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Friday, October 19, 2007

Signs Of The Times

MetroPCS sues Merrill Lynch over investments:
MetroPCS Communications Inc., a Dallas wireless-phone-service provider, is suing Merrill Lynch, charging that Merrill brokers invested $133.9 million of its cash in 10 auction-rate securities, which are considered low-risk investments and commonly used by companies to manage spare cash. Nine of them were issued by collateralized debt obligations, which were underwritten by Merrill and were backed by pools of mortgage and other assets.

The lawsuit, filed yesterday in Dallas state court, charged Merrill with fraud, negligence and breach of fiduciary duty in making the risky investments in violation of the client's stated goal of holding low-risk, highly liquid assets.
This could get very interesting:
Bill Brewer, the lawyer who represents MetroPCS in the case, said his client would like to find out whether Merrill Lynch underwrote the securities that were sold by the Merrill brokers, and whether the sales were made out of Merrill's own inventory.
I'm waiting anxiously for Compucredit's report on November 5th. They cater to the low end of the CC business.

I'm not the only one worrying about people who are having trouble buying food:
Retailers started noticing the strain in late spring and early summer as they were monitoring the spending around the paycheck cycle.

Wal-Mart and Family Dollar key on the first week of the month, when government checks like Social Security and public assistance generally hit consumers' mailboxes.

7-Eleven, whose customers are more diverse, looks at paycheck cycles in specific markets dominated by a major employer, such as General Motors in Detroit, to discern trends in shopping.

To economize, shoppers are going for less expensive food.

"They're buying more peanut butter and pasta. And they're going for hamburger meat," Flickinger, the retail consultant, said. "They're trying to outsmart the store by looking for deep discounts at the end of the month."

He said the last time he saw this was 2000-2001, when the dot-com bubble burst and the economy went into a recession after massive layoffs.
Food banks are reporting significantly higher demand around the country. Interestingly, contributions to food banks from grocery stores are also dropping at some sites I have sampled. It appears that grocery stores are retaining and discounting some of the items they used to donate. As the article notes, wages may be reported higher but the distribution of those increases is skewed to the top end of the earners. Because of higher insurance costs, quite a few of the lower end earners are actually getting less in nominal terms this year than compared to last year.

Wouldn't prospectuses (prospectii?) have been available on these funds, and wouldn't they have indicated that CDOs were involved?
David - it's hard to tell. From the tone of the article, one gets the impression that this helpless company staggered up to Merrill Lynch, stared trustingly into the bull's eyes, and handed the bull all its spare cash with the admonition to invest it in exceedingly safe instruments that returned a substantial profit and were highly liquid. The way the article is written, one gets the impression that all this investing happened entirely without the client's knowledge, and that the company just handed over hundreds of millions without bothering its CFO with any details about the investments. This sounds like a lawyer's account of the relationship.

One might suspect that the real story is a bit different, because apparently the agreement governing the relationship did not have the standard arbitration clause. It's to believe that Merrill Lynch just omitted that on its own, isn't it?

Sounds like there was a little more negotiation involved to me.
You're going to love this. About two weeks ago, gas snuck up just above $3. Gas is usually 5 to 10 cents a gallon more expensive out here than in the Portland/Vancouver area. We went into town to do laundry. Gas at the local station showed $3.09. So we did laundry, went to the library and stopped to get gas before heading home. Gas at the same station was now $3.16! All we could do was laugh. It feels like Zimbabwe already. They may have to hire folks just to change the numbers ;)
That will teach you to dawdle around at the library! Maybe automated signs would be a good seller to gas stations. That way they wouldn't need to hire anyone to change the signs.

Did you read the news about the gas thefts in Florida? I think we're still pretty far from Zimbabwe, but locking gas caps became the fashion in the siphoning 70's.
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