television Producers had requested. Here's the THR story. Also, hereís Nikki Finkeís take:
I'm told SAG and the AMPTP "got closer together today" because the union worked hard to "remove some of the differences" and "made a number of moves" in the AMPTP's direction. "SAG is now engaging the AMPTP in the process of doing the same thing," I'm told. Specifically, SAG moved closer on some economic issues, New Media issues, and some other bargaining issues not previously addressed.
CAA building is leased: Sony BMG Music Entertainment will be relocating to the I.M. Pei-designed former headquarters of Creative Artists. The property has been empty since CAA moved to its new Century City location in 2007. Sony BMG, which has been in Santa Monica, signed a 10-year lease on the property. From Variety (which first had the story on Wednesday):
The edifice had few interested parties since the asking price -- reportedly $5 per square foot -- was mighty steep for a building whose entire first floor consists of lobby space featuring a Roy Lichtenstein painting so huge that it cannot be removed. In addition, it was clearly designed for one company to occupy the entire building, so it was not feasible to convert it into a traditional office building with multiple tenants. Sony BMG will pay $4 per square foot and cover operating expenses of between $700,000 and $900,000 per year. Sony BMG would not comment on whether it would be making any structural changes to the building.
Magazine ads tumble: Advertising pages fell more than 8 percent in the second quarter (ad revenues are never reliable because of all the discounts offered). News magazines and some business magazines were especially hard hit. Look at these six-month figures: Time down 21.1 percent, Newsweek down 22.4 percent, BusinessWeek down 14.8 percent, Forbes down 12.6 percent. As for ad categories, autos and computers showed the steepest drops. (NYT)
Cheesecake Factory sued: The Equal Employment Opportunity Commission alleges that three male workers were harassed for months at the chain's Chandler, Ariz., restaurant, and that supervisors ignored complaints. The men were allegedly grabbed by other male workers and forced to endure simulated sex with their clothes on. A class-action suit, filed last week in U.S. District Court in Arizona. From the LAT:
One of the three men, Bryce Fitzpatrick, said he was harassed more than 20 times while he worked as a kitchen supervisor. Fitzpatrick, 23, said he would be cornered by about five to 10 co-workers -- usually cooks and dishwashers -- who would lift his legs into the air and grind up against him in the restaurant's kitchen area. "It was like they were gang raping you," Fitzpatrick said. "There were instances when it happened a couple times in one day." Calabasas-based Cheesecake Factory released a brief statement late Thursday saying that the company was committed to providing "a positive, productive and professional work environment."
Malibu's $65-million listing: William Chadwick, managing director of real-estate investment bank Chadwick, Saylor & Co., and his wife, Cheryl have put their Carbon Beach home on the market. The property has just over half an acre (150 feet on the beach). They purchased the land and built a six-bedroom, 10-bathroom Cape Cod-style house of roughly 10,000 square feet in 2005. By the way, Chadwick, Saylor is the firm that former L.A. mayor James Hahn joined after he left office. (WSJ)