To Our Clients, Colleagues and Friends:

· And how about that Wamu capital raise?  They sold new stock to TPG at $8.75 when their stock was well over $10.  Watch for TPG to really shake things up there.  Although they’ll have only one Board seat out of 14, we predict this individual will be the most powerful person on the Board.  We also predict that (a) they’ll rescind that ridiculous bonus plan that excludes loan losses from the calculation, (b) that Chairman Kerry Killinger will be on a very short leash, and (c) that they shake up the ranks of senior management as well as the Board itself.  Oh, and there’s no way at all Washington Mutual will still be around in 6-7 years.  That’s just not how TPG operates.

· Will TPG’s $7 billion invested in Wamu be enough?  Rather than boring you with our opinion, we’ll just note that they own $57 billion of home equity lines or HELOCs and about $20 billion of sub-prime (remember Long Beach Mortgage?). On a mark-to-market basis, what is this $77 billion worth?  It only has to be marked down to a value of 91.0 to wipe out TPG’s capital infusion of $7.0 billion. And we think it’s probably worth a whole lot less.

· We wrote last week about soaring farm prices and wondered if this might not be a re-play of the 2007-8 housing and mortgage crash. As a result of skyrocketing prices for wheat, corn, and soybeans, we read that the average price per acre of farmland was up 13% last year – and climbing. Western Corn Belt states saw farmland rise 23% in 2007. And In Iowa, agricultural land is up 11% since September.

· Will anyone ever break Orel Hershiser’s record of pitching 59 consecutive shutout innings?  That’s the equivalent of pitching 6 straight shut outs, and then throwing 4 more no-score innings in the 7^th game. Don Drysdale once went 58.2 innings of shutout pitching (that was in 1968 with a higher mound), and Walter Johnson went 55.2 innings for the Washington Senators in 1913.

· A few weeks ago, we said we’d look up the HELOC concentration at some other big lenders. We pointed out the $57 billion Wamu has (which we’d guess is about 20% of their loan total), but we’re also happy for Downey Savings, as they have less than 2% of the portfolio in HELOCS.  

· We just re-read Tom Sawyer, and you might recall, he and Huck Finn find $12,000 of buried treasure.  What’s interesting is that the book’s author, Mark Twain, states that Tom’s Aunt Mollie “put it out at 6.0%”  Interesting to look back at a book written well in the 1870’s, and see that rates weren’t that vastly different than today.

· Yes, Thornburg raised capital, but at some price.  The shareholders who owned 100% of the company a few weeks ago were so diluted by the latest capital raise that they now own only 5%.  Ouch.

· Some people just opened a new bank (Meadows Bank) in Nevada last week. They raised a whopping $40 million to capitalize it. Despite industry problems, it shows once again what smart investors know, that owning a bank can create great value and wealth over time.

· We just finished reading all 116 pages of the Citigroup Proxy statement.  Okay, so we skimmed a lot of it. But there are some interesting things we read about their Board:  Of their 14 directors, 10 are 60 or older and five of them are 69 or older. Our favorite was a Director who had been the head of the CIA. The Directors get paid $75,000 annually plus they get a $150,000 annual deferred stock award, plus $15,000 extra if they head a Board Committee and $35,000 if they head up the Audit Committee.
The Head of the Audit Committee is being blasted in the press for not asking the tough questions about sub-prime exposure, and while he should have, we have a somewhat different take. First, being a Director of a big financial institution is very hard work. Second, it’s part-time work. Whether the Audit Committee meets monthly or quarterly, how can their members or Chairman possibly stay on top of all the issues of such a giant organization?  We don’t think they can. Maybe the fault is not with the individuals so much as the system.  Maybe certain Board positions should be more full-time, maybe half-time, with serious compensation.  Citigroup’s Audit Committee Chairman had been the CEO of AT&T, a telecommunications company.  Maybe such positions should be filled with retired bankers, people who (a) have the time to really devote to knowing the institution, and (b) people who know the vocabulary and know the issues.

· We also looked through munch of Citigroup’s 204 page annual report. Did you know they have $83 billion of non-interest bearing deposits. About $43 billion of these are held outside the U.S.   Also, did you ever wonder what happened to Smith, Barney once Citigroup bought them?  Did they just kind of fade away?  Hardly. Smith Barney generated $10.5 billion of revenue last year and $1.3 billion of net income. 

Okay, enough about Citigroup. Let’s talk baseball. Humorist Dave Barry once noted that “If a woman has to choose between catching a fly ball and saving an infant’s life, she will choose to save the infant’s life without even considering if there are men on base.”  Funny.

Also, Corky Watts will be in the Middle East from April 16^th to April 25^th.  Questions should be directed to Joe Garrett at 510-469-8633.

Joe Garrett and Corky Watts    Garrett, Watts & Co