Ted Forstmann says we're all going to hell. That's the message I got from a cheerfully apocalyptic interview with financier Forstmann that appears in Monday's WSJ. Granted, Fortsmann's never been a fan of current financial markets, right back to the sort of things he put up with during the RJR-Nabisco takeover battle, so it's not necessarily news to find out he thinks credit markets are screwed and we're all going to suffer for it.

Nevertheless, he does have a way of getting the point across:

Once upon a time, when credit conditions and the costs of borrowing money were normal, the bank opened at 9:00 a.m. and closed at 5:00 p.m. For eight hours a day, bankers made loans and took deposits, and then they went home.

But after 9/11, the Fed opened the spigot. Short-term interest rates went to zero in real terms and then into negative territory. When real interest rates are negative, borrowing money is effectively free – the debt loses value faster than the interest adds up. This led to a series of distortions in the financial sector that are only now coming to light. The children's story continues: "Now they [the banks] have all this excess money. And they open at nine, and from nine to noon or so, they're doing all the same kind of basically legitimate things with it that they did before."

So far, so good. "But at noon, they have tons of money left. They have all this supply, and the, what I would call 'legitimate' demand – it's probably not a good word – but where risk and reward are still in balance, has been satisfied. But they're still open until five. And around 3:30 in the afternoon they get to such things as subprime mortgages, OK? And what you guys haven't seen yet is what happened between noon and 3:30."

It's a cute story. And he has another cute story about Warren Buffett and the three "I"s of innovation. Nevertheless, there is no doubt credit markets remain in worse shape than most observers think, and oil hasn't helped their recuperation.

Then again, I remain somewhat baffled by the following Forstmann quote:

The credit problems in this country are considerably worse than people have said or know. I didn't even know subprime mortgages existed and I was worried about the credit crisis.

I know what he is trying to say -- there was a credit crisis ex-subprime -- but I have to confess that were I him I wouldn't confess that I didn't know what subprime mortgages were. For a guy who operates in the debt-driven world of private equity that seems a little .... nutty. Maybe's he just pissed that Forstmann-supported Vijay Singh is falling out of the PGA top ten.

[via WSJ]

Chief: Now listen carefully: [gives a series of complex instructions] Did you get that?
Max: Not all of it.
Chief: Which part didn't you get?
Max: The part after 'Now listen carefully'.
         From Get Smart (1965-1970)

You had to know hedge funds would find a way to mess up complying to new U.K. rules requiring more disclosure of short-sale positions. After all, reporting that sort of thing is so darn tricky, what with hedge funds not recording the positions in-house .... err... not using standard formats ... err ... not understanding written English .... err, nevermind. They're just up their usual tricks.

Rules introduced by the UK’s financial watchdog that force hedge funds to disclose short positions in companies holding rights issues have caused confusion among investors.

Nearly half the disclosures made by hedge funds since the Financial Services Authority announced the changes have contained errors as the funds struggle to get to grips with complex calculations.

According to analysis by the Financial Times, 20 of the 41 disclosures so far have missed filing deadlines, contained the wrong calculations or not been required.

[via FT]

Downbeat story in the WSJ & Reuters tonight on GM's plans for massive layoffs, etc. And not to diminish the awfulness of GM's plight -- okay, to diminish it a little -- I was struck by the story plopped adjacent to that story by a Reuters keyword algorithm. Check the first headline under "Related News":

Gosh, how rough can it be for General Motors that people are now not just after it for its manufacturing plants, but even for the fields containing those plants?

Oh, wait ... GM. You mean that GM, not that GM. Ooooooh. I hate when that happens.

[via Reuters]

My favorite part of the latest Carl Icahn love letter to Yahoo shareholders comes early in the note. Here are the first two sentences:

Dear Yahoo! Shareholders:

During the past week I have spoken frequently with Steve Ballmer, CEO of Microsoft. Several of our conversations have lasted as long as an hour.

{Emphasis added]

Oooh, Steve speaks! I'm assuming that Carl is trying to show how tight he is with Steve Ballmer, and how the two of them are planning a Yang-free  future for Yahoo, but it comes across more like an advertisement for Ballmer's speech pathologist.

[via WSJ]

There is little question one of the driving forces behind the rise in commodities prices has been the Swensification of the stuff. After the dot-com crash investors began looking everywhere for uncorrelated asset classes -- stuff that didn't go down when everything else went down -- and they didn't have to go much further than Yale's David Swensen and his standout performance embracing commodities, hedge funds, real estate, etc.  (Read Swensen's classic Pioneering Portfolio Management for full details.)

As a piece in today's Washington Post makes clear, a host of endowment and pension funds have now followed Swensen into commodities -- uncorrelated asset classes! -- most of them a) late, and b) less nuanced than Mr S. in their embrace of the previously heretical asset class.

While Swensen can't be blamed for the sins of his followers, some of their comment are striking, like this one from a pension director from Fairfax County, Virginia whose returns from commodities investing essentially drove his whole $5-billion fund's returns:

Our job is to minimize our risks on the taxpayer. If you can do that, why wouldn't you?

Indeed. Why didn't I think of that sooner?

The Starbucks boom across the U.S. (and worldwide) has added hugely to the list of public restrooms. With cities building fewer of the things, and even closing some, and with many restaurants making it only slightly less difficult finding them than finding your average absentee hedge fund manager, Starbucks' buildout has been a boon to joggers, tourists, businesspeople and anyone who sometimes, you know, just has to go.

But as a friend reminded me over the weekend, there is newly a problem. With the announcement that 600 Starbucks are being closed across the U.S., that works out to somewhere between 600 and 1,200 public restrooms being taken out of circulation, so to speak. As opposed to the earlier buildout bubble, we now have a restroom anti-bubble.

What will it mean? Will people be more reluctant to leave the house? Will they consume less fluid when outside, thus leading to more dehydration? These are important questions.

Now I've got that feeling once again
I can't explain, you would not understand
This is not how I am
I have become comfortably numb

    -- "Comfortably Numb," by Pink Floyd

Media entrepreneur Felix Dennis's new book How to Get Rich sounds like good fun, so I may have to pick up a copy. I was tickled by these clips in a Time review, especially the comment about being "comfortably poor":

• "Ownership isn't the important thing--it's the only thing ... You must strive with every fiber of your being, while recognizing the idiocy of your behavior, to own and retain control of as near to 100% of any company as you can."
• "It's quite obvious that only a small number of people are actually going to become even the comfortably poor." And how much do the comfortably poor have? "Four or five million bucks," he replies.

In looking at the wall-to-wall sell-off in financials today it feels like the market is essentially saying "More than one of you major banks and brokers is going under, so until we know which one, you're all being sold".

How else to explain the undiscerning, heavy selling going on in all of these names on little more than some some Lehman musing about a Freddie/Fannie-related proposed new accounting rule that won't likely come into affect anyway?

[via Finviz]

Leave it to a San Diego paper to find a connection between high oil prices and surfing. Higher prices are apparently raising resin costs, thus hurting surfboard makers, and gas prices are keeping some people from making long drives to the beach to check conditions -- but surf webcam traffic is up 10% y-o-y.

[via SD U-T]